SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20686
UNIROYAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0341868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 N. Tamiami Trail, Suite 900, Sarasota, FL 34236
(Address of principal executive offices) (Zip Code)
(941) 361-2100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Total number of shares of outstanding stock as of July 30, 1999
Common stock 12,083,771
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
June 27, September 27,
1999 1998
------------ -------------
Current assets:
Cash and cash equivalents $ 1,075 $ 5,585
Trade receivables (less estimated reserve for doubtful
accounts of $303 and $246, respectively) 22,262 26,320
Inventories (Note 2) 38,798 38,139
Deferred income taxes 4,709 5,837
Prepaid expenses and other current assets 1,979 1,008
------------ -----------
Total current assets 68,823 76,889
Property, plant and equipment - net 90,003 65,551
Property, plant and equipment held for sale 5,813 5,924
Investment in preferred stock (Note 3) 6,572 -
Note receivable 5,000 5,000
Goodwill - net (Note 4) 12,320 8,951
Deferred income taxes 7,046 7,759
Other assets 14,524 16,277
------------ ------------
TOTAL ASSETS $ 210,101 $ 186,351
============ ============
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 27, September 27,
1999 1998
------------ -------------
Current liabilities:
Current portion of long-term debt $ 14,711 $ 7,713
Trade accounts payable 19,078 15,302
Accrued expenses:
Compensation and benefits 10,242 9,743
Interest 1,577 149
Taxes, other than income 1,092 1,258
Accrued income taxes 676 921
Other 3,361 5,657
------------ ------------
Total current liabilities 50,737 40,743
Long-term debt 109,307 97,945
Other liabilities 14,943 15,061
------------ ------------
Total liabilities 174,987 153,749
------------ ------------
Commitments and contingencies (Note 8)
Minority interest (Note 6) 4,983 291
Stockholders' equity (Note 7):
Preferred stock:
Series C - 0 shares issued and outstanding; par value $0.01;
450 shares authorized - -
Common stock:
14,557,599 and 14,182,956 shares issued or to be issued,
respectively; par value $0.01; 35,000,000 shares authorized 146 142
Additional paid-in capital 57,230 54,613
Unrealized gain on securities available for sale - net 824 -
Deficit (8,623) (11,632)
------------ ------------
49,577 43,123
Less treasury stock at cost - 2,559,053 and 1,499,868
shares, respectively (19,446) (10,812)
------------ ------------
Total stockholders' equity 30,131 32,311
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 210,101 $ 186,351
============ ============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
---------------- --------------- --------------- ---------------
Net sales $ 51,086 $ 56,905 $ 149,448 $ 162,620
Costs and expenses:
Costs of goods sold 36,288 41,174 108,997 117,834
Selling and administrative 8,085 7,025 23,400 20,958
Gain on sale of preferred stock (Note 3) (898) - (898) -
Depreciation and other amortization 2,287 2,183 6,736 6,479
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets - - - 377
------------- ------------ ------------ -------------
Income before interest, income taxes,
minority interest and extraordinary
item 5,324 6,523 11,213 16,972
Interest expense-net (2,439) (2,160) (6,972) (7,204)
------------- ------------ ------------ -------------
Income before income taxes, minority
interest and extraordinary item 2,885 4,363 4,241 9,768
Income tax expense (Note 5) (1,407) (1,745) (2,265) (4,043)
------------- ------------ ------------ -------------
Income before minority interest and
extraordinary item 1,478 2,618 1,976 5,725
Minority interest in net losses of
consolidated subsidiaries 453 - 1,033 -
------------- ------------ ------------ -------------
Income before extraordinary item 1,931 2,618 3,009 5,725
Extraordinary loss on the
extinguishment of debt-net - (5,637) - (5,637)
------------- ------------ ------------ -------------
Net income (loss) $ 1,931 $ (3,019) $ 3,009 $ 88
============= ============ ============ =============
Net income (loss) per common share -
basic (Note 9)
Income before extraordinary item $ 0.16 $ 0.20 $ 0.25 $ 0.43
Extraordinary loss - (0.43) - (0.42)
------------- ------------ ------------ -------------
Net income (loss) $ 0.16 $ (0.23) $ 0.25 $ 0.01
============= ============ ============ =============
Net income (loss) per common share -
assuming dilution (Note 9)
Income before extraordinary item $ 0.15 $ 0.18 $ 0.23 $ 0.40
Extraordinary loss - (0.38) - (0.39)
------------- ------------ ------------ -------------
Net income (loss) $ 0.15 $ (0.20) $ 0.23 $ 0.01
============= ============ ============ =============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------------- ----------- ----------- -----------
Net income (loss) $ 1,931 $ (3,019) $ 3,009 $ 88
Unrealized (loss) gain on securities
available for sale, net of income taxes:
