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 28, 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 (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 July 31, 1998
Common stock 13,189,447
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
June 28, September 28,
1998 1997
------------- -------------
Current assets:
Cash and cash equivalents $ 189 $ 244
Trade accounts receivable (less estimated reserve
for doubtful accounts of $316 and $257, respectively) 24,309 28,784
Inventories (Note 2) 40,106 34,528
Prepaid expenses and other current assets 1,172 1,192
Deferred income taxes 6,852 6,944
------------- -------------
Total current assets 72,628 71,692
Property, plant and equipment - net 67,682 68,314
Property, plant and equipment held for sale 9,417 9,346
Note receivable 5,000 5,000
Goodwill (Note 3) 8,943 7,350
Reorganization value in excess of amounts allocable to
identifiable assets - net (Note 4) - 7,534
Deferred income taxes (Note 4) 7,448 1,402
Other assets (Note 5) 14,227 10,853
------------- -------------
TOTAL ASSETS $ 185,345 $ 181,491
============= =============
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 28, September 28,
1998 1997
------------- -------------
Current liabilities:
Current portion of long-term debt $ 4,443 $ 1,277
Trade accounts payable 18,106 15,551
Accrued expenses:
Compensation and benefits 9,165 10,573
Interest 759 3,019
Taxes, other than income 964 1,666
Accrued income taxes 451 402
Other 5,724 5,846
------------- -------------
Total current liabilities 39,612 38,334
Long-term debt (Note 6) 95,032 88,370
Other liabilities 15,014 14,755
------------- -------------
Total liabilities 149,658 141,459
------------- -------------
Commitments and contingencies (Note 8)
Stockholders' equity (Note 7):
Preferred stock:
Series C - 0 shares issued and outstanding - par
value $0.01; 450 shares authorized - -
Common Stock:
14,133,130 and 13,707,360 shares issued or
to be issued, respectively; par value $0.01;
35,000,000 shares authorized 142 138
Additional paid-in capital 54,345 54,037
Deficit (13,934) (14,022)
------------- -------------
40,553 40,153
Less treasury stock at cost - 857,118 and 85,843
shares, respectively (4,866) (121)
------------- -------------
Total stockholders' equity 35,687 40,032
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 185,345 $ 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 Nine Months Ended
----------------------------- ----------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------------ ----------- ------------ ------------
Net sales $ 56,905 $ 55,702 $ 162,620 $ 153,195
Costs and expenses:
Costs of goods sold 41,174 42,615 117,834 119,851
Selling and administrative 7,025 6,667 20,958 20,471
Depreciation and other amortization 2,183 2,084 6,479 6,194
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets - 188 377 565
------------ ----------- ------------ ------------
Income before interest, income taxes
and extraordinary item 6,523 4,148 16,972 6,114
Interest expense-net (2,160) (2,549) (7,204) (7,218)
------------ ----------- ------------ ------------
Income (loss) before income taxes and
extraordinary item 4,363 1,599 9,768 (1,104)
Income tax (expense) benefit (Note 4) (1,745) (716) (4,043) 159
------------ ----------- ------------ ------------
Income (loss) before extraordinary item 2,618 883 5,725 (945)
Extraordinary loss on the
extinguishment of debt-net (Note 6) (5,637) - (5,637) -
------------ ------------ ------------ ------------
Net loss (income) $ (3,019) $ 883 $ 88 $ (945)
============ ============ ============ ============
Net (loss) income per common share (Note 9)
Income (loss) before extraordinary
item $ 0.20 $ 0.07 $ 0.43 $ (0.07)
Extraordinary loss (0.43) - (0.42) -
------------ ------------ ------------ ------------
Net (loss) income $ (0.23) $ 0.07 $ 0.01 $ (0.07)
============ ============ ============ ============
Net (loss) income per common share assuming dilution (Note 9)
Income (loss) before extraordinary
item $ 0.18 $ 0.07 $ 0.40 $ (0.07)
Extraordinary loss (0.38) - (0.39) -
------------ ------------ ------------- ------------
Net (loss) income $ (0.20) $ 0.07 $ 0.01 $ (0.07)
============ ============ ============ ============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
