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 March 29, 1998
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 April 30, 1998
Common stock 13,325,558
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
March 29, September 28,
1998 1997
----------- ------------
Current assets:
Cash and cash equivalents $ 75 $ 244
Trade receivables (less estimated reserve for doubtful
accounts of $318 and $257, respectively) 27,061 28,784
Inventories (Note 2) 38,583 34,528
Prepaid expenses and other current assets 1,049 1,192
Deferred income taxes 6,250 6,944
----------- -----------
Total current assets 73,018 71,692
Property, plant and equipment - net 67,416 68,314
Property, plant and equipment held for sale 9,406 9,346
Note receivable 5,000 5,000
Goodwill 7,148 7,350
Reorganization value in excess of amounts allocable
to identifiable assets - net 7,157 7,534
Deferred income taxes 247 1,402
Other assets 12,688 10,853
----------- -----------
TOTAL ASSETS $ 182,080 $ 181,491
=========== ===========
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 29, September 28,
1998 1997
----------- -------------
Current liabilities:
Current portion of long-term debt $ 1,096 $ 1,277
Trade accounts payable 20,537 15,551
Accrued expenses:
Compensation and benefits 9,851 10,573
Interest 3,142 3,019
Taxes, other than income 1,434 1,666
Accrued income taxes 819 402
Other 5,416 5,846
----------- ------------
Total current liabilities 42,295 38,334
Long-term debt 84,047 88,370
Other liabilities 15,017 14,755
----------- ------------
Total liabilities 141,359 141,459
----------- ------------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 4):
Preferred stock:
Series C - 0 shares issued and outstanding; par value $0.01;
450 shares authorized - -
Common stock:
13,755,138 and 13,707,360 shares issued or to be issued,
respectively; par value $0.01; 35,000,000 shares authorized 138 138
Additional paid-in capital 54,462 54,037
Deficit (10,915) (14,022)
----------- ------------
43,685 40,153
Less treasury stock at cost - 650,083 and 85,843
shares, respectively (2,964) (121)
----------- ------------
Total stockholders' equity 40,721 40,032
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,080 $ 181,491
=========== ============
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 Six Months Ended
----------------------------- ----------------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
------------ ------------ ------------ ----------
Net sales $ 54,533 $ 51,466 $ 105,715 $ 97,493
Costs and expenses:
Costs of goods sold 39,759 40,789 76,660 77,236
Selling and administrative 6,919 7,190 13,933 13,804
Depreciation and other amortization 2,153 2,072 4,296 4,110
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets 189 189 377 377
--------- --------- --------- ---------
Income before interest and income taxes 5,513 1,226 10,449 1,966
Interest expense - net (2,499) (2,469) (5,044) (4,669)
--------- --------- --------- ---------
Income (loss) before income taxes 3,014 (1,243) 5,405 (2,703)
Income tax (expense) benefit (Note 3) (1,270) 394 (2,298) 875
--------- --------- --------- ---------
Net income (loss) $ 1,744 $ (849) $ 3,107 $ (1,828)
========= ========= ========= =========
Net income (loss) per common share (Note 6) $ 0.13 $ (0.06) $ 0.23 $ (0.14)
========= ========= ========= =========
Net income (loss) per common share -
assuming dilution (Note 6) $ 0.12 $ (0.06) $ 0.22 $ (0.14)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Six Months
Ended Ended
March 29, March 30,
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 3,107 $ (1,828)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,296 4,110
Deferred tax provision (benefit) 1,849 (944)
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 377 377
Amortization of Senior Secured Notes discount 63 55
Amortization of refinancing and debt issuance costs 235 201
Other 148 103
Changes in assets and liabilities:
Decrease (increase) in trade receivables 1,683 (5,332)
Increase in inventories (4,055) (3,615)
(Increase) decrease in prepaid expenses and other assets (2,047) 141
Increase in accounts payable 4,986 1,622
Decrease in other accrued expenses (653) (2,627)
Increase (decrease) in other liabilities 262 (570)
----------- -----------
Net cash provided by (used in) operating activities 10,251 (8,307)
----------- -----------