Unrealized gain on securities
available for sale 381 - 1,372 -
Less: reclassification adjustment for
gains realized in net income (548) - (548) -
--------- --------- --------- ---------
Net unrealized (loss) gain (167) - 824 -
Comprehensive income (Note 10) $ 1,764 $ (3,019) $ 3,833 $ 88
========= ========= ========= =========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
June 27, June 28,
1999 1998
------------- ------------
OPERATING ACTIVITIES:
Net income $ 3,009 $ 88
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,736 6,479
Deferred tax expense 1,826 3,990
Minority interest in net losses of consolidated subsidiaries (1,033) -
Amortization of reorganization value in excess of
amounts allocable to identifiable assets - 377
Amortization of Senior Secured Notes discount - 63
Amortization of refinancing and debt issuance costs 427 373
Gain on sale of preferred stock (898) -
Extraordinary loss - 5,637
Other 202 131
Changes in assets and liabilities:
Decrease in trade accounts receivable 4,829 4,932
Increase in inventories (198) (5,077)
Increase in prepaid expenses and other assets (280) (4,131)
Increase in trade accounts payable 3,508 2,369
Decrease in other accrued expenses (941) (4,317)
(Increase) decrease in other liabilities (119) 259
----------- -----------
Net cash provided by operating activities 17,068 11,173
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 11) (10,132) (5,311)
Purchase of preferred stock (9,144) -
Proceeds from sale of preferred stock 4,822 -
Business acquisitions - net of cash acquired (733) (1,770)
----------- -----------
Net cash used in investing activities (15,187) (7,081)
----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving loan balances 1,724 (7,932)
Proceeds from term loan 785 -
Repayment of term loans (6,405) (2,000)
Redemption of Senior Secured Notes - (72,253)
Redemption costs for Senior Secured Notes - (3,718)
Proceeds from refinancing - 90,000
Refinancing costs - (3,545)
Purchase of treasury stock (8,239) (3,954)
Purchase of warrants (292) (1,314)
Minority interest capital contributions 5,725 -
Stock options exercised 311 569
----------- -----------
Net cash used in financing activities (6,391) (4,147)
----------- -----------
Net decrease in cash (4,510) (55)
Cash and cash equivalents at beginning of period 5,585 244
----------- -----------
Cash and cash equivalents at end of period $ 1,075 $ 189
=========== ===========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months and Nine Months Ended
June 27, 1999 and June 28, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements relate to
Uniroyal Technology Corporation and its wholly-owned subsidiaries
Uniroyal HPP Holdings, Inc., Uniroyal Engineered Products, Inc. and
Uniroyal Optoelectronics, Inc. (the "Company") and its majority-owned
subsidiary Uniroyal Liability Management Company, Inc. Uniroyal HPP
Holdings, Inc. includes its wholly-owned subsidiaries, High Performance
Plastics, Inc. ("HPPI") and Happel Marine, Inc. ViPlex Corporation was
merged into HPPI as of December 31, 1998. Uniroyal Optoelectronics,
Inc. includes its majority-owned limited liability company, Uniroyal
Optoelectronics, LLC. The interim Condensed Consolidated Financial
Statements of the Company are unaudited and should be read in
conjunction with the Company's audited financial statements and notes
thereto for the fiscal years ended September 27, 1998, September 28,
1997 and September 29, 1996. The Company's fiscal year ends on the
Sunday following the last Friday in September.
Certain reclassifications were made to the prior year financial
statements to conform to current period presentations. In the opinion
of the Company, all adjustments necessary for a fair presentation of
such interim Condensed Consolidated Financial Statements have been
included. Such adjustments consist only of normal recurring items.
Interim results are not necessarily indicative of results for a full
year. The interim Condensed Consolidated Financial Statements and notes
thereto are presented as permitted by the Securities and Exchange
Commission and do not contain certain information included in the
Company's annual financial statements and notes thereto.
2. INVENTORIES
Inventories consisted of the following (in thousands):
June 27, September 27,
1999 1998
----------- ------------
Raw materials, work in process
and supplies $ 23,280 $ 22,844
Finished goods 15,518 15,295
----------- -----------
Total $ 38,798 $ 38,139
=========== ===========
3. INVESTMENT IN PREFERRED STOCK
On November 30, 1998, the Company purchased 642,857 shares of the
Series I Redeemable Convertible Preferred Stock ("Preferred Stock") of
Emcore Corporation ("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 are 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 June
25, 1999, the closing sales price of Emcore's common stock on the
Nasdaq National Market was $17.625.