June 28, June 29,
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 88 $ (945)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 6,479 6,194
Deferred tax expense (benefit) 3,990 (245)
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 377 565
Amortization of Senior Secured Notes discount 63 84
Amortization of refinancing and debt issuance costs 373 310
Extraordinary loss 5,637 -
Other 131 250
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 4,932 (1,512)
Increase in inventories (5,077) (1,689)
Increase in prepaid expenses and other assets (4,131) (111)
Increase (decrease) in trade accounts payable 2,369 (703)
Decrease in other accrued expenses (4,317) (6,088)
Increase (decrease) in other liabilities 259 (395)
----------- -----------
Net cash provided by (used in) operating activities 11,173 (4,285)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 10) (5,311) (10,436)
Proceeds from sale of assets - 4,657
Business acquisitions - net of cash acquired (1,770) (1,379)
----------- -----------
Net cash used in investing activities (7,081) (7,158)
----------- -----------
FINANCING ACTIVITIES:
Redemption of Senior Secured Notes (72,253) (243)
Redemption costs for Senior Secured Notes (3,718) -
Proceeds from refinancing 90,000 -
Refinancing costs (3,545) -
Net (decrease) increase in revolving loan balances (7,932) 15,546
Decrease in term loans (2,000) (553)
Purchase of treasury stock (3,954) -
Purchase of warrants (1,314) -
Preferred stock redeemed - (5,250)
Stock options exercised 569 -
----------- -----------
Net cash (used in) provided by financing activities (4,147) 9,500
----------- -----------
Net decrease in cash (55) (1,943)
Cash and cash equivalents at beginning of period 244 2,023
----------- -----------
Cash and cash equivalents at end of period $ 189 $ 80
=========== ===========
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 28, 1998 and June 29, 1997
1. BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of Uniroyal
Technology Corporation and its wholly-owned subsidiaries Uniroyal HPP
Holdings, Inc., High Performance Plastics, Inc., ULC Corporation, Uniroyal
Optoelectronics, Inc. and ViPlex Corporation (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 Financial Statements
and the notes thereto.
2. INVENTORIES
Inventories consisted of the following (in thousands):
June 28, September 28,
1998 1997
------------ ------------
Raw materials, work in process and supplies $ 23,653 $ 21,851
Finished goods 16,453 12,677
------------ ------------
Total $ 40,106 $ 34,528
============ ============
3. ACQUISITION OF VIPLEX CORPORATION
On May 22, 1998, High Performance Plastics, Inc. ("HPPI") acquired 100% of
the common stock of ViPlex Corporation, an acrylic sheet fabricator for
the marine industry, for $2,700,000 which was comprised of $1,700,000 in
cash and unsecured promissory notes aggregating $1,000,000 bearing an
interest rate of 6% (Note 6). The purchase price was adjusted for changes
in working capital between September 30, 1997 and May 22, 1998. This
resulted in an increase in the purchase price of $114,000 which was paid
in cash.
The business combination was accounted for by the purchase method in
accordance with the Accounting Principles Board Opinion No. 16. The
results of ViPlex Corporation are included in the condensed consolidated
financial statements as of May 23, 1998. HPPI acquired cash, working
capital and property and equipment in the transaction and recorded
$1,845,000 in goodwill which will be amortized over the estimated useful
life of the asset of 25 years.
4. INCOME TAXES
The provisions for income tax (expense) benefit for the three months and
nine months ended June 28, 1998 and June 29, 1997 were calculated through
the use of the estimated annual income tax rates based on projected
annualized income (loss).
During the third quarter of Fiscal 1998 the Company reduced the deferred
tax valuation allowance relating to acquired tax loss carry forward
benefits by approximately $7,157,000. In accordance with Statement of
Financial Accounting Standards No. 109, the reduction was applied to
reduce reorganization value in excess of amounts allocable to identifiable
assets.
