SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date or earliest event reported) April 27, 2000
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UNIROYAL TECHNOLOGY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State of other jurisdiction of incorporation)
0-20686 65-0341868
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
Two North Tamiami Trail, Suite 900
Sarasota, Florida 34236
- ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (941) 361-2100
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- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
1
ITEM 5. OTHER EVENTS
Pursuant to an Asset Purchase Agreement dated as of December
24, 1999, among Spartech Corporation ("Spartech"), High Performance
Plastics, Inc. ("HPPI"), Uniroyal HPP Holdings, Inc. and Uniroyal
Technology Corporation (the "Company"), HPPI, a wholly owned subsidiary
of the Company, sold substantially all of its assets to Spartech for
approximately $216 million in cash. The transaction was closed on
February 28, 2000. Copies of the Asset Purchase Agreement, without
exhibits, and the Amendment to Asset Purchase Agreement have been
previously filed in our Form 8-K dated March 14, 2000.
Included in this Form 8-K as Appendix A are the Company's
Consolidated Financial Statements as of September 26, 1999 and
September 27 1998, and for the fiscal years ended September 26, 1999,
September 27, 1998 and September 28, 1997, restated for discontinued
operations and the retroactive effect of a two-for-one stock split
declared by the Company on March 10, 2000, for stockholders of record
on March 20, 2000.
SIGNATURE
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
Date: April 27, 2000 By:/s/ George J. Zulanas, Jr.
---------------------------
George J. Zulanas, Jr.,
Executive Vice President,
Treasurer and Chief
Financial Officer
2
APPENDIX A-CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements as of September 26, 1999 and September 27,
1998 and for the Years Ended September 26, 1999, September 27, 1998 and
September 28, 1997:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 26, 1999 and September 27, 1998 F-3
Consolidated Statements of Operations for the Years Ended
September 26, 1999, September 27, 1998 and September 28, 1997 F-5
Consolidated Statements of Comprehensive Income for the Years
Ended September 26, 1999, September 27, 1998 and September 28,
1997 F-6
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended September 26, 1999, September 27, 1998 and
September 28, 1997 F-7
Consolidated Statements of Cash Flows for the Years Ended
September 26, 1999, September 27, 1998 and September 28, 1997 F-8
Notes to Consolidated Financial Statements F-10
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Uniroyal Technology Corporation
We have audited the accompanying consolidated balance sheets of Uniroyal
Technology Corporation and subsidiaries (the "Company") as of September 26, 1999
and September 27, 1998, and the related consolidated statements of operations,
comprehensive income, changes in stockholders' equity and cash flows for each of
the three years in the period ended September 26, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 26, 1999 and September 27, 1998 and the results of its operations and
its cash flows for each of the three years in the period ended September 26,
1999, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
December 20, 1999
(April 12, 2000 as to Note 21)
F-2
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 26, September 27,
1999 1998
--------------- ---------------
Current assets:
Cash and cash equivalents (Note 2) $ 4,145 $ 4,099
Trade accounts receivable (less estimated reserve for doubtful
accounts of $88 and $87, respectively) (Notes 2 and 10) 4,808 9,287
Inventories (Notes 2, 3 and 10) 8,599 10,262
Deferred income taxes (Notes 2 and 11) 2,779 4,103
Prepaid expenses and other current assets 1,413 798
----------- -----------
Total current assets 21,744 28,549
Property, plant and equipment - net (Notes 2, 4 and 10) 43,804 23,862
Property, plant and equipment held for sale (Note 2) 4,217 5,530
Investment in preferred stock (Notes 2 and 5) 5,383 -
Note receivable (Note 6) 5,000 5,000
Goodwill - net (Note 2) 1,310 1,369
Deferred income taxes - net (Notes 2 and 11) 15,350 14,245
