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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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.)
Two North Tamiami Trail, Suite 900
Sarasota, Florida 34236-5568
(Address of principal executive offices) (Zip Code)
(941) 361-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (29,405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of November 30, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant (assuming for this purpose that all directors
and officers of the registrant and all holders of 5% or more of the common stock
of the registrant are affiliates) was approximately $51,654,000 based on the
closing price for the stock on November 30, 1998. The foregoing aggregate market
value is based on issuance of only 97% of the shares authorized for initial
issuance; the registrant believes that the foregoing aggregate market value
would be approximately $54,994,000 if all 10,000,000 shares authorized for
initial issuance had been issued.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
As of November 30, 1998, 12,481,257 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts III - Portions of the registrant's definitive proxy statement to be issued
in connection with the registrant's annual meeting of stockholders to be held in
1999.
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TABLE OF CONTENTS
Part 1..........................................................................1
Item 1. Business................................................................1
General....................................................................1
Corporate Developments.....................................................1
High Performance Plastics, Inc...........................................1
CIT Borrowing............................................................2
Acquisition of ViPlex Corporation........................................2
Sale of the Automotive Operation of the Coated Fabrics Segment...........2
Transaction with Emcore Corporation......................................2
Investment in Emcore Corporation.........................................2
Business Segments..........................................................3
High Performance Plastics Segment........................................3
Coated Fabrics Segment...................................................8
Specialty Adhesives Segment..............................................10
Employees..................................................................12
Trademarks and Patents.....................................................12
Research and Development...................................................13
Backlog....................................................................13
Working Capital Items......................................................13
Environmental Matters......................................................14
History of Company.........................................................15
Predecessor Companies....................................................15
Reorganization...........................................................16
Item 2. Properties..............................................................18
Item 3. Legal Proceedings.......................................................18
Item 4. Submission of Matters to a Vote of Security Holders.....................19
Part II.........................................................................19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...19
Item 6. Selected Financial Data.................................................20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................21
Results Of Operations......................................................21
Comparison of Fiscal 1998 with Fiscal 1997...............................21
Comparison of Fiscal 1997 with Fiscal 1996...............................22
Liquidity and Capital Resources..........................................24
Effects of Inflation.....................................................24
Year 2000................................................................25
Forward Looking Information..............................................25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............25
Item 8. Consolidated Financial Statements and Supplementary Data................26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................26
Part III....................................................................... 26
Item 10. Directors and Executive Officers of the Registrant.....................26
Item 11. Executive Compensation................................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.........26
Item 13. Certain Relationships and Related Transactions.........................26
Part IV.........................................................................27
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.........27
Signatures......................................................................
Index to Financial Statements and Financial Statement Schedule..................
Exhibit Index...................................................................
Item 1. Business
General
Uniroyal Technology Corporation (the "Company") is a leader in
the development, manufacture and sale of a broad range of materials
employing plastics and specialty chemicals technologies used in the
production of consumer, commercial and industrial products. Its
products, many of which are based on proprietary technology, include
thermoplastic sheet for use in the manufacture of seating, interior
paneling and other applications in the transportation, recreational,
agricultural and industrial vehicle and computer manufacturing
industries; acrylic sheet for use in the manufacture of aircraft
canopies, cabin windows and windshields, tanning shields and bullet
resistant barriers; acrylic rods and tubes used in the manufacture of
orthopedic devices and hard contact lenses; a wide selection of plastic
vinyl coated fabrics for use in automobile and furniture manufacturing;
and liquid adhesives and sealants for use in the commercial roofing
industry and in the manufacture of furniture, truck trailers and
recreational vehicles. The Company's technologies allow it to
incorporate into its specialized materials, such as thermoplastic and
acrylic sheets, performance characteristics such as fire retardancy,
static dissipation, weatherability, optical clarity, high strength to
weight ratio, light filtration capability and others required in the
specialty markets on which it focuses. The Company is a leading
supplier in such markets due to its ability to provide materials with
such performance characteristics, to customize such materials and to
provide technical and customer support in connection with the use of
its products in manufacturing.
The manufacturing operations of the Company are conducted at
twelve sites located in Florida, Indiana, Delaware, Iowa, Connecticut,
New Jersey, California, Georgia, Ohio and Wisconsin, through four
business segments: High Performance Plastics, Coated Fabrics, Specialty
Adhesives and Optoelectronics. The High Performance Plastics Segment of
the Company's business consists of the Company's wholly-owned
subsidiary High Performance Plastics, Inc. ("HPPI") and HPPI's
wholly-owned subsidiary, ViPlex Corporation. Within HPPI are two
operating divisions: Royalite Thermoplastics ("Royalite"), which
manufactures specialty and general purpose thermoplastic sheet,
injection molding resins, color concentrates and extruded profiles and
Polycast Technology ("Polycast"), which manufactures acrylic sheet for
the aerospace, specialty and general purpose markets as well as acrylic
rods and tubes. The Coated Fabrics Segment manufactures the Company's
line of vinyl coated fabrics and vinyl laminated composites. The
Specialty Adhesives Segment (formerly, the Specialty Foams and
Adhesives Segment), manufactures liquid adhesives and sealants and the
Optoelectronics Segment will manufacture epitaxial wafers, dies and
package-ready dies used in high brightness light-emitting diodes (LEDs)
once planned manufacturing operations commence. See "Corporate
Developments - Transaction with Emcore Corporation."
The Company's Fiscal 1998 net sales were approximately $220.6
million. Approximate net sales for each of the Company's three
currently operating business segments during such period were as
follows: High Performance Plastics - $128.6 million, Coated Fabrics -
$67.9 million, and Specialty Adhesives - $24.1 million. For certain
financial information with respect to the Company's business segments,
see "Note 18 to Consolidated Financial Statements." The Company is the
successor to an affiliated group of reorganized entities from which the
Company acquired substantially all of its businesses in 1992 pursuant
to a plan of reorganization adopted on September 27, 1992. See "History
of the Company."
Corporate Developments
The following are certain corporate developments which
occurred in and subsequent to Fiscal 1998. The descriptions of such
developments should be read in conjunction with the other parts of this
Form 10-K and with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements and other financial information which
form a part hereof.
High Performance Plastics, Inc.
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. 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 and certain banks, including Fleet National Bank,
providing among other things, for the borrowing by HPPI of an aggregate
principal amount of up to $110 million. On April 14, 1998, HPPI paid
approximately $95 million 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 by
June 1, 1998 at a call premium of 4.41%.
CIT Borrowing
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 million 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.
Acquisition of ViPlex Corporation
On May 22, 1998, HPPI acquired 100% of the common stock of
ViPlex Corporation, an acrylic sheet fabricator for the marine
industry, for $2.7 million, which was comprised of $1.7 million in cash
and unsecured promissory notes aggregating $1.0 million bearing an
interest rate of 6%. ViPlex Corporation is being merged into HPPI
effective December 31, 1998.
Sale of the Automotive Operation of the Coated Fabrics Segment
On October 17, 1997, the Company agreed to sell certain assets
of the automotive operation of the Coated Fabrics Segment located at
the Company's Port Clinton, Ohio facility for approximately $5.3
million plus the value of purchased inventories and plus or minus
adjustments contingent upon the transfer of certain automobile
programs. The Company received $4.9 million in July 1998 and expects to
receive approximately $1.1 million on or before June 1999 based on
obtaining certain customer approvals. During the fiscal year ended
September 27, 1998, the Company recognized approximately $512,000 of
income relating to the sale of the automotive operation. As of
September 29, 1996, the Company had established reserves for the
impairment of assets to be disposed of related to the Port Clinton,
Ohio automotive operation of the Coated Fabrics Segment. Other than
potential contingent payments the Company may receive, the Company does
not expect to incur any further significant gain or loss relating to
the sale. For further description of the sale of the automotive
operation of the Coated Fabrics Segment, see "Note 14 to Consolidated
Financial Statements."
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 million. During
Fiscal 1998 the Company paid $4.5 million in licensing fees to Emcore.
Uniroyal Optoelectronics, Inc., a wholly-owned subsidiary of the
Company, entered into a joint venture, Uniroyal Optoelectronics, LLC,
with Emcore, which is managed by Uniroyal Optoelectronics, Inc.,
whereby the joint venture will purchase machines from Emcore to
manufacture epitaxial wafers, dies and package-ready dies and sell such
products. On or about July 31, 1998, the joint venture entered into a
lease for a facility in Tampa, Florida. It is anticipated that the
joint venture will begin production in such facility in early 1999.
Investment in Emcore Corporation
On November 30, 1998, the Company purchased 642,857 shares of
the Series I Redeemable Convertible Preferred Stock ("Preferred Stock")
of Emcore for approximately $9.0 million ($14.00 per share). The shares
were offered pursuant to a private placement by Emcore.
Dividends on the Preferred Stock are cumulative and will be
payable, at Emcore's option, in cash or additional shares of Preferred
Stock on March 31, June 30, September 30 and December 31, commencing
December 31, 1998 at the annual rate of 2% per share of Preferred Stock
on the liquidation preference thereof (equivalent to $0.28 per annum
per share of Preferred Stock).
Shares of the Preferred Stock are convertible at any time, at
the option of the holders thereof, into shares of common stock of
Emcore on a one for one basis, subject to adjustment for certain
events. On November 30, 1998, the closing sales price of Emcore's
common stock on the NASDAQ National Market was $12.875.
The Preferred Stock is redeemable, in whole or in part, at the
option of Emcore at any time Emcore's common stock has traded at or
above $28.00 per share for 30 consecutive trading days, at a price of
$14.00 per share plus accrued and unpaid dividends, if any, to the
redemption date. Emcore is required to provide no less than 30 days and
no more than 60 days notice of the redemption. The shares of Preferred
Stock are subject to mandatory redemption by Emcore on November 17,
2003.
On November 30, 1998, Emcore also made a capital contribution
to Uniroyal Optoelectronics, LLC of $5.0 million. The Company will fund
its equivalent capital contribution to the joint venture of
approximately $5.2 million as cash is required by the joint venture.
Business Segments
High Performance Plastics Segment
The High Performance Plastics Segment of the Company's
business accounted for approximately $128.6 million (approximately 58
percent (58%)) of the Company's net sales in Fiscal 1998. It consists
of two divisions of HPPI: Royalite, which manufactures thermoplastic
products and Polycast, which manufactures acrylic products. ViPlex
Corporation fabricates acrylic products.
Royalite - Thermoplastic Products
General
Royalite is a leading manufacturer of custom thermoplastic
products. Thermoplastics are polymers, such as acrylonitrile butadiene
styrene and polyvinyl chloride, made from the polymerization of
monomers, which can be reshaped after they have been formed by the
application of heat and are used in the manufacture of a wide
assortment of commercial and consumer products. The division's products
include thermoplastic sheet, injection molding resins and extruded
profiles.
Thermoplastic sheet is manufactured by the Company from a
variety of polymers and chemical additives and is constructed either of
solid plastic, a core of inexpensive plastic covered with a thin layer
of high-quality thermoplastic or a base or substrate of plastic foam
surrounded by solid thermoplastic. It is sold to equipment
manufacturers, who incorporate the sheet into their products; custom
fabricators, who cut and form the sheet for specific applications and
supply finished components to original equipment manufacturers (OEMs);
and distributors, who resell raw sheet to equipment manufacturers or
custom fabricators. The Company manufactures two types of thermoplastic
sheet: specialized sheet, which is made by varying the polymer and
chemical components of the sheet in order to achieve particular
performance characteristics; and general purpose sheet, which is used
by manufacturers for a variety of products not requiring particular
performance characteristics.
Specialty thermoplastic sheet is sold by Royalite into a
number of niche markets, depending upon the performance characteristics
of the sheet. The following is a chart setting forth the particular
performance characteristics and the related applications of the
specialized sheet:
Performance Characteristics Principal Uses
--------------------------- ------------------
flame and smoke retardancy mass transportation vehicle
seating and interior panels,
aircraft interior trim and
computer and other electronic
equipment component housings
static dissipation and conductivity computer chip carriers, hard
disc drive housings and
electronic tote boxes
weatherability/temperature resistance marine and recreational vehicle
instrument panels, interior
trim for agricultural and
other off road vehicles
and exterior boat trim
buoyant, hydrodynamic and/or high
strength-to-weight ratio canoes, kayaks, other watersport
crafts, amusement park
vehicles and large exterior
equipment housings
The Company believes it has a substantial share of the markets
in which it competes for specialty thermoplastic sheet due to its
ability to manufacture sheet with the wide variety of performance
characteristics set forth above; the performance characteristics are,
in many cases, customized to meet its customers' exact specifications.
Net sales of specialty thermoplastic sheet accounted for approximately
64 percent (64%) of total net sales of thermoplastic sheet by Royalite
during Fiscal 1998.
The Company maintains a scientific and technical staff and the
necessary production capabilities to design specialty thermoplastic
sheet with performance characteristics to suit its customers'
specifications. See "- Research and Development." In addition, the
Company has advanced coloring technology, including a database of up to
2,500 color formulas developed by Royalite, which enables it to color
its thermoplastic sheet to match customer specifications precisely and
consistently. The Company also has the ability to texturize its sheet
with what it believes to be one of the most extensive selections of
embossing grains available in the market.
By contrast to specialty thermoplastic sheet, general purpose
thermoplastic sheet is used in the manufacture of numerous consumer and
industrial products, such as luggage, musical instrument and equipment
cases, tote boxes and vehicle mud flaps, which do not require that the
thermoplastic material used in their manufacture possess any of the
performance characteristics which distinguish specialty sheet. The
market for general purpose thermoplastic sheet is significantly broader
than the market for specialty thermoplastic sheet due to the almost
limitless uses to which such sheet can be put in the manufacture of
products. Such market is generally characterized by intense
competition, high volume and low margins. The Company does not have a
significant share of this market. Sales of general purpose sheet during
Fiscal 1998 accounted for approximately 36 percent (36%) of total net
sales of Royalite.
In addition to the Company's extensive list of sheet products,
it also produces injection molding resins, some of which use the same
proprietary formulations as the sheet products, and extruded profile
products.
The Company introduced injection molding resin products as
part of its "life cycle sourcing" strategy implemented to satisfy each
customer's needs for thermoplastic material with respect to a
particular product from the product's development stage through
maturity, including matching products to the variety of production
methods used at different volume levels. When a customer is in the
initial stages of developing a product requiring a thermoplastic
component, the Company employs its technological capabilities and
scientific expertise to design and produce customized thermoplastic
sheet, which the customer then generally "thermoforms" through the
application of heat into particular applications to be incorporated
into its final product. Due to its low cost, "thermoforming" is used in
connection with the manufacture of thermoplastic components not
required in large volume manufacturing runs. When a customer's unit
volume of a product attains levels at which it becomes economical for
the customer to manufacture the thermoplastic application by injection
molding, a capital intensive but more efficient process than
thermoforming, the Company can continue to supply the customer with the
polymer resins and color concentrates, achieving the same properties
and color as when the application was produced through thermoforming.
By using the Company's injection molding resins and color concentrates,
which have been customized to meet the customer's particular
specifications, the customer avoids any disruption in its production
that may result from having to qualify a thermoplastic material from
another manufacturer.
Although injection molding resins constitute less than one
percent of net sales of Royalite for Fiscal 1998, the Company believes
that significant opportunities for growth exist in this market and that
such product lines will enhance the division's specialty sheet lines by
assuring customers that the Company will be able to meet their
specialized thermoplastic needs throughout every stage of a product's
life cycle.
Royalite also produces extruded profile products, including
both proprietary and general purpose materials. The products are used
for applications requiring flexibility and resilience, such as boat
dock bumpers and gaskets which are sold to and used in production of
acrylic sheet by Polycast. This product line was implemented to fully
utilize the division's available production capacity at its Warsaw,
Indiana facility. Even though sales of extruded profile products
constitute less than two percent of net sales of Royalite for Fiscal
1998, the Company believes that significant opportunities for growth
exist in this market.
Competition
The market for thermoplastic sheet in the United States is
highly competitive, with companies competing primarily on the basis of
product specifications, price, customer service and technical support.
The Company competes in this market principally by maintaining or
increasing its market share in the specialty thermoplastic niche
markets described above. See "- Royalite - General." Royalite competes
effectively in this market by providing new custom product development,
state-of-the-art color technology and strong customer service through
technical support. The division maintains highly knowledgeable
technical representatives who work directly with customers to ensure
that the division's materials used in the manufacture of a customer's
product conform to the customer's specifications and work efficiently
with the customers' manufacturing processes. In addition, the Company
has polymer expertise and custom compounding capabilities to customize
the performance characteristics and color of its thermoplastic
products, whereas many of its competitors do not have this capability.
Its technological capabilities have also permitted the Company to
develop successful new products which enhance its competitiveness in
this segment. For example, recently, Royalite introduced low smoke, low
heat, fire retardant material for aircraft and mass transit interiors
and graffiti-resistant seating material, developed for the mass
transportation market. The addition of injection molding resins and
profile products and implementation of life cycle sourcing have
enhanced Royalite's competitiveness by assuring customers that the
Company will be able to meet their thermoplastic needs throughout every
stage of a product's life.
The Company is also able to compete effectively with respect
to price due in part to its low production costs, its ability to
produce its own color concentrates and savings resulting from its use
of recycled material in the manufacture of thermoplastic sheet. See "-
Royalite - Raw Materials." The Company's ability to internally produce
and laminate a thin layer of high quality colored thermoplastic film
over a less costly substrate allows it to compete favorably with most
other specialty thermoplastic sheet manufacturers, which use a single
layer of relatively expensive colored plastic sheet to produce the
desired end product.
The Company's principal competitors in the flame and smoke
retardant thermoplastic product market are Empire and Kleerdex Company.
Goodrich and HMS are the Company's principal competitors in the static
control thermoplastic product market, and Primex Plastics Corp. and
Spartech Corporation are the Company's principal competitors in the
general purpose thermoplastic sheet market. The Company's competitors
have in the past increased their market shares in the thermoplastic
industry generally through acquisitions.
Marketing
Royalite's thermoplastic sheet products are marketed under the
ROYALITE(R) and SPECTRUM(R) brand names. Thermoplastic sheet with
specialized characteristics is also marketed under individual brand
names, such as ROYALSTAT(R) (thermoplastic sheet designed to dissipate
or conduct static electric charges), ROYALEX(R) (multilayer
thermoplastic sheet with a foam core and highly weather-resistant layer
on one or both sides, resulting in a high strength-to-weight ratio,
designed for recreational, marine and sporting applications), and
ROYALTHOTIC(R) (thermoplastic sheet designed to be thermoformed at low
temperatures to permit orthopedic medical practitioners to form
individual patient orthopedic devices).
Royalite markets its thermoplastic products primarily through
a national sales force of approximately 14 sales representatives, who
are employees of the Company, and through wholesale distributors to
whom it supplies its products for resale to fabricators and
manufacturers. Representative customers of Royalite and representative
end users of its products include: American Seating Company,
Bombardier, Inc., Caterpillar, Inc., Commercial Plastics and Supplies
Corp., Curbell Plastics, a division of Curbell, Inc., General Motors
Corporation, Hewlett-Packard Company, Laird Plastics, Inc., McDonnell
Douglas Corporation, National Railroad Passenger Corp. (Amtrak),
Seagate Technology, Inc., Sensormatic Electronics Corporation and the
U.S. Navy. The Company has a broad customer base for its thermoplastic
products and it does not believe that it is dependent upon any single
customer or group of customers for sale of its thermoplastic products.
Pricing and terms offered to customers are generally consistent with
those found in the industry.
Manufacturing Facilities
The Company manufactures its thermoplastic products at three
wholly-owned facilities, the largest of which is located in Warsaw,
Indiana. The Company's other thermoplastic sheet manufacturing
facilities are located in Rome, Georgia and Redlands, California. See
"Item 2. Properties."
Raw Materials
The principal raw materials used by the Company in the
manufacture of thermoplastic sheet, injection molding resins, color
concentrates and extruded profiles are acrylonitrile butadiene styrene
("ABS") resins and polyethylene, polypropylene and polyvinyl chloride
("PVC") resins and alloys of such resins. The Company has no long-term
purchasing agreements with any suppliers for such raw materials, other
than GE Plastics (a division of General Electric Company) from which
the Company acquires a substantial portion of its ABS resins. The
Company purchases PVC resins and other raw materials from a variety of
domestic and international suppliers. These products are all currently
readily available from a variety of suppliers.
The Company recycles scraps of thermoplastic material that
result from customers' forming sheet for their specific applications
for use in the manufacture of new sheet. Recycled material is generally
used by the Company to replace the raw materials that would otherwise
be required to manufacture specialized and general purpose
thermoplastic sheet. Recycled material is purchased from customers and
brokers and is less expensive than new raw materials.
Polycast - Acrylic Products
General
Polycast manufactures high performance acrylic sheet, rods and
tubes which are sold principally to custom fabricators and original
equipment manufacturers, who heat and form the Polycast product into
shapes for specific applications, such as aircraft window units,
furniture components and orthopedic braces. The division's acrylic
products have a unique combination of physical properties and
performance characteristics which are required by the manufacturers who
use them as a component of their products. For example, they weigh
considerably less than, but are superior in clarity and impact
resistance to, common glass. They are thermoformable, remain stable
under sustained exposure to the elements and can be processed to
transmit or filter ultraviolet light, depending on customer
requirements.
The Company manufactures acrylic sheet for three markets - the
aerospace market, which includes the commercial and military aerospace
industries in which the division's products are used for such
applications as aircraft cockpit canopies, cabin windows and helicopter
windshields; the specialty acrylic sheet market, which includes a
variety of niche markets in which the division's products are used in
the manufacture of boat windscreens and enclosures, bullet-resistant
security barriers for banks, convenience stores and other businesses,
hockey rink protective barriers, furniture, tanning bed shields and
municipal aquarium transparent panels; and the general purpose market
for acrylic sheet, in which acrylic sheet is used for such applications
as store displays and signage, where high performance characteristics
are not required and do not require specialized manufacturing
techniques. The division's acrylic rods and tubes are used for a
variety of applications, including the manufacture of lighting
fixtures, furniture, medical instruments, orthopedic devices, such as
orthopedic braces and lens materials used to replace defective lenses
of the eye in cataract surgery and certain types of hard contact
lenses.
Polycast manufactures its acrylic products through cell cast
manufacturing, a process which enables it to customize the performance
characteristics of its acrylic aerospace sheet and specialized sheet,
in order to meet the exact specifications of its customers and to offer
its products with a broader range of physical characteristics than can
be achieved through other manufacturing processes, such as continuous
cast, extrusion and calender processes. For example, Polycast's
scientific staff have used the cell cast process to develop a
specialized sheet which transmits rather than filters ultraviolet rays
for use in tanning beds and an aerospace sheet with consistently high
optical quality and exact color shading for use in constructing
aerospace transparencies such as aircraft and helicopter window
products. The division can manufacture acrylic products in more than 60
colors and acrylic sheet in gauges ranging from 0.030 to 6.00 inches.