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 not less than 30 days and not more
than 60 days notice of the redemption. The shares of Preferred Stock
are subject to mandatory redemption by Emcore on November 17, 2003.
In June of 1999, the Company converted 270,000 shares of the Preferred
Stock into 270,000 shares of Emcore common stock. The Company then sold
its 270,000 shares of Emcore common stock for $4,822,200 in conjunction
with a public stock offering by Emcore. The Company recognized a gain
on the sale of approximately $898,000, net of certain transaction
costs.
The remaining Preferred Stock and the underlying common stock of Emcore
have not been registered under the Securities Act of 1933 and are
subject to certain restrictions on transfer. Emcore has agreed to use
its best efforts to file a registration statement covering the resale
of the shares of common stock issuable upon conversion of the remaining
Preferred Stock. The Company believes that this registration of the
remaining shares will take place during the current fiscal year.
The Company accounts for this investment in Preferred Stock in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management has classified this investment as available for
sale and, in accordance with SFAS No. 115, carries the investment at
fair value with the unrealized gains and losses, net of income taxes,
reported as a separate component of Stockholders' Equity. The fair
value is determined by the most recently traded price of Emcore's
common stock at the balance sheet date.
4. ACQUISITION OF HAPPEL MARINE, INC.
On June 14, 1999, the Company acquired 100% of the common stock of
Happel Marine, Inc., a fabricator for the marine industry, for
$5,193,500. The purchase price was comprised of $909,252 in cash,
unsecured promissory notes aggregating $2,911,007, and 145,078 shares
of common stock of the Company valued at $1,373,241 which approximated
the market value of such shares on the acquisition date. The promissory
notes consist of a $2,400,000 note payable in four equal annual
installments beginning January 15, 2000, plus accrued interest and a
$511,007 note payable in two equal annual installments beginning
January 15, 2000 plus accrued interest. The purchase price will be
adjusted for changes in working capital between April 30, 1999 and June
13, 1999.
The business combination was accounted for by the purchase method in
accordance with the Accounting Principles Board Opinion No. 16,
"Business Combinations." The results of Happel Marine, Inc. are
included in the Condensed Consolidated Financial Statements for the
period from June 14, 1999 to June 27, 1999. The Company acquired cash,
working capital, property and equipment in the transaction and recorded
preliminary goodwill of $3,637,000 which will be amortized over the
estimated useful life of the asset of 25 years. The Company is in the
process of completing its final purchase price allocation and
determination of related goodwill, deferred taxes and other accounts.
5. INCOME TAXES
The provisions for income tax expense for the three and nine months
ended June 27, 1999 and June 28, 1998 were calculated through the use
of the estimated annual income tax rates based on annualized income.
6. MINORITY INTEREST
During the first nine months of Fiscal 1999, Emcore made capital
contributions to Uniroyal Optoelectronics, LLC of $5,500,000. The
Company will fund its equivalent capital contribution to the joint
venture of approximately $5,700,000 as cash is required by the joint
venture. Also included in minority interest is Emcore's share of joint
venture losses ($1,177,000 for the nine months ended June 27, 1999).
Included in selling and administrative expenses of the Company for the
three and nine months ended June 27, 1999, are joint venture losses
attributable to start-up costs of $1,266,000 and $2,472,000,
respectively.
Uniroyal Liability Management Company, Inc. ("ULMC") is a special
purpose subsidiary created in Fiscal 1999 to administer the Company's
employee and retiree medical benefit programs. The Company owns a
controlling interest in the subsidiary; therefore, the accompanying
Condensed Consolidated Financial Statements include the subsidiary's
results of operations. Included in minority interest is a $225,000
investment in ULMC from unrelated parties. Also included in minority
interest is the minority shareholders' share of ULMC earnings of
$144,000 for the nine months ended June 27, 1999.
7. STOCKHOLDERS' EQUITY
During the nine months ended June 27, 1999, the Company repurchased
824,000 shares of its common stock in the open market for approximately
$7,627,000.
During the nine months ended June 27, 1999, the Company received
100,077 shares of its common stock in lieu of cash for the exercise of
stock options from officers and employees of the Company. These shares
were valued at approximately $993,000 (which was calculated based upon
the closing market value of the stock on the day prior to the exercise
dates) and are included as treasury shares as of June 27, 1999.