Other assets - net (Notes 2 and 8) 10,148 11,292
----------- -----------
TOTAL ASSETS $ 106,956 $ 89,847
=========== ===========
F-3
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 26, September 27,
1999 1998
---------------- ----------------
Current liabilities:
Current portion of long-term debt (Note 10) $ 5,282 $ 1,708
Trade accounts payable 9,688 9,237
Net liabilities of discontinued operations (Note 21) 8,380 18,978
Accrued expenses:
Compensation and benefits 7,326 6,562
Interest 222 11
Taxes, other than income 388 509
Accrued income taxes - 629
Other 1,055 4,527
----------- -----------
Total current liabilities 32,341 42,161
Long-term debt, net of current portion (Note 10) 24,369 884
Other liabilities (Note 9) 15,288 14,200
----------- -----------
Total liabilities 71,998 57,245
----------- -----------
Commitments and contingencies (Note 14)
Minority interest (Notes 1, 2 and 16) 3,825 291
Stockholders' equity (Note 12):
Preferred stock:
Series C - 0 shares issued and outstanding; par value
$0.01; 450 shares authorized - -
Common stock:
29,362,838 and 28,365,912 shares issued or to be issued,
respectively; par value $0.01; 35,000,000 shares
authorized 294 284
Additional paid-in capital 57,524 54,471
Deficit (6,112) (11,632)
Unrealized gain on securities held for sale - net 100 -
----------- -----------
51,806 43,123
Less treasury stock at cost -5,343,974 and 2,999,736
shares, respectively (20,673) (10,812)
----------- -----------
Total stockholders' equity 31,133 32,311
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 106,956 $ 89,847
=========== ===========
See notes to consolidated financial statements.
F-4
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Years Ended
-----------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
---------------- -------------- --------------
Net sales $ 71,214 $ 92,036 $ 89,677
Costs, expenses and (other income):
Costs of goods sold 53,680 69,868 74,615
Selling and administrative 18,276 12,128 10,898
Amortization of reorganization value in excess of amounts
allocable to identifiable assets - 377 754
Depreciation and other amortization 3,505 3,241 3,363
Gain on sale of preferred stock investment (898) - -
Gain on sale of division (Note 15) (667) (512) -
Loss on assets to be disposed of (Notes 2 and 15) - 226 -
----------- ----------- ---------
(Loss) income before interest, income taxes, minority
interest, discontinued operations and extraordinary item (2,682) 6,708 47
Interest expense - net (778) (2,163) (3,233)
----------- ----------- ---------
(Loss) income before income taxes, minority interest,
discontinued operations and extraordinary item (3,460) 4,545 (3,186)
Income tax benefit (expense) (Notes 2 and 11) 2,520 (2,443) 928
----------- ----------- ---------
(Loss) income before minority interest, discontinued
operations and extraordinary item (940) 2,102 (2,258)
Minority interest in net losses of consolidated joint venture 2,191 199 -
----------- ----------- ---------
Income (loss) from continuing operations before discontinued
operations and extraordinary item 1,251 2,301 (2,258)
Income from discontinued operations, net of income tax
expense of $2,675, $3,164 and $1,759, respectively
(Note 21) 4,269 5,726 2,637
----------- ----------- ---------
Income before extraordinary item 5,520 8,027 379
Extraordinary loss on the extinguishment of debt - net of
income tax of $2,787 (Note 10) - (5,637) -
----------- ----------- ---------
Net income $ 5,520 $ 2,390 $ 379
=========== =========== ===========
Net income per common share - basic (Notes 2 and 17)
- ----------------------------------------------------
Income (loss) from continuing operations $ 0.05 $ 0.09 $ (0.09)
Income from discontinued operations 0.18 0.21 0.10
Extraordinary loss - (0.21) -
----------- ----------- -----------
Net income $ 0.23 $ 0.09 $ 0.01
=========== =========== ===========
Net income per common share - assuming dilution (Notes 2 and 17)
- ---------------------------------------------------------------
Income (loss) from continuing operations $ 0.05 $ 0.08 $ (0.09)
Income from discontinued operations 0.16 0.19 0.10
Extraordinary loss - (0.19) -
----------- ----------- -----------
Net income $ 0.21 $ 0.08 $ 0.01
=========== =========== ===========
See notes to consolidated financial statements.