Acrylic sheet manufactured by the cell cast process, which is more
labor intensive than continuous cast, extrusion or calender processes,
generally yields higher margins than acrylic sheet produced by such
other processes.
The division markets its aerospace acrylic sheet in the
military and commercial aerospace industries, which require products
meeting precise specifications. The division is one of a few acrylic
manufacturers in the United States qualified to produce acrylic sheet
meeting military manufacturing standards, specifications and
requirements ("MIL SPEC"), a designation made by the U.S. Navy's Naval
Air Development Center which is a prerequisite for supplying the
military aerospace industry. The division and the Predecessor Companies
have maintained this qualification since 1976. The division's aerospace
acrylic sheet is also qualified by several commercial aerospace
manufacturers, including Bell-Helicopter, a division of Textron, Inc.;
Boeing Company including its new McDonnell-Douglas Division; and
Sikorsky Aircraft Corporation, which include a supplier's products on
their "qualified product lists" only after such products have met MIL
SPEC requirements and passed the manufacturer's additional and more
stringent testing and approval procedures. Although unlikely, any
failure of the division's aerospace acrylic products to continue to
meet required specifications under which they are provided to an
aerospace manufacturer could have a material adverse effect on the
division.
The division sells its specialty acrylic sheet in a wide
variety of niche markets, including manufacturers of boat windscreens
and enclosures, bullet resistant barriers and protective barriers for
athletic facilities, furniture and tanning bed shields and aquariums.
The division markets its acrylic products to such industries through
customization of the performance and physical characteristics of its
specialty sheet to meet customer specifications.
Competition
The division faces continuing competition from North American
producers and from certain foreign producers, particularly from Asian
and South American countries. Many of these competitors have greater
resources than the Company. These competitors primarily produce
standard sizes of general purpose acrylic sheet by continuous cast,
extrusion or calender processes. The division concentrates on the
production of aerospace and specialty acrylic sheet, which in certain
cases has unique characteristics that cannot be obtained by such other
manufacturing processes. Net sales of aerospace and specialty acrylic
sheet accounted for approximately 60 percent (60%) of total net sales
by Polycast.
The Company believes that the division has a significant share
of the niche markets in which it sells its aerospace and specialty
acrylic sheet. See "- Polycast - General." The division's principal
competitors in the specialty acrylic sheet market are Cyro Industries,
a division of Cytec Industries, Inc. ("Cyro"), Elf Atochem North
America, Inc. ("Atochem") and ICI Acrylics, Inc., a subsidiary of
Imperial Chemicals Industries plc ("ICI"). The division's principal
competitors in the acrylic aerospace sheet market are Cyro, Nordam,
Inc. ("Nordam"), Pilkington Aerospace Swedlow Division, a subsidiary of
Pilkington plc ("Pilkington") and Rohm Darmstadt GmbH.
In order to compete with vertically integrated companies in
the aerospace acrylic sheet market, such as Pilkington and Nordam, the
division has formed alliances with certain customers to market products
for sale into the commercial aerospace markets that compete directly
with these vertically integrated companies.
In the acrylic rod and tube market, the division's competitors
are various small companies that typically produce only acrylic rod and
tube products.
Atochem, Cyro and ICI, which are North American producers of
acrylic sheet, also produce methyl methacrylate monomer ("MMA"), the
principal raw material used in the manufacture of acrylic sheet, rods
and tubes, or certain of the components thereof, making it possible for
them to absorb increases in the cost of MMA and buy in large
quantities, thereby availing themselves of volume discounts not
available to the division. Since the Company does not itself produce
MMA, Polycast is unable to compete effectively with the low prices
charged by these companies for general purpose acrylic sheet. See "-
Polycast - Raw Materials."
Marketing
Polycast's acrylic products are marketed under the POLYCAST(R)
brand name. Acrylic products with special performance characteristics
are also marketed under individual brand names, such as PILOTS'
CHOICE(TM) (aerospace sheet with high optical quality) for helicopter
windshields, SOLACRYL(R) (specialty sheet which transmits ultraviolet
rays) for tanning bed shields, POLYDOR(R) (thermoformable sheet) used
for orthopedic product, S-A-R coatings for specialty acrylic
applications and ViPlex(TM) (specialized fabrication of acrylic
products) used in high end marine applications. The Company's acrylic
rods and tubes are also marketed under the TOWNSEND/GLASFLEX(TM) brand
name.
The division markets its acrylic sheets, rods and tubes
primarily through five sales representatives, who are employees of the
division, and through wholesale distributors.
Representative domestic customers of Polycast and
representative end users of its acrylic products include Beech Aircraft
Corp., Bell-Helicopter Textron, Inc., Boeing Company, Cadillac Plastic
& Chemical Co., The Cessna Aircraft Company, Chris-Craft Industries,
Inc., Commercial Plastics and Supply Corp., Laird Plastics, Inc.,
Llamas Plastics, Inc., Sensormatic Electronics Corporation,
Sierracin/Sylmar Corporation, Sikorsky Aircraft Corporation, Texstar
Inc., Thunderbird Products Corp. and Wellcraft Marine. Representative
foreign customers and end users include Airbus Industries, Augusta
Helicopters, Embraer - Empresa Brasileira de Aeronautica S.A. and
Hindustan Aeronautics Limited. The Company is not dependent upon a
single customer or group of customers for sales of its acrylic
products.
Manufacturing Facilities
The division manufactures acrylic sheet at its facility in
Stamford, Connecticut and finishes and further processes acrylic sheet
for certain applications at its facilities in Newport, Delaware,
Hackensack, New Jersey and Melbourne, Florida. The Hackensack facility
also serves as the principal warehouse for acrylic sheet products.
Acrylic sheet is also manufactured, along with acrylic rods and tubes,
at the division's facility in Stirling, New Jersey and acrylic rods and
tubes at the division's facility in Pleasant Hill, Iowa. The Company
owns the manufacturing and processing facilities in Stamford,
Hackensack, Stirling and Pleasant Hill and leases its facilities in
Newport, Delaware and Melbourne, Florida. The manufacturing operations
in Stirling, New Jersey and Newport, Delaware have been substantially
consolidated into the Stamford, Connecticut and Pleasant Hill, Iowa
facilities during Fiscal 1998. The division leases office space used
for its division headquarters adjacent to its Stamford, Connecticut
manufacturing facility. See "Item 2. Properties."
Raw Materials
Since October 1, 1991, all of the division's requirements of
MMA have been purchased from ICI or its predecessor owner of the
monomer business, E.I. duPont de Nemours & Co., currently pursuant to a
supply agreement which obligates the division to purchase from ICI and
ICI to supply the division with its requirements for MMA through March
16, 2005, subject to termination by the division upon eighteen months'
advance notice or by ICI upon a three years' advance notice. Under the
supply agreement, the division is entitled to purchase MMA from other
suppliers that offer the product at prices lower than those ICI is
willing to match. In addition, the supply agreement requires that any
party that acquires all or substantially all of ICI's assets used to
manufacture MMA assume the obligations of ICI under the agreement and
further requires that any party that acquires all or substantially all
of the Company's assets used to manufacture its acrylic sheet, rods and
tubes assume the obligations of the division under the agreement.
In the event that ICI elects to terminate the supply
agreement, the Company believes that the division could obtain MMA from
one or more alternate sources. However, each of the two major alternate
domestic manufacturers and certain other major alternate foreign
manufacturers of MMA compete (as does ICI) with the division in the
manufacture and sale of acrylic sheet. Thus, there can be no assurance
that the division would be able to obtain MMA from these alternate
sources at satisfactory prices, on a reliable basis or on terms
otherwise satisfactory to the division.
Coated Fabrics Segment
The Company's Coated Fabrics Segment, which accounted for
approximately $67.9 million (31 percent (31%)) of the Company's net
sales for Fiscal 1998, is a leading manufacturer of vinyl coated
fabrics and was a leading manufacturer of laminated composites. The
segment's product lines consisted of products for the automobile
manufacturing industry, which accounted for 59 percent (59%) of total
net sales of the segment for Fiscal 1998, and the well known
Naugahyde(R) brand name vinyl coated fabric products, which accounted
for 41 percent (41%) of total net sales of the segment for such fiscal
year. See "Corporate Developments - Sale of the Automotive Operation of
the Coated Fabrics Segment" and "Note 14 to Consolidated Financial
Statements."
General
The segment's automotive product line consisted of plastic
vinyl coated fabrics and vinyl laminated composites used by
manufacturers and custom fabricators in the production of vehicle seat
coverings, door panels, arm rests, consoles and instrument panels. Its
coated fabrics were durable, stain resistant, cost-effective
alternatives to leather and cloth coverings. The segment's vinyl
laminated composites were durable, easily formed, economical
alternatives to fabric coverings used for applications such as
automobile instrument and door panels. The materials manufactured by
the segment could be hand or machine sewn or glued to an underlying
structure, such as a seat frame or automobile door panel, or
thermoformed to cover various underlying structures or into
freestanding shapes for a variety of applications, and came in a wide
range of colors and textures. The Company sold the remaining business
of the automotive operation of this segment during the last quarter of
Fiscal 1998. The operation consisted of the vinyl laminated composite
line manufactured in Port Clinton, Ohio. The segment continued to
operate the Port Clinton, Ohio facility under a supply agreement until
November 11, 1998.
The segment's Naugahyde(R) vinyl coated fabrics products have
varying performance characteristics and are sold in various markets
depending upon the performance characteristics required by end users.
For example, for recreational products which are used outdoors, such as
boats, personal watercraft, golf carts and snowmobiles, the segment
sells a Naugahyde(R) product that is designed primarily for
weatherability. It also manufactures Naugahyde(R) products that can
withstand powerful cleaning agents, which are widely used in hospitals
and in other medical facilities. Flame and smoke retardant Naugahyde(R)
vinyl coated fabrics are used for a variety of commercial and
institutional furniture applications, including hospital furniture and
school bus seats.
The segment is one of the few manufacturers that can produce
coated fabrics through composite, continuous cast and calender
manufacturing processes. These processes allow it to produce coated
fabrics and laminated composites with different characteristics:
composite manufacturing produces a material which is light in weight
with sharply defined borders; the continuous cast method produces a
material with a soft finish, deep grain pattern and a wide temperature
range and high malleability factors for thermoforming; and calender
manufacturing produces a material with less of a soft finish but which
can be manufactured economically in high volume. The composite
manufacturing process was sold in Fiscal 1998 in connection with the
sale of the automotive operations of the segment.
The segment had two state-of-the-art production lines which
produce coated fabrics and laminated composites in more than 600 colors
and 45 textures and patterns - one of which was sold in connection with
the sale of the automotive operations of the segment.
The segment's automotive products were marketed to domestic
automobile manufacturers as well as to foreign automobile manufacturers
producing vehicles in the United States ("transplant manufacturers").
The coated fabrics and laminated composites which comprised this line
were designed to meet the performance specifications set by automobile
manufacturers such as crisp lines or soft finishes of interior
components or the ability to thermoform the products into specific
applications.
Pursuant to a technical collaboration agreement with Okamoto
Industries, Inc. ("Okamoto"), a Japanese manufacturer of coated fabrics
products, the segment held an exclusive license to use Okamoto's
advanced technology for the manufacture of certain coated fabrics in
the United States and Canada until 2003. This arrangement provided the
segment with the capability to manufacture materials using the
composite production process and allowed it to supply product to
transplant manufacturers such as Honda. The Company was required to pay
Okamoto a royalty on net sales of certain products using Okamoto's
technology. The license was transferred to the purchaser in connection
with the Fiscal 1998 sale of the Port Clinton, Ohio automotive
operations.
Competition
The Coated Fabrics segment competes with respect to its
Naugahyde(R) products primarily on the basis of style, color and
quality, as well as price and customer service through technical
support and performance characteristics which meet customer needs.
The segment competed in the domestic and transplant automotive
markets for coated fabrics and laminated composites primarily on the
basis of price. In the case of unique product lines developed by the
segment, the segment competed on the basis of the performance
characteristics of its products. In the domestic and transplant
automotive markets, the segment generally sold its coated fabrics and
laminated composites directly to automobile manufacturers and to custom
fabricators, who used the segment's coated fabrics and laminated
composites to make finished products, such as seats and door panels,
which were then sold to automobile manufacturers.
The segment's principal competitors with respect to its
Naugahyde(R) products are C.G. Spradling & Company, GenCorp Inc. and
Morbern Inc. The segment's principal competitors in the domestic
automotive markets were Canadian General-Tower, Ltd. and Sandusky
Plastics, Inc., and its principal competitors in the transplant
automotive markets were O'Sullivan Corporation and foreign importers.
Marketing
The segment's coated fabrics products were introduced by one
of its predecessors more than 45 years ago and today are marketed under
several nationally recognized brand names, including NAUGAHYDE(R),
NAUGAFORM(R) and DURAN(R). BEAUTYGARD(R) is the name under which the
segment markets its cleaning agent-resistant coated fabrics, and its
flame and smoke retardant coated fabrics are marketed under the brand
name FLAME BLOCKER(TM).
The segment markets and sells its coated fabrics and sold its
laminated composites primarily through 12 national sales
representatives, who are employees of the Company, and independent
sales representatives. In the furniture manufacturing market, it
generally sells its coated fabrics through its sales representatives
and to distributors which sell to furniture manufacturers, upholsterers
and fabric distributors. Approximately 35 percent (35%) of the
segment's non-automotive market sales in Fiscal 1998 were to
distributors.
Representative customers and end users of the segment's coated
fabrics and laminated composites include Bombardier, Inc., Club Car,
Inc., GM, Harley-Davidson, Inc., Honda, Kawasaki Heavy Industries,
Inc., Mazda Motors of America, Inc., Michigan Seat Co., Okamoto USA,
Inc., Polaris Industries, Inc., Shelby Williams Industries, Inc., TS
Trim, Inc. and United Technologies Automotive Division.
Manufacturing Facilities
The segment manufactures its coated fabrics at its facility
located in Stoughton, Wisconsin and manufactured at its facility in
Port Clinton, Ohio through November 11, 1998. Both of these facilities
are owned by the Company. See "Item 2. Properties."
Raw Materials
The principal raw materials for the segment's coated fabrics
are casting paper, knit fabric, polyolefin foam, PVC plastic resins and
plasticizers. The segment generally has multiple sources for casting
paper, knit fabric, PVC plastic resins, and plasticizers and subsequent
to the sale of the automotive operations no longer requires polyolefin
foam.
Specialty Adhesives Segment
The Company's Specialty Adhesives Segment accounted for
approximately $24.1 million (approximately 11 percent (11%)) of the
Company's total net sales for Fiscal 1998.
General
The Specialty Adhesives Segment (formerly, the Specialty Foam
and Adhesives Segment) comprises three general product lines: roofing
adhesives and sealants, industrial adhesives and sealants and mirror
mastics and sealants. The segment is one of the leading manufacturers
of adhesives for fully-bonded, EPDM commercial roofs. Supporting
Firestone Building Products Company, a division of
Bridgestone/Firestone, Inc. ("Firestone"), an industry leader in the
supply of Rubber Gard(R) EPDM single ply membrane, the segment supplies
a full line of bonding, splice, primer and sealer products.
Approximately 67 percent (67%) of the segment's Fiscal 1998 sales were
roofing product shipments to Firestone. The fully-bonded adhesive
products sold to Firestone pass through a rigorous development and
production qualification process, resulting in an applied roof capable
of withstanding exposure to environmental extremes. The segment also
produces and sells more than 200 industrial and commercial mirror
adhesives and sealants under the brand names of Silaprene(R),
Hydra-Fast-En(R), UltraBond(R) and ExtraBuild(R). These products are
marketed to the transportation (non-automotive), furniture, foam
fabrication and commercial mirror installation industries.
The segment has doubled the size of its industrial sales
force, introduced new Silaprene(R) products and packaging that feature
the well-recognized brand name, and expanded its water-based adhesive
line to position itself for changing government legislation regarding
health and safety requirements. The segment also secured a four-year
supply agreement with Henkel Adhesives, an operating group within a
large international conglomerate.
In addition, the Company acquired, on March 31, 1997, the C.
Gunther Company ("Gunther"), a major marketer of mirror mastics to the
residential and commercial construction industry located in Cary,
Illinois. All Gunther operations were subsequently moved to the
Company's South Bend facility.
The segment sells splice and bonding adhesives for the EPDM
rubber roofing market exclusively to Firestone pursuant to a five-year
contract which was entered into in Fiscal 1995 and extended on June 9,
1998, by an additional 34 months to expire on December 31, 2002 (the
"Firestone Agreement"). Under the terms of the Firestone Agreement,
Firestone is obligated to purchase from the segment a minimum of 80
percent (80%) of its annual volume requirements of splice and bonding
adhesives for the EPDM rubber roofing market. In Fiscal 1998, 1997 and
1996, Firestone purchased 67 percent (67%), 79 percent (79%) and 83
percent (83%), respectively, of the Company's total net sales of
adhesives and sealants for such periods. Sales to Firestone during the
fiscal year ended September 27, 1998 represented 7 percent (7%) of the
Company's net sales for such fiscal year. The loss of Firestone as a
customer would have an adverse effect on the Company's Specialty
Adhesives Segment. Firestone will acquire the Company's patent for
splice adhesive on February 22, 2000.
Competition
Pursuant to the exclusivity terms of the Firestone Agreement,
the Company does not compete with respect to its roofing adhesives and
sealants. As to its industrial adhesives and sealants, the Company
competes principally on the basis of price and the performance
characteristics of its products.
The segment's principal competitors in the adhesives and
sealants market for EPDM rubber roofing applications are Adco
Technologies, Inc., Ashland Chemical Company and TACC International
Corp. In addition, Carlisle Syntec Systems supplies these adhesives
primarily for its own single-ply roofing system and consequently
competes indirectly with the segment. In the industrial adhesives and
sealants markets, the segment's primary competitors include Imperial
Adhesives, Inc., Manus Corporation, Minnesota Mining and Manufacturing
Company, Palmer Products Corp. and Sika Corporation.
Marketing
The segment's industrial adhesives and sealants are marketed
under the brand name Silaprene(R). Its water-based adhesives are also
marketed under the brand name Hydra Fast-En(R). The segment's
Silaprene(R) products have established name recognition in and are
important in the recreational vehicle and truck trailer manufacturing
markets. Hydra Fast-En(R) adhesives are beginning to establish market
share in the foam and plastic fabrication markets. Recognized
trademarks in the mirror and glass industry, purchased as part of the
C. Gunther acquisition, are Ultra/Bond(R), Extra/Build(R),
Prime-N-Seal(TM), Premier(TM), Mirror & More Cleaner(TM) and
Seal-Kwik(TM).
The segment's roofing adhesives and sealants are marketed
under Firestone's brand names. The Company indirectly holds an
important position in the splice adhesives and bonding adhesives market
through Firestone, which continues to control significant market share
of the EPDM rubber roofing market.
The segment markets its industrial adhesives and sealants
primarily to manufacturers through a network of 200 authorized
distributors, 19 independent representatives and five sales
representatives who are employees of the segment, located throughout
the United States and Canada. Pursuant to its obligation under the
Firestone Agreement, the segment does not market its splice and bonding
adhesives for the EPDM rubber roofing market.
The segment's roofing adhesives business is seasonal,
increasing in the warmer months of the year due to an increase in
roofing and other construction activities in such months, and is
sensitive to adverse weather conditions.
Manufacturing Facilities
On July 17, 1996, the Company acquired a manufacturing
facility in South Bend, Indiana consisting of approximately 240,000
square feet for $1.8 million and spent an additional $6.7 million for
building renovations, new equipment and moving expenses. The move was
completed on February 18, 1997 and now provides a modern and efficient
manufacturing plant with significant additional capacity, an excellent
research center and office space for the Royalite segment headquarters
and certain other corporate operations. See "Item 2. Properties."
The efficiencies the Company realized as a result of the move,
from an old multi-story factory to their current facility are many and
far-reaching. Areas of improvement include lower utility costs, lower
property taxes, elimination of elevator maintenance, reduced material
handling time and lower building maintenance.
Raw Materials
The division's adhesives and sealants use a variety of raw
materials such as rubber, resins and solvents, which are generally
available from multiple sources. The division's principal suppliers of
such raw materials and containers include Cleveland Steel Container
Corp., Citgo Petroleum Corporation, DuPont Dow Elastomers, Schenectady
International, Shell Chemical and Sun Chemical Company, Inc. The
Company has long-term supply agreements with Elf Atochem, Sun Chemical
Company, Inc., Cleveland Steel Container Corporation and Federal
Packaging. The Company believes that adequate supplies of raw materials
for its adhesives and sealants will be available to the division from
alternate suppliers. However, if the division is required to use
alternate suppliers, production could be affected while the raw
materials produced by such alternate suppliers are qualified by the
division to meet the product specifications of its customers.
Over the last eighteen months the Company has had success in
driving down the cost of raw materials by consolidating purchases. The
Company has also benefited from soft pricing in the petrochemical
industry.
Employees
The Company has approximately 1,160 employees, including
approximately 800 hourly wage employees and 360 salaried employees. The
Company believes that at the present time its workforce is adequate to
conduct its business and that its relations with employees are
generally satisfactory.
The Company is a party to a number of collective bargaining
agreements. Approximately 130 hourly wage employees of the Company's
acrylic sheet manufacturing facility located in Stamford, Connecticut
are covered by an agreement expiring on March 31, 2000 with Teamsters
Local 191, which is affiliated with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America (the
"Teamsters"). Approximately 35 employees at the Company's Hackensack,
New Jersey acrylic sheet manufacturing and warehouse facility are
covered by an agreement expiring on February 3, 2002 with UNITE, New
York/New Jersey Regional Joint Board ALF-CIO, CLC. At the Company's
coated fabrics manufacturing facility located in Stoughton, Wisconsin,
another approximately 130 hourly employees of the Company are covered
by an agreement expiring on September 17, 2001 with Local 1207 of the
United Paperworkers International Union. Separate agreements expiring
on April 20, 1999 with the United Steel Workers of America, United
Rubber Workers Division (the "USWA") cover approximately 40 hourly wage
employees at the Company's adhesives and sealants manufacturing
facility located in South Bend, Indiana, and approximately 85 employees
at the coated fabrics and laminated composites manufacturing facility
located in Port Clinton, Ohio. In connection with the Fiscal 1998 sale
of the automotive operations at Port Clinton, Ohio (see "Item 1.