5. TRANSACTION WITH EMCORE CORPORATION
As of September 29, 1997, the Company entered into a technology agreement
with Emcore Corporation ("Emcore") to acquire certain technology for the
manufacture of epitaxial wafers used in high brightness light emitting
diodes (LEDs) for lamps and display devices for license fees aggregating
up to approximately $5,000,000 during Fiscal 1998. Included in Other
Assets at June 28, 1998, are license fees of $4,500,000 paid to Emcore
during the first three quarters of Fiscal 1998. Uniroyal Optoelectronics,
Inc., a wholly-owned subsidiary of the Company, has entered into a joint
venture with Emcore, which is managed by Uniroyal Optoelectronics, Inc.,
whereby the joint venture will purchase machines from Emcore to
manufacture epitaxial wafers, lamps and display devices and will sell such
products. In July 1998, the Company made a capital contribution to the
joint venture of $510,000.
6. LONG TERM DEBT
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) ("Fleet") and DLJ Capital Funding, Inc., as
Documentation Agent (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 Credit Advance.
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
Rate (as defined in the Credit Agreement) plus 1.25% for Prime Rate
advances or no later than quarterly at the Eurodollar Rate (as defined in
the Credit Agreement) 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 Rate
advance will 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.
HPPI was in compliance with these covenants at June 28, 1998. The Credit
Agreement also contains annual mandatory pre-payments of principal equal
to 50% of HPPI's annual Excess Cash Flow (as defined in the Credit
Agreement) beginning September 26, 1999.
Under the terms of the Credit Agreement, HPPI is required to obtain and
keep in effect one or more interest rate Bank Hedge Agreements (as defined
in the Credit Agreement) covering at least 50% of the Term A and Term B
Advances on April 14, 1998, for an aggregate period of not less than three
years. On May 14, 1998, HPPI entered into three interest rate swap
transactions with two banks. The first transaction is a fixed rate swap on
$30,000,000 notional amount that expires on May 14, 2003. HPPI's fixed
LIBOR rate of interest on this swap is 5.985%. HPPI pays or receives
interest based upon the differential between HPPI's fixed LIBOR rate and
the bank's floating LIBOR rate. The bank's floating LIBOR rate adjusts
monthly. The second transaction is a cancelable interest rate swap on
$30,000,000 notional amount that expires on May 14, 2003. HPPI's fixed
LIBOR rate of interest on this swap is 5.7375%. HPPI pays or receives
interest based upon the differential between HPPI's fixed LIBOR rate and
the bank's floating LIBOR rate. The bank's floating LIBOR rate adjusts
quarterly. The bank has the option to cancel this swap on May 14, 2001.
The third transaction is a cancelable interest rate swap on $20,000,000
notional amount that expires on May 14, 2000. HPPI's fixed LIBOR rate of
interest on this swap is 5.6725%. HPPI pays or receives interest based
upon the rate differential between HPPI's fixed LIBOR rate and the bank's
floating LIBOR rate. The bank's floating LIBOR rate adjusts quarterly. The
bank has the option to cancel this swap on May 14, 1999. The differential
on interest rate swaps is accrued as interest rates change and is
recognized as an adjustment to interest expense over the life of the
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 was completed on June 1, 1998 at a
call premium of 4.41%. In connection with the June 1, 1998 redemption, the
Company incurred an extraordinary loss on the extinguishment of debt of
approximately $5,637,000 (net of applicable income taxes of approximately
$2,787,000).
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 were
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. Also included in the debt issuance
costs are legal fees of approximately $220,000 paid to a law firm of which
one of the Company's directors is a senior partner.
7. 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 the first three quarters of Fiscal 1998, the Company repurchased an
additional 169,500 shares of its common stock in the open market for
$1,334,800 and 50,000 shares previously issued in connection with the
purchase of C. Gunther Company for $431,250.
During the third quarter of Fiscal 1998 the Company received 82,035 shares
of common stock in lieu of cash for the exercise of stock options. These
shares are included as treasury shares as of June 28, 1998.
In July 1998 the Company repurchased 100,000 shares of its common stock
for $912,800.
During the third quarter of fiscal 1998 the Company repurchased 216,850 of
its outstanding warrants for $1,314,000.
Effective February 6, 1998, the Company terminated the Uniroyal Technology
Corporation Employee Stock Ownership Plan.
8. 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 has been
in discussions with the staff of the Denver Regional Office of the
Commission seeking to meet the concerns of both the Company and the
Commission.