F-5
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Fiscal Years Ended
------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- -----------------
Net income $ 5,520 $ 2,390 $ 379
----------- ----------- ---------
Unrealized gain on securities available for sale,
net of income taxes:
Unrealized gain on securities available for
sale 648 - -
Less: reclassification adjustment for gains
realized in net income (548) - -
----------- ----------- ---------
Net unrealized gain 100 - -
----------- ----------- ---------
Comprehensive income (Note 2) $ 5,620 $ 2,390 $ 379
=========== =========== =========
See notes to consolidated financial statements.
F-6
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Preferred Additional Other
Stock Common Paid-In Comprehensive
Series B Stock Capital Deficit Income
-------- --------- ----------- ----------- ----------
BALANCE AT SEPTEMBER 29, 1996 (NOTE 21) $ 5,250 $ 266 $ 52,384 $ (14,401) $ -
Common stock issued for acquisitions - 8 1,479 - -
Stock dividends paid - 2 (1) - -
Redemption of Series B preferred stock (5,250) - - - -
Amounts received pursuant to Directors' stock option plan - - 37 - -
Purchases of treasury stock - - - - -
Net income - - - 379 -
--------- -------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 28, 1997 - 276 53,899 (14,022) -
Common stock issued under stock option plans - 8 1,505 - -
Common stock issued to employee benefit plan - - 191 - -
Amounts received pursuant to Directors' stock option plan - - 73 - -
Purchases of treasury stock - - - - -
Tax benefit from exercise of stock options - - 117 - -
Purchases of warrants - - (1,314) - -
Net income - - - 2,390 -
--------- -------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 27, 1998 - 284 54,471 (11,632) -
Common stock issued for acquisitions - - 775 - -
Common stock issued under stock option plans - 10 1,688 - -
Common stock issued to employee benefit plan - - 199 - -
Amounts received pursuant to Directors' stock option plan - - 121 - -
Purchases of treasury stock - - - - -
Tax benefit from exercise of stock options - - 562 - -
Purchases of warrants - - (292) - -
Net income - - - 5,520 -
Comprehensive income - - - - 100
--------- -------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 26, 1999 $ - $ 294 $ 57,524 $ (6,112) $ 100
========= ======== ========== =========== ==========
Treasury Stockholders'
Stock Equity
--------- ---------
BALANCE AT SEPTEMBER 29, 1996 (NOTE 21) $ - $ 43,499
Common stock issued for acquisitions - 1,487
Stock dividends paid - 1
Redemption of Series B preferred stock - (5,250)
Amounts received pursuant to Directors' stock option plan - 37
Purchases of treasury stock (121) (121)
Net income - 379
---------- ---------
BALANCE AT SEPTEMBER 28, 1997 (121) 40,032
Common stock issued under stock option plans (894) 619
Common stock issued to employee benefit plan - 191
Amounts received pursuant to Directors' stock option plan - 73
Purchases of treasury stock (9,797) (9,797)
Tax benefit from exercise of stock options - 117
Purchases of warrants - (1,314)
Net income - 2,390
---------- ---------
BALANCE AT SEPTEMBER 27, 1998 (10,812) 32,311
Common stock issued for acquisitions 598 1,373
Common stock issued under stock option plans (1,345) 353
Common stock issued to employee benefit plan - 199
Amounts received pursuant to Directors' stock option plan - 121
Purchases of treasury stock (9,114) (9,114)
Tax benefit from exercise of stock options - 562
Purchases of warrants - (292)
Net income - 5,520
Comprehensive income - 100
---------- ---------
BALANCE AT SEPTEMBER 26, 1999 $ (20,673) $ 31,133
========== =========
See notes to consolidated financial statements.