Corporate Developments - Sale of the Automotive Operation of the Coated
Fabrics Segment") the Company terminated the 85 hourly wage employees
at the Port Clinton, Ohio facility in Fiscal 1999.
On July 20, 1995 the National Labor Relations Board certified
the United Paperworkers International Union as the exclusive collective
bargaining representative for the approximately 150 hourly wage
employees at the Company's thermoplastic products plant in Warsaw,
Indiana. The Company challenged the election which led to such
certification and, accordingly, did not recognize the union. On October
24, 1996, the United States Court of Appeals for the Seventh Circuit
denied the Company's appeal. The Company has since recognized the union
and is in the process of negotiating a collective bargaining agreement
with it.
Richard D. Kimbel, the former President of USWA Local 65
(Mishawaka), is a director of the Company.
Trademarks and Patents
The Company owns and controls patents, trade secrets,
trademarks, trade names, copyrights and confidential information, which
in the aggregate are material to its business. The Company is not
materially dependent, however, upon any single patent or trademark. The
Company has several trademarks that have wide recognition and are
valuable to its business. Among the trademarks that are of material
importance to the Company are NAUGAHYDE(R), NAUGAFORM(R), DURAN(R),
ROYALITE(R), PILOTS' CHOICE(TM), POLYCAST(R), SILAPRENE(R), HYDRA
FAST-EN(R), GUNTHER ULTRA/BOND(R) and GUNTHER EXTRA/BUILD(R). The
Company's trademarks are registered in the United States and in a
number of foreign jurisdictions with terms of registration expiring
generally between 1999 and 2004. No trademark registration of material
importance to the Company expired during Fiscal 1998. The Company
intends to renew in a timely manner all those trademarks that are
required for the conduct of its business. The Company also holds more
than 20 patents and pending patents worldwide.
The Company uses the trade name and trademark "Uniroyal"
pursuant to a license from Uniroyal Goodrich Licensing Services, Inc.
Research and Development
The Company is actively engaged in research and development
programs designed to develop new products, manufacturing processes,
systems and technologies and to enhance its existing products and
processes. Research and development is conducted within each business
segment of the Company. Investment in research and development has been
an important factor in establishing and maintaining the Company's
competitive position in many of the specialized niche markets in which
its products are marketed. For example, the Company's research and
development efforts have led to the development of water-based
adhesives (see "-Business Segments - Specialty Adhesives"), bullet
resistant acrylic sheet and acrylic sheet for use in commercial
aquariums (see "- Business Segments - High Performance Plastics -
Polycast Acrylic Products"). The Company spent approximately $2.7
million for research and development during Fiscal 1998 compared to
approximately $3.7 million during Fiscal 1997. The decline in research
and development expenditures is primarily attributable to the exit from
the automotive operations of the Coated Fabrics Segment.
The Company currently employs a staff of approximately 34
individuals in connection with its research and development efforts.
The individuals include chemists, process development engineers and
laboratory technicians and are responsible for new product development
and improvement of production processes. The allocation of research and
development staff among the Company's business segments is as follows:
14 at High Performance Plastics, 13 at Coated Fabrics and seven at
Specialty Adhesives.
Backlog
At September 27, 1998, the Company had backlog orders
aggregating approximately $25.1 million, as compared to approximately
$26.0 million as of September 28, 1997. Management presently
anticipates that all backlog orders will be filled within the next 12
months. Backlog orders for each of the Company's business segments were
as follows as of the indicated dates:
September 27, 1998 September 28, 1997
------------------ ------------------
(in thousands)
High Performance Plastics $ 14,994 $ 16,321
Coated Fabrics 5,368 5,923
Specialty Adhesives 4,747 3,805
---------- ----------
Total $ 25,109 $ 26,049
========== ==========
Working Capital Items
Many of the markets in which the Company competes, including
the aerospace acrylic sheet market, are characterized by long lead
times for new products requiring significant working capital investment
by the Company and extensive testing, qualification and approval by the
Company's customers and end users of its products. The Company faces a
significant risk that customers and end users in such markets may not
select the Company's new products after it has incurred significant
costs for, among other things, research and development, manufacturing
equipment, training and facility-related overhead expenses to develop
such products.
Moreover, even if the Company's products are eventually
approved and purchased by customers and end users in such markets, the
working capital investment made by the Company could fail to generate
revenues for several years while the Company develops such products and
its customers and end users conduct their testing, qualification and
approval procedures for such products. Although the Company believes
that cash from its operations and its ability to borrow under its
revolving credit agreement (see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources") will provide it sufficient liquidity to finance its
efforts to develop new products, there can be no assurance that the
Company's operations together with amounts available under its
revolving credit agreements will be sufficient to finance such
development efforts and to meet the Company's other obligations.
Environmental Matters
The Company is subject to federal, state and local laws and
regulations designed to protect the environment and worker health and
safety. The Company's management emphasizes compliance with such laws
and regulations and has instituted programs throughout the Company to
provide education and training in compliance at and auditing of all
Company facilities. Whenever required under applicable law, the Company
has implemented product or process changes or invested in pollution
control systems to ensure compliance with such laws and regulations.
In Fiscal 1998, 1997 and 1996, the amount of capital
expenditures related to environmental matters was immaterial and the
amount of such expenditures is expected to be immaterial in Fiscal
1999. In the future, as the requirements of applicable law impose more
stringent controls at Company facilities, expenditures related to
environmental and worker health and safety are expected to increase.
While the Company does not currently anticipate having to make any
material capital expenditures in order to comply with these laws and
regulations, if the Company is required to do so, such expenditures
could have a material impact on its earnings or competitive position in
the future.
In connection with its acquisition of a manufacturing facility
in South Bend, Indiana on July 17, 1996, the Company assumed the costs
of remediation of soil and groundwater contamination resulting from the
leaking of solvents used in the operation of the plant by its former
owner. The Company is conducting the remediation voluntarily pursuant
to an agreement with the Indiana Department of Environmental
Management. The Company estimates that such remediation will cost
approximately $1.0 million over a five-to-seven-year period. In
connection with its acquisition of the facility, the Company placed in
escrow, in accordance with the terms of the purchase agreement, $1.0
million of the $1.8 million purchase price to be applied to such
remediation costs. Through Fiscal 1998, the Company has incurred costs
of approximately $566,000 in connection with such remediation.
Pursuant to a 1992 settlement agreement with the United States
Environmental Protection Agency (the "EPA"), the United States
Department of the Interior and the States of Wisconsin and Indiana (the
"EPA Settlement Agreement") entered into in connection with the Plan of
Reorganization of the Predecessor Companies (see "- History of Company
- Predecessor Companies"), the Predecessor Companies compromised and
settled (in exchange for Common Stock of the Company) substantially all
of their pre-petition liabilities relating to disposal activities under
Sections 106 and 107 of the Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation & Recovery Act ("RCRA") and similar state laws for the
cleanup of 20 designated sites not owned by any of the Predecessor
Companies (the "Known Sites") and for natural resource damages at 15 of
the 20 Known Sites. Pursuant to the EPA Settlement Agreement, the
United States and the States of Indiana and Wisconsin agreed not to sue
for response costs and, with the exception of five Known Sites, natural
resource damages at each of the Known Sites. In addition, pursuant to
Section 113(f)(2) of CERCLA, and as provided under the Settlement
Agreement, the Predecessor Companies and the Company will be protected
against contribution claims filed by private parties for any Known Site
for matters covered by the EPA Settlement Agreement. The EPA Settlement
Agreement established a mechanism for the Company to resolve its
liability for any other sites (the "Additional Sites"), except those
owned by the Company, arising from pre-petition disposal activity. The
Company also agreed to share with such governmental parties the
proceeds of claims relating to the Known Sites made against certain
insurers of the Predecessor Companies and their affiliates.
In the event that the United States, Wisconsin or Indiana
asserts a claim against the Predecessor Companies or the Company for
response costs associated with pre-petition disposal activities at any
Additional Site, the governmental party will be entitled to pursue its
claim in the ordinary course, and the Company and the Predecessor
Companies will be entitled to assert all of their defenses. However, if
and when the Company or any of the Predecessor Companies is held
liable, and if the liability is determined to arise from pre-petition
disposal activities, the Company or such Predecessor Company may pay
the liability in discounted "plan dollars" (i.e., the value of the
consideration that the party asserting such claim would have received
if the liability were treated as a general unsecured claim under the
Plan of Reorganization). Such payment may be made in cash or in the
Company's stock, or a combination thereof, at the Company's or such
Predecessor Company's option. Claims arising from real property owned
by the Company are not affected by the EPA Settlement Agreement.
The Company received a letter dated October 30, 1997, from the
EPA, Region 5, informing the Company that it might be financially
responsible for a pollution incident at the plant formerly occupied by
the Company at 312 North Hill Street, Mishawaka, Indiana. The EPA later
notified the Company that it expected the Company to pay for part or
all of the approximately $1.7 million of costs associated with the
cleanup of a portion of such plant. The Company and the EPA have
negotiated a settlement in principle, whereby the EPA will be given an
allowed unsecured claim of $1.7 million under the Plan of
Reorganization of the Predecessor Companies and the Company will make a
payment of $525,000 to the EPA.
In October 1996, the EPA sent the Company a General Notice and
Special Notice of Liability concerning the Refuse Hideaway Landfill
Superfund Site at Middleton, Wisconsin. While a unit of Uniroyal, Inc.
is believed to have sent non-hazardous waste to the site between 1978
and 1984, the Company is not aware that the Uniroyal, Inc. unit sent
any hazardous materials to the site. The Company has entered into an
Administrative Order on Consent with the EPA and a Potentially
Responsible Parties Agreement with certain other potentially
responsible parties. 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,
such liability will be subject to the terms of the EPA Settlement
Agreement. See "- History of Company - Predecessor Companies."
The Company's acquisition of the assets of Townsend Plastics
in September 1997 included the building in which the business operates
in Pleasant Hill, Iowa. The seller retained the underlying real
property, which is leased to the Company for a term of ten years. The
Company also has an option to acquire such real property until
September 30, 2007. The real property is subject to a RCRA Facility
Investigation/Corrective Measures Study with Interim Measures ordered
by the EPA pursuant to RCRA. Two former lessees of the property are
performing corrective measures on the real property to remediate soil
and ground water contamination. The Company does not anticipate that
such corrective measures will interfere with the Company's use of the
property. The Company does not anticipate any liability to the Company
in connection with such contamination or corrective measures as long as
the Company remains a lessee of the property.
Based upon information available as of September 27, 1998, the
Company believes that the costs of environmental remediation for which
it may be liable have either been adequately reserved for or are
otherwise unlikely to have a material adverse effect on the Company's
operations, cash flows or financial position.
History of Company
Predecessor Companies
The Company's businesses trace their origins to a number of
predecessor companies which eventually were reorganized pursuant to the
Third Amended Plan of Reorganization under the Bankruptcy Code for
Polycast Technology Corporation and Its Affiliated Debtors (as
subsequently modified, the "Plan of Reorganization"). See "- History of
the Company - Reorganization."
The Company's acrylic sheet business originated in the 1960's
in a company known as Polycast Technology Corporation ("Polycast
Technology"), which subsequently changed its name to The Jesup Group,
Inc. ("Jesup"). In 1984, Polycast Technology acquired the business of
Shenandoah Plastics ("Shenandoah"), a company engaged since 1967 in the
manufacture of thermoplastic sheet, and Glasflex Corporation
("Glasflex"), a manufacturer since 1954 of acrylic sheet, rods and
tubes. These businesses eventually became part of what is known today
as the Company's High Performance Plastics Segment.
A substantial portion of the thermoplastic sheet business of
the High Performance Plastics Segment (other than that acquired from
Shenandoah ), as well as the businesses of the Coated Fabrics Segment
and the Specialty Adhesives Segment (formerly the Specialty Foams and
Adhesives Segment), originated in the chemical and plastics operations
of the U.S. Rubber Company (later known as Uniroyal, Inc.
("Uniroyal")). These operations were conducted by segments of Uniroyal
until 1985, when Uniroyal Plastics Company, Inc. ("UPC") was formed by
Uniroyal as a wholly-owned subsidiary to hold these operations. In
October 1986, Jesup, indirectly, through its wholly-owned subsidiary,
Uniroyal Plastics Acquisition Corp. ("UPAC"), acquired UPC from
Uniroyal. Following its acquisition of UPC, Jesup combined the
thermoplastic sheet operations acquired from UPC with its existing
thermoplastic sheet and acrylic sheet, rod and tube businesses in a
subsidiary known as Polycast Technology Corporation ("Old Polycast").
Jesup also transferred what is now the Coated Fabrics Segment of the
Company's business into Uniroyal Engineered Products, Inc. ("Old UEP")
and the adhesives and sealants business of what is now its Specialty
Adhesives Segment into Uniroyal Adhesives and Sealants Company, Inc.
("Old UAS"). The assets of the specialty foam business were transferred
from UPC to Ensolite, Inc. ("Old Ensolite"). Old Polycast, Old UEP, Old
Ensolite and Old UAS are referred to herein as the "Predecessor
Companies." UPC is currently in bankruptcy liquidation and was an
affiliate of the Predecessor Companies. UPAC's plan of reorganization
was substantially implemented in November 1993.
In October and November 1991, the Predecessor Companies and
one other subsidiary of Jesup filed voluntary bankruptcy petitions with
the United States Bankruptcy Court for the Northern District of
Indiana, South Bend Division (the "Bankruptcy Court") for relief under
Chapter 11 of Title 11 of the United States Code, as amended (the
"Bankruptcy Code").
Reorganization
The Predecessor Companies sought protection under the
Bankruptcy Code primarily as a result of their inability to meet
significant obligations for retiree medical expenses, unfunded pension
obligations and interest on indebtedness incurred in connection with
the acquisition of UPC. Prior to the commencement of the Predecessor
Companies' bankruptcy proceedings (the "Bankruptcy Proceedings") in
Fiscal 1991, these non-operating expenses, combined with the loss of
sales in certain economically depressed markets (particularly the
automobile markets), caused a significant and increasing drain on the
Predecessor Companies' working capital and resulted in certain of the
Predecessor Companies' significantly reducing their operations
(including profitable, but working capital-intensive, operations such
as the application of coatings to fabric for automotive airbags) and
certain capital expenditure programs. The segments most adversely
affected by the decreased working capital condition were the Coated
Fabrics and Specialty Adhesives Segments.
The plan of reorganization of the Predecessor Companies was
substantially consummated on September 27, 1992. Pursuant to the Plan
of Reorganization, each of the Predecessor Companies transferred
substantially all of its assets to a newly organized subsidiary of the
Company with a name that was substantially identical to the name of its
corresponding Predecessor Company. In exchange, each of these new
subsidiaries, including Polycast Technology Corporation ("Polycast"),
Uniroyal Engineered Products, Inc. ("UEP"), Uniroyal Adhesives and
Sealants Company, Inc. ("UAS") and Ensolite, Inc. ("Ensolite"), agreed
to assume certain of the liabilities of its corresponding Predecessor
Company. In addition, the Company issued, or authorized for issuance,
9,575,000 shares of its Common Stock to holders of allowed unsecured
claims against the Predecessor Companies and 50 shares of Series A
Preferred Stock and 50 shares of Series B Preferred Stock to the
Pension Benefit Guaranty Corporation (the "PBGC"). On June 7, 1993, in
conjunction with the public offering of the Company's 11.75% Senior
Secured Notes, the Company merged each of its operating subsidiaries
into the Company. In May 1993 the Company called and repurchased from
the PBGC all of the outstanding shares of Series A Preferred Stock and
15 shares of the outstanding shares of Series B Preferred stock. On
December 16, 1996, the Company repurchased an additional 15 shares of
such stock, and on February 4, 1997, the Company repurchased the
remaining 20 shares of preferred stock. On November 13, 1997, the
Company, certain officers and directors of the Company and certain
other persons purchased all of the common stock held by the PBGC.
On November 8, 1993, the Plan of Liquidation of UPAC became
effective and was substantially consummated. Pursuant to the UPAC Plan
of Liquidation, the Company received a cash distribution of
approximately $6.8 million following the liquidation of the assets of
the UPAC estate and accordingly recorded income from the UPAC Plan of
Liquidation in the amount of approximately $6.8 million.
In connection with matters relating to UPAC's acquisition of
UPC, on May 6, 1993 the Company entered into a settlement agreement
(the "Company Settlement") with Uniroyal, Inc., CDU Holding Liquidating
Trust and Uniroyal Holding, Inc. (collectively, the "Uniroyal Parties")
pursuant to which the Company and the Uniroyal Parties resolved certain
existing and potential disputes arising from the acquisition of UPC by
UPAC from Uniroyal, Inc. Uniroyal, Inc. was dissolved in December 1986.
CDU Holding Liquidating Trust and Uniroyal Holding, Inc. were
affiliates of Uniroyal, Inc. In connection with the resolution of the
matters covered by the Company Settlement, the Uniroyal Parties paid
$2.25 million in cash to the Company. In exchange, the Company agreed
to certain matters involving the prosecution and settlement of claims
under insurance policies, including certain claims of the Uniroyal
Parties that covered environmental liabilities at certain of the Known
Sites. See " Environmental Matters." As a result of this agreement and
related agreements reached with insurance companies during Fiscal 1994
as to amounts with respect to environmental claims, the Company
recorded as income in Fiscal 1994 approximately $1.2 million and in
Fiscal 1995 approximately $70,000, net of certain professional fees and
other expenses.
The Company Settlement also provides that the Company will
indemnify and hold harmless the Uniroyal Parties with respect to: (i)
environmental liabilities associated with sites that were owned or
operated by the Company or the Predecessor Companies on or before May
6, 1993; and (ii) future environmental expenditures by the Uniroyal
Parties with respect to the businesses of UPC, net of recoveries from
third parties (including insurance proceeds), but only with respect to
the portion of such expenditures, if any, that exceeds $30 million and
is less than $45 million. See " - Environmental Matters."
Pursuant to the Company Settlement, the Company and the
Uniroyal Parties also agreed to share on a 35 percent (35%) - 65
percent (65%) basis, respectively, the costs of providing medical,
prescription drug and life insurance benefits to certain retired former
salaried employees of UPC or Uniroyal who are class members in a
federal class action lawsuit against certain of the Uniroyal Parties.
The Company's cost for providing such medical, prescription drug and
life insurance benefits in Fiscal 1998 was approximately $744,000. The
Company and the Uniroyal Parties also mutually released each other from
all claims and causes of action, if any, related to or arising in
connection with the acquisition of UPC from Uniroyal in 1986 and all of
the agreements entered into in connection therewith.
In a separate settlement agreement entered into on May 6, 1993
(the "UPAC Settlement"), UPAC and Jesup (each of which was an affiliate
of the Predecessor Companies) settled their claims against the Uniroyal
Parties and certain of their insiders and affiliates. The Uniroyal
Parties and such insiders and affiliates are collectively referred to
as the "Uniroyal Affiliated Parties". Pursuant to the UPAC Settlement,
the Uniroyal Affiliated Parties paid $16.0 million in cash to UPAC.
Such cash constituted the major portion of the bankruptcy estate of
UPAC.
Item 2. Properties
The following table sets forth the location, size, general
character and nature of the Company's facilities:
SQUARE FEET GENERAL CHARACTER
LOCATION AND ENTITY OF FACILITY OF PROPERTY LEASED OR OWNED
Corporate
- ---------
Sarasota, Florida 11,000 Corporate offices Leased
Stirling, New Jersey 50,000 Manufacture of acrylic sheet, rods & tubes Owned (Leased
to HPPI)
High Performance Plastics Segment
- ----------------------------------
South Bend, Indiana 12,000 Offices Owned
Stamford, Connecticut 5,500 Offices Leased
Stamford, Connecticut 81,000 Manufacture of cell cast acrylics Owned
Hackensack, New Jersey 46,000 Manufacture of cell cast acrylics Owned
Rome, Georgia 45,000 Manufacture of thermoplastic products Owned
Redlands, California 60,000 Manufacture of thermoplastic products Owned
Stirling, New Jersey 50,000 Manufacture of acrylic sheet, rods & tubes Leased (From
Corporate)
Warsaw, Indiana 225,000 Manufacture of thermoplastic products, Owned
custom compounding and warehouse
Newport, Delaware 14,000 Manufacture of acrylics Leased
Pleasant Hill, Iowa 49,000 Manufacture of acrylic rods & tubes Owned (Ground Lease
On Real Estate)
Melbourne, Florida 52,000 Fabrication of acrylic sheet Leased
Coated Fabrics Segment
- ----------------------
Stoughton, Wisconsin 198,275 Manufacture of coated fabrics products Owned
Port Clinton, Ohio 240,000 Manufacture of coated fabrics products Owned
Specialty Adhesives Segment
- ---------------------------
South Bend, Indiana 240,000 Manufacture of adhesives and sealants Owned
Optoelectronics Segment
- -----------------------
Tampa, Florida 69,000 Manufacture of epitaxial wafers and
package ready die Leased
All of the properties owned by the High Performance Plastics
Segment are subject to the liens of mortgages securing HPPI's credit
agreement with Fleet National Bank. See "Note 9 to Consolidated
Financial Statements."
In conjunction with plant consolidations at the Polycast
division, see "Note 2 to the Consolidated Financial Statements," the
Company plans to sell the Stirling, New Jersey facility which is owned
by the Company and leased to HPPI.
In conjunction with the sale of the automotive operation of
the Coated Fabrics Segment, the Company plans to sell the Port Clinton,
Ohio facility. See "Item 1. Business - Corporate Developments - Sale of
the Automotive Operation of the Coated Fabrics Segment."
Item 3. Legal Proceedings
By letter dated January 30, 1998, the Denver Regional Office
of the U.S. Federal Trade Commission ("FTC") notified the Company that
it was conducting a non-public investigation into the Company's
acquisition of the Townsend Plastics Division of Townsend Industries in
September 1997. The purpose of the investigation was to determine
whether the transaction violated Section 7 of the Clayton Act, 15
U.S.C. Section 18, Section 5 of the Federal Trade Commission Act, 15
U.S.C. Section 45, or any other law enforced by the FTC. The Company
has been cooperating with the FTC in its investigation. The Company has
been in discussions with the staff of the Denver Regional Office of the
FTC seeking to meet the concerns of both the Company and the FTC.
Management does not expect the cost of compliance with the FTC requests
to have a material adverse effect upon the Company's results of
operations, cash flows or financial position. The Company is currently
seeking to sell certain assets to another entity that could compete
with Townsend/Glasflex in order to increase competition in the markets
served by Townsend/Glasflex.