During the nine months ended June 27, 1999, the Company received
253,290 shares of its common stock in connection with the final
distributions of the bankruptcy proceedings, 18,271 of which were
purchased at a cost of approximately $181,000.
During the nine months ended June 27, 1999, the Company repurchased
46,568 shares of its common stock from the Uniroyal Technology
Corporation Employee Stock Ownership Plan for approximately $431,000.
During the nine months ended June 27, 1999, the Company repurchased
45,615 of its outstanding warrants for approximately $292,000.
8. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
Notwithstanding the confirmation and effectiveness of the Plan of
Reorganization (the "Plan") of the Company's predecessors (the
"Predecessor Companies"), the United States Bankruptcy Court for the
Northern District of Indiana, South Bend Division (the "Bankruptcy
Court") continues to have jurisdiction to, among other things, resolve
disputed pre-petition claims and to resolve other matters that may
arise in connection with or relate to the Predecessor Companies' Plan.
The Company has resolved, through negotiation or through dismissal by
the Bankruptcy Court, approximately $38,000,000 in disputed claims.
Approximately 9,990,000 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 remaining approximately 10,000
shares of the original 10,000,000 shares allocated for disposition of
the bankruptcy claims are being held pending distribution to certain
holders whose claims have been approved.
Litigation
The Company is engaged in litigation arising from the ordinary course
of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or 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.
In March 1999, the Company paid $525,000 to the Environmental
Protection Agency ("EPA") to settle the Company's liability for
environmental remediation at a facility formerly leased by the Company
at 312 North Hill Street, Mishawaka, Indiana. The liability had been
fully accrued for in a prior fiscal year.
Based on information available as of June 27, 1999, the Company
believes that the costs of known environmental matters either have been
adequately provided for or are unlikely to have a material adverse
effect on the Company's operations, cash flows or financial position.
9. INCOME PER COMMON SHARE
The reconciliation of the numerators and denominators of the basic and
diluted earnings per share computation are as follows for the three and
nine months ended June 27, 1999 and June 28, 1998:
Three Months Ended Three Months Ended
June 27, 1999 June 28, 1998
---------------------------------------- ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
Income before
extraordinary item $ 1,931,000 $ 2,618,000
Basic EPS
- ---------
Income available to com-
mon stockholders $ 1,931,000 11,941,418 $ 0.16 $ 2,618,000 13,304,832 $ 0.20
======== ========
Effect of Dilutive Securities
- -----------------------------
Stock options 770,318 1,094,958
Warrants 271,632 406,156
---------- ----------
Diluted EPS
- -----------
Income available to com-
mon stockholders $ 1,931,000 12,983,368 $ 0.15 $ 2,618,000 14,805,946 $ 0.18
============ ========== ======== ============ ========== ========
Nine Months Ended Nine Months Ended
June 27, 1999 June 28, 1998
---------------------------------------- ----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
Income before
extraordinary item $ 3,009,000 $ 5,725,000
Basic EPS
- ---------
Income available to com-
mon stockholders $ 3,009,000 12,189,961 $ 0.25 $ 5,725,000 13,277,229 $ 0.43
======== ========
Effect of Dilutive Securities
- -----------------------------
Stock options 874,178 1,033,353
Warrants 297,599 313,292
---------- ----------
Diluted EPS
- -----------
Income available to com-
mon stockholders $ 3,009,000 13,361,738 $ 0.23 $ 5,725,000 14,623,874 $ 0.40
============ ========== ======== ============ ========== ========
10. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
during the quarter ended December 27, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive income is defined as the change in equity of
a business during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. SFAS No. 130 requires that the Company's
change in unrealized gains and losses on equity securities available
for sale be included in comprehensive income. The net unrealized (loss)
gain on securities available for sale is shown net of a tax benefit of
$107,000 for the three months ended June 27, 1999 and net of tax
expense of $527,000 for the nine months ended June 27, 1999.
11. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows (in
thousands):
Nine Months Ended Nine Months Ended
June 27, 1999 June 28, 1998
------------------ ------------------
Income tax payments $ 799 $ 122
Interest payments 5,833 9,932
The purchases of property, plant and equipment and net cash used in
financing activities for the nine months ended June 27, 1999 do not
include $19,098,000 related to property held under capitalized leases.
The new leases relate primarily to property, plant and equipment
purchased for Uniroyal Optoelectronics, LLC. The capitalized leases are
for a term of five years. Interest on the leases 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 did not enter
into any capital lease agreements during the nine months ended June 28,
1998.