INVESTING ACTIVITIES - Purchases of property, plant and
equipment (Note 7) (3,171) (7,328)
----------- -----------
FINANCING ACTIVITIES:
(Decrease) increase in revolving loan balance (4,183) 19,571
Decrease in term loans (384) (388)
Repurchase of Senior Secured Notes - (243)
Preferred stock redeemed - (5,250)
Purchase of treasury stock (2,843) -
Stock options exercised 161 -
----------- -----------
Net cash (used in) provided by financing activities (7,249) 13,690
----------- -----------
Net decrease in cash (169) (1,945)
Cash and cash equivalents at beginning of period 244 2,023
----------- -----------
Cash and cash equivalents at end of period $ 75 $ 78
=========== ===========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months and Six Months
Ended March 29, 1998 and March 30, 1997
(Unaudited)
BASIS OF PRESENTATION
1. The interim Condensed Consolidated Financial Statements of Uniroyal
Technology Corporation and its wholly owned subsidiaries ULC Corp. and
Uniroyal Optoelectronics, Inc. (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 28, 1997,
September 29, 1996, and October 1, 1995. 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
Consolidated Financial Statements and notes thereto.
2. INVENTORIES
Inventories consisted of the following (in thousands):
March 29, September 28,
1998 1997
----------- -------------
Raw materials, work in process
and supplies $ 22,496 $ 21,851
Finished goods 16,087 12,677
----------- ----------
Total $ 38,583 $ 34,528
=========== ==========
3. INCOME TAXES
The provisions for income tax (expense) benefit for the three months
and six months ended March 29, 1998 and March 30, 1997 were calculated
through the use of the estimated annual income tax rates based on
annualized income (loss).
4. STOCKHOLDERS' EQUITY
On November 13, 1997, the Company repurchased 500,000 shares of its
common stock for $2,187,500 in connection with the sale by the Pension
Benefit Guaranty Corporation ("PBGC") of all of its holdings of the
Company's common stock.
During March of 1998, the Company repurchased 94,500 shares of its
common stock for $656,100.
Effective February 6, 1998, the Company terminated the Uniroyal
Technology Employee Stock Ownership Plan.
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 pre-petition claims and to resolve other matters that may
arise in connection with or relate 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.
Approximately 9,666,000 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 Predecessor Companies and to the Company's ESOP. The
Company retained approximately 138,000 shares of common stock of which
approximately 56,000 remain in treasury. The remaining shares are being
held pending resolution of certain retiree medical claims.
Townsend Acquisition
By letter dated January 30, 1998, the United States Federal Trade
Commission (the "Commission") notified the Company that it was
conducting a non-public investigation into the Company's acquisition of
the Townsend Plastics Division of Townsend Industries, Inc. in order to
determine whether the transaction violated Section 7 of the Clayton
Act, 15 USC Section 18, Section 5 of the Federal Trade Commission Act,
15 USC Section 45, or any other law enforced by the Federal Trade
Commission. The Company completed the acquisition on September 5, 1997.
The Company has been cooperating with the Commission in its
investigation. The Company does not know what, if any action, will
result from the Commission's investigation.
Litigation
The Company is engaged in litigation arising from the ordinary course
of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or operated 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.
By letter dated April 2, 1998, the United States Environmental
Protection Agency ("EPA") sent the Company a general notice of
liability concerning the plant previously leased by the Company's
Uniroyal Adhesives and Sealants Division in Mishawaka, Indiana. The
Company does not presently anticipate any material liability in
connection with the site, and, in any event, if the Company is found to
have liability in connection with the site, it is anticipated such
liability will be subject to the terms of the EPA's Settlement
Agreement which is described in the Company's Annual Report on Form
10-K for the fiscal year ended September 28, 1997.