The Company is involved in certain proceedings in the ordinary
course of its business which, if determined adversely to the Company
would, in the opinion of management, not have a material adverse effect
on the Company or its operations.
In connection with its reorganization, the Company entered
into a number of settlement agreements, including certain agreements
relating to environmental matters. See "Item 1. Business - History of
the Company - Reorganization."
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of Fiscal
1998 to a vote of security holders, through the solicitation of proxies
or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to the effective date of the Plan of Reorganization,
none of the Company's common stock, par value $.01 per share (the
"Common Stock"), was issued, and consequently there was no public
market for the Common Stock. The Common Stock was admitted to trading
on the NASDAQ National Market System ("NASDAQ") on September 28, 1992
and trades under the symbol "UTCI." At the close of trading on November
30, 1998, the price per share of Common Stock was $10.00. The Plan of
Reorganization provides for the issuance of a maximum of 10,000,000
shares of Common Stock in settlement of claims and other matters in
connection with the Bankruptcy Proceedings. As of November 30, 1998,
approximately 9,666,000 of such shares of Common Stock had been issued
pursuant to the Plan of Reorganization (including shares transferred to
the Company's treasury as a result of the election by certain claim
holders, as provided under the Plan of Reorganization, to receive cash
in lieu of Common Stock). The remaining shares are being held pending
resolution of certain retiree medical claims.
As of November 30, 1998, there were 840 holders of record of
shares of Common Stock. In addition, there were approximately 1,700
holders of Common Stock in street name.
The following table sets forth the high and low sales price
per share of the Company's Common Stock as reported by NASDAQ for the
indicated dates:
Fiscal Year Ended Fiscal Year Ended
September 27, 1998 September 28, 1997
-------------------------------- ---------------------------------
Quarter High Low High Low
------- ------- ------- ------- -------
First $6.625 $3.938 $3.250 $2.688
Second $9.000 $5.313 $3.188 $2.500
Third $10.250 $7.750 $4.000 $2.125
Fourth $10.875 $9.000 $4.750 $3.125
The holders of record of shares of Common Stock are entitled
to receive dividends when and as declared by the Board of Directors of
the Company, provided that the Company has funds legally available for
the payment of such dividends and is not otherwise contractually
restricted from making payment thereof. The Company has not paid any
cash dividends on the common stock in the last three fiscal years. The
Company's ability to pay cash dividends on Common Stock was previously
restricted by the indenture in connection with the Company's Senior
Secured Notes. See "Note 9 to Consolidated Financial Statements."
Item 6. Selected Financial Data
The following historical financial data as of September 27,
1998 and September 28, 1997 and for each of the three years in the
period ended September 27, 1998 have been derived from consolidated
financial statements of the Company audited by Deloitte & Touche LLP
and contained elsewhere in this Form 10-K. The selected historical
financial data presented below as of September 29, 1996, October 1,
1995 and October 2, 1994 and for the fiscal years ended October 1, 1995
and October 2, 1994 have been derived from audited financial statements
of the Company. All of the financial data set forth below should be
read in conjunction with the Consolidated Financial Statements and
related notes and other financial information contained in this Form
10-K.
SELECTED FINANCIAL DATA
----------------- ------------------ ----------------- ----------------- -----------------
September 27, September 28, September 29, October 1, October 2,
1998 1997 1996 1995 1994 (1)
----------------- ------------------ ----------------- ----------------- -----------------
(in thousands, except share and per share data)
Operating Data:
Net Sales $ 220,616 $ 208,524 $ 209,348 $ 214,951 $ 197,536
Depreciation and other
amortization (2) 8,720 8,304 9,848 9,521 8,356
Income (loss) before interest,
income taxes and
extraordinary item 23,016 10,594 (12,749) 9,549 15,414
Interest expense (9,382) (9,384) (9,773) (10,029) (10,109)
Income tax (expense) benefit (5,607) (831) 8,121 189 (2,217)
Income (loss) before
extraordinary item 8,027 379 (14,401) (291) 3,088
Extraordinary (loss) gain (5,637) - - 363 727
Net income (loss) $ 2,390 $ 379 $ (14,401) $ 72 $ 3,815
Income (loss) per common share-
basic:
Income (loss) before
extraordinary item $ 0.61 $ 0.03 $ (1.09) $ (0.02) $ 0.24
Extraordinary (loss) gain (0.43) - - 0.03 0.06
----------- ----------- ----------- ----------- -----------
Net income (loss) per share $ 0.18 $ 0.03 $ (1.09) $ 0.01 $ 0.30
=========== =========== =========== =========== ===========
Average number of shares used
in computation (3) 13,231,542 13,316,965 13,167,466 13,014,910 12,867,624
========== ========== ========== ========== ==========
Income (loss) per common share-
assuming dilution:
Income (loss) before
extraordinary item $ 0.55 $ 0.03 $ (1.09) $ (0.02) $ 0.22
Extraordinary (loss) gain (0.39) - - 0.03 0.05
----------- ----------- ---------- ----------- -----------
Net income (loss) per share $ 0.16 $ 0.03 $ (1.09) $ 0.01 $ 0.27
=========== =========== ========== =========== ===========
Average number of shares used
in computation (3) 14,631,068 13,423,554 13,167,466 13,014,910 14,317,298
========== ========== ========== ========== ==========
Balance Sheet Data:
Cash and cash equivalents $ 5,585 $ 244 $ 2,023 $ 291 $ 4,249
Working capital 36,146 33,358 29,148 31,292 34,454
Total assets 186,351 181,491 170,786 180,483 179,274
Long-term debt (including
current portion) 105,658 89,647 72,775 76,763 79,371
Stockholders' equity 32,311 40,032 43,499 57,669 57,533
<FN>
(1) All fiscal years presented are 52-week periods except for
the fiscal year ended October 2, 1994 which was a 53-week fiscal year.
(2) Excludes amortization of reorganization value in excess of
amounts allocable to identifiable assets of $377,000, $754,000,
$765,000, $769,000 and $1,003,000 for the fiscal years ended September
27, 1998, September 28, 1997, September 29, 1996, October 1, 1995 and
October 2, 1994, respectively.
(3) See "Note 16 to Consolidated Financial Statements."
</FN>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis by the Company's
management should be read in conjunction with "Item 6. Selected
Financial Data" and "Item 8. Consolidated Financial Statements and
Supplementary Data" appearing elsewhere in this Form 10-K.
Results Of Operations
Comparison of Fiscal 1998 with Fiscal 1997
Net Sales. The Company's net sales increased in Fiscal 1998
six percent (6%) to $220.6 million from $208.5 million in Fiscal 1997.
Net sales in the High Performance Plastics Segment increased
in Fiscal 1998 by approximately eight percent (8%) to $128.6 million
from $118.8 million in Fiscal 1997. The increase is due to the net
effect of an increase in unit volume at Royalite which was slightly
offset by a small decline in overall average unit selling prices
combined with the net effect of a slight decline in unit volume at
Polycast which was more than offset by an increase in average unit
selling prices. The High Performance Plastics segment also benefited
from the acquisitions of the Lucite(R) S-A-R business and Townsend
Plastics which were acquired during the fourth quarter of Fiscal 1997,
and the current year acquisition of ViPlex Corporation, which was
acquired on May 22, 1998.
The Coated Fabrics Segment's net sales decreased approximately
one percent (1%) in Fiscal 1998 to $67.9 million from $68.8 million in
Fiscal 1997. The decrease resulted primarily from a decline in
automotive sales due to the gradual phase-out of its automotive
operations. See "Item 1. Business Corporate Developments - Sale of the
Automotive Operation of the Coated Fabrics Segment and Business
Segments - Coated Fabrics." The decline was partially offset by an
increase in selling prices for the Segment's Naugahyde(R) vinyl coated
fabrics.
Net sales in the Specialty Adhesives Segment increased in
Fiscal 1998 by approximately 15 percent (15%) to $24.1 million from
$20.9 million in Fiscal 1997. This increase in sales is primarily
attributable to the acquisition of C. Gunther Company on March 31,
1997, increased sales of Hydra Fast-En(R) products, increased sales of
Silaprene(R) primarily in the truck body and trailer markets and
increased sales as a result of a tolling agreement with a major
adhesives company.
Income (Loss) Before Interest, Income Taxes and Extraordinary
Item. In Fiscal 1998, the Company had income before interest, income
taxes and extraordinary item of $23.0 million as compared to income
before interest, income taxes and extraordinary item of $10.6 million
for Fiscal 1997. All of the Company's major business segments recorded
significant increases in Fiscal 1998.
Income before interest, income taxes and extraordinary item
for the High Performance Plastics Segment increased in Fiscal 1998 by
approximately 54 percent (54%) to $16.2 million from $10.5 million in
Fiscal 1997. The increase was a result of a more favorable sales mix
leading to higher margins for both the Royalite and Polycast divisions,
incremental earnings from prior year and current year acquisitions and
a change in methodology for the allocation of corporate overhead
expenses.
The Coated Fabrics Segment's income before interest, income
taxes and extraordinary item in Fiscal 1998 was approximately $8.9
million compared to income before interest, income taxes and
extraordinary item of $2.1 million in Fiscal 1997. The increase of $6.8
million was principally due to the net result of lower manufacturing
costs for the Segment's automotive operations as a result of the
gradual phase-out, the reversal of rebate accruals applicable to such
business and a change in the methodology for the allocation of
corporate overhead expenses. Also, increased production costs were
incurred in 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 Fiscal 1997 to qualify its products using
comparable raw materials available from other supply sources.
Income before interest, income taxes and extraordinary item
for the Specialty Adhesives Segment was $1.9 million in Fiscal 1998 as
compared to a loss before interest, income taxes and extraordinary item
of $346,000 in Fiscal 1997. The income before interest, income taxes
and extraordinary item in Fiscal 1998 was due to significantly
increased sales, the incremental earnings from the acquisition of C.
Gunther Company, operating efficiencies as a result of the relocation
to the new South Bend facility and a change in methodology for the
allocation of corporate overhead expenses.
Loss before interest, income taxes and extraordinary item for
the Optoelectronics Segment was $406,000 before consideration of a
minority interest of $199,000 in Fiscal 1998. The loss is attributable
to start-up expenses incurred by the Optoelectronics Segment. Planned
principal operations have not yet commenced. The Segment was not in
existence during Fiscal 1997.
Amortization of reorganization value in excess of amounts
allocable to identifiable assets in Fiscal 1998 decreased to $377,000
from $754,000 in Fiscal 1997. The decrease resulted from the write-off
of the remaining reorganization value in excess of amounts allocable to
identifiable assets in the third quarter of Fiscal 1998. The write-off
was in conjunction with the reduction of the deferred tax valuation
allowance relating to the acquired tax loss carryforward benefits.
Approximately $3.4 million of miscellaneous expense in Fiscal
1998 was not allocated to any segment of the Company's business
compared to $958,000 in Fiscal 1997. During Fiscal 1998 the Company
changed its methodology for the allocation of corporate overhead
expenses from an allocation of 100% of certain corporate costs to an
allocation of costs based upon 3.0% - 3.5% of segment sales. Prior
fiscal year amounts were not restated.
Interest Expense. Interest expense in Fiscal 1998 and Fiscal
1997 approximated $9.4 million. Overall, the effect of the increase in
debt was offset by a decrease in overall interest rates obtained
through the refinancing. See "Item 1. Business Developments - High
Performance Plastics, Inc."
Income Tax (Expense) Benefit. Income tax expense in Fiscal
1998 was approximately $5.6 million as compared to an expense of
$831,000 in Fiscal 1997. The provisions for income tax benefit were
calculated by the Company through use of the effective income tax rates
based upon its actual income.
Extraordinary Loss on the Extinguishment of Debt. The
extraordinary loss on the extinguishment of debt during Fiscal 1998 was
$5.6 million. This amount represents the loss recognized when the
Company early retired the remaining $72.3 million of its 11.75% Senior
Secured Notes, including a call premium payment of 4.41% and write-off
of applicable debt issuance cost and unamortized debt discount, net of
income tax benefit of approximately $2.8 million. See "Note 9 to
Consolidated Financial Statements."
Comparison of Fiscal 1997 with Fiscal 1996
Net Sales. The Company's net sales decreased in Fiscal 1997
less than one percent (1%) to $208.5 million from $209.3 million in
Fiscal 1996. During Fiscal 1996 the Company sold its Ensolite specialty
foams division. Included in Fiscal 1996 are net sales of Ensolite of
approximately $17.2 million. Excluding such sales from the prior period
amounts, net sales of the Company's continuing businesses increased by
approximately nine percent (9%). This increase is attributable to
increased net sales in all three business segments of the Company.
Net sales in the High Performance Plastics Segment increased
in Fiscal 1997 by approximately three percent (3%) to $118.8 million
from $115.1 million in Fiscal 1996. Royalite had sales increases in its
niche businesses including flame retardancy products principally in the
mass transit market; weatherability products in the construction market
and soft feel laminate products sold in conjunction with the Company's
Coated Fabrics Segment into the truck market. These increases at
Royalite were partially offset by lower sales in its lower margin
general purpose products which was consistent with management's focus
on higher margin specialty sheet. Polycast experienced increased sales
in its specialty markets as well as increases from its acquisitions in
Fiscal 1997.
The Coated Fabrics Segment's net sales increased in Fiscal
1997 approximately 17 percent (17%) to $68.8 million from $58.7 million
in Fiscal 1996. This increase resulted primarily from increased unit
volume of products sold to the automotive industry. This increase
resulted from car volume increases in the transplant industry and the
Company's introduction of a new product line qualified for use in the
manufacture of several automobile models by General Motors. In
addition, the Company experienced sales increases of Naugahyde(R)
coated vinyl products primarily in the mass transit, electronic and
athletic equipment markets.
Net sales in the Specialty Adhesives Segment decreased in
Fiscal 1997 by approximately 41 percent (41%) to $20.9 million from
$35.5 million in Fiscal 1996. This decrease resulted principally from
the Ensolite Sale. In Fiscal 1996, net sales of Ensolite(R) products
for the 8 month period preceding consummation of the Ensolite Sale on
June 10, 1996, were approximately $17.2 million. Excluding such sales
from the prior period amounts, net sales of liquid adhesives and
sealants increased approximately 14 percent (14%) from Fiscal 1996 to
Fiscal 1997. This increase in sales is primarily attributable to the
acquisition of C. Gunther Company on March 31, 1997, increased sales of
Hydra Fast-En(R) products, primarily in the truck body and trailer
markets, increased bonding sales to Firestone, reflecting stronger
commercial roofing business and increased customer market share.
Income (Loss) Before Interest, Income Taxes and Extraordinary
Item. In Fiscal 1997, the Company had income before interest, income
taxes and extraordinary item of $10.6 million as compared to a loss
before interest, income taxes and extraordinary item of $12.7 million
for Fiscal 1996.
Income before interest, income taxes and extraordinary item
for the High Performance Plastics Segment increased in Fiscal 1997 by
approximately 50 percent (50%) to $10.5 million from $7.0 million in
Fiscal 1996 primarily as a result of lower MMA costs on average and
lower operating costs for Polycast. In Fiscal 1996, Polycast incurred
an $808,000 charge for estimated back pay and retraining costs in
connection with the settlement of a strike at the Polycast Division's
Stamford, Connecticut facility and a temporary decline in manufacturing
efficiency at such facility in Fiscal 1996 as a result of the required
retraining of employees returning from the strike. In addition, in
Fiscal 1996, the Royalite Division incurred certain non-recurring
professional and development costs.
The Coated Fabrics Segment's income before interest, income
taxes and extraordinary item in Fiscal 1997 was approximately $2.1
million compared to a loss of approximately $19.0 million in Fiscal
1996. In Fiscal 1996 the Company established reserves totaling
approximately $12.5 million related to its decision to exit the Port
Clinton, Ohio automotive operation. Excluding this reserve, the Segment
lost approximately $6.5 million from operations in Fiscal 1996. In
Fiscal 1996, the Company suffered a loss of sales and incurred
additional costs on instrument panels for a transplant automotive
company as a result of defective adhesion materials provided by one of
the Company's suppliers. The problems caused by such defective
materials were resolved. The improvement in earnings is primarily
related to the increased volume, lower scrap costs and higher
productivity from the increased volume.
Loss before interest, income taxes and extraordinary item for
the Specialty Adhesives Segment was $346,000 in Fiscal 1997 as compared
to income of $70,000 in Fiscal 1996. Excluding the gain on the sale of
the Ensolite Division in Fiscal 1996, the Segment lost $2.0 million.
The reduction in the loss before interest, income taxes and
extraordinary item was due to the incremental earnings from C. Gunther
Company and operating efficiencies as a result of the relocation to the
new South Bend facility. Energy represented a significant cost of
operating the Mishawaka, Indiana facility; due to configuration and
applicable fire and safety regulations, the entire facility had to be
heated and lighted even though the Company's operations occupied less
than 50% of the facility.
Amortization of reorganization value in excess of amounts
allocable to identifiable assets in Fiscal 1997 decreased to $754,000
from $765,000 in Fiscal 1996. This decrease resulted from the write-off
of the assets transferred in connection with the Ensolite Sale.
Approximately $958,000 of miscellaneous expense in Fiscal 1997
was not allocated to any segment of the Company's business. There were
no such unallocated amounts in Fiscal 1996.
Interest Expense. Interest expense in Fiscal 1997 decreased to
approximately $9.4 million from $9.8 million in Fiscal 1996 due to
interest income earned by the Company on the $5.0 million, 11.75
percent (11.75%) note issued to the Company by RBX Group, Inc. as part
of the purchase price of the Ensolite Sale. See "Note 5 to Consolidated
Financial Statements."
Income Tax (Expense) Benefit. Income tax expense in Fiscal
1997 was approximately $831,000 as compared to a benefit of $8.1
million in Fiscal 1996. The provisions for income tax benefit were
calculated by the Company through use of the effective income tax rates
based upon its actual income.
Liquidity and Capital Resources
For Fiscal 1998, the Company's operations provided
approximately $12.8 million of cash as compared to approximately $3.4
million of cash provided during Fiscal 1997. This increase in cash
provided by operations for Fiscal 1998 resulted primarily from
increased net income, an increase in deferred taxes payable, a decrease
in receivables and was partially offset by an increase in inventories
and other assets.
Net cash used in investing activities of the Company in Fiscal
1998 was approximately $3.8 million as compared to approximately $15.5
million used during Fiscal 1997. The primary use of cash during Fiscal
1998 and Fiscal 1997 was to purchase property, plant and equipment. The
Company also used $1.8 million in Fiscal 1998 and $8.0 million in
Fiscal 1997 for business acquisitions. The Company plans to spend
approximately $20 million on property, plant and equipment for the
Optoelectronics Segment and $7 million on the modernization of its
Stamford, Connecticut facility during Fiscal 1999. Funds for the
Optoelectronics project are expected to be provided through outside
financing as well as capital contributions from the joint venture
partners. Funds for the Stamford modernization are expected to be
provided by operations and the ability to borrow under the Company's
revolving credit agreement with Fleet National Bank.
Net cash used in financing activities was $3.8 million during
Fiscal 1998 as compared to $10.3 million provided by financing
activities during Fiscal 1997. Cash used in financing activities in
Fiscal 1998 is the net result of cash provided through the refinancing
(see "Item 1. Business Corporate Developments - High Performance
Plastics, Inc.") offset by the purchases of 1,352,000 shares of
treasury stock for $7.3 million (which excludes a note payable for the
purchase of treasury stock of $2.5 million) and the purchases of
216,850 outstanding warrants for $1.3 million.
The Company at September 27, 1998, had approximately $5.6
million in cash and cash equivalents as compared to approximately
$244,000 at September 28, 1997. Working capital at September 27, 1998
was approximately $36.1 million compared to approximately $33.4 million
at September 28, 1997. The Company had borrowings of approximately
$11.3 million under its $20 million revolving credit agreement with
Fleet National Bank and $4,000 under its $10.0 million revolving credit
agreement with CIT at September 27, 1998. See "Note 9 to Consolidated
Financial Statements."
The Company believes that cash from its operations and its
ability to borrow under the revolving credit facilities mentioned above
provide it sufficient liquidity to finance its existing level of
operations and meet its debt service obligations. However, there can be
no assurance that the Company's operations together with amounts
available under its revolving credit facilities will continue to be
sufficient to finance its existing level of operations and meet its
debt service obligations. The Company's ability to meet its debt
service and other obligations depends on its future performance, which
in turn, is subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's
control. If the Company is unable to generate sufficient cash flow from
operations, it may be required to refinance all or a portion of its
existing debt or obtain additional financing. There can be no assurance
that the Company will be able to obtain such refinancing or additional
financing.
Effects of Inflation
The markets in which the Company sells products are
competitive. In particular, the Company has encountered in connection
with its sales of coated fabrics to the automotive industry and its
sales of acrylics to the aerospace industry, effective resistance to
price increases generally. Thus, in an inflationary environment the
Company might not in all instances be able to pass through to consumers
general price increases, in which event the Company's operations may be
materially impacted if such conditions were to occur. The Company has
not in the past been adversely impacted by general price inflation.
Year 2000
Many software applications and operational programs written in
the past were not designed to recognize calendar dates beginning in the
Year 2000. The failure of such applications or systems to properly
recognize the dates beginning in the Year 2000 could result in
miscalculations or system failures which could result in an adverse
impact on the Company's operations.
The Company has instituted a Year 2000 task force that reports
to the Audit Committee of the Board of Directors. The Company has also
initiated a comprehensive project, overseen by the task force, to
prepare its computer systems, communication systems and
manufacturing/testing equipment for the Year 2000. The project
primarily includes three phases which are: 1) identification and
assessment of all software, hardware and equipment that could
potentially be affected by the Year 2000 issue, 2) remedial action
necessary to bring such systems into compliance and 3) further testing,
if necessary. The Company has generally completed the identification
and assessment phase of its project and is at various stages of
remediation and testing the noted systems. The Company plans to
complete this project by June 1, 1999. The Company believes that the
majority of its major systems are currently Year 2000 compliant and
costs to transition the remaining systems to Year 2000 compliance are
not anticipated to exceed approximately $500,000. The Company has
primarily used internal resources in its Year 2000 project thus far and
has incurred costs of less than $300,000.
The Company is also contacting critical suppliers of products
and services and customers to determine the extent to which the Company
might be vulnerable to such parties' failure to resolve their own Year
2000 issues. 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 Company does not have a concentration of
dependence on these parties. The effect, if any, on the Company's
results of operations from the failure of such parties to be Year 2000
ready is not reasonably estimable.
Currently the Company does not expect to experience
significant disruptions of its operations as a result of the change to
the new millenium and therefore has not formulated a contingency plan
for such occurrence.