During the nine months ended June 27, 1999 and June 28, 1998, the
Company made matching contributions to its 401(k) Savings Plan by the
re-issuance of 19,672 and 30,260 common shares from treasury,
respectively.
12. SUBSEQUENT EVENT
On July 20, 1999 the Company received approximately $900,000 from
Canadian-General Tower Limited ("CGT") for the sale of certain coated
fabric automotive operations and assets related to the Company's
instrument panel program.
Management believes that the writedown to long-lived assets, the
curtailment loss and other reserves recorded during Fiscal 1996 and
Fiscal 1997 relating to this sale remain appropriate at June 27, 1999.
Management believes that the Company will not have any further
significant gain or loss upon the ultimate wind down of the automotive
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Fiscal 1999 Compared with
the Third Quarter Fiscal 1998
Net Sales. The Company's net sales decreased in the third quarter of Fiscal 1999
by approximately 10% ($5,819,000) to $51,086,000 from $56,905,000 in the third
quarter of Fiscal 1998. The decrease is attributable to decreased net sales for
both the High Performance Plastics and Coated Fabrics Segments. The decrease was
partially offset by increased net sales in the Specialty Adhesives Segment as
well as initial sales in the Optoelectronics Segment. During Fiscal 1998, the
Company sold its coated fabrics automotive business and has been transitioning
that business to the buyer. Excluding the automotive business from both periods,
sales increased 3% versus the prior year period.
Net sales by the High Performance Plastics Segment decreased 3% ($971,000) in
the third quarter of Fiscal 1999 to $32,564,000 from $33,535,000 in the third
quarter of Fiscal 1998. The decrease is due to a decline in unit volume at
Royalite thermoplastics division which was partially offset by incremental sales
resulting from the acquisition of ViPlex Corporation in the third quarter of
Fiscal 1998 and the acquisition of Happel Marine, Inc. in the third quarter of
Fiscal 1999.
Net sales by the Coated Fabrics Segment decreased in the third quarter of Fiscal
1999 approximately 40% ($6,809,000) to $10,289,000 from $17,098,000 in the third
quarter of Fiscal 1998 principally due to the gradual phase out of its
automotive business. Automotive sales approximated $2,816,000 in the third
quarter of Fiscal 1999 compared to $9,955,000 in the third quarter of Fiscal
1998. Excluding the automotive sales from both periods, net sales by the Coated
Fabrics Segment increased approximately 5% as a result of an increase in unit
volume and selling prices of Naugahyde(R) vinyl-coated fabrics.
Net sales of the Specialty Adhesives Segment increased in the third quarter of
Fiscal 1999 by approximately 27% ($1,708,000) to $7,980,000 from $6,272,000 in
the third quarter of Fiscal 1998. The increase is attributable to strong demand
for roofing adhesives and sealants as well as increased sales as a result of a
tolling agreement with a major adhesives company.
Net sales by the Optoelectronics Segment in the third quarter of Fiscal 1999
were $253,000. This segment did not exist in the third quarter of Fiscal 1998.
This segment is in the developmental stage with the Tampa, Florida production
facility nearing completion. Inventory was provided to the segment under a
supply agreement with the segment's joint venture partner. The Tampa facility is
expected to begin production for commercial applications in the fourth quarter
of Calendar 1999.
Income Before Interest, Income Taxes, Minority Interest and Extraordinary Item.
Income before interest, income taxes, minority interest and extraordinary item
for the third quarter of Fiscal 1999 decreased approximately 18% to $5,324,000,
as compared to $6,523,000 for the third quarter of Fiscal 1998. The decrease is
attributable to the loss of revenues associated with the gradual phase-out of
the automotive operations of the Coated Fabrics Segment and start-up losses for
the Optoelectronics Segment.
The High Performance Plastics Segment's income before interest, income taxes,
minority interest and extraordinary item for the third quarter of Fiscal 1999
increased approximately 2% ($81,000) to $4,730,000 from $4,649,000 in the third
quarter of Fiscal 1998. Favorable product mix led to margin improvements as well
as the realization of certain efficiencies from the ongoing plant consolidations
at the Polycast cell cast acrylic division.
The Coated Fabrics Segment's income before interest, income taxes, minority
interest and extraordinary item decreased in the third quarter of Fiscal 1999
approximately 42% ($1,027,000) to $1,441,000 compared to $2,468,000 in the third
quarter of Fiscal 1998. The decrease is due to the gradual phase-out of its
automotive business and certain incremental costs related to the closure of the
Port Clinton, Ohio facility used to produce automotive products.