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, in
July 1996, 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 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 March 29,
1998 the Company had incurred approximately $456,000 of remediation
costs in respect of such facility.
Based on information available as of March 29, 1998, 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. INCOME (LOSS) PER COMMON SHARE
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share,
which is required to be adopted for financial statement periods ending
after December 15, 1997. SFAS No. 128 requires that the primary and
fully diluted earnings per share be replaced by "basic" and "diluted"
earnings per share, respectively. The basic calculation computes
earnings per share based only on the weighted average number of shares
outstanding as compared to primary earnings per share which included
common stock equivalents. The diluted earnings per share calculation is
computed similarly to fully diluted earnings per share. The Company has
adopted SFAS No. 128 for the three and six months ended March 29, 1998
and March 30, 1997. The reconciliation of the numerators and
denominators of the basic and diluted earnings per share computation is
as follows:
Three Months Ended
March 29, 1998
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Net Income $1,744,000
Basic EPS
---------
Income available to
common stockholders $1,744,000 13,148,656 $ 0.13
========
Effect of Dilutive Securities
-----------------------------
Stock options 1,078,351
Warrants 313,754
----------
Diluted EPS
-----------
Income available to
common stockholders $1,744,000 14,540,761 $ 0.12
========== ========== ========
Six Months Ended
March 29, 1998
---------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------- ------------ ---------
Net Income $3,107,000
Basic EPS
---------
Income available to
common stockholders $3,107,000 13,263,419 $ 0.23
========
Effect of Dilutive Securities
-----------------------------
Stock options 933,302
Warrants 232,923
----------
Diluted EPS
-----------
Income available to
common stockholders $3,107,000 14,429,644 $ 0.22
========== ========== ========
For the three and six month periods ended March 30, 1997, the weighted
average number of common shares outstanding for the calculation of
basic and diluted earnings per share was 13,253,796 and 13,241,205,
respectively. Inclusion of stock options, warrants and the preferred
stock conversion (then outstanding) in the diluted earnings per share
calculation would have been antidilutive.
7. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows (in
thousands):
Six Months Six Months
Ended Ended
March 29, March 30,
1998 1997
---------- ----------
Income tax payments $ 115 $ 60
Interest payments 4,940 4,563
The purchases of property, plant and equipment and net cash used in
financing activities for the six months ended March 30, 1997 do not
include $77,000 related to property held under capitalized leases. The
Company did not enter into any capital lease agreements during the six
months ended March 29, 1998.
Net cash used in financing activities for the six months ended March
30, 1997 does not include the dividends paid on the Series B Preferred
Stock, since they were paid with the issuance of 73,448 shares of the
Company's common stock. No dividends were paid during the six months
ended March 29, 1998.
During the second quarter of Fiscal 1998 the Company made a matching
contribution to its 401(k) Savings Plan by the re-issuance of 30,260
common shares of treasury stock. No such contribution was made during
the six months ended March 30, 1997.
8. SUBSEQUENT EVENTS
On April 14, 1998 the Company transferred all of the assets of its High
Performance Plastics Segment to a newly created wholly owned
subsidiary, High Performance Plastics, Inc. ("HPPI"). On that same day
HPPI, as borrower, entered into a credit agreement with Uniroyal HPP
Holdings, Inc. (the parent of HPPI and a wholly owned subsidiary of the
Company), the Company, the banks, financial institutions and other
institutional lenders named therein, Fleet National Bank (as Initial
Issuing Bank, Swing Line Bank and Administrative Agent) and DLJ Capital
Funding, Inc., as Document Agents (the "Credit Agreement"), providing
among other things, for the borrowing by HPPI of an aggregate principal
amount of up to $110,000,000.
The $110,000,000 line under the Credit Agreement is comprised of a
$30,000,000 Term A Advance, a $60,000,000 Term B Advance and a
$20,000,000 Revolving Line of Credit.