F-7
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended
-------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
--------------- --------------- ----------------
OPERATING ACTIVITIES:
Net income $ 5,520 $ 2,390 $ 379
Deduct income from discontinued operations (4,269) (5,726) (2,637)
-------- -------- --------
Income (loss) from continuing operations 1,251 (3,336) (2,258)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization 3,505 3,241 3,363
Deferred tax expense 706 2,280 661
Amortization of debt issuance costs - 235 431
Amortization of reorganization value in excess of amounts
allocable to identifiable assets - 377 754
Amortization of Senior Secured Notes discount - 63 114
Gain on sale of preferred stock investment (898) - -
Gain on sale of division (667) (512) -
Minority interest in net losses of consolidated joint (2,191) (199) -
venture
Loss on assets to be disposed of - 226 -
Extraordinary loss on the extinguishment of debt - 5,637 -
Other 290 161 295
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 4,479 1,403 (927)
Decrease in inventories 1,663 9 800
(Increase) decrease in prepaid expenses and other assets (1,500) (6,031) 751
Increase (decrease) in trade accounts payable 451 (1,067) (1,325)
Decrease in accrued expenses (2,698) (1,294) (2,806)
Increase (decrease) in other liabilities 1,088 305 (941)
-------- -------- --------
Net cash provided by (used in) continuing operations 5,479 1,498 (1,088)
Net cash provided by discontinued operations 16,332 9,387 4,524
-------- -------- --------
Net cash provided by operating activities 21,811 10,885 3,436
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,445) (7,288) (12,200)
Purchase of preferred stock (9,144) - -
Proceeds from sale of preferred stock 4,822 - -
Proceeds from sale of division 1,567 5,306 4,657
Business acquisitions, net of cash acquired (732) (1,768) (7,986)
-------- -------- --------
Net cash used in investing activities (13,932) (3,750) (15,529)
-------- -------- --------
FINANCING ACTIVITIES:
Repayment of term loans (10,173) (2,372) (741)
Proceeds from term loans 2,582 - 1,500
Net increase (decrease) in revolving loan balances 3,086 (3,827) 15,169
Proceeds from refinancing - 90,000 -
Repurchase of Senior Secured Notes - (72,253) (243)
Redemption costs for Senior Secured Notes - (3,718) -
Refinancing costs - (3,545) -
Minority interest capital contributions 5,725 490 -
Redemption of Series B preferred stock - - (5,250)
Stock options exercised 353 619 -
Purchases of warrants (292) (1,314) -
Purchases of treasury stock (9,114) (7,347) (121)
-------- -------- --------
Net cash (used in) provided by financing activities (7,833) (3,267) 10,314
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 46 3,868 (1,779)
Cash and cash equivalents at beginning of year 4,099 231 2,010
-------- -------- --------
Cash and cash equivalents at end of year $ 4,145 $ 4,099 $ 231
======== ======== =========
F-8
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Disclosures:
Payments for income taxes and interest were as follows (in thousands):
Fiscal Years Ended
---------------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
--------------- -------------- -------------
Income tax payments - continuing operations $ 677 $ 353 $ 55
Income tax payments - discontinued operations 432 39 27
Interest payments (net of capitalized interest) -
continuing operations 715 8,825 9,296
Interest payments (net of capitalized interest) -
discontinued operations 6,854 3,833 60
Non-cash investing activities were as follows (in thousands):
Fiscal Years Ended
-------------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- --------
Business acquisitions purchased with
Company common stock $ 1,373 $ - $ 1,488
Business acquisitions purchased with
notes payable 3,033 1,000 1,000
The proceeds from term loans for the fiscal year ended September 27, 1998 does
not include a $2,450,000 note payable issued for the purchase of 600,000 shares
of treasury stock (Notes 10 and 12).