The Specialty Adhesives Segment's income before interest, income taxes, minority
interest and extraordinary item increased in the third quarter of Fiscal 1999 by
49% ($259,000) to $790,000 from $531,000 in the third quarter of Fiscal 1998.
The increase is attributable to stronger sales volume.
The Optoelectronics Segment incurred a loss before interest, income taxes,
minority interest and extraordinary item of $1,382,000 in the third quarter of
Fiscal 1999. The losses relate to start-up costs, relocation and training costs
of personnel. The segment did not exist in the third quarter of Fiscal 1998.
Not allocated to the segments in the third quarter of Fiscal 1999 was
approximately $255,000 of miscellaneous expense versus $1,125,000 of
miscellaneous expense in the third quarter of Fiscal 1998. The Fiscal 1999
amount includes a $898,000 gain from the sale of an investment in equity
securities.
Interest Expense. Interest expense in the third quarter of Fiscal 1999 increased
to $2,439,000 from $2,160,000 in the third quarter of Fiscal 1998 due to an
increase in the overall level of debt outstanding.
Income Tax Expense. Income tax expense in the third quarter of Fiscal 1999 was
$1,407,000 as compared to $1,745,000 in the third quarter of Fiscal 1998. The
provisions for income tax expense were calculated through the use of the
estimated income tax rates based on projected annualized income.
Extraordinary Loss on the Extinguishment of Debt. The extraordinary loss on the
extinguishment of debt in the third quarter of Fiscal 1998 was $5,637,000. The
amount represents the loss recognized when the Company early retired the
remaining $72,253,000 of its 11 3/4% Senior Secured Notes, including a call
premium payment of 4.41% and write-off of applicable debt issuance costs and
unamortized debt discount, net of income tax benefit of approximately
$2,787,000.
First Three Quarters of Fiscal 1999 Compared with
the First Three Quarters of Fiscal 1998
Net Sales. The Company's net sales decreased in the first three quarters of
Fiscal 1999 by approximately 8% ($13,172,000) to $149,448,000 from $162,620,000
in the first three quarters of Fiscal 1998. The decrease is primarily
attributable to the sale of the automotive operations of the Coated Fabrics
Segment in Fiscal 1998 and the gradual phase-out of those operations. Excluding
automotive operations from both periods, sales increased 4% during the first
three quarters of Fiscal 1999 compared to the first three quarters of Fiscal
1998.
Net sales by the High Performance Plastics Segment increased slightly in the
first three quarters of Fiscal 1999 to $95,835,000 from $95,759,000 in the first
three quarters of Fiscal 1998. Declines in unit volume at the Royalite
thermoplastics division were more than offset by the incremental sales resulting
from the acquisition of ViPlex Corporation in the third quarter of Fiscal 1998
and the acquisition of Happel Marine, Inc. in the third quarter of Fiscal 1999.
Net sales by the Coated Fabrics Segment decreased in the first three quarters of
Fiscal 1999 by approximately 35% ($17,674,000) to $33,494,000 from $51,168,000
in the first three quarters of Fiscal 1998 due to the gradual phase-out of its
automotive business. Automotive sales approximated $11,599,000 in the first
three quarters of Fiscal 1999 compared to $30,495,000 in the first three
quarters of Fiscal 1998. Excluding automotive sales from both periods, sales of
Naugahyde(R) vinyl-coated fabrics increased approximately 6% as a result of an
increase in unit volume and selling prices.
Net sales of the Specialty Adhesives Segment increased in the first three
quarters of Fiscal 1999 by approximately 26% ($4,088,000) to $19,781,000 from
$15,693,000 in the first three quarters of Fiscal 1998 primarily due to a strong
demand for roofing adhesives and sealants and a tolling agreement with a major
adhesives company.
Net sales by the Optoelectronics Segment were $338,000 for the first three
quarters of Fiscal 1999. The segment is in the developmental stage with the
Tampa, Florida production facility nearing completion. Inventory was provided to
the segment under a supply agreement with the segment's joint venture partner.
The Tampa facility is expected to begin production for commercial applications
in the fourth quarter of Calendar 1999. The segment did not exist during the
first three quarters of Fiscal 1998.
Income Before Interest, Income Taxes, Minority Interest and Extraordinary Item.
Income before interest, income taxes, minority interest and extraordinary item
for the first three quarters of Fiscal 1999 was $11,213,000, compared to income
before interest, income taxes, minority interest and extraordinary item of
$16,972,000 for the first three quarters of Fiscal 1998. The decrease is
primarily due to a loss of revenues associated with the gradual phase-out of the
automotive operations of the Coated Fabrics Segment, temporary production
inefficiencies as a result of a major plant consolidation at the High
Performance Plastics Segment and start-up losses for the Optoelectronics
Segment.