The Term A Advance is payable in equal quarterly installments of
$1,500,000 beginning on December 31, 1998 and ending on September 30,
2003. Interest on the Term A advance is initially payable monthly at
Prime plus 1.25% for Prime Rate advances or no later than quarterly at
the Eurodollar Rate plus 2.25% for Eurodollar Rate Advances during the
first six months of the Credit Agreement. After the first six months,
the applicable margin for each Prime Rate Advance and each Eurodollar
Advance shall be determined quarterly by reference to HPPI's ratio of
Consolidated Debt to EBITDA (as defined in the Credit Agreement). The
applicable margins on the Term A Advance range from 0.50% - 1.25% for
the Prime Rate Advances and 1.50% - 2.25% for Eurodollar Rate Advances.
The Term B Advance is payable in quarterly installments of $150,000
beginning on December 31, 1998 through September 30, 2003, semiannual
installments of $5,000,000 on March 31, 2004 and September 30, 2004 and
a final payment of $47,000,000 on March 31, 2005. Interest on the Term
B Advance is initially payable monthly at Prime plus 1.50% for Prime
Rate Advances or no later than quarterly at the Eurodollar Rate plus
2.50% for Eurodollar Rate Advances during the first six months of the
Credit Agreement. After the first six months, the applicable margin for
each Prime Rate Advance and Eurodollar Rate Advance shall be determined
quarterly by reference to HPPI's ratio of Consolidated Debt to EBITDA
(as defined in the Credit Agreement). The applicable margins on Term B
Advances range from 1.00% - 1.50% for Prime Rate Advances and 2.00% -
2.50% for Eurodollar Rate Advances.
Under the Revolving Credit Advance, HPPI may borrow the lesser of
$20,000,000 or the sum of 85% of Eligible Receivables plus 50% of the
value of Eligible Inventory as defined in the Credit Agreement.
Interest is payable under the same terms as the Term A Advance. The
Revolving Credit Advance matures on September 30, 2003.
The advances under the Credit Agreement are collateralized by a lien on
substantially all of the non-cash assets of HPPI. The Credit Agreement
contains certain covenants which limit, among other things, HPPI's
ability to incur additional debt, sell its assets, pay cash dividends,
make certain other payments and redeem its capital stock. The Credit
Agreement also contains covenants which require the maintenance of
certain ratios. The Credit Agreement also contains mandatory
pre-payments of principal equal to 50% of HPPI's annual Excess Cash
Flow beginning in 1999 as defined in the Credit Agreement.
On April 14, 1998 HPPI paid $95,000,000 to the Company which in turn
used such amount to defease the outstanding 11.75% Senior Secured Notes
due June 1, 2003 ("Senior Secured Notes") including the call premium
and interest accrued through the call date and to pay down its
revolving line of credit with The CIT Group/Business Credit, Inc.
("CIT"). The redemption of the outstanding Senior Secured Notes is to
be completed on June 1, 1998 at a call premium of 4.41%. In connection
with the June 1, 1998 redemption, the Company currently estimates that
an extraordinary loss on the extinguishment of debt will be recorded in
the third quarter of Fiscal 1998 of approximately $5,000,000 (net of
applicable income taxes of approximately $3,000,000).
On April 14, 1998, the Company entered into an Amendment and Consent
Agreement with CIT whereby the Company's existing revolving credit
arrangement was amended to permit the Company to borrow the lesser of
$10,000,000 or the sum of 85% of Eligible Receivables plus 55% of
Eligible Inventories as defined in the agreement. The collateral
securing the credit line does not include any assets of HPPI.