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 a
settlement agreement entered into with the EPA and others in connection
with the Plan which is described in the Company's Annual Report on Form
10-K for the fiscal year ended September 28, 1997.
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 June 28, 1998
the Company had incurred approximately $490,000 of remediation costs in
respect of such facility.
Based on information available as of June 28, 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.
9. 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 nine months ended June 28, 1998 and June
29, 1997. The reconciliation of the numerators and denominators of the
basic and diluted earnings per share computation is as follows:
Three Months Ended
June 28, 1998
--------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
Income before
extraordinary item $2,618,000
Basic EPS
---------
Income available to
common stockholders $2,618,000 13,304,832 $ 0.20
========
Effect of Dilutive Securities
-----------------------------
Stock options 1,094,958
Warrants 406,156
----------
Diluted EPS
-----------
Income available to
common stockholders $2,618,000 14,805,946 $ 0.18
========== ========== ========
Nine Months Ended
June 28, 1998
---------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before
extraordinary item $5,725,000
Basic EPS
---------
Income available to
common stockholders $5,725,000 13,277,229 $ 0.43
========
Effect of Dilutive Securities
-----------------------------
Stock options 1,033,353
Warrants 313,292
----------
Diluted EPS
-----------
Income available to
common stockholders $5,725,000 14,623,874 $ 0.40
========== ========== ========
Three Months Ended
June 29, 1997
---------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net Income $ 883,000
Basic EPS
---------
Income available to
common stockholders $ 883,000 13,355,419 $ 0.07
========
Effect of Dilutive Securities
-----------------------------
Stock options 78,745
----------
Diluted EPS
-----------
Income available to
common stockholders $ 883,000 13,434,164 $ 0.07
========= ========== ========
Warrants to purchase 800,000 shares of common stock at $4.375 per share
and additional stock options to purchase 1,239,805 shares of common
stock at various prices were outstanding during the three months ended
June 29, 1997 but were not included in the computation of diluted
earnings per share because the exercise price was greater than the
average market price of the common shares.
For the nine month period ended June 29, 1997, the weighted average
number of common shares outstanding for the calculation of basic and
diluted earnings per share was 13,279,276. Inclusion of shares issuable
upon the exercise of stock options, warrants and the preferred stock
conversion (then outstanding) in the calculation of diluted earnings
per share would have been antidilutive.
10. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Payments for income taxes and interest expense were (in thousands):
Nine Months Ended
------------------------------------
June 28, 1998 June 29, 1997
------------- -------------
Interest payment $ 9,932 $ 9,204
Income tax payments 122 70
The purchases of property, plant and equipment and net cash used in
financing activities for the nine months ended June 29, 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 nine
months ended June 28, 1998.
Net cash used in financing activities for the nine months ended June
29, 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 nine months
ended June 28, 1998.
During the second quarter of Fiscal 1998 the Company made a matching
contribution to its 401(k) Savings Plan by the contribution of 30,260
common shares of treasury stock. No contribution was made during the
nine months ended June 29, 1997.
11. SUBSEQUENT EVENT
On July 10,1998 the Company received $4,930,000 from Canadian-General
Tower Limited ("CGT") for the sale of certain Port Clinton, Ohio
automotive operations and assets related to the Company's door panel
program. Under the terms of a supply agreement, the Company has agreed
to continue to manufacture and supply customers of the door panel
programs until CGT can transfer the production of the door panels to
its own facility. The Company may receive an additional amount of up to
$1,100,000 if CGT secures purchase orders for the twelve months
following the door panel closing from certain customers as identified
in the agreement.
The Company should receive an additional $1,055,000 in or before June
of 1999 upon obtaining certain customer approvals and resulting
transfer to CGT of purchased assets that relate to the Company's
instrument panel programs.
Management believes that the write-down to long-lived assets, the
curtailment loss and other reserves recorded during Fiscal 1996 and
Fiscal 1997 relating to this agreement for sale remain appropriate at
June 28, 1998. Other than potential contingent payments that the
Company may receive, Management believes that the Company will not have
any further significant gain or loss upon the ultimate completion of
the sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third Quarter Fiscal 1998 Compared with
the Third Quarter Fiscal 1997
Net Sales. The Company's net sales increased in the third quarter of Fiscal 1998
by approximately 2% ($1,203,000) to $56,905,000 from $55,702,000 in the third
quarter of Fiscal 1997. This increase was attributable to increased net sales in
the High Performance Plastics Segment and partially offset by decreased sales in
the Coated Fabrics and Specialty Adhesives Segments.