The purchases of property, plant and equipment and the proceeds from term loans
for the fiscal years ended September 26, 1999 and September 28, 1997 do not
include $20,372,000 and $77,000, respectively, related to property held under
capitalized leases (Note 14). 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 year ended September 28,
1997 does not include the dividends declared on the Series B Preferred Stock
since they were paid with the issuance of 146,896 shares of the Company's common
stock. No dividends were paid during the fiscal years ended September 26, 1999
or September 27, 1998.
During the fiscal years ended September 26, 1999 and September 27, 1998, the
Company made matching contributions to its 401(k) Savings Plan of $199,000 and
$191,000, respectively, through the re-issuance of 39,344 shares and 60,520
shares of its common stock from treasury, respectively. No such contribution was
made during the fiscal year ended September 28, 1997.
See notes to consolidated financial statements.
F-9
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended September 26, 1999, September 27, 1998
and September 28, 1997
1. THE COMPANY
The accompanying consolidated financial statements relate to Uniroyal
Technology Corporation, its wholly-owned subsidiaries, Uniroyal HPP
Holdings, Inc., Uniroyal Engineered Products, Inc., Uniroyal
Optoelectronics, Inc. and UnitechNJ, Inc., and its majority-owned
subsidiary, Uniroyal Liability Management Company (collectively, the
"Company"). Uniroyal HPP Holdings, Inc. includes its wholly-owned
subsidiary, High Performance Plastics, Inc. ("HPPI"), and HPPI's
operating divisions, Royalite Thermoplastics ("Royalite"), Polycast
Technology ("Polycast"), Townsend/Glasflex and ViPlex/Happel. Uniroyal
Engineered Products, Inc. includes its operating divisions, Uniroyal
Engineered Products ("UEP") and Uniroyal Adhesives and Sealants
("UAS"). Uniroyal Optoelectronics, Inc. includes its majority-owned
joint venture, Uniroyal Optoelectronics, LLC. See Note 21 for
information concerning the sale of HPPI's business.
On April 1, 1999 the Company transferred all of the net assets of its
Coated Fabrics Segment and Specialty Adhesives Segment to a newly
created wholly-owned subsidiary, Uniroyal Engineered Products, Inc.
Uniroyal Liability Management Company, Inc. ("ULMC") is a special
purpose subsidiary created in the fiscal year ended September 26, 1999
to administer the Company's employee and retiree medical benefit
programs. The Company owns a controlling interest (69%) in the
subsidiary; therefore, the accompanying consolidated financial
statements include the subsidiary's results of operations.
UnitechNJ, Inc. is a special purpose subsidiary created in the fiscal
year ended September 26, 1999 to hold the Company's plant in Stirling,
New Jersey.
The Company is principally engaged in the manufacture and sale of
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 and package-ready
die for use in optoelectronics applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
-------------
The consolidated financial statements include the accounts of Uniroyal
Technology Corporation, its subsidiaries, its majority-owned subsidiary
and its majority-owned joint venture. All significant intercompany
transactions and balances have been eliminated. Minority interest
represents the minority shareholders' proportionate share of the equity
of the Company's majority-owned entities.
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 26, 1999 ("Fiscal 1999"), September
27, 1998 ("Fiscal 1998") and September 28, 1997 ("Fiscal 1997").
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 include all highly liquid investments
purchased with an original maturity of three months or less.
F-10
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 associated with trade
accounts receivable.
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 average costs) for raw materials and supplies and
the first-in, first-out ("FIFO") basis of accounting or standard costs
(which approximates actual FIFO 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. Interest costs applicable to the construction of major plant
and expansion projects have been capitalized to the cost of the related
assets. Interest capitalized during Fiscal 1999 approximated $791,000.
There was no interest capitalized during Fiscal 1998.
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. SFAS No.
121 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the book value of the
asset may not be recoverable. The Company evaluates at each balance
sheet date whether events and circumstances have occurred that indicate
possible impairment. In accordance with SFAS No. 121, the Company uses
an estimate of the future undiscounted net cash flows of the related
assets over the remaining life in measuring whether the assets are
recoverable.