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 and customers to adequately resolve their own Year
2000 issues.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks, including
changes in interest rates. The Company's earnings and cash flows are
subject to fluctuations due to changes in interest rates on its
floating rate long-term debt and revolving credit advances. The
Company's risk management policy includes the use of derivative
financial instruments (interest rate swaps) to manage its interest rate
exposure. The counter parties are major financial institutions. The
Company does not enter into derivatives or other financial instruments
for trading or speculative purposes.
The Company's interest rate swaps involve the exchange of
fixed and variable interest rate payments without exchanging the
notional principal amount. Payments or receipts on the agreements are
recorded as adjustments to interest expense. At September 27, 1998, the
Company had outstanding swap agreements, maturing at various dates
through 2003, with an aggregate notional amount of $80.0 million. Under
these agreements the Company receives a floating rate based on
USD-LIBOR-BBA and pays a fixed weighted average interest rate of 5.80%.
These swaps effectively change the Company's payment of interest on
$80.0 million of its $101.3 million variable rate debt at September 27,
1998 to fixed rate debt.
The fair value of these interest rate swap agreements
represents the estimated receipts or payments that would be made to
terminate the agreements. At September 27, 1998, the Company would have
paid approximately $2.7 million to terminate the agreements. A decrease
of 100 basis points in the yield curve would increase the amounts paid
by approximately $2.5 million. The fair value is based on dealer
quotes, considering current interest rates.
At September 27, 1998, approximately $21.3 million of the
Company's floating rate long-term debt and revolving credit advances
was not covered under an interest swap agreement. For floating rate
debt, interest changes generally do not affect the fair market value
but do impact future earnings and cash flows assuming other factors are
held constant. Based upon this balance, a change of one percent in the
interest rate would cause a change in interest expense of approximately
$213,000 on an annual basis.
Item 8. Consolidated Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors and executive
officers of the Company is incorporated herein by reference to the
Company's definitive proxy statement pursuant to Regulation 14A, which
statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 11. Executive Compensation
Information with respect to executive compensation is
incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, which statement will be filed not
later than 120 days after the end of the fiscal year covered by this
Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to the security ownership of
directors and executive officers and substantial stockholders of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and
transactions between directors, executive officers and substantial
stockholders of the Company with the Company is incorporated herein by
reference to the Company's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days
after the end of the fiscal year covered by this Report.
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Consolidated Financial Statements as of September 27, 1998 and
September 28, 1997 and for the Years Ended September 27, 1998,
September 28, 1997 and September 29, 1996:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 27, 1998
September 28, 1997 F-3
Consolidated Statements of Operations for the Years Ended
September 27, 1998, September 28, 1997 and September 29, 1996 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 27, 1998, September 28, 1997 and
September 29, 1996 F-6
Consolidated Statements of Cash Flows for the Years Ended
September 27, 1998, September 28, 1997 and September 29, 1996 F-7
Notes to Consolidated Financial Statements F-9
(b) Consolidated Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying Accounts S-2
(c) Exhibits:
2.1 Certificate of Ownership and Merger, dated June 7, 1993, of Polycast Technology
Corporation, Uniroyal Engineered Products, Inc., Uniroyal Adhesives and Sealants, Inc.
and Ensolite, Inc. with the Company. (6)
3.1 Amended and Restated Certificate of Incorporation of the Company as corrected by a
Certificate of Correction of the Amended and Restated Certificate of Incorporation of
the Company. (1)
3.2 By-Laws of the Company, as amended to November 14, 1996. (13)
4.1 Indenture, dated as of June 1, 1993, between the Company and The Bank of New York, as trustee. (6)
4.2 Warrant Agreement, dated as of June 1, 1993, between the Company and The Bank of
New York, as warrant agent. (6)
10.1 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Polycast,
Polycast and the Company. (2)
10.2 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UEP, UEP
and the Company. (2)
10.3 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Ensolite,
Ensolite and the Company. (2)
10.4 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UAS, UAS
and the Company. (2)
10.5 Asset Acquisition Agreement, dated as of September 27, 1992, between Plastics
Support Corp. ("PSC") and the Company. (2)
10.6 Asset Acquisition Agreement, dated as of September 27, 1992, among U.E. Systems,
Inc., Ensolite and the Company. (2)
10.7 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Howard R. Curd and the Company. (7)
10.8 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Oliver J. Janney and the Company. (7)
10.9 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Robert L. Soran and the Company. (7)
10.10 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
George J. Zulanas, Jr. and the Company. (7)
10.11 Joint Stipulation Between the Debtors and the United States of America on Behalf
of Its Agency, The Internal Revenue Service, Regarding Treatment of Tax Claims. (3)
10.15 Uniroyal Technology Corporation Employee Stock Ownership Plan. (4)
10.16 Amended and Restated Uniroyal Technology Corporation 1992 Stock Option Plan. (13)
10.21 Settlement Agreement among Old Polycast, Old UAS, Old UEP, Old Ensolite and the
Official Retirees' Committee. (3)
10.22 Settlement Agreement and Stipulated Order among Old Polycast, Old UAS, Old UEP,
Old Ensolite, the United States of America, the State of Indiana and the State of
Wisconsin. (3)
10.23 Plan Disbursing Agent Agreement, dated September 27, 1992, among Old Polycast,
Old UAS, Old UEP, Old Ensolite and the Company (2)
10.28 Amended and Restated Uniroyal Technology Corporation 1992 Non-Qualified Stock
Option Plan. (13)
10.29 Agreement dated August 20, 1993 among the Company, UPAC and the Official
Committee of Unsecured Creditors of UPAC. (5)
10.30 Settlement Agreement dated December 6, 1993 among the Company, UPAC, Jesup and
the PBGC. (5)
10.34 Uniroyal Technology Corporation Deferred Compensation Plan Effective as of August
1, 1995. (8)
10.35 Split-Dollar Insurance Agreement dated as of August 15, 1995 by and between
Uniroyal Technology Corporation and Howard R. Curd. (9)
10.39 Financing Agreement dated as of June 5, 1996 by and between The CIT
Group/Business Credit, Inc. and Uniroyal Technology Corporation. (10)
10.40 Amended and Restated Uniroyal Technology Corporation 1994 Stock Option Plan. (13)
10.41 Amended and Restated Uniroyal Technology Corporation 1995 Non-Qualified Stock
Option Plan. (13)
10.42 Asset Purchase Agreement between Rubatex Corporation and Uniroyal Technology
Corporation, dated June 5, 1996. (11)
10.44 Shareholder Rights Agreement, dated as of December 18, 1996, between Uniroyal
Technology Corporation and The Bank of New York, as rights agent. (12)
10.45 First Amendment to Financing Agreement dated September 5, 1997 by and between The
CIT Group/Business Credit, Inc. and Uniroyal Technology Corporation. (14)
10.46 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. (15)
10.47 Amendment and Consent Agreement dated April 14, 1998 by and between the CIT
Group/Business Credit, Inc. and Uniroyal Technology Corporation. (15)
11.1 Statement Regarding Computation of Per Share Earnings
21.1 Subsidiaries of the Company
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
<FN>
(1) Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form 10,
dated September 25, 1992.
(2) Incorporated by reference to Amendment No. 4 to the Company's Registration Statement on Form 10,
dated October 1, 1992.
(3) Incorporated by reference to the Company's Amendment No. 1 to the Company's Registration
Statement on Form 10, dated September 17, 1992.
(4) Incorporated by reference to the Company's Form 10-K for the year ended September 27, 1992,
dated December 24, 1992.
(5) Incorporated by reference to the Company's Form 10-K for the year ended September 26, 1993,
dated December 17, 1993.
(6) Incorporated by reference to the Company's Form 8-K, dated June 9, 1993.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended April 2, 1995 filed on May 12, 1995.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 2, 1995 filed on August 14, 1995.
(9) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended July 2, 1995
filed August 14, 1995. Virtually identical agreements were entered into between the Company and
each of Robert L. Soran, George J. Zulanas, Jr., Oliver J. Janney and Martin J. Gutfreund.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996 filed August 13, 1996.
(11) Incorporated by reference to the Company's Form 8-K, dated June 10, 1996.
(12) Incorporated by reference to the Company's Registration Statement on Form 8-A, dated December
20, 1996.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
September 29, 1996 filed on December 27, 1996.
(14) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
September 28, 1997 filed on December 22, 1997.
(15) Incorporated by reference to the Company's Annual Report on Form 8-K/A dated April 22, 1998.
</FN>
(d) Reports on Form 8-K:
No reports on Form 8-K were filed during the last
quarter of Fiscal 1998.
Item 8. Consolidated Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Consolidated Financial Statements as of September 27, 1998 and September 28, 1997 and
for the Years Ended September 27, 1998, September 28, 1997 and September 29, 1996:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 27, 1998 and September 28, 1997 F-3
Consolidated Statements of Operations for the Years Ended September 27, 1998,
September 28, 1997 and September 29, 1996 F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
September 27, 1998, September 28, 1997 and September 29, 1996 F-6
Consolidated Statements of Cash Flows for the Years Ended September 27, 1998,
September 28, 1997 and September 29, 1996 F-7
Notes to Consolidated Financial Statements F-9
Consolidated Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying Accounts S-2
Schedules Omitted - Certain other schedules have been omitted because they are not
required or because the information required therein has been included in Notes to
Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the accompanying consolidated balance sheets of Uniroyal
Technology Corporation and subsidiaries (the "Company") as of September 27, 1998
and September 28, 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended September 27, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 27, 1998 and September 28, 1997 and the results of its operations and
its cash flows for each of the three years in the period ended September 27,
1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Tampa, Florida
December 16, 1998
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 27, September 28,
1998 1997
------------ ------------
Current assets:
Cash and cash equivalents (Note 2) $ 5,585 $ 244
Trade accounts receivable (less estimated reserve for
doubtful accounts of $246 and $257, respectively) (Notes 2 and 9) 26,320 28,784
Inventories (Notes 2, 3 and 9) 38,139 34,528
Deferred income taxes (Notes 2 and 10) 5,837 6,944
Prepaid expenses and other current assets 1,008 1,192
---------- ----------
Total current assets 76,889 71,692
Property, plant and equipment - net (Notes 2, 4 and 9) 65,551 68,314
Property, plant and equipment held for sale - net (Note 2) 5,924 9,346
Note receivable (Note 5) 5,000 5,000
Goodwill - net (Notes 2 and 6) 8,951 7,350
Reorganization value in excess of amounts allocable to identifiable
assets - net (Notes 2 and 10) - 7,534
Deferred income taxes (Notes 2 and 10) 7,759 1,402
Other assets (Notes 2, 7 and 9) 16,277 10,853
---------- ----------
TOTAL ASSETS $ 186,351 $ 181,491
========== ==========
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 27, September 28,
1998 1997
------------- -------------
Current liabilities:
Current portion of long-term debt (Note 9) $ 7,713 $ 1,277
Trade accounts payable 15,302 15,551
Accrued expenses:
Compensation and benefits 9,743 10,573
Interest 149 3,019
Taxes, other than income 1,258 1,666
Accrued income taxes 921 402
Other 5,657 5,846
----------- -----------
Total current liabilities 40,743 38,334
Long-term debt (Note 9) 97,945 88,370
Other liabilities (Notes 8 and 15) 15,352 14,755
----------- -----------
Total liabilities 154,040 141,459
----------- -----------
Commitments and contingencies (Note 13)
Stockholders' equity (Note 11):
Preferred stock:
Series C - 0 shares issued and outstanding; par value $0.01; 450
shares authorized - -
Common stock:
14,182,956 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 54,613 54,037
Deficit (11,632) (14,022)
----------- -----------
43,123 40,153
Less treasury stock at cost - 1,499,868 and 85,843 shares, respectively (10,812) (121)
----------- -----------
Total stockholders' equity 32,311 40,032
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 186,351 $ 181,491
=========== ===========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Years Ended
-----------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- -------------
Net sales $ 220,616 $ 208,524 $ 209,348
Costs, expenses and (other income):
Costs of goods sold 160,506 161,122 170,088
Selling and administrative 27,872 27,596 29,550
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 377 754 765
Depreciation and other amortization 8,720 8,304 9,848
Reorganization professional fees subsequent to effective date 4 154 640
Gain on sales of divisions (Notes 5 and 14) (512) - (2,102)
Loss on assets to be disposed of (Notes 2 and 14) 633 - 8,900
Curtailment loss (Note 14) - - 3,600
Strike settlement and training expense - - 808
--------- --------- ---------
Income (loss) before interest, income taxes and extraordinary item 23,016 10,594 (12,749)
Interest expense - net (9,382) (9,384) (9,773)
--------- --------- ---------
Income (loss) before income taxes and extraordinary item 13,634 1,210 (22,522)
Income tax (expense) benefit (Notes 2 and 10) (5,607) (831) 8,121
--------- --------- ---------
Income (loss) before extraordinary item 8,027 379 (14,401)
Extraordinary loss on the extinguishment of debt - net (Note 9) (5,637) - -
--------- --------- ---------
Net income (loss) $ 2,390 $ 379 $ (14,401)
========= ========= =========
Net income (loss) per common share - basic (Note 16)
Income (loss) before extraordinary item $ 0.61 $ 0.03 $ (1.09)
Extraordinary loss (0.43) - -
--------- --------- ---------
Net income (loss) $ 0.18 $ 0.03 $ (1.09)
========= ========= =========
Net income (loss) per common share - assuming dilution (Note 16)
Income (loss) before extraordinary item $ 0.55 $ 0.03 $ (1.09)
Extraordinary loss (0.39) - -
--------- --------- ---------
Net income (loss) $ 0.16 $ 0.03 $ (1.09)
========= ========= =========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Preferred Additional
Stock Common Paid-In Treasury Stockholders'
Series B Stock Capital Deficit Stock Equity
--------- ------- --------- --------- --------- --------
Balance at October 1, 1995 $ 5,250 $ 131 $ 52,331 $ - $ (43) $ 57,669
Common stock issued under stock option plans - 1 20 - - 21
Common stock issued to employee benefit plan - 1 166 - 43 210
Stock dividends paid (Note 11) - - - - - -
Net loss - - - (14,401) - (14,401)
-------- ------ -------- -------- -------- --------
Balance at September 29, 1996 5,250 133 52,517 (14,401) - 43,499
Common stock issued for acquisitions - 4 1,483 - - 1,487
Stock dividends paid (Note 11) - 1 - - - 1
Redemption of Series B preferred stock (5,250) - - - - (5,250)
Amounts received pursuant to Directors' stock
option plan - - 37 - - 37
Purchase of treasury stock - - - - (121) (121)
Net income - - - 379 - 379
-------- ------ -------- -------- -------- --------
Balance at September 28, 1997 - 138 54,037 (14,022) (121) 40,032
Common stock issued under stock option plans - 4 1,509 - (894) 619
Common stock issued to employee benefit plan - - 191 - - 191
Amounts received pursuant to Directors' stock
option plan - - 73 - - 73
Purchase of treasury stock - - - - (9,797) (9,797)
Tax benefit from exercise of stock options - - 117 - - 117
Purchase of warrants - - (1,314) - - (1,314)
Net income - - - 2,390 - 2,390
-------- ------ -------- -------- -------- --------
Balance at September 27, 1998 $ - $ 142 $ 54,613 $(11,632) $(10,812) $ 32,311
======== ====== ======== ======== ======== ========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended
-------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- ------------
OPERATING ACTIVITIES:
Net income (loss) $ 2,390 $ 379 $ (14,401)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and other amortization 8,720 8,304 9,848
Deferred tax expense (benefit) 1,908 547 (8,904)
Provision for (recovery of) doubtful accounts 87 - (6)
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 377 754 765
Amortization of Senior Secured Notes discount 63 114 100
Amortization of debt issuance costs 513 431 457
Gain on sales of divisions (512) - (2,102)
Loss on assets to be disposed of 633 - 8,900
Curtailment loss - - 3,600
Extraordinary loss on the extinguishment of debt 5,637 - -
Other 118 351 106
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 2,834 (2,845) (1,858)
Increase in inventories (3,110) (398) (2,456)
(Increase) decrease in prepaid expenses and other
assets (6,131) 567 (359)
(Decrease) increase in trade accounts payable (435) (1,080) 757
(Decrease) increase in accrued expenses (841) (2,804) 1,130
Increase (decrease) in other liabilities 597 (884) 609
---------- ---------- ----------
Net cash provided by (used in) operating activities 12,848 3,436 (3,814)
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,288) (12,200) (9,181)
Proceeds from sale of assets 5,306 4,657 19,641
Business acquisitions, net of cash acquired (1,768) (7,986) -
---------- ---------- ----------
Net cash (used in) provided by investing activities (3,750) (15,529) 10,460
---------- ---------- ----------
FINANCING ACTIVITIES:
Repurchase 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 (3,827) 15,169 (3,762)
Repayment of term loans (2,372) (741) (1,173)
Proceeds from term loan - 1,500 -
Redemption of Series B preferred stock - (5,250) -
Stock options exercised 619 - 21
Purchases of treasury stock (7,347) (121) -
Purchases of warrants (1,314) - -
---------- ---------- ----------
Net cash (used in) provided by financing activities (3,757) 10,314 (4,914)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 5,341 (1,779) 1,732
Cash and cash equivalents at beginning of year 244 2,023 291
---------- ---------- ----------
Cash and cash equivalents at end of year $ 5,585 $ 244 $ 2,023
========== ========== ==========
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Disclosures:
Payments for income taxes and interest expense were as follows (in thousands):
Fiscal Years Ended
---------------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------------- ------------------ ------------------
Income tax payments $ 392 $ 82 $ 570
Interest payments 12,722 9,664 9,549
Non-cash investing activities were as follows (in thousands):
Fiscal Years Ended
---------------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------------- ------------------ ------------------
Business acquisitions purchased with
Company common stock $ - $ 1,488 $ -
Business acquisitions purchased with notes payable 1,000 1,000 $ -
The proceeds from term loan for the fiscal year ended September 27, 1998 does
not include a $2,450,000 note payable issued for the purchase of 300,000 shares
of treasury stock (Notes 9 and 11).
The purchases of property, plant and equipment and the proceeds from term loan
for the fiscal years ended September 28, 1997 and September 29, 1996 do not
include $77,000 and $846,000 related to property held under capitalized leases
(Note 13). The Company did not enter into any capital lease agreements during
the fiscal year ended September 27, 1998.
Net cash used in financing activities for the fiscal years ended September 28,
1997 and September 29, 1996 does not include the dividends declared on the
Series B Preferred Stock since they were paid with the issuance of 73,448 and
115,657 shares, respectively, of the Company's common stock (Note 11). No
dividends were paid during the fiscal year ended September 27, 1998.
During the fiscal years ended September 27, 1998 and September 29, 1996, the
Company made matching contributions to its 401(k) Savings Plan through the
re-issuance of 30,260 shares and 52,369 shares of its common stock,
respectively, from treasury. An additional 8,279 shares of common stock were
issued during the fiscal year ended September 29, 1996 for the remaining portion
of the match. No such contribution was made during the year ended September 28,
1997.
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended September 27, 1998, September 28, 1997
and September 29, 1996
1. THE COMPANY
The accompanying consolidated financial statements relate to Uniroyal
Technology Corporation, its operating divisions, Uniroyal Engineered
Products ("UEP") and Uniroyal Adhesives and Sealants ("UAS") and its
wholly-owned subsidiaries, Uniroyal HPP Holdings, Inc., Uniroyal
Optoelectronics, Inc. and ULC Corp. (collectively, the "Company").
Uniroyal HPP Holdings, Inc. includes its wholly-owned subsidiary, High
Performance Plastics, Inc. ("HPPI"), HPPI's wholly-owned subsidiary,
ViPlex Corporation ("ViPlex") and HPPI's operating divisions, Royalite
Thermoplastics ("Royalite"), Polycast Technology ("Polycast") and
Townsend/Glasflex. Uniroyal Optoelectronics, Inc. includes its
majority-owned joint venture, Uniroyal Optoelectronics, LLC.
On April 14, 1998, the Company transferred all of the net assets of its
High Performance Plastics Segment to a newly created wholly-owned
subsidiary, Uniroyal HPP Holdings, Inc., which transferred the net
assets to its newly created wholly-owned subsidiary, HPPI.
The Company is principally engaged in the manufacture and sale of high
performance plastics, coated fabrics and specialty adhesives. In
addition, the Company has a majority ownership of a joint venture in
the development stage that will ultimately manufacture and sell
epitaxial wafers, dies and package-ready devices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company, its subsidiaries and its majority owned joint venture. All
significant intercompany transactions and balances have been
eliminated.
Fiscal Year End
The Company's fiscal year ends on the Sunday following the last Friday
in September. The dates on which the fiscal year ended for the past
three fiscal years were September 27, 1998 ("Fiscal 1998"), September
28, 1997 ("Fiscal 1997") and September 29, 1996 ("Fiscal 1996").
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes all highly liquid investments
purchased with an original maturity of three months or less.
Financial Instruments
Interest rate swap agreements are used to manage interest rate
exposures. The interest rate differentials to be paid or received under
such swaps are recognized over the life of the agreements as
adjustments to interest expense.
The estimated fair value of amounts reported in the consolidated
financial statements have been determined using available market
information and valuation methodologies, as applicable. The carrying
value of all current assets and liabilities approximates the fair value
because of their short-term nature. The fair values of non-current
assets and liabilities approximate their carrying value.
Trade Accounts Receivable
The Company grants credit to its customers generally in the form of
short-term trade accounts receivable. The creditworthiness of customers
is evaluated prior to the sale of inventory. There are no significant
concentrations of credit risk to the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using a monthly average basis or standard costs (which
approximates actual costs) for raw materials and supplies and the
first-in, first-out ("FIFO") basis of accounting or standard costs
(which approximates actual costs) for work in process and finished
goods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of property,
plant and equipment held under capital leases is equal to the lower of
the net present value of the minimum lease payments or the fair value
of the leased asset at the inception of the lease. Depreciation is
computed under the straight-line method based on the cost and estimated
useful lives of the related assets including assets held under capital
leases.
Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. In
accordance with SFAS No. 121, during the fiscal year ended September
29, 1996, the Company established a valuation reserve totaling
approximately $8,900,000 related to its decision to exit the Port
Clinton, Ohio automotive operation of the Coated Fabrics Segment (Note
14).
During Fiscal 1998, in conjunction with plant consolidations at the
Polycast division, the Company decided to sell its Stirling, New Jersey
facility and certain assets used in the manufacture of acrylic rods and
tubes. In accordance with SFAS No. 121, the Company established a
valuation reserve totaling approximately $633,000, in Fiscal 1998,
related to this decision. As of September 27, 1998, approximately
$1,394,000 of such assets are included in property, plant and equipment
held for sale.