Net sales by the High Performance Plastics Segment increased 12% ($3,557,000) in
the third quarter of Fiscal 1998 to $33,535,000 from $29,978,000 in the third
quarter of Fiscal 1997. The Royalite division recorded strong unit volume
growth. The Polycast division's sales increased as a result of better product
mix lead by aerospace demand, incremental sales from prior year acquisitions and
the third quarter acquisition of ViPlex Corporation.
Net sales by the Coated Fabrics Segment decreased in the third quarter of Fiscal
1998 approximately 7% ($1,195,000) to $17,098,000 from $18,293,000 in the third
quarter of Fiscal 1997 principally due to the gradual phase out of its
automotive business.
Net sales of the Specialty Adhesives Segment decreased in the third quarter of
Fiscal 1998 by approximately 16% ($1,159,000) to $6,272,000 from $7,431,000 in
the third quarter of Fiscal 1997 as sluggish sales to the commercial roofing
industry offset increases in the Segment's industrial and mirror mastic
products.
Income Before Interest, Income Taxes and Extraordinary Item. Income before
interest, income taxes and extraordinary item for the third quarter of Fiscal
1998 increased approximately 57% to $6,523,000, as compared to $4,148,000 for
the third quarter of Fiscal 1997.
The High Performance Plastics Segment's income before interest, income taxes and
extraordinary item for the third quarter of Fiscal 1998 increased approximately
47% ($1,476,000) to $4,649,000 from $3,173,000 in the third quarter of Fiscal
1997. The increase was a result of an increase in sales of higher margin
products, earnings from prior year acquisitions and the current quarter
acquisition of ViPlex Corporation, and a change in the methodology for the
allocation of corporate overhead.
The Coated Fabrics Segment's income before interest, income taxes and
extraordinary item increased in the third quarter of Fiscal 1998 approximately
109% ($1,285,000) to $2,468,000 compared to $1,183,000 in the third quarter of
Fiscal 1997. The increase is primarily due to lower manufacturing costs for the
Segment's automotive operations as a result of the gradual phase out of its
automotive operations. Also contributing to the earnings improvement was a
change in the methodology for the allocation of corporate overhead.
The Specialty Adhesives Segment's income before interest, income taxes and
extraordinary item increased in the third quarter of Fiscal 1998 by 54%
($187,000) to $531,000 from $344,000 in the third quarter of Fiscal 1997
primarily due to sales improvement of the high margin industrial and mirror
mastic products, an improved cost structure at the South Bend facility and a
change in the methodology for the allocation of corporate overhead.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the third quarter of Fiscal 1997 was $188,000. There was
no amortization of reorganization value in excess of amounts allocable to
identifiable assets in the third quarter of Fiscal 1998 as a result of the third
quarter reduction of the asset reorganization value in excess of amounts
allocable to identifiable assets.
Not allocated to the segments in the third quarter of Fiscal 1998 was
approximately $1,125,000 of miscellaneous expense versus $364,000 in the third
quarter of Fiscal 1997. During the third quarter of Fiscal 1998 the Company
changed its methodology for the allocation of corporate overhead from an
allocation of 100% of certain corporate costs to an allocation of costs based
upon 3.5% of Segment sales. Prior quarter allocations were not restated.
Interest Expense. Interest expense in the third quarter of Fiscal 1998 decreased
to $2,160,000 from $2,549,000 in the third quarter of Fiscal 1997. The decrease
in interest expense is primarily a result of the Fiscal 1998 third quarter
refinancing.
Income Tax Expense. Income tax expense in the third quarter of Fiscal 1998 was
$1,745,000 as compared to $716,000 in the third quarter of Fiscal 1997. The
provisions for income tax expense were calculated through the use of the
estimated income tax rates based on projected annualized income.