In connection with the above refinancings the Company and HPPI incurred
approximately $3,500,000 in debt issuance costs. The costs will be
capitalized in the third quarter of Fiscal 1998 and will be amortized
using the interest method over the lives of the agreements. Included in
the above debt issuance costs is $650,000 paid to an investment banking
firm whose president is a relative of one of the Company's executive
officers. The fee was paid under an agreement with the investment
banking firm for financial advisory services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Fiscal 1998 Compared with
the Second Quarter Fiscal 1997
Net Sales. The Company's net sales increased in the second quarter of Fiscal
1998 by approximately 6% ($3,067,000) to $54,533,000 from $51,466,000 in the
second quarter of Fiscal 1997. The increase is attributable to increased net
sales for both the High Performance Plastics and Specialty Adhesives Segments as
the result of unit volume increases. The increases were partially offset by
decreased net sales in the Coated Fabrics Segment due to the sale of the
Stoughton, Wisconsin automotive operations in May of 1997 and the gradual phase
out of its automotive business.
Net sales by the High Performance Plastics Segment increased in the second
quarter of Fiscal 1998 by approximately 2% ($557,000) to $33,027,000 from
$32,470,000 in the second quarter of Fiscal 1997. The increase was principally
due to an increase in unit volume at the Polycast(R) acrylic products division
as well as the incremental sales resulting from the acquisitions of the Townsend
Plastics Division of Townsend Industries, Inc. ("Townsend") and the Lucite(R)
Super Abrasion Resistant ("S-A-R") acrylic coating business of the Lucite(R)
Acrylic Division of ICI Acrylics, Inc. late in Fiscal 1997. The resulting
increases were partially offset by a reduction in sales and unit volume at the
Royalite(R) thermoplastics division.
Net sales by the Coated Fabrics Segment decreased in the second quarter of
Fiscal 1998 by approximately 6% ($1,076,000) to $16,935,000 from $18,011,000 in
the second quarter of Fiscal 1997 due to the gradual phase out of its automotive
business.
Net sales by the Specialty Adhesives Segment increased in the second quarter of
Fiscal 1998 to $4,571,000 from $985,000 in the second quarter of Fiscal 1997.
The increase is due to the temporary halt in production of the Company's
adhesives and sealants products during the second quarter of Fiscal 1997 while
the Company relocated its Specialty Adhesives Segment, as well as certain other
Company operations, to its South Bend, Indiana facility.
Income Before Interest and Income Taxes. Income before interest and income taxes
for the second quarter of Fiscal 1998 was $5,513,000, compared to $1,226,000 for
the second quarter of Fiscal 1997.
The High Performance Plastics Segment's income before interest and income taxes
for the second quarter of Fiscal 1998 increased to $4,775,000 from $3,745,000 in
the second quarter of Fiscal 1997. The increase was primarily due to increased
sales of higher margin products, improved cost structure and increased
productivity, as well as earnings from the Townsend and Lucite(R) S-A-R acrylic
coating acquisitions.
The Coated Fabrics Segment's income before interest and income taxes increased
in the second quarter of Fiscal 1998 to $1,681,000 from $61,000 in the second
quarter of Fiscal 1997 primarily due to lower manufacturing costs for the
Segment's automotive operations due to the pending sale of the business.
The Specialty Adhesives Segment's loss before interest and income taxes
decreased in the second quarter of Fiscal 1998 to $56,000 from a loss before
interest and income taxes of $1,153,000 in the second quarter of Fiscal 1997.
The decrease in the loss was primarily due to decreased net sales in the second
quarter of Fiscal 1997 as a result of the relocation of the Specialty Adhesives
Segment's manufacturing operations to the South Bend, Indiana facility.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the second quarter of Fiscal 1998 and Fiscal 1997 was
$189,000.
Miscellaneous expense not allocated to the segments in the second quarter of
Fiscal 1998 was approximately $698,000 compared to $1,238,000 in the second
quarter of Fiscal 1997. In Fiscal 1998 the Company changed its allocation method
for corporate costs. Fiscal 1997 amounts have been reclassified for
comparability with Fiscal 1998.