Property, Plant and Equipment Held for Sale
Property, plant and equipment held for sale is stated at the lower of
cost or fair value less cost to sell.
Amortization
Debt issuance costs are amortized using the interest method over the
life of the related debt. Debt discount was amortized using the
interest method over the life of the related debt until the debt was
repaid (Note 9). Patents and trademarks are amortized using the
straight-line method over periods ranging from 7 to 20 years.
Reorganization value in excess of amounts allocable to identifiable
assets was amortized on a straight-line basis over 15 years until the
remaining reorganization value was reduced to zero in connection with
the reduction of the deferred tax valuation allowance related to
acquired tax loss carryforward benefits (Note 10). Reorganization value
in excess of amounts allocable to identifiable assets was reported net
of accumulated amortization of $3,947,000 at September 28, 1997.
Goodwill is amortized on a straight-line basis over 25 years. Goodwill
is reported net of accumulated amortization of $372,000 and $48,000 at
September 27, 1998 and September 28, 1997, respectively.
Research and Development Expenses
Research and development expenditures are expensed as incurred.
Research and development expenditures were $2,657,000, $3,674,000 and
$4,918,000 for the fiscal years ended September 27, 1998, September 28,
1997 and September 29, 1996, respectively.
Employee Compensation
The cost of post-retirement benefits other than pensions are recognized
in the consolidated financial statements over an employee's term of
service with the Company.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income
taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company has recorded a deferred tax asset of approximately
$13,596,000. Realization is dependent on generating sufficient taxable
income prior to expiration of loss carryforwards available to the
Company. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be
realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, Accounting for Stock-Based Compensation, which is
effective for fiscal years beginning after December 15, 1995. Under
SFAS No. 123, the Company may elect to recognize stock-based
compensation expense based on the fair value of the awards or continue
to account for stock-based compensation under Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and disclose in the consolidated financial statements the effects of
SFAS No. 123 as if the recognition provisions were adopted. The Company
has not adopted the recognition provisions of SFAS No. 123.
Net Income (Loss) Per Common Share
The Company has adopted and retroactively applied the requirements of
SFAS No. 128, Earnings Per Share, to all periods presented. This change
did not have a material impact on the computation of the earnings per
share data (Note 16).
New Accounting Pronouncements
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined
as the change in equity of a business during a period from transactions
and circumstances related to non-owner sources and includes all changes
in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS
No. 130 is not expected to have a material effect on the Company's
consolidated financial statements.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires public
entities to report certain information about operating segments, their
products and services, the geographic areas in which they operate and
their major customers, in complete financial statements and in
condensed interim financial statements issued to shareholders. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 is not expected to have a material effect
on the Company's consolidated financial statements.
In February 1998, FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Post-retirement Benefits. SFAS No. 132
supercedes the disclosure requirements in SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, and SFAS No. 106, Employers Accounting for
Post-retirement Plans Other Than Pensions. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997. Adoption of SFAS
No. 131 is not expected to have a material effect on the Company's
consolidated financial statements.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends upon
the intended use of the derivative and resulting designation. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's consolidated financial
statements.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 27, September 28,
1998 1997
-------------- -------------
Raw materials, work in process and supplies $ 22,844 $ 21,851
Finished goods 15,295 12,677
-------- ---------
Total $ 38,139 $ 34,528
======== =========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
thousands):
Estimated
Useful September 27, September 28,
Lives 1998 1997
---------------- ------------------ ------------------
Land and improvements - $ 5,465 $ 5,442
Buildings and improvements 5-40 years 21,969 21,958
Machinery, equipment and office
furnishings 3-20 years 70,259 67,122
Construction in progress - 3,645 2,941
-------- --------
101,338 97,463
Accumulated depreciation (35,787) (29,149)
-------- --------
Total $ 65,551 $ 68,314
======== ========
5. SALE OF ENSOLITE DIVISION
Pursuant to an asset purchase agreement, the Company sold on June 10,
1996 substantially all the assets net of certain liabilities of its
Ensolite closed-cell foam division to Rubatex Corporation ("Rubatex")
for $25,000,000 consisting of cash in the amount of $20,000,000 and a
promissory note of the parent of Rubatex, RBX Group, Inc. ("RBX"), in
the amount of $5,000,000 (the "Ensolite Sale"). Interest on the
promissory note is payable semi-annually at 11.75% per annum. The
promissory note matures on May 1, 2006. Cash proceeds from the sale
were used to pay off the Company's borrowings under its revolving
credit agreement. The remaining cash proceeds, net of amounts placed in
escrow in accordance with the Company's indenture agreement for the
Senior Secured Notes (Note 9), were invested in short-term highly
liquid investments. The Company recognized a pre-tax gain on the sale
of approximately $2,102,000 net of transaction costs, the write-down of
certain fixed assets not acquired by Rubatex and after consideration of
reserves for severance and incentive packages for Ensolite employees,
facility clean-up costs and the recognition of Ensolite's pro rata
share of the Company's transition obligation net of a curtailment gain
of approximately $664,000 in accordance with SFAS No. 106, Employer's
Accounting for Post-retirement Benefits Other Than Pensions. In
connection with the Ensolite sale, Rubatex received an option to
purchase certain additional equipment housed at the Company's
Mishawaka, Indiana manufacturing facility for $250,000, which it
exercised in November, 1996. The purchase price was adjusted for
changes in working capital, as defined in the asset purchase agreement,
between October 1, 1995 and June 10, 1996. The change in working
capital resulted in additional proceeds and select assets paid to the
Company by Rubatex of approximately $700,000. Such amount has been
included in the pre-tax gain on sale. The Company and Rubatex also
entered into an earn-out agreement whereby the Company could earn
between $.15 and $.20 per board foot of Ensolite products produced by
Rubatex in excess of the base volume as defined in such agreement
during each of the four one-year periods following the closing of the
Ensolite Sale. In no event will the total amount earned by the Company
under the earn-out agreement during the forty-eight month period
following the closing of the sale exceed $3,000,000. The Company earned
approximately $353,000, net of expenses, under the earn-out agreement
during Fiscal 1997. No amounts were earned under the earn-out agreement
during Fiscal 1998.
In conjunction with the Ensolite Sale, the Company entered into a toll
manufacturing agreement with Rubatex. The Company produced Ensolite
products for the benefit of Rubatex at its Mishawaka, Indiana
manufacturing facility through March 17, 1997. The Company was
reimbursed by Rubatex for the variable costs incurred in the production
of Ensolite products and was paid a fixed amount for manufacturing
period costs based on actual costs incurred by the Company during
Fiscal 1995 and adjusted for inflation. In addition the Company
provided certain support services to Rubatex and was reimbursed by
Rubatex for the costs of such services.
In January 1998, the Company brought suit to compel RBX to honor its
mandatory early redemption obligation under the terms of the $5,000,000
promissory note (the "Note"). In March 1998 Rubatex filed a
counterclaim asserting that the Ensolite machinery purchased was in
breach of the Company's warranties when Rubatex purchased it in June
1996. The Company believes that the Rubatex counterclaim is wholly
without merit. RBX did not make the semi-annual interest payment on the
Note of $293,750 on May 1, 1998. The Company stopped accruing interest
on the Note as of June 29, 1998. As of September 27, 1998, the Company
has accrued interest receivable related to the Note of approximately
$387,000.
6. BUSINESS ACQUISITIONS
On May 22, 1998, HPPI acquired 100% of the common stock of ViPlex
Corporation, an acrylic sheet fabricator for the marine industry, for
$2,700,000 consisting of $1,700,000 in cash and unsecured promissory
notes aggregating $1,000,000 bearing an interest rate of 6% (Note 9).
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.
On September 5, 1997, the Company acquired substantially all of the
assets of the Townsend Plastics Division of Townsend Industries, Inc.,
a manufacturer of acrylic rods and tubes, for $4,485,000 in cash and
300,000 shares of common stock of the Company. In connection with this
purchase, the Company amended its financing agreement with The CIT
Group/Business Credit, Inc. to include a term note of $1,500,000 (Note
9). This note was subsequently repaid in connection with the Fleet
Financing (Note 9). The purchase price was subsequently adjusted for
working capital changes as defined in the purchase agreement. This
resulted in a decrease in the purchase price of $62,500 which was
received in cash. See Note 13 regarding the United States Federal Trade
Commission ("FTC") investigation of this acquisition. See Notes 9 and
11 regarding the Company's repurchase of the 300,000 shares of its
common stock.
On August 29, 1997, the Company acquired the Lucite(R) Super Abrasion
Resistant ("S-A-R") acrylic coating business of the Lucite(R) Acrylic
Division of ICI Acrylics, Inc. for $3,000,000, consisting of $2,000,000
in cash and an unsecured promissory note for $1,000,000 bearing an
interest rate of 8% (Note 9). The purchase price was adjusted for
inventory changes and the pro-ration of prepaid expenses as defined in
the purchase agreement. This resulted in an increase in the purchase
price of $122,000, which was paid in cash.
On March 31, 1997, the Company acquired 100% of the common stock of C.
Gunther Company, a manufacturer of mirror mastic adhesives, for
$1,650,000 in cash and 100,000 shares of common stock of the Company.
The purchase price was adjusted for changes in working capital between
January 31, 1997 and March 31, 1997, as defined in the purchase
agreement. This resulted in an increase in the purchase price of
$86,500, which was paid in cash. C. Gunther Company was subsequently
merged into the Company on September 17, 1997. See Note 11 regarding
the Company's repurchase of 50,000 shares of its common stock
originally issued in connection with this transaction.
The above business combinations were accounted for by the purchase
method in accordance with APB Opinion No. 16. The results of operations
of the above named businesses are included in the consolidated
financial statements from their respective purchase dates in Fiscal
1998 and Fiscal 1997.
In Fiscal 1998 and Fiscal 1997, the Company acquired the following
assets and liabilities (net of cash received of $46,000 and $58,000,
respectively) in the above transactions (in thousands):
September 27, September 28,
1998 1997
------------- -------------
Accounts receivable $ 457 $ 845
Inventory 501 960
Prepaids and other assets 32 -
Property, plant and equipment 188 2,555
Goodwill 1,841 7,398
Note payable (1,000) (1,000)
Other liabilities (251) (1,284)
---------- ----------
Net value of purchased assets 1,768 9,474
Value of common stock issued - (1,488)
---------- ----------
Cash paid for acquisitions $ 1,768 $ 7,986
========== ==========
The acquired goodwill will be amortized over its estimated useful life
of 25 years.
The pro forma effect of these acquisitions on the Company's net sales,
income before extraordinary item, net income and earnings per share,
had the acquisitions occurred on September 29, 1997, and September 30,
1996 and, respectively, is not considered material.
7. OTHER ASSETS
Other assets consisted of the following (in thousands):
September 27, September 28,
1998 1997
------------- -------------
Patents and trademarks $ 4,871 $ 5,220
Technology license 4,500 -
Debt issuance costs 3,268 3,675
Deposits 2,802 811
Other 836 1,147
--------- ---------
Total $ 16,277 $ 10,853
========= =========
Patents and trademarks are reported net of accumulated amortization of
$2,841,000 and $2,492,000 at September 27, 1998 and September 28, 1997,
respectively.
During the fiscal year ended September 27, 1998, the Company paid
$4,500,000 to Emcore Corporation ("Emcore") in connection with a
technology license dated September 29, 1997, for certain technology
relating to the manufacture of epitaxial wafers used in high brightness
light emitting diodes ("LEDs") for lamps and display devices (Note 15).
The technology license will be amortized over the estimated life of the
technology once sales have commenced.
During the fiscal year ended September 27, 1998, the Company
capitalized approximately $3,545,000 of debt issuance costs incurred in
connection with the Fleet Financing (Notes 9 and 17). Also, in
connection with the Fleet Financing, the Company wrote off
approximately $3,439,000 of debt issuance costs associated with its
Senior Secured Notes which is included in the loss on the early
extinguishment of debt during the fiscal year ended September 27, 1998
(Note 9). During the fiscal year ended September 28, 1997 the Company
wrote off $13,000 of debt issuance costs in connection with the
$250,000 acquisition of face value of the Company's Senior Secured
Notes (Note 9). Debt issuance costs are shown net of accumulated
amortization of $513,000 and $1,933,000 at September 27, 1998 and
September 28, 1997, respectively.
Deposits include $1,797,000 paid to Emcore in Fiscal 1998 as a down
payment for machinery ordered from Emcore by Uniroyal Optoelectronics,
LLC.
8. OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
September 27, September 28,
1998 1997
------------- -------------
Accrued retirement benefits $ 13,969 $ 13,420
Taxes, other than income 1,092 1,335
Minority interest 291 -
-------- --------
Total $ 15,352 $ 14,755
======== ========
9. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 27, September 28,
1998 1997
----------------- -----------------
Term A Advance $ 30,000 $ -
Term B Advance 60,000 -
11.75% Senior Secured Notes, principal due June 1, 2003,
interest due semi-annually on December 1 and June 1 - 72,253
Revolving credit agreements 11,342 15,169
Secured term loan - 1,500
Unsecured promissory notes 4,117 1,000
Unamortized debt discount on the Senior Secured Notes - (1,012)
--------- ---------
105,459 88,910
Other obligations 199 737
--------- ---------
105,658 89,647
Less current portion (7,713) (1,277)
--------- ---------
Long-term debt $ 97,945 $ 88,370
========= =========
Debt amounts become due during subsequent fiscal years ending in
September as follows (in thousands):
1999 $ 7,713
2000 9,646
2001 6,762
2002 4,950
2003 6,600
Subsequent years 69,987
---------
Total debt $ 105,658
=========
On April 14, 1998, the Company transferred all of the assets of its
High Performance Plastics Segment to a newly created wholly-owned
subsidiary, 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 "Fleet Financing"). The $110,000,000 line under
the Credit Agreement is composed 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
the Prime Rate (as defined in the Credit Agreement) plus 1.25% for
Prime Rate advances or not later than the end of each three-month
period 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 interest
rate on the Term A Advance was 7.84% at September 27, 1998.
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 Rate plus 1.50% for
Prime Rate advances or not later than the end of each three-month
period 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 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 Term B Advances range from 1.00%
- 1.50% for Prime Rate advances and 2.00% - 2.50% for Eurodollar Rate
advances. The interest rate on the Term B Advance was 8.09% on
September 27, 1998.
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. At September
27, 1998, the Company had approximately $11,338,000 of outstanding
borrowings under the Revolving Credit Advance and approximately
$8,662,000 of availability. The weighted-average interest rate on the
Revolving Credit Advance was 8.20% at September 27, 1998.
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
September 27, 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, for an aggregate period of not less than three
years. On May 14, 1998, HPPI entered into three interest rate swap
agreements with two banks. The first agreement 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 is
adjusted monthly. The second agreement 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 is adjusted quarterly. The bank has the option to cancel
this swap on May 14, 2001. The third agreement 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 is adjusted 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 agreements. The
fair value of these interest rate swap agreements represents the
estimated receipts or payments that would be made to terminate the
agreements. At September 27, 1998, the Company would have paid
approximately $2,700,000 to terminate the agreements.
On April 14, 1998, HPPI paid $94,944,000 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 and secured term loan with the CIT
Group/Business Credit, Inc. ("CIT"). The redemption of the 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. The
original revolving credit agreement with CIT was entered into on June
5, 1996 and allowed the Company to borrow the lesser of $25,000,000 or
85% of Eligible Accounts Receivable (as defined in the agreement) not
to exceed 75% of the Company's accounts, as defined in the agreement,
determined in accordance with generally accepted accounting principles.
Interest on the CIT revolving credit agreement is payable monthly at
Prime plus .5% per annum or at the LIBOR rate plus 2.75% per annum if
the Company elects to borrow funds under a LIBOR loan as defined in the
agreement. The loan matures on June 5, 2001. All of the Company's trade
accounts receivables and inventories (excluding those of HPPI and
Uniroyal Optoelectronics, Inc.) are pledged as collateral for this
loan. The agreement restricts the creation of certain additional
indebtedness. The Company was in compliance with the covenants under
this agreement at September 27, 1998. At September 27, 1998, the
Company had approximately $4,000 of outstanding borrowings under the
revolving credit agreement and $9,996,000 of availability. The Company
had $15,169,000 of outstanding borrowings under this agreement at
September 28, 1997. The weighted-average interest rates on the CIT
revolving credit agreement was 9.00% at September 27, 1998 and 8.60% at
September 28, 1997.
In connection with the Fleet Financing, the Company incurred
approximately $3,545,000 in debt issuance costs. The costs were
capitalized and are being amortized using the interest method over the
lives of the agreements (Notes 7 and 17).
On September 8, 1998, in connection with the repurchase of 300,000
shares of stock for treasury, the Company issued an unsecured
promissory note in the principal amount of $2,450,000 (Note 11). The
note is payable in equal installments on the six-month, twelve-month
and eighteen-month anniversary dates of the note, plus accrued interest
at the rate of 5.5% per annum.
On May 22, 1998, in connection with the purchase of ViPlex Corporation
(Note 6), HPPI issued unsecured promissory notes for $527,000 and
$473,000. The $527,000 note is payable in equal installments on the
eight-month and twelve-month anniversary dates of the note, plus
accrued interest at the rate of 6% per annum. The $473,000 note is
payable in three equal installments on the first, second and third
anniversary dates of the note, plus accrued interest at the rate of 6%
per annum.
On September 5, 1997, in connection with the purchase of Townsend
Plastics (Note 6), the Company amended its financing agreement with CIT
to include a term note of $1,500,000 ("Term Note"). The Term Note was
payable in twelve equal quarterly installments beginning December 31,
1997. Interest on the Term Note was payable monthly at prime plus .25%
per annum or at the LIBOR rate plus 2.75% if the Company elected to
borrow funds under a LIBOR loan as defined in the agreement. In
connection with the April 14, 1998 Fleet Financing, this note was paid
in full.
In connection with the purchase of the Lucite(R) S-A-R business on
August 29, 1997 (Note 6), the Company issued an unsecured promissory
note in the principal amount of $1,000,000 payable to ICI Acrylics,
Inc. The principal amount of the note, plus interest at the rate of 8%
per annum, is payable in three installments on the first, second and
third anniversary dates of the note.
On June 7, 1993, the Company consummated a public offering of 80,000
units, consisting of $80,000,000 aggregate principal amount of its
Senior Secured Notes and warrants to purchase an aggregate of 800,000
shares of its common stock. The warrants issued with the Senior Secured
Notes are detachable and therefore were allocated a portion of the
proceeds in the amount of approximately $1,566,000 which was an
estimate of their market value at the time they were issued. The
proceeds allocated to the notes were approximately $78,434,000
resulting in a note discount of $1,566,000, which was amortized to
interest expense using the interest method. The effective rate of
interest on the notes based on the allocated proceeds was calculated to
be approximately 12.09%. The notes originally were to mature on June 1,
2003. Interest was payable on June 1 and December 1 of each year at
11.75%. The notes were collateralized by a lien on substantially all of
the non-cash assets of the Company (other than trade accounts
receivable) and net cash proceeds of the sale of collateral. The notes
were redeemable at the option of the Company, in whole or in part, on
or after June 1, 1998, at 104.41 % of the principal amount, declining
to par on and after June 1, 2001. The indenture contained certain
covenants which limited, among other things, the Company's ability to
incur additional debt, pay cash dividends, make certain other payments,
sell its assets and redeem its capital stock. The Senior Secured Notes
were repaid in connection with the Fleet Financing. The call premium
paid of approximately $3,264,000 and the write-off of the unamortized
debt discount of approximately $950,000 are included in the loss on
early extinguishment of debt during the fiscal year ended September 27,
1998.
The Company leases certain machinery and equipment under non-cancelable
capital leases which extend for varying periods up to 5 years. Other
obligations represent the remaining capitalized lease obligations at
September 27, 1998 and September 28, 1997.
10. INCOME TAXES
The effective tax rate differs from the statutory federal income tax
rate for the following reasons (in thousands):
Fiscal Years Ended
--------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- -------------
Income tax calculated at the statutory
rate applied to income (loss) before
income tax and extraordinary item $ 4,636 $ 408 $ (7,657)
Increase (decrease) resulting from:
Exclusion of extraordinary loss on the
extinguishment of debt (2,787) - -
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 101 155 145
State income tax 515 354 (593)
Other 355 (86) (16)
---------- ----------- -----------
Income tax expense (benefit) $ 2,820 $ 831 $ (8,121)
========== =========== ===========
Income tax expense (benefit) consisted of the following components (in
thousands):
Fiscal Years Ended
----------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
-------------- -------------- --------------
Current
Federal $ 397 $ - $ 119
State 515 284 532
----------- ----------- -----------
Total $ 912 $ 284 $ 651
=========== =========== ===========
Net deferred tax expense (benefit)
Federal $ 1,908 $ 477 $ (7,647)
State - 70 (1,125)
----------- ----------- -----------
Total $ 1,908 $ 547 $ (8,772)
=========== =========== ===========
Total
Federal $ 2,305 $ 477 $ (7,528)
State 515 354 (593)
----------- ----------- -----------
Total $ 2,820 $ 831 $ (8,121)
=========== =========== ===========
The components of the deferred tax assets and liabilities consisted of
the following (in thousands):
September 27, 1998
---------------------------------------------------
Assets Liabilities Total
---------- ----------- ----------
Current
Accrued expenses deductible in future
period $ 5,837 $ - $ 5,837
========== ========== ==========
Non-Current
Acquired tax loss carryforward benefits $ 3,078 $ - $ 3,078
Net operating loss carryforward 5,731 - 5,731
Book basis in excess of tax basis of
assets - (8,115) (8,115)
Long-term accrual of expenses
deductible in future periods 7,065 - 7,065
---------- ---------- ----------
Total $ 15,874 $ (8,115) $ 7,759
========== ========== ==========
September 28, 1997
---------------------------------------------------
Assets Liabilities Total
------------- ----------- ----------
Current
Accrued expenses deductible in future
period $ 6,944 $ - $ 6,944
========== ========== ==========
Non-Current
Acquired tax loss carryforward
benefits $ 7,872 $ - $ 7,872
Net operating loss carryforward 4,553 - 4,553
Book basis in excess of tax basis of
assets - (8,123) (8,123)
Long-term accrual of expenses
deductible in future periods 4,972 - 4,972
Valuation allowance (7,872) - (7,872)
---------- ---------- ----------
Total $ 9,525 $ (8,123) $ 1,402
========== ========== ==========
The net operating and acquired tax loss carryforward benefits expire in
various years ending in 2010. The acquired tax loss carryforward
benefits consist of tax net operating loss carryforwards and pension
contribution deductions. The acquired net operating loss carryforwards
are subject to an annual limitation arising from the September 27, 1992
bankruptcy reorganization of the Company's predecessors. The annual
limitation on utilization of the acquired net operating loss
carryforward for tax purposes is approximately $1,600,000 per year.