The High Performance Plastics Segment's income before interest, income taxes,
minority interest and extraordinary item for the first three quarters of Fiscal
1999 decreased approximately 7% ($938,000) to $12,248,000 from $13,186,000 in
the first three quarters of Fiscal 1998. The decrease is attributable to
temporary inefficiencies as a result of a major plant consolidation at the
Polycast cell cast acrylic division as well as a reduced sales volume at the
Royalite thermoplastics division.
The Coated Fabrics Segment's income before interest, income taxes, minority
interest and extraordinary item decreased in the first three quarters of Fiscal
1999 approximately 51% ($3,148,000) to $3,077,000 from $6,225,000 in the first
three quarters of Fiscal 1998. The decrease is attributable to the loss of
revenues from the gradual phase-out of its automotive operations, as well as
certain incremental costs related to the closure of the Port Clinton, Ohio
facility used to produce automotive products.
The Specialty Adhesives Segment's income before interest, income taxes, minority
interest and extraordinary item increased in the first three quarters of Fiscal
1999 approximately 279% ($854,000) to $1,160,000 from $306,000 in the first
three quarters of Fiscal 1998 as a result of increased sales volume.
The Optoelectronics Segment's loss before interest, income taxes, minority
interest and extraordinary item in the first three quarters of Fiscal 1999 was
$2,864,000. The losses relate to start-up costs, relocation and training costs
of personnel. The segment did not exist during the first three quarters of
Fiscal 1998.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the first three quarters of Fiscal 1998 was $377,000.
There was no amortization of reorganization value in excess of amounts allocable
to identifiable assets in the first three quarters of Fiscal 1999 as a result of
the third quarter Fiscal 1998 reduction of the asset reorganization value in
excess of amounts allocable to identifiable assets.
Not allocated to the segments in the first three quarters of Fiscal 1999 was
approximately $2,408,000 of miscellaneous expense compared to $2,368,000 for the
first three quarters of Fiscal 1998.
Interest Expense. Interest expense in the first three quarters of Fiscal 1999
decreased slightly to $6,972,000 from $7,204,000 in the first three quarters of
Fiscal 1998. The decrease in interest expense is primarily a result of the
Fiscal 1998 third quarter refinancing. The higher level of debt during the first
three quarters of Fiscal 1999 versus the first three quarters of Fiscal 1998 was
more than offset by a decrease in the interest rates resulting from the
refinancing.
Income Tax Expense. Income tax expense in the first three quarters of Fiscal
1999 was $2,265,000 as compared to $4,043,000 in the first three quarters of
Fiscal 1998. The provisions for income tax expense were calculated through the
use of the estimated income tax rates based on projected annualized income.
Liquidity and Capital Resources
For the first three quarters of Fiscal 1999, operating activities provided
$17,068,000 of cash compared to $11,173,000 provided during the first three
quarters of Fiscal 1998. The increase in cash provided by operating activities
for the Fiscal 1999 period is primarily attributable to an increase in income, a
decrease in the rate of inventory increases and other assets, and an increase in
accounts payable. The overall increase is partially offset by a decrease in
accrued expenses.
Net cash used in investing activities for the first three quarters of Fiscal
1999 was $15,187,000 as compared to $7,081,000 used during the first three
quarters of Fiscal 1998. The increase is due to the purchase of preferred stock
of Emcore Corporation, capital expenditures for the Optoelectronics Segment's
new production facility and capital expenditures for the modernization of the
Polycast cell cast acrylic division's production facility in Stamford,
Connecticut. The investment spending was partially offset by the sale of a
portion of the Emcore preferred stock in the third quarter of Fiscal 1999.
Net cash used in financing activities was $6,391,000 during the first three
quarters of Fiscal 1999 as compared to $4,147,000 used in financing activities
during the first three quarters of Fiscal 1998. Cash was provided through
capital contributions by minority interests and a net increase in revolving loan
balances. Cash was used primarily to repay long-term debt as well as to
repurchase Company stock for treasury. Net proceeds from the third quarter
Fiscal 1998 refinancing were used to redeem the remaining 11 3/4% Senior Secured
Notes and pay associated costs. Cash was also used in the first three fiscal
quarters of 1998 to purchase shares of Company stock for treasury and to
purchase outstanding warrants.