Interest Expense. Interest expense in the second quarter of Fiscal 1998
increased to $2,499,000 from $2,469,000 in the second quarter of Fiscal 1997
primarily as a result of interest incurred on the debt related to the Company's
business acquisitions in the fourth quarter of Fiscal 1997.
Income Tax (Expense) Benefit. Income tax expense in the second quarter of Fiscal
1998 was $1,270,000 as compared to an income tax benefit of $394,000 in the
second quarter of Fiscal 1997. The provisions for income tax (expense) benefit
were calculated through the use of the estimated income tax rates based on
annualized income (loss).
First Two Fiscal Quarters 1998 Compared with
the First Two Fiscal Quarters 1997
Net Sales. The Company's net sales increased in the first two quarters of Fiscal
1998 by approximately 8% ($8,222,000) to $105,715,000 from $97,493,000 in the
first two quarters of Fiscal 1997. The increase is attributable to overall unit
volume increases for the High Performance Plastics Segment and Specialty
Adhesives Segment and a better sales mix and increase in selling prices for the
Coated Fabrics Segment.
Net sales by the High Performance Plastics Segment increased in the first two
quarters of Fiscal 1998 by approximately 8% ($4,450,000) to $62,224,000 from
$57,774,000 in the first two quarters of Fiscal 1997. The increase was
principally due to increased unit volume at both the Royalite(R) and Polycast(R)
acrylic division as well as incremental sales from the Townsend and Lucite(R)
S-A-R acrylic coating business acquisitions.
Net sales by the Coated Fabrics Segment increased in the first two quarters of
Fiscal 1998 by approximately 4% ($1,221,000) to $34,070,000 from $32,849,000 in
the first two quarters of Fiscal 1997. The increase was principally due to
increased selling prices and unit volume of the Segment's transplant automotive
operations as well as the Segment's Naugahyde(R) vinyl coated fabrics.
Net sales by the Specialty Adhesives Segment increased in the first two quarters
of Fiscal 1998 by approximately 37% ($2,551,000) to $9,421,000 from $6,870,000
in the first two quarters of Fiscal 1997. The increase is attributable to the
halt in production of the Company's adhesives and sealants products during the
second quarter of Fiscal 1997 while the Company relocated its Specialty
Adhesives Segment to its South Bend, Indiana facility.
Income Before Interest and Income Taxes. Income before interest and income taxes
for the first two quarters of Fiscal 1998 was $10,449,000, compared to
$1,966,000 for the first two quarters of Fiscal 1997.
The High Performance Plastics Segment's income before interest and income taxes
for the first two quarters of Fiscal 1998 increased approximately 42% to
$8,537,000 from $5,994,000 in the first two quarters of Fiscal 1997. The
increase was primarily attributable to increased net sales of higher margin
products as well as earnings from the Townsend and Lucite(R) S-A-R acrylic
coating acquisitions.
The Coated Fabrics Segment's income before interest and income taxes in the
first two quarters of Fiscal 1998 was $3,757,000 versus a loss before interest
and income taxes of $883,000 in the first two quarters of Fiscal 1997 primarily
due to the overall increase in net sales, lower manufacturing costs for the
Segment's automotive operations due to the pending sale of the business and the
reversal of certain rebate accruals applicable to such business. Also, increased
production costs were incurred in the first two quarters of Fiscal 1997 as a
result of a raw materials supplier's decision to exit its business. As a result,
the Segment incurred additional costs in the first two quarters of Fiscal 1997
to qualify its products using comparable raw materials available from other
supply sources.
The Specialty Adhesives Segment's loss before interest and income taxes
decreased in the first two quarters of Fiscal 1998 to $225,000 from $267,000 in
the first two quarters of Fiscal 1997. The decrease is primarily due to
increased sales in the first two quarters of Fiscal 1998 compared to the first
two quarters of Fiscal 1997. The prior year loss had been minimized by the
effect of a reduction of reserves established in connection with the Ensolite
sale based upon the refinement of management's estimate of such cost in the
first two quarters of Fiscal 1997.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the first two quarters of Fiscal 1998 and Fiscal 1997 was
$377,000.