During the fiscal year ended September 27, 1998, the Company reduced
the deferred tax valuation allowance relating to acquired tax loss
carryforward benefits. In accordance with SFAS No. 109, Accounting for
Income Taxes, the reduction was applied to reduce reorganization value
in excess of amounts allocable to identifiable assets which resulted in
such asset being reduced to zero during the year ended September 27,
1998.
11. STOCKHOLDERS' EQUITY
The Company's certificate of incorporation provides that the authorized
capital stock of the Company consists of 35,000,000 shares of common
stock and 1,000 shares of preferred stock, each having a par value of
$0.01 per share. At September 27, 1998, approximately 13,849,000 shares
of common stock were issued. Approximately 334,000 shares of common
stock are reserved for issuance pending resolution of disputed claims
in the bankruptcy proceedings (Note 13).
The holder of the Series B Preferred Stock was entitled to vote as a
separate class of shareholders for the purpose of electing certain
directors to the Board of Directors of the Company. The holder of
Series B Preferred Stock had no preemptive or preferential rights to
purchase or subscribe to any additional shares of capital stock except
for the conversion rights described below.
The Company had the right to redeem all or any portion of the Series B
Preferred Stock at any time following 30 days' notice to the holder of
such Preferred Stock by (a) paying $150,000 per share for each share of
Series B Preferred Stock that the Company, in its sole discretion,
elected to redeem; and (b) issuing all common stock dividends then
accrued but unpaid on the Preferred Stock to be redeemed. The Company
had the right, but no obligation, to redeem, at its option, any or all
whole or fractional shares of Preferred Stock. In the event of a
liquidation of the Company, the holder of the Preferred Stock would be
entitled to receive, following all distributions to creditors of the
Company required under Delaware law, a liquidation payment of $150,000
per share plus all accrued but unpaid dividends prior to any
distributions to common stockholders.
On December 16, 1996 the Company redeemed 15 shares of Series B
Preferred Stock for $2,250,000. On February 4, 1997 the Company
redeemed the remaining 20 shares of Series B Preferred Stock for
$3,000,000.
From September 1, 1992, the holder of shares of Series B Preferred
Stock was entitled to receive an annual dividend equal to 8% of the
redemption price for outstanding shares of Series B Preferred Stock, as
applicable, payable only in shares of common stock which number of
shares is based on the average of the last reported bid prices for the
30 calendar days preceding the declaration date. The Company declared
such dividends, on a quarterly basis through February 1997. During the
fiscal years ended September 28, 1997 and September 29, 1996, the
Company declared stock dividends of $220,000 and $420,000,
respectively, resulting in the issuance of 73,448 and 115,657 shares of
common stock, respectively, at an average price per common share of
$3.00 and $3.63, respectively. The $220,000 and $420,000 of dividends
declared during the fiscal years ended September 28, 1997 and September
29, 1996 were charged to additional paid-in capital.
On December 18, 1996, the Board designated a new series of preferred
stock of the Company termed Series C Junior Participating Preferred
Stock, $.01 par value ("Series C Preferred") and reserved 450 shares of
the Series C Preferred for issuance. At the same time, the Board
declared a dividend of a right to acquire 1/100,000 of a share of
Series C Preferred to the holder of each share of common stock (the
"Rights") under a Shareholder Rights Plan. The Rights will trade with
the common stock and be detachable from the common stock and
exercisable only in the event of an acquisition of or grant of the
right to acquire 15% or more of the common stock by one party or common
group or a tender offer to acquire 15% or more of the common stock.
The holders of record of shares of common stock are entitled to receive
dividends when and as declared by the Board of Directors of the
Company, provided that the Company has funds legally available for the
payment of dividends and is not otherwise contractually restricted from
the payment of dividends. The Company declared no such dividends during
Fiscal 1998, Fiscal 1997 or Fiscal 1996.
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 year ended September 27, 1998, the Company repurchased an
additional 502,000 shares of its common stock in the open market for
$4,479,000, repurchased 300,000 shares previously issued in connection
with the purchase of Townsend Plastics for $250,000 cash and an
unsecured promissory note for $2,450,000 (Note 9) and repurchased
50,000 shares previously issued in connection with the purchase of C.
Gunther Company for $431,250. No shares were repurchased during the
fiscal year ended September 28, 1997.
During the fiscal year ended September 27, 1998, the Company received
92,285 shares of its common stock in lieu of cash for the exercise of
stock options from officers and employees of the Company. These shares
were valued at $894,000 (which was calculated based on the closing
market value of the stock on the day prior to the exercise dates) and
are included as treasury shares as of September 27, 1998.
Subsequent to the fiscal year ended September 27, 1998 and as of
December 11, 1998, the Company repurchased approximately 476,000 shares
of its common stock in the open market for approximately $4,632,000.
Warrants
The Company has 583,150 warrants outstanding to purchase an aggregate
of 583,150 shares of its Common Stock at a price equal to $4.375 per
share, subject to adjustments under certain circumstances. All
outstanding warrants are exercisable at any time on or prior to June 1,
2003, at which time they will terminate and become void. The Company
originally issued 800,000 warrants to purchase an aggregate of 800,000
shares of its Common Stock in connection with the issuance of its
Senior Secured Notes. The warrants were detachable from the Senior
Secured Notes and, therefore, were allocated a portion of the proceeds
in the amount of approximately $1,566,000, which was their market value
at the time they were issued. This amount was added to additional
paid-in capital. During the fiscal year ended September 27, 1998, the
Company repurchased 216,850 of its outstanding warrants for
approximately $1,314,000. No warrants were repurchased for the fiscal
year ended September 28, 1997. As of September 27,1998, no warrants had
been exercised.
Stock Compensation Plans
At September 27, 1998, the Company has four stock-based compensation
plans, which are described below. The Company applies APB Opinion No.
25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for these plans.
Had compensation cost been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
FASB Statement No. 123, the Company's net income (loss) and earnings
per share would have been reduced to the pro forma amounts indicated
below (in thousands, except earnings per share information):
Fiscal Years Ended
--------------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
-------------- -------------- --------------
Net income (loss)
As reported $ 2,390 $ 379 $ (14,401)
Pro forma $ 2,175 $ 308 $ (14,434)
Earnings per share - basic
As reported $ 0.18 $ 0.03 $ (1.09)
Pro forma $ 0.16 $ 0.02 $ (1.10)
Earnings per share - assuming dilution
As reported $ 0.16 $ 0.03 $ (1.09)
Pro forma $ 0.15 $ 0.02 $ (1.10)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants for the fiscal years ended
September 27, 1998, September 28, 1997 and September 29, 1996,
respectively: expected volatility of 45.46%, 45.89% and 45.89%,
dividend yield of 0% for all years, risk-free interest rates of 4.523%,
6.042% and 5.656% and expected lives of 3 to 10 years.
The Company has reserved 1,363,636 shares of common stock to be issued
and sold pursuant to the 1992 Stock Option Plan that was adopted by the
Company on September 27, 1992. Generally, of the options under this
plan granted, 60% vested on May 1, 1994 and the remainder vested on
November 1, 1995. Vesting provisions for any additional options will be
determined by the Board of Directors of the Company at the time of the
grant of such options. The stock options are exercisable over a period
determined by the Board of Directors or its Compensation Committee, but
no longer than ten years after the date granted.
During the fiscal year ended September 26, 1993, the Company adopted
the 1992 Non-Qualified Stock Option Plan available for non-officer
directors. This plan provides that directors who are not officers of
the Company are entitled to forego up to 100% of their annual retainer
in exchange for options to purchase the Company's common stock at an
option price of 50% of the market price of the underlying common stock
at the date of grant. The options are exercisable for a period of 10
years from the date of the grant of each option.
During the fiscal year ended October 2, 1994, the Company adopted the
1994 Stock Option Plan available for certain key employees of the
Company. The Company has reserved approximately 812,000 shares of
common stock to be issued under this plan, provided that the aggregate
number of options that may be granted under the 1994 Stock Option Plan
and all other stock option plans of the Company for employees may not
at any time exceed in the aggregate 15% of the then currently
authorized common stock outstanding, on a fully diluted basis. Stock
options granted under this plan are exercisable until not later than
January 1, 2004.
During the fiscal year ended September 29, 1996, the Company adopted
the 1995 Non-Qualified Stock Option Plan available for directors. Each
director is granted an option to purchase 10,000 shares of the
Company's common stock in the case of the initial grant and 5,000
shares for any subsequent grant. The initial grant occurred upon the
adoption of this plan or, in the case of new directors, 30 days after
becoming an eligible director of the Company. Options granted under
this plan have a term of three years and may be exercised nine months
after the date of the grant. This plan terminates on February 14, 2006.
No director who is not an officer of the Company may receive options to
purchase more than an aggregate of 10,000 shares of Common Stock in any
calendar year under all of the Company's Stock Option Plans. The
Company intends to seek stockholder approval to increase the 10,000
annual limit to 30,000 at the 1999 annual meeting of stockholders.
The following table summarizes all stock option transactions for the
fiscal years ended September 27, 1998 and September 28, 1997:
Fiscal Years Ended
---------------------------------------------------------------------------------------
September 27, 1998 September 28, 1997
-------------------------------------- ----------------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
--------------- ------------------ --------------- ------------------
Outstanding at
Beginning of Year 1,895,250 $ 3.36 1,707,973 $ 3.45
Grants 762,658 $ 8.09 296,570 $ 2.89
Exercised (475,595) $ 3.19 - -
Forfeited (5,920) $ 3.57 (109,293) $ 3.48
---------- ----------
Outstanding at End of Year 2,176,393 $ 5.05 1,895,250 $ 3.36
========== ==========
Exercisable at End of Year 1,295,815 1,603,676
========== ==========
Weighted-average fair
value of options granted $ 3.38 $ 1.75
during the year
The following table summarizes information about stock options at September 27, 1998:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------- ---------------------------------------
Range of Exercise Number Outstanding at Weighted-Average Weighted-Average
Prices 9/27/98 Remaining Exercise Price Number Exercisable Weighted-Average
Contractual Life at 9/27/98 Exercise Price
- ----------------- --------------------- ---------------- ---------------- ------------------- ----------------
$1.470 -$2.063 67,386 6.22 Years $ 1.67 67,386 $ 1.67
$2.625 -$3.156 656,742 5.88 Years $ 2.80 403,812 $ 2.74
$3.250 -$4.000 361,141 3.57 Years $ 3.45 357,141 $ 3.45
$4.125 -$4.688 474,276 4.97 Years $ 4.14 466,156 $ 4.13
$5.063 -$7.000 39,000 2.42 Years $ 6.88 1,320 $ 5.78
$9.250 -$9.625 577,848 9.82 Years $ 9.62 - -
--------- ---------
2,176,393 6.29 Years $ 5.05 1,295,815 $ 3.39
========= =========
Employee Stock Ownership Plan
The Company established the Uniroyal Technology Corporation Employee
Stock Ownership Plan (the "ESOP") in 1992. The ESOP is a stock bonus
plan intended to encourage eligible employees to save for their
retirement and to increase their proprietary interest in the Company by
accumulating the Company's common stock. Employees eligible for the
initial distribution generally were all employees employed by the
Company on or after January 1, 1993, excluding executive officers of
the Company.
The Company made an initial contribution to the ESOP of 425,000 shares
of common stock. Future contributions by the Company are discretionary.
The initial contribution has been allocated to eligible employees of
the Company ratably based upon the respective compensation levels of
the eligible employees. Shares allocated to each participant account
under the ESOP became vested upon the participant's completion of three
years of cumulative service with the Company. The Company did not make
any contributions to the ESOP during the fiscal years ended September
27, 1998, September 28, 1997 and September 29, 1996. The Company did
not have any ESOP expense during the fiscal years ended September 27,
1998, September 28, 1997 and September 29, 1996. The Company intends to
merge the ESOP into the three existing employee savings plans effective
October 1, 1998. No further contributions are to be made to the Plan,
no further benefits will accrue to any participants in the Plan and the
accounts of all participants in the Plan as of October 1, 1998 are
vested.
12. EMPLOYEE COMPENSATION
Post-retirement Health Care and Life Insurance Benefits
Certain retired employees are currently provided with specified health
care and life insurance benefits. Generally, the plan provides for
reimbursement of approved medical and prescription drug costs not fully
covered by Medicare. The plan also provides for certain deductibles and
co-payments. The life insurance benefits provide for amounts based upon
the retirees' compensation at the time of their retirement. Eligibility
requirements for such benefits vary by division, but generally provide
that benefits are available to employees who retire after a certain age
with specified years of service or a combined total of age and years of
service. The Company has the right to modify or terminate certain of
these benefits. The Company's policy is to pay the actual expenses
incurred by the retirees; the Company does not intend to fund any
amounts in excess of those obligations. The Company is also obligated
to provide benefits to certain salaried retirees of Uniroyal Plastics
Company, Inc. ("UPC"), which is currently in liquidation proceedings
under Chapter 7 of the U.S. Bankruptcy Code and is an affiliate of the
Predecessor Companies (Note 13), and Uniroyal, Inc. ("Uniroyal") (not
affiliated with the Company) who are class members under a federal
district court order. The Company and Uniroyal agreed to share on a
35%-65% basis, respectively, the costs of providing medical,
prescription drug and life insurance benefits to these retirees. The
Company is further obligated to make payments to a Voluntary Employee
Benefits Association ("VEBA") established to provide benefits to
certain retirees of the Predecessor Companies and UPC.
The Company adopted SFAS No. 106 as of September 27, 1992, which
requires that the cost of the foregoing benefits be recognized in the
Company's consolidated financial statements over an employee's service
period with the Company. The Company determined that the accumulated
post-retirement benefit obligation ("Transition Obligation") of these
plans upon adoption of SFAS No. 106 was $28,085,000. The Company
elected to defer the recognition of the Transition Obligation and
amortize it over the greater of the average remaining service period or
life expectancy period of the participants, which was expected to be
approximately 16 years. In connection with the Ensolite Sale (Note 5)
in Fiscal 1996, the Company recognized approximately $4,500,000 of the
Transition Obligation relating to this employee group as reduction to
the gain on the sale. In connection with the sale of the automotive
division of the Coated Fabrics Segment (Note 14), the Company
recognized approximately $3,600,000 in Fiscal 1996 of the Transition
Obligation and other expenses relating to this employee group.
The following table summarizes the accumulated post-retirement and
benefit obligation included in the Company's balance sheets (in
thousands):
September 27, September 28,
1998 1997
------------ ------------
Accumulated post-retirement benefit obligation:
Retirees $ 26,485 $ 25,925
Fully eligible active plan participants 6,355 5,939
Other active plan participants 1,322 2,357
Unrecognized prior service cost 261 276
Unamortized transition obligation (11,136) (12,250)
Unrecognized net loss (7,701) (7,562)
---------- ----------
Accrued post-retirement benefit obligation $ 15,586 $ 14,685
========== ==========
The net periodic post-retirement benefit cost contains the following
components (in thousands):
Fiscal Years Ended
-----------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- -------------
Service cost $ 52 $ 67 $ 205
Interest cost on projected benefit
obligation 2,212 2,315 2,366
Amortization of unrecognized transition
obligation 1,114 1,134 1,651
Other - net 276 191 362
-------- -------- --------
Net periodic post-retirement benefit cost $ 3,654 $ 3,707 $ 4,584
======== ======== ========
All post-retirement benefits are based on actual costs incurred except
for a certain group of retirees which is covered under an agreement
providing payments based on the number of beneficiaries. For
measurement purposes, an approximate 6.1% annual rate of increase in
the cost of covered health care benefits was assumed for years one
through two, approximately 5.9% for years three through five and
approximately 4.9% thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For
example, increasing the health care trend rate by one percentage point
in each year would increase the accumulated post-retirement benefit
obligation as of September 27, 1998 by $3,221,000 and the net periodic
post-retirement benefit cost by $199,000.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation for the fiscal years ended September
27, 1998 and September 28, 1997 was 6.25% and 7.0%, respectively. The
weighted average discount rate used in determining the net periodic
post-retirement benefit cost for the fiscal years ended September 27,
1998, September 28, 1997 and September 29, 1996 was 7.0%, 7.75% and
7.0%, respectively.
Other Benefit Plans
The Royalite, UEP and UAS divisions provide additional retirement
benefits to substantially all of their employees and the Polycast
division provides such benefits to certain of its employees through two
defined contribution savings plans. The plans provide for employee
contributions and employer matching contributions to employee savings.
Employer contributions are generally either 2% of salaried and certain
non-union hourly participants' gross earnings or rates per hour ranging
generally from $.05 to $.66 based on years of service. The expenses
pertaining to these plans amounted to approximately $618,000, $649,000
and $699,000 for the fiscal years ended in 1998, 1997 and 1996,
respectively.
In addition, the Company provides a savings plan under Section 401(k)
of the Internal Revenue Code. The savings plan covers all eligible
salaried and non-union wage employees of the Company. The savings plan
allows all eligible employees to defer up to 15% of their income on a
pre-tax basis through contributions to the savings plan. For every
dollar an employee contributes, the Company may contribute an amount
equal to 25% of each participant's before-tax obligation up to 6% of
the participant's compensation. Such employer contribution may be made
in cash or in Company common stock. The expenses pertaining to this
savings plan were approximately $168,000, $141,000 and $228,000 for the
fiscal years ended 1998, 1997 and 1996. During Fiscal 1998 and Fiscal
1996 the Company contributed 30,260 and 60,648 shares of its common
stock with a market value of approximately $191,000 and $212,000,
respectively, to the savings plan. The Company did not make any such
contributions during the fiscal year ended 1997.
13. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
On September 27, 1992 the Company acquired the businesses of certain
direct and indirect subsidiaries of The Jesup Group, Inc. ("Jesup") for
$54,400,000 of the Company's common and preferred stocks. These
subsidiaries (collectively, the "Predecessor Companies") are the
current operating divisions of the Company. The Predecessor Companies
previously filed petitions with the United States Bankruptcy Court for
the Northern District of Indiana, South Bend Division (the "Bankruptcy
Court") seeking protection from their creditors under Chapter 11 of the
United States Bankruptcy Code. On August 20, 1992 the Bankruptcy Court
approved the Third Amended Plan of Reorganization under Chapter 11 of
the Bankruptcy Code for Polycast Technology Corporation and its
Affiliated Debtors (the "Plan"). The Plan was substantially consummated
at the close of business on September 27, 1992 (the "Effective Date").
As a result of the bankruptcy and the consummation of the Plan at
September 27 1992, the Company recorded certain adjustments to present
its consolidated financial statements at September 27, 1992 in
conformity with Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), of
the American Institute of Certified Public Accountants. Under the
provisions of SOP 90-7, the Company was required to adopt fresh start
reporting as of September 27, 1992 because (i) the reorganization value
of the Company (approximate fair value on the Effective Date) was less
than the total of all post-petition liabilities and pre-petition
allowed claims and (ii) holders of the voting shares of the Predecessor
Companies before the Effective Date received less than 50 percent (50%)
of the voting shares of the Company.
Notwithstanding the confirmation and effectiveness of the Predecessor
Companies' Plan, 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 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 are included in treasury stock. The remaining
approximate 334,000 shares of the original 10,000,000 shares allocated
for the disposition of bankruptcy claims are being held pending
resolution of certain miscellaneous claims.
Townsend Acquisition
By letter dated January 30, 1998, the Denver Regional Office of the FTC
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 September 1997. The purpose of the
investigation was 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
FTC. The Company has been cooperating with the FTC in its
investigation. The Company has been in discussions with the staff of
the Denver Regional Office of the FTC seeking to meet the concerns of
both the Company and the FTC. The Company is currently seeking to sell
certain assets to another entity that could compete with
Townsend/Glasflex in order to increase competition in the markets
served by Townsend/Glasflex.
Litigation
Approximately 130 hourly employees at the Company's acrylic sheet
manufacturing facility in Stamford, Connecticut are represented by
Teamsters Local 191, which is affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America (the "Teamsters"). The Teamsters declared a strike on July 11,
1994 and called off the strike December 10, 1994. The Company and
Teamsters settled their dispute in June 1996. The Company agreed to
settle the claim of the striking employees for back pay following the
receipt of release of claims from such employees. The Company settled
its obligation to the employees in August 1996 with a payment of
approximately $808,000, inclusive of employment taxes of $58,000.
The Company is also engaged in litigation arising from the ordinary
course of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or leased facilities. The Company's
policy is to accrue environmental and cleanup-related costs of a
non-capital nature when it is probable both that a liability has been
incurred and that the amount can be reasonably estimated.
The Company may become subject to claims relating to certain
environmental matters. The operations of the Predecessor Companies and
certain of their affiliates produced waste materials that, prior to
1980, were disposed of at some 36 known unregulated sites throughout
the United States. After 1980, waste disposal was limited to sites
permitted under federal and state environmental laws and regulations.
If any of the disposal sites (unregulated or regulated) are found to be
releasing hazardous substances into the environment, under current
federal and state environmental laws, the appropriate company might be
subject to liability for cleanup and containment costs.
Prior to the Effective Date of the Predecessor Companies' Plan, several
sites were identified where there were potential liabilities for the
cost of environmental cleanup. In most instances, this potential
liability resulted from the alleged arrangement for the off-site
disposal of hazardous substances by Uniroyal, Inc.
Pursuant to a settlement agreement with the United States Environmental
Protection Agency ("EPA"), the United States Department of the Interior
and the States of Wisconsin and Indiana (the "EPA Settlement
Agreement"), entered into in connection with the Plan, the Predecessor
Companies compromised and settled (in exchange for common stock of the
Company) substantially all of the pre-petition liabilities of the
Predecessor Companies and the Company relating to disposal activities
under Sections 106 and 107 of the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation and Recovery Act ("RCRA") and similar state laws for
cleanup of the remaining unsettled 20 designated sites not owned by any
of the Predecessor Companies (the "Known Sites") and for natural
resource damages at 15 of the 20 Known Sites. Pursuant to the EPA
Settlement Agreement, the Predecessor Companies and the Company
received from the United States and the States of Indiana and Wisconsin
a covenant not to sue for response costs and, with the exception of
five Known Sites, natural resource damages at each of the Known Sites.
In addition, pursuant to Section 113(f)(2) of CERCLA, and as provided
under the EPA Settlement Agreement, the Predecessor Companies and the
Company will be protected against contribution claims filed by private
parties for any Known Site for matters covered by the EPA Settlement
Agreement. The EPA Settlement Agreement established a mechanism for the
Company to resolve its liability for any other sites, except for those
owned by the Company (the "Additional Sites"), arising from
pre-petition disposal activity. The Company also agreed to share with
such parties the proceeds of claims relating to the known sites made
against certain insurers of the Predecessor Companies and their
affiliates.