Property, Plant and Equipment Held for Sale
-------------------------------------------
The Company has classified certain property, plant and equipment
related to its Port Clinton, Ohio ("Port Clinton") facility and its
Stirling, New Jersey ("Stirling") facility as held for sale.
In November of 1998, the Company ceased operations at its Port Clinton
facility in connection with its sale of the automotive operations of
the Coated Fabrics Segment (Note 15). The Company expects to dispose of
the remaining Port Clinton assets, including real property, during the
fiscal year ending October 1, 2000 ("Fiscal 2000") and is carrying the
property at fair value less cost to sell based upon an appraisal and a
current offer for the property. The fair value less cost to sell of the
property approximates $3,217,000 at September 26, 1999.
The Company had previously recorded an impairment loss for the Port
Clinton assets in Fiscal 1996 based upon a decision to sell the plant.
The Port Clinton facility incurred operating (loss) income of
($74,000), $3,263,000 and ($2,490,000) in Fiscal 1999, Fiscal 1998 and
Fiscal 1997, respectively.
During Fiscal 1998, in conjunction with plant consolidations at HPPI
and in order to address concerns of the Federal Trade Commission
("FTC") (Note 14, "Townsend Acquisition"), the Company decided to sell
its Stirling facility. In accordance with SFAS No. 121, the Company
recorded a write-down of the facility totaling approximately $226,000
in Fiscal 1998 related to this decision. The Company expects the
disposition of the Stirling facility to be completed in Fiscal 2000.
The Company is carrying the facility at fair value less cost to sell
based upon an appraisal and a current sales offer. The fair value less
cost to sell approximates
F-11
$1,000,000 at September 26, 1999. The Stirling operations incurred
operating (loss) income of ($261,000) and $196,000 in Fiscal 1998 and
Fiscal 1997, respectively. Separate operating results were not
maintained in Fiscal 1999.
Investment in Preferred Stock
-----------------------------
The Company accounts for the investment in preferred stock in
accordance with 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 the
underlying common stock at the balance sheet date.
Amortization
------------
Debt issuance costs are amortized using the interest method over the
life of the related debt. Debt discount for the Senior Secured Notes
was amortized using the interest method over the life of the related
debt until the debt was repaid in Fiscal 1998 (Note 10). 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 Fiscal 1998 when 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 11). Goodwill is amortized on a straight-line basis over
25 years. Goodwill is reported net of accumulated amortization of
$146,000 and $87,000 at September 26, 1999 and September 27, 1998,
respectively.
Research and Development Expenses
---------------------------------
Research and development expenditures are expensed as incurred.
Research and development expenditures were $1,075,000, $1,454,000 and
$2,341,000 in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
The decline in research and development expenditures is due to the sale
of the automotive division of the Coated Fabrics segment (Note 15).
Employee Compensation
---------------------
The cost of post-retirement benefits is 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
$31,831,000. A valuation allowance of $13,702,000 has been established
due to uncertainty regarding the ability to utilize the capital loss
carryforward against capital gains which may or may not be generated in
the future. Realization of the remaining asset 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
remaining 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 Fiscal 1997, the Company adopted only the disclosure provisions of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted
under this standard, the Company has elected to follow APB Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for its
stock options. Proforma information regarding net income and earnings
per share, as calculated under the provisions of SFAS 123, are
disclosed in Note 12.
Comprehensive Income
--------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
during Fiscal 1999. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components.
F-12
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 gain
on securities available for sale is shown net of tax expense of $63,000
for the year ended September 26, 1999. The adoption of SFAS No. 130 had
no impact on the Company's net income or stockholders' equity in Fiscal
1998 and Fiscal 1997.
Income 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 17).
New Accounting Pronouncements
-----------------------------
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, 2000. The Company has not evaluated the effect, if any,
that the adoption of SFAS 133 will have on the Company's consolidated
financial statements.