Miscellaneous expense not allocated to the segments in the first two quarters of
Fiscal 1998 was approximately $1,243,000 compared to $2,501,000 in the first two
quarters of Fiscal 1997. In Fiscal 1998 the Company changed its allocation
method for corporate costs. Fiscal 1997 amounts have been reclassified for
comparability.
Interest Expense. Interest expense in the first two quarters of Fiscal 1998
increased to $5,044,000 from $4,669,000 in the first two quarters of Fiscal
1997. The increase is primarily due to increased borrowings under the Company's
revolving line of credit agreement as well as interest incurred on the debt
related to the Company's business acquisitions in the fourth quarter of Fiscal
1997.
Income Tax (Expense) Benefit. Income tax expense in the first two quarters of
Fiscal 1998 was $2,298,000 as compared to an income tax benefit of $875,000 in
the first two quarters of Fiscal 1997. The provisions for income tax (expense)
benefit were calculated through the use of the estimated income tax rates based
on annualized income (loss).
Liquidity and Capital Resources
For the first two quarters of Fiscal 1998, operating activities provided
$10,251,000 of cash as compared to $8,307,000 used during the first two quarters
of Fiscal 1997. The increase in cash provided by operating activities for the
Fiscal 1998 period is primarily attributable to increased net income, the
decrease in accounts receivable and increase in accounts payable.
Net cash used in investing activities for the first two quarters of Fiscal 1998
was $3,171,000 as compared to $7,328,000 used during the first two quarters of
Fiscal 1997. Net cash was used to purchase property, plant and equipment during
the comparative periods. The increase in expenditures for property, plant and
equipment during the first two quarters of Fiscal 1997 was primarily due to
retrofitting the South Bend, Indiana facility to accommodate the Company's
adhesives and sealants business.
Net cash used in financing activities was $7,249,000 during the first two
quarters of Fiscal 1998 as compared to $13,690,000 provided during the first two
quarters of Fiscal 1997. Primary uses of cash during the first two quarters of
Fiscal 1998 were the repayment of revolving credit advances and the purchase of
594,500 shares treasury stock for $2,843,000. The cash provided by financing
activities in the first two quarters of Fiscal 1997 was partially offset by the
redemption of the remaining 35 shares of the Series B Preferred Stock at par
value for $5,250,000.
The Company had approximately $75,000 in cash and cash equivalents on March 29,
1998 as compared to approximately $244,000 at September 28, 1997. Working
capital at March 29, 1998 was $30,723,000 compared to $33,358,000 at September
28, 1997. The Company had $10,986,000 of outstanding borrowings under its
$25,000,000 revolving credit facility (subject to a borrowing base limitation of
approximately $21,897,000 at March 29, 1998). The principal uses of cash during
the first two quarters of Fiscal 1998 were payment of the semi-annual interest
payment on the Company's Senior Secured Notes, the repurchase of stock for
treasury, the purchase of a technology license from Emcore Corporation and the
repayment of revolving credit advances. The Company believes that cash from its
operations and its ability to borrow under the revolving credit facility
mentioned above as well as the April 1998 refinancing as discussed in Note 8 of
the condensed consolidated financial statements 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 facilities will
continue to be sufficient to finance its existing level of operations and meet
its debt service obligations. The Company's ability to meet its debt service and
other obligations depends 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 obtain
additional financing. There can be no assurance that the Company will be able to
obtain such 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 may 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 except as
described below.