The Company had approximately $1,075,000 in cash and cash equivalents on June
27, 1999 as compared to approximately $5,585,000 at September 27, 1998. Working
capital at June 27, 1999 was $18,086,000 compared to $36,146,000 at September
27, 1998. On June 27, 1999 the Company had borrowings of $6,433,000 under its
$20,000,000 revolving credit facility with Fleet National Bank (subject to a
borrowing base limitation of $20,000,000 at June 27, 1999) and $6,633,000 under
its $10,000,000 revolving credit facility with The CIT Group/Business Credit,
Inc. (subject to a borrowing base limitation of approximately $9,099,000 at June
27, 1999). The principal uses of cash during the first three quarters of Fiscal
1999 were to purchase the preferred stock of Emcore Corporation, to repurchase
Company stock for treasury, to repay debt and to fund capital expenditures for
the new Optoelectronics Segment's facility in Tampa, Florida and the
modernization of the Stamford, Connecticut facility. The Company plans to spend
an additional $4,000,000 to finish the construction of the Optoelectronics
facility during the next six months and $4,000,000 to finish the modernization
of the Stamford, Connecticut facility during the fourth quarter of Fiscal 1999.
The Company plans to fund the expenditures with cash from operations as well as
its ability to borrow under its revolving credit facilities.
The Company believes that cash from its operations and its ability to borrow
under its revolving credit facilities provide it sufficient liquidity to finance
its existing level of operations and meet its debt service obligations. However,
there can be no assurance that the Company's operations together with amounts
available under the revolving credit facilities will continue to be sufficient
to finance its existing level of operations and meet its debt service
obligations. The Company's ability to meet its debt service and other
obligations depends upon its future performance, which in turn, is subject to
general economic conditions and to financial, business and other factors,
including factors beyond the Company's control. If the Company is unable to
generate sufficient cash flow from operations, it may be required to refinance
all or a portion of its existing debt or obtain additional financing. There can
be no assurance that the Company would be able to obtain such refinancing or
additional financing. The Company believes that it currently has sufficient
liquidity to finance its existing level of operations.
Effects of Inflation
The markets in which the Company sells products are competitive. In particular,
the Company has generally encountered effective resistance to price increases in
connection with its sales of acrylics to the aerospace industry. Thus, in an
inflationary environment the Company might not in all instances be able to pass
through to consumers general price increases; the Company's operations could be
materially impacted if such conditions were to occur. The Company has not in the
past been adversely impacted by general price inflation.
Year 2000
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
Year 2000 could result in miscalculations or system failures which could result
in an adverse impact on the Company's operations.
The Company has instituted a Year 2000 task force that reports to the Audit
Committee of the Board of Directors. The Company 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 Phase 1 and Phase 2 of its project and is in the final
testing stage. The Company plans to complete this project by the fourth quarter
of Fiscal 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 $100,000. The
Company has primarily used internal resources in its Year 2000 project thus far
and has incurred costs of less than $700,000.
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. No single supplier or customer
accounts for a material portion of the Company's business. 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 millennium and therefore has
not formulated a contingency plan for such occurrence.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risks
The Company is exposed to various market risks, including changes in interest
rates. The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates on its floating rate 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 June 27, 1999, 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 $99.8 million variable rate debt at June 27, 1999 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 June 27,
1999, the Company would have paid approximately $349,000 to terminate the
agreements. A decrease of 100 basis points in the yield curve would increase the
amounts paid by approximately $1.7 million. The fair value is based on dealer
quotes, considering current interest rates.
At June 27, 1999, approximately $19.8 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 $198,000 on an annual basis.
Forward Looking Information
The information provided herein may contain forward-looking statements relating
to future events that involve risks and uncertainties. Among the important
factors which could cause actual results to differ materially from those in the
forward-looking statements are cancellations, rescheduling or delays in product
shipments; manufacturing capacity constraints; lengthy sales and qualification
cycles; difficulties in the production process; the effectiveness of the
Company's capital expenditure programs; the future financial performance of the
Company; delays in developing and commercializing new products; increased
competition; the variability of future operating results of the Company, changes
in the industries in which the Company competes or plans to compete, especially
the high performance plastics and high brightness, light emitting diode
industries, including overall growth of the industries and the continued
acceptance of the Company's products.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company knows of no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or of
which any of their property is the subject other than routine
litigation incidental to the Company's business.
(b) No legal proceedings were terminated during the third quarter
ended June 27, 1999, other than routine litigation incidental to
the Company's business.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
1. None.
b) Reports on Form 8-K
1. None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: August 11, 1999 By:/s/ George J. Zulanas, Jr.
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George J. Zulanas, Jr.
Vice President, Chief Financial
Officer and Treasurer