In the event that the United States, or the State of Wisconsin or the
State of Indiana asserts a claim against any of the Predecessor
Companies or the Company for response costs associated with
pre-petition disposal activities at any Additional Site, the
governmental party will be entitled to pursue its claim in the ordinary
course, and the Company and the Predecessor Companies will be entitled
to assert all of their defenses. However, if and when the Company or
any of the Predecessor Companies is held liable, and if the liability
is determined to arise from pre-petition disposal activities, the
Company or such Predecessor Company may pay the claims in discounted
"plan dollars" (i.e., the value of the consideration that the party
asserting such claim would have received if the liability were treated
as a general unsecured claim under the Plan). Such payment may be made
in cash or securities, or a combination thereof, at the Company's or
such Predecessor Company's option.
The Company received a letter dated October 30, 1997, from the EPA,
Region 5, informing the Company that it might be financially
responsible for a pollution incident at the plant formally occupied by
the Company at 312 North Hill Street, Mishawaka, Indiana. The EPA
notified the Company that it expected the Company to pay for part or
all of the approximately $1,700,000 of costs associated with the
clean-up of a portion of such plant. The Company and the EPA negotiated
a settlement in principle whereby the EPA will be given an allowed
unsecured claim of $1,700,000 under the Plan, and the Company will make
a payment of $525,000 to the EPA. An accrued liability for
environmental clean-up of $525,000 is included in other accrued
expenses as of September 27, 1998.
In October 1996, the EPA sent the Company a General Notice and Special
Notice of Liability concerning the Refuse Hideaway landfill Superfund
Site at Middleton, Wisconsin. While a unit of Uniroyal, Inc. is
believed to have sent non-hazardous waste to the site between 1978 and
1984, the Company is not aware that the Uniroyal, Inc. unit sent any
hazardous materials to the site. The Company has entered into an
Administrative Order on Consent with the EPA and a Potentially
Responsible Parties Agreement with certain other potentially
responsible parties. 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,
such liability will be subject to the terms of the EPA Settlement
Agreement.
Claims arising from real property owned by the Company are not affected
by the EPA Settlement Agreement. In connection with the acquisition of
a manufacturing facility in South Bend, Indiana, the Company assumed
costs of remediation of soil and ground water contamination which the
Company estimates will cost not more than $1,000,000 over a
five-to-seven year period. The Company had placed $1,000,000 in an
escrow account to be used for such clean-up in accordance with the
terms of the agreement for the purchase of the facility. As of
September 27, 1998, the Company had incurred approximately $566,000 of
related remediation costs.
The Company's acquisition of assets of Townsend Plastics in September
1997 (Note 6) included the building in which the business operates in
Pleasant Hill, Iowa. The seller retained the underlying real property,
which is leased to the Company for a term of ten years. The Company
also has an option to acquire such real property until September 30,
2007. The real property is subject to a RCRA Facility
Investigation/Corrective Measures Study with Interim Measures ordered
by the EPA pursuant to RCRA. Two former lessees of the property are
performing corrective measures on the real property to remediate soil
and ground water contamination. The Company does not anticipate that
such corrective measures will interfere with the Company's use of the
property. The Company does not anticipate any liability to the Company
in connection with such contamination or corrective measures as long as
the Company remains a lessee of the property.
Based on information available as of September 27, 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.
Leases
The Company is a party to non-cancelable lease agreements involving
equipment. The leases extend for varying periods up to 5 years and
generally provide for the payment of taxes, insurance and maintenance
by the lessee. Generally these leases have options to purchase at
varying dates.
The Company's property held under capitalized leases, included in
property, plant and equipment (Note 4) consists of the following (in
thousands):
September 27, September 28,
1998 1997
------------- -------------
Machinery, equipment and office furnishings $ 1,153 $ 2,397
Less accumulated amortization (351) (568)
---------- ----------
$ 802 $ 1,829
========== ==========
The approximate minimum future lease obligations on long-term
non-cancelable capital lease obligations included in long-term debt
(Note 9) during subsequent fiscal years ending in September are as
follows (in thousands):
Fiscal Year
1999 $ 125
2000 92
----------
217
Less imputed interest (18)
----------
Total $ 199
==========
Interest is imputed using the rate that would equate the present value
of the minimum lease payments to the fair value of the leased
equipment.
The Company leases equipment, vehicles and warehouse and office space
under various lease agreements, certain of which are subject to
escalations based upon increases in specified operating expenses or
increases in the Consumer Price Index. The approximate future minimum
rentals under non-cancelable operating leases during subsequent fiscal
years ending in September are as follows (in thousands):
Fiscal Year
1999 $ 1,429
2000 1,382
2001 675
2002 599
2003 493
Subsequent years 1,965
----------
Total $ 6,543
==========
Rent expense was approximately $1,463,000, $1,264,000 and $1,592,000
for the years ended September 27, 1998, September 28, 1997 and
September 29, 1996, respectively.
Officers' Compensation
On August 1, 1995 the Company implemented a Deferred Compensation Plan
providing certain key employees the opportunity to participate in an
unfunded deferred compensation program. Under the program, participants
may defer a portion of their base compensation and bonuses earned each
year. Amounts deferred will earn interest at 12% per annum. The program
is not qualified under Section 401 of the Internal Revenue Code. At
September 27, 1998 and September 28, 1997 participant deferrals which
are included in accrued liabilities were $519,000 and $334,000,
respectively. The expense during the fiscal year ended September 27,
1998, September 28, 1997 and September 29, 1996 was $184,000, $161,000
and $156,000, respectively.
Also during the fiscal year ended October 1, 1995, split dollar life
insurance contracts were purchased on the lives of the five executive
officers. Annual insurance premiums of $186,000 are paid by the Company
with respect to these policies. As of September 27, 1998 and September
28, 1997, $717,000 and $531,000, respectively, has been capitalized to
reflect the cash surrender value of these contracts net of loan
balances.
As of September 27, 1998, the Company had employment contracts with
four officers of the Company, providing for total annual payments of
approximately $1,471,000 plus bonuses through September 1, 1999.
14. SALE OF THE AUTOMOTIVE DIVISION OF THE COATED FABRICS SEGMENT
During the fourth quarter of Fiscal 1996, management of the Company
concluded that, based not only on its decision to sell, but also on
discussions with interested buyers, a sale of the automotive operation
of the Coated Fabrics Segment was probable. Further, on December 11,
1996, the Board of Directors approved the closure of the Port Clinton,
Ohio operation ("Port Clinton") of the Coated Fabrics Segment during
the fiscal year ending September 28, 1997 in the event a sale did not
occur. Port Clinton incurred operating losses of approximately
$7,640,000 and $5,540,000 during the fiscal years ended September 29,
1996 and October 1, 1995.
In accordance with SFAS No. 121, the Company recorded a write-down of
long-lived assets of the facility totaling approximately $8,900,000
during the fiscal year ended September 29, 1996. The carrying value of
the long-lived assets to be disposed of was $4,530,000 as of September
27, 1998, and $9,346,000 as of September 28, 1997.
In connection with the probable sale of the automotive operation of the
Coated Fabrics Segment in Fiscal 1996, management believed that a
curtailment would result from the associated expected reduction in the
plan participants. In accordance with SFAS No. 106, the Company
recognized approximately $3,600,000 of a curtailment loss in connection
with the probable sale of the Coated Fabrics Segment's automotive
operation during the fiscal year ended September 29, 1996.
On May 15, 1997 the Company agreed to sell certain assets of the
automotive division of the Coated Fabrics Segment located at the
Company's Stoughton, Wisconsin, facility ("Stoughton") to Textileather
Corporation, a subsidiary of Canadian General-Tower, Limited ("CGT")
for $6,657,500. The Company received $4,657,500 in cash and a holdback
of $2,000,000 which was to be paid pursuant to the terms of a supply
agreement and to bear interest at the rate of 9% per annum. Under the
terms of the supply agreement, the Company agreed to continue to
manufacture and supply Stoughton automotive products to its customers
until Textileather Corporation could transfer production of the
Stoughton automotive products to its own facility. The $2,000,000 plus
accrued interest was payable in stages and contingent upon the
successful transfer of certain automotive programs to Textileather
Corporation. The first installment was due September 30, 1997. The
Company requested payment and was denied payment by CGT. On October 10,
1997, the Company filed suit against CGT and Textileather Corporation
in the Dane County, Wisconsin Circuit Court. The Company sought damages
for non-payment of the holdback and declaratory and injunctive relief.
On October 30, 1997, the defendants filed their answer, basically
denying the claims. Textileather Corporation later commenced an
arbitration in Madison, Wisconsin in connection with claims by
Textileather Corporation under the asset purchase agreement. The two
cases were settled on July 17, 1998. As part of the settlement the
Company retained in perpetuity certain automotive programs it had
previously sold, and two programs were retained until February 28,
1999. In addition, Textileather made a cash payment to the Company of
approximately $379,000 which was recorded by the Company as a gain, and
also transferred ownership back to the Company of an asset located at
the Company's Port Clinton, Ohio facility. The Company may earn an
additional $175,000 plus accrued interest under the terms of the supply
agreement.
On October 17, 1997 the Company further agreed to sell certain assets
at Port Clinton to CGT for $5,325,000 plus the value of purchased
inventories and plus or minus adjustments contingent upon the transfer
of certain automotive programs to CGT as defined in the agreement. On
July 10, 1998, the Company received $4,930,000 from CGT under this
agreement relative to assets related to the Company's door panel
program. Under the terms of a supply agreement, the Company agreed to
continue to manufacture and supply customers of the door panel programs
until CGT could transfer the production of the door panels to its own
facility. The Company stopped producing door panels at its Port
Clinton, Ohio facility in November, 1998. The Company may receive an
additional amount of up to $800,000 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 also
receive an additional $1,055,000 on or before June 1999 upon obtaining
certain customer approvals and resulting transfer to CGT of purchased
assets that relate to the Company's instrument panel programs. During
the fiscal year ended September 27, 1998, the Company recognized a gain
of $133,000 in connection with this transaction.
Management believes that the write-down to long-lived assets, the
curtailment loss and other reserves recorded relating to the agreements
for sale remain appropriate at September 27, 1998, the net effect of
which resulted in no additional significant gain or loss during the
fiscal year ended September 27, 1998. Other than the 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 sales.
15. JOINT VENTURE
As of September 29, 1997, the Company entered into a technology
agreement with Emcore to acquire certain technology for the manufacture
of epitaxial wafers used in high brightness LEDs for lamps and display
devices. Included in other assets at September 27, 1998 are license
fees relating to the technology agreement of $4,500,000 paid to Emcore
during the fiscal year ended September 27, 1998 (Note 7). On the date
of the transaction, Thomas J. Russell, the Chairman of the Board of
Directors of Emcore, was a director and major stockholder of the
Company and Howard R. Curd, the Chairman of the Board of Directors and
Chief Executive Officer of the Company, was a director and stockholder
of Emcore. Subsequent to the transaction, Thomas J. Russell resigned
from the Board of Directors of the Company and Howard R. Curd resigned
from the Board of Directors of Emcore.
Uniroyal Optoelectronics, Inc., a wholly-owned subsidiary of the
Company, has entered into a joint venture with Emcore (Uniroyal
Optoelectronics, LLC), which Uniroyal Optoelectronics, Inc. manages and
of which it is a 51% owner. Emcore is the 49% owner. In July 1998, both
owners capitalized the joint venture through cash contributions of
$510,000 by the Company and $490,000 by Emcore.
Included in other liabilities at September 27, 1998, is $291,000 of
minority interest relating to the joint venture. Included in selling
and administrative expenses for the fiscal year ended September 27,
1998 is the minority interest in the joint venture losses of $199,000.
In July 1998, the joint venture entered into a lease agreement for a
facility in Tampa, Florida and has subsequently begun construction of
leasehold improvements. It is anticipated that the joint venture will
begin production in such facility in mid-1999.
16. INCOME (LOSS) PER COMMON SHARE
FASB has issued SFAS No. 128, Earnings Per Share, which was 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 fiscal years ended September 27, 1998, September 28, 1997 and
September 29, 1996. The reconciliation of the numerators and
denominators of the basic and diluted earnings per share computation is
as follows:
For the Fiscal Year Ended September 27, 1998
---------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -----------
Income before extraordinary item $ 8,027,000
Basic EPS
---------
Income available to
common stockholders 8,027,000 13,231,542 $ 0.61
Effect of Dilutive Securities
-----------------------------
Stock options 1,070,122
Warrants 329,404
----------
Diluted EPS
-----------
Income available to
common stockholders $ 8,027,000 14,631,068 $ 0.55
============ ========== =======
For the Fiscal Year Ended September 28, 1997
----------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Income before extraordinary item $ 379,000
Basic EPS
---------
Income available to common
stockholders 379,000 13,316,965 $ 0.03
Effect of Dilutive Securities
-----------------------------
Stock options 106,589
----------
Diluted EPS
-----------
Income available to
common stockholders $ 379,000 13,423,554 $ 0.03
========== ========== =======
Warrants to purchase 800,000 shares of common stock at $4.375 per share
and additional stock options to purchase 1,224,478 shares of common
stock at various prices were outstanding during the fiscal year ended
September 28, 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 fiscal year ended September 29, 1996, the weighted average
number of common shares outstanding for the calculation of basic and
diluted earnings per share was 13,167,466. 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.
17. RELATED PARTY TRANSACTIONS
The Company has an agreement with an investment banking firm that
employs relatives of one of the Company's executive officers. The
agreement retains the investment banking firm to provide financial
advisory services to the Company for the period January 1, 1997 through
December 31, 2000. The Company incurred expenses related to this
agreement of approximately $732,000 and $274,000 during the fiscal
years ended September 27, 1998 and September 28, 1997, respectively,
and $258,000 related to a similar agreement during the fiscal year
ended September 29, 1996. Of the $732,000 incurred during Fiscal 1998,
$650,000 was incurred in connection with the Fleet Financing and is
included in capitalized debt issuance costs as of September 27, 1998.
During the fiscal year ended September 27, 1998, the Company incurred
legal fees of approximately $326,000 with a law firm of which one of
the Company's directors is a senior partner. Approximately $231,000 of
such legal fees were incurred in connection with the Fleet Financing
and are included in capitalized debt issuance costs as of September 27,
1998. No legal fees were paid to this firm during the fiscal years
ended September 28, 1997 or September 29, 1996.
18. SEGMENT INFORMATION
Identifiable assets by segment are those assets that are used solely in
the Company's operations in each segment. The Company did not derive
10% or more of its sales from any single customer during the fiscal
years ended September 27, 1998, September 28, 1997 and September 29,
1996. Segment data for the fiscal years ended September 27, 1998,
September 28, 1997 and September 29, 1996 are as follows (in millions):
Fiscal Years Ended
-----------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ----------- ------------
Net sales:
High Performance Plastics $ 128.6 $ 118.8 $ 115.1
Coated Fabrics 67.9 68.8 58.7
Specialty Adhesives 24.1 20.9 35.5
--------- --------- ---------
Total $ 220.6 $ 208.5 $ 209.3
========= ========= =========
Operating income (loss):
High Performance Plastics $ 16.2 $ 10.5 $ 7.0
Coated Fabrics 8.9 2.1 (19.0)
Specialty Adhesives 1.9 (0.3) 0.1
Optoelectronics (0.4) - -
Unallocated (3.6) (1.7) (0.8)
--------- --------- ---------
Total $ 23.0 $ 10.6 $ (12.7)
========= ========= =========
Identifiable assets:
High Performance Plastics $ 99.8 $ 92.0 $ 80.9
Coated Fabrics 35.1 43.7 46.4
Specialty Adhesives 15.7 15.0 9.3
Optoelectronics 2.7 - -
Corporate 33.1 30.8 34.2
--------- --------- ---------
Total $ 186.4 $ 181.5 $ 170.8
========= ========= =========
Depreciation and amortization:
High Performance Plastics $ 5.5 $ 4.9 $ 4.4
Coated Fabrics 1.7 1.9 3.7
Specialty Adhesives 0.8 0.9 1.6
Unallocated 1.1 1.4 0.9
--------- --------- ---------
Total $ 9.1 $ 9.1 $ 10.6
========= ========= =========
Capital expenditures:
High Performance Plastics $ 5.4 $ 3.0 $ 3.9
Coated Fabrics 0.5 1.2 2.4
Specialty Adhesives 0.9 7.3 1.8
Optoelectronics 0.3 - -
Corporate 0.2 0.8 2.0
--------- --------- ---------
Total $ 7.3 $ 12.3 $ 10.1
========= ========= =========
During the fiscal year ended September 27, 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 3.0% - 3.5% of segment sales. Prior quarter and fiscal year
allocations were not restated. Had the current year allocation of
corporate overhead expenses remained consistent with the prior years'
methodology, this would have resulted in additional allocations of
expense to the High Performance Plastics Segment of $2.1 million and to
the Specialty Adhesives Segment of $0.4 million in Fiscal 1998. The
Coated Fabrics Segment would have had $0.3 million less expense
allocated in Fiscal 1998.
During the Fiscal year ended September 29, 1996, the Specialty
Adhesives Segment included the Ensolite specialty foams division prior
to its sale on June 10, 1996 (Note 5).
19. SUBSEQUENT EVENT
On November 30, 1998, the Company purchased 642,857 shares of the
Series I Redeemable Convertible Preferred Stock ("Preferred Stock") of
Emcore for approximately $9,000,000 ($14.00 per share). The shares were
offered pursuant to a private placement by Emcore.
Dividends on the Preferred Stock are cumulative and will be payable, at
Emcore's option, in cash or additional shares of Preferred Stock on
March 31, June 30, September 30 and December 31, commencing December
31, 1998 at the annual rate of 2% per share of Preferred Stock on the
liquidation preference thereof (equivalent to $0.28 per annum per share
of Preferred Stock).
Shares of the Preferred Stock are convertible at any time, at the
option of the holders thereof, into shares of common stock of Emcore on
a one for one basis, subject to adjustment for certain events. On
November 30, 1998, the closing sales price of Emcore's common stock on
the Nasdaq National Market was $12.875.
The Preferred Stock is redeemable, in whole or in part, at the option
of Emcore at any time Emcore's common stock has traded at or above
$28.00 per share for 30 consecutive trading days, at a price of $14.00
per share plus accrued and unpaid dividends, if any, to the redemption
date. Emcore is required to provide no less than 30 days and no more
than 60 days notice of the redemption. The shares of Preferred Stock
are subject to mandatory redemption by Emcore on November 17, 2003.
On November 30, 1998, Emcore also made a capital contribution to
Uniroyal Optoelectronics, LLC of $5,000,000. The Company will fund its
equivalent capital contribution to the joint venture of approximately
$5,200,000 as cash is required by the joint venture.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the consolidated balance sheets of Uniroyal Technology
Corporation and subsidiaries (the "Company") as of September 27, 1998 and
September 28, 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended September 27,
1998, September 28, 1997, and September 29, 1996 and have issued our report
thereon dated December 16, 1998 (included in this Form 10-K). Our audits also
included the accompanying consolidated financial statement schedule listed in
Item 14 of this Form 10-K. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Tampa, Florida
December 16, 1998
SCHEDULE II
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED (CREDITED) CHARGED
BEGINNING OF TO COSTS AND TO OTHER BALANCE AT
PERIOD EXPENSES ACCTS. DEDUCTION END OF PERIOD
DESCRIPTION
(a) (b)
Year ended September 27, 1998
Estimated reserve for
doubtful accounts $ 257 $ 87 $ 27 $ (125) $ 246
Year ended September 28, 1997
Estimated reserve for
doubtful accounts $ 369 $ - $ 53 $ (165) $ 257
Year ended September 29, 1996
Estimated reserve for
doubtful accounts $ 437 $ (6) $ 27 $ (89) $ 369
<FN>
(a) Amount represents recovery of amounts previously written-off.
(b) Amount includes write-off of uncollectible accounts.
</FN>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNIROYAL TECHNOLOGY CORPORATION
/S/ Howard R. Curd
Date: December 17, 1998 By: ---------------------
Howard R. Curd, Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/S/ Robert L. Soran /S/ Richard D. Kimbel
- -------------------------- ---------------------------
Robert L. Soran, Director, President Richard D. Kimbel, Director
and Chief Operating Officer Date: December 17, 1998
Date: December 17, 1998
/S/ George J. Zulanas, Jr. /S/ Curtis L. Mack
- --------------------------- ---------------------------
George J. Zulanas, Jr., Vice President, Curtis L. Mack, Director
Chief Financial Officer and Treasurer Date: December 17, 1998
Date: December 17, 1998
/S/ Howard R. Curd /S/ Roland H. Meyer
- --------------------------- ---------------------------
Howard R. Curd, Director, Chairman Roland H. Meyer, Director
of the Board and Chief Executive Date: December 17, 1998
Officer
Date: December 17, 1998
/S/ Peter C. B. Bynoe /S/ John A. Porter
- --------------------------- ---------------------------
Peter C. B. Bynoe, Director John A. Porter, Director
Date: December 17, 1998 Date: December 17, 1998
/S/ Thomas E. Constance
- ---------------------------
Thomas E. Constance, Director
Date: December 17, 1998
POWER OF ATTORNEY
Each person whose signature to this report appears below hereby appoints Howard
R. Curd, Robert L. Soran and Oliver J. Janney, and each individually, any one of
whom may act without the joinder of the others, as his agent and
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all amendments to this report, which amendments make such
changes and additions to this report as such agent and attorney-in-fact may deem
necessary and appropriate.
/S/ Howard R. Curd /S/ Peter C. B. Bynoe
- ----------------------- --------------------------
Howard R. Curd, Director, Chairman Peter C.B. Bynoe, Director
of the Board and Chief Date: December 17, 1998
Executive Officer
Date: December 17, 1998
/S/ Robert L. Soran /S/ Thomas E. Constance
- ----------------------- ---------------------------
Robert L. Soran, Director, President and Thomas E. Constance, Director
Chief Operating Officer Date: December 17, 1998
Date: December 17, 1998
/S/ Richard D. Kimbel
---------------------------
Richard D. Kimbel, Director
Date: December 17, 1998
/S/ Curtis L. Mack
---------------------------
Curtis L. Mack, Director
Date: December 17, 1998
/S/ Roland H. Meyer
---------------------------
Roland H. Meyer, Director
Date: December 17, 1998
/S/ John A. Porter
---------------------------
John A. Porter, Director
Date: December 17, 1998