(b) By letter dated April 2, 1998, the United States Environmental
Protection Agency ("EPA") sent the Company a general notice of
liability concerning the plant previously leased by the
Company's Uniroyal Adhesives and Sealants Division in
Mishawaka, Indiana. The Company does not presently anticipate
any material liability in connection with the site, and, in
any event, if the Company is found to have liability in
connection with the site, it is anticipated such liability
will be subject to the terms of the EPA's Settlement Agreement
which is described in the Company's Annual Report on Form 10-K
for the fiscal year ended September 28, 1997.
(c) By letter dated January 30, 1998, the United States Federal
Trade Commission (the "Commission") notified the Company that
it was conducting a non-public investigation into the
Company's acquisition of the Townsend Plastics Division of
Townsend Industries, Inc. in order to determine whether the
transaction violated Section 7 of the Clayton Act, 15 USC
Section 18, Section 5 of the Federal Trade Commission Act, 15
USC Section 45, or any other law enforced by the Federal Trade
Commission. The Company completed the acquisition on September
5, 1997. The Company has been cooperating with the Commission
in its investigation. The Company does not know what, if any
action, will result from the Commission's investigation.
(d) No legal proceedings were terminated during the second quarter
ended March 29, 1998, 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
On February 6, 1998, the Company held its annual meeting of
stockholders in Sarasota, Florida. A total of 12,754,139
shares of capital stock of the Company were entitled to vote
at the meeting. Of this amount, 25,200 votes were present in
person and 8,142,165 were represented by proxy. The number of
shares that were present at the meeting constituted a quorum
for the transaction of all business that was to be considered
at the meeting. At that time certain proposals were submitted
to a vote by the stockholders.
Proposal number 1 was to elect eight directors for a term of
one year to be elected by holders of common stock. The
following directors were elected:
Voted For Withheld
Peter C.B. Bynoe 8,195,287 13,678
Howard R. Curd 8,188,007 20,958
Richard D. Kimbel 8,184,715 24,250
Curtis L. Mack 8,194,307 14,658
Roland H. Meyer 8,195,187 13,778
John A. Porter 8,195,257 13,708
Thomas J. Russell 8,195,487 13,478
Robert L. Soran 8,195,607 13,358
Proposal number 2 was to consider and take action upon the
ratification of the selection of Deloitte & Touche LLP to
serve as the independent public accountants for the Company
for the fiscal year ending September 27, 1998. The following
summarizes the results of the vote:
Voted For Voted Against Abstained
8,178,437 24,589 5,939
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Credit Agreement between High Performance Plastics, Inc., as
Borrower, Uniroyal Technology Corporation, Uniroyal HPP
Holdings, Inc., the banks, financial institutions and other
institutional lenders named therein, Fleet National Bank (as
Initial Issuing Bank, Swing Line Bank and Administrative
Agent) and DLJ Capital Funding, Inc., as Document Agent dated
April 14, 1998 - incorporated by reference to the Company's
Form 8-K/A dated April 22, 1998.
Amendment and Consent Agreement dated April 14, 1998 by and
between the CIT Group/Business Credit, Inc. and Uniroyal
Technology Corporation - incorporated by reference to the
Company's 8-K/A dated April 22, 1998.
(b) Reports on Form 8-K
Report on Form 8-K/A dated April 22, 1998 related to the
Credit Agreement dated April 14, 1998 between High Performance
Plastics, Inc., as Borrower, Uniroyal Technology Corporation,
Uniroyal HPP Holdings, Inc., the banks, financial institutions
and other institutional lenders named therein, Fleet National
Bank (as Initial Issuing Bank, Swing Line Bank and
Administrative Agent) and DLJ Capital Funding, Inc., as
Document Agent; related to the Amendment and Consent Agreement
between the Company and The CIT Group/Business Credit, Inc.
dated April 14, 1998; and related to the defeasance of the
Company's 11.75% Senior Secured Notes due June 1, 2003.
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: May 8, 1998 By: /s/ George J. Zulanas Jr.
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George J. Zulanas, Jr.
Vice President, Chief Financial
Officer and Treasurer