Extraordinary Loss on the Extinguishment of Debt. The extraordinary loss on the
extinguishment of debt in the third quarter of Fiscal 1998 was $5,637,000. The
amount represents the loss recognized when the Company early retired the
remaining $72,253,000 of its 11 3/4% Senior Secured Notes, including a call
premium payment of 4.41% and write-off of applicable debt issuance costs and
unamortized debt discount, net of income tax benefit of approximately
$2,787,000.
First Three Quarters of Fiscal 1998 Compared with
the First Three Quarters of Fiscal 1997
Net Sales. The Company's net sales increased in the first three quarters of
Fiscal 1998 by approximately 6% ($9,425,000) to $162,620,000 from $153,195,000
in the first three quarters of Fiscal 1997
Net sales by the High Performance Plastics Segment increased in the first three
quarters of Fiscal 1998 by approximately 9% ($8,007,000) to $95,759,000 from
$87,752,000 in the first three quarters of Fiscal 1997. The increase was
principally due to increased unit volume at both the Royalite and Polycast
acrylic divisions as well as incremental sales from prior year acquisitions and
the current year acquisition of ViPlex Corporation.
Net sales by the Coated Fabrics Segment increased slightly in the first three
quarters of Fiscal 1998 to $51,168,000 from $51,142,000 in the first three
quarters of Fiscal 1997. The increase was principally due to increased selling
prices for the Segment's Naugahyde(R) vinyl coated fabrics and offset by the
decline in overall automotive sales due to the gradual phase-out of its
automotive operations.
Net sales of the Specialty Adhesives Segment increased in the first three
quarters of Fiscal 1998 by approximately 10% ($1,392,000) to $15,693,000 from
$14,301,000 in the first three quarters of Fiscal 1997. The increase was
principally due to increases in the sale of industrial adhesives and incremental
sales for the prior year acquisition of C. Gunther Company and offset by
sluggish sales of commercial roofing products.
Income Before Interest, Income Taxes, and Extraordinary Item. Income before
interest, income taxes and extraordinary item for the first three quarters of
Fiscal 1998 was $16,972,000, compared to income before interest, income taxes
and extraordinary item of $6,114,000 for the first three quarters of Fiscal
1997.
The High Performance Plastics Segment's income before interest, income taxes and
extraordinary item for the first three quarters of Fiscal 1998 increased
approximately 76% ($5,705,000) to $13,186,000 from $7,481,000 in the first three
quarters of Fiscal 1997. The increase was a result of a better sales mix for
both the Royalite and Polycast acrylic divisions, incremental earnings from
prior year and current year acquisitions and a change in methodology for the
allocation of corporate overhead.
The Coated Fabrics Segment had income before interest, income taxes and
extraordinary item of $6,225,000 in the first three quarters of Fiscal 1998
compared to $156,000 in the first three quarters of Fiscal 1997 principally due
to lower manufacturing costs for the Segment's automotive operations as a result
of the gradual phase out of its automotive operations, the reversal of rebate
accruals applicable to such business and a change in methodology for the
allocation of corporate overhead. Also, increased production costs were incurred
in the first three 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 three quarters of Fiscal 1997 to qualify its
products using comparable raw materials available from other supply sources.
The Specialty Adhesives Segment had income before interest, income taxes and
extraordinary item of $306,000 in the first three quarters of Fiscal 1998 as
compared to a loss before interest, income taxes and extraordinary item of
$322,000 in the first three quarters of Fiscal 1997 primarily due to an increase
in sales of higher margin products, an improved cost structure at the South Bend
facility and a change in methodology for the allocation of corporate overhead.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the first three quarters of Fiscal 1998 and 1997 was
$377,000 and $565,000 respectively.
Not allocated to the segments in the first three quarters of Fiscal 1998 was
approximately $2,368,000 of miscellaneous expense compared to $636,000 for the
first three quarters of Fiscal 1997. During the third quarter of Fiscal 1998 the
Company changed its methodology for the allocation of corporate overhead from
the allocation of 100% of certain corporate costs to an allocation based on 3.5%
of Segment sales. Prior quarter and fiscal year allocations were not restated.
Interest Expense. Interest expense in the first three quarters of Fiscal 1998
decreased slightly to $7,204,000 from $7,218,000 in the first three quarters of
Fiscal 1997. The decrease in interest expense is primarily a result of the
Fiscal 1998 third quarter refinancing.
Income Tax (Expense) Benefit. Income tax (expense) benefit in the first three
quarters of Fiscal 1998 was $4,043,000 as compared to a benefit of $159,000 in
the first three quarters of Fiscal 1997. The provisions for income tax (expense)
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 1998, operating activities provided
$11,173,000 of cash as compared to $4,285,000 used during the first three
quarters of Fiscal 1997. The increase in cash provided by operating activities
for the Fiscal 1998 period is primarily attributable to an increase in income,
the decrease in accounts receivable, an increase in accounts payable and
partially offset by increases in inventories and other assets and a decrease in
accrued expenses.
Net cash used in investing activities for the first three quarters of Fiscal
1998 was $7,081,000 as compared to $7,158,000 used during the first three
quarters of Fiscal 1997. Net cash was used to purchase property, plant and
equipment during the comparative periods. 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. The Company does not have any significant specific commitments for
the purchase of property, plant and equipment.
Net cash used in financing activities was $4,147,000 during the first three
quarters of Fiscal 1998 as compared to $9,500,000 provided by financing
activities during the first three quarters of Fiscal 1997. Net proceeds from the
third quarter Fiscal 1998 refinancing were used to redeem the remaining 11 3/4%
Senior Secured Notes and pay associated costs. Cash was also used in the first
three fiscal quarters of 1998 to purchase 719,500 shares of treasury stock for
$3,954,000 and to purchase 216,850 of the outstanding warrants for $1,314,000.
The cash provided in the first three quarters of Fiscal 1998 was partially
offset by the redemption of the remaining 35 shares of Series B Preferred Stock
at the par value of $5,250,000.
The Company had approximately $189,000 in cash and cash equivalents on June 28,
1998 as compared to approximately $244,000 at September 28, 1997. Working
capital at June 28, 1998 was $33,016,000 compared to $33,358,000 at September
28, 1997. On June 28, 1998 the Company had borrowings of $7,156,000 under its
$20,000,000 revolving credit facility with Fleet and $80,000 under its
$10,000,000 revolving credit facility with CIT. The principal uses of cash
during the first three quarters of Fiscal 1998 were to pay the semi-annual
interest payments on the Company's Senior Secured Notes, the redemption costs
associated with the early retirement of 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 its
revolving credit facilities 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 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.
Year 2000
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
Year 2000 could result in miscalculations or system failures which could result
in an adverse impact on the Company's operations.
The Company has instituted a Year 2000 task force, that reports to the Audit
Committee, which has initiated a comprehensive project to prepare its computer
systems, communication systems and manufacturing/testing equipment for the Year
2000. The project includes identification and assessment of all software,
hardware and equipment that could potentially be affected by the Year 2000 issue
and remedial action and further testing, if necessary. The Company plans to
complete this project by June 1, 1999. The Company believes that the majority of
its major systems are Year 2000 compliant and costs to transition the remaining
systems to Year 2000 compliance are not anticipated to have a material effect on
the Company's financial position or results of operations.
The Company is also contacting critical suppliers of products and services and
customers to determine the extent to which the Company may be vulnerable to such
parties failure to resolve their own Year 2000 issues. Where practicable, the
Company will access and attempt to mitigate its risks with respect to the
failure of these entities to be Year 2000 ready. The effect, if any, on the
Company's results of operations from the failure of such parties to be Year 2000
ready is not reasonably estimable.
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, the ability of the Company to
successfully manufacture and market its products and the ability of the
Company's suppliers to adequately resolve their own Year 2000 issues.
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) 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 a
settlement agreement entered into with the EPA and others in
connection with the Plan 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 has been in discussions with the staff of the Denver
Regional Office of the Commission seeking to meet the concerns of
both the Company and the Commission.
(d) No legal proceedings were terminated during the third quarter
ended June 28, 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
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 11, 1998 By: /s/ George J. Zulanas, Jr.
--------------- --------------------------
George J. Zulanas, Jr.
Vice President, Chief Financial
Officer and Treasurer