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 26, September 27,
1999 1998
-------------- -------------
Raw materials, work in process and supplies $ 4,275 $ 5,508
Finished goods 4,324 4,754
-------- ---------
Total $ 8,599 $ 10,262
======== =========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
Estimated September 26, September 27,
Useful Lives 1999 1998
------------ --------------- -------------
Land and improvements - $ 740 $ 594
Buildings and improvements 5-40 years 14,804 8,483
Machinery, equipment and office
furnishings 3-20 years 32,481 26,518
Construction in progress - 11,816 1,361
-------- --------
59,841 36,956
Accumulated depreciation (16,037) (13,094)
------- --------
Total $ 43,804 $ 23,862
========= ========
Depreciation expense was $3,185,000, $2,921,000 and $3,071,000 for
Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
5. 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.
F-13
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
September 24, 1999, the closing sales price of Emcore's common stock on
the Nasdaq National Market was $14.4375.
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 at a
price of $14.00 per share plus accrued and unpaid dividends.
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 been registered under the Securities Act of 1933.
Subsequent to September 26, 1999 and as of December 10, 1999, the
Company converted 230,657 shares of the Preferred Stock into 230,657
shares of Emcore common stock. The Company then sold its 230,657 shares
of Emcore common stock in the open market for approximately $4,288,000,
and will recognize a gain of approximately $1,059,000, net of certain
transaction costs, in the first quarter of Fiscal 2000.
6. NOTE RECEIVABLE
On June 10, 1996, the Company sold substantially all the assets net of
certain liabilities of its Ensolite closed cell foam division to
Rubatex Corporation ("Rubatex") for $25,000,000. Proceeds consisted of
cash of $20,000,000 and an unsecured promissory note receivable (the
"Note") in the amount of $5,000,000 of RBX Group, Inc. ("RBX"), the
parent of Rubatex. Interest on the Note is payable semi-annually at
11.75% per annum. The Note matures on May 1, 2006.
In January 1998, the Company brought suit to compel RBX to honor a
mandatory early redemption obligation under the terms of the $5,000,000
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 26, 1999 and September 27, 1998, the Company has
accrued interest receivable related to the Note of approximately
$387,000. Accrued interest of approximately $739,000 has not been
accrued by the Company. The Note represents a concentration of credit
risk to the Company.
7. BUSINESS ACQUISITIONS
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 (Note 10), and
290,156 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 purchase price was adjusted for changes in working capital
between April 30, 1999 and June 13, 1999. This resulted in an increase
of the purchase price of $122,137, which was paid through an increase
in the promissory notes. Happel Marine, Inc. was merged into Uniroyal
HPP Holdings on September 1, 1999, which in turn contributed the net
assets to HPPI.
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. 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. ViPlex Corporation was merged into HPPI as of
December 31, 1998.
F-14
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
1999 and Fiscal 1998.
In Fiscal 1999 and Fiscal 1998, the Company acquired the following
assets and liabilities (net of cash received of $177,000 and $46,000,
respectively,) in the above transactions (in thousands):
September 26, September 27,
1999 1998
-------------- -------------
Accounts receivable $ 820 $ 457
Inventory 461 501
Prepaids and other assets 24 32
Property, plant and equipment 870 188
Goodwill 3,894 1,841
Notes payable (3,280) (1,000)
Other liabilities (684) (251)
------- -------
Net value of purchased assets 2,105 1,768
Value of common stock issued (1,373) -
------- -------
Cash paid for acquisitions $ 732 $ 1,768
======= =======
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 28, 1998 and September 29,
1997, respectively, is not considered material - either quantitatively
or qualitatively.
8. OTHER ASSETS
Other assets consisted of the following (in thousands):
September 26, September 27,
1999 1998
-------------- -------------
Patents and trademarks $ 3,371 $ 3,632
Technology license 5,000 4,500
Deposits 472 2,802
Other 1,305 358
--------- ---------
Total $ 10,148 $ 11,292
========= =========
Patents and trademarks are reported net of accumulated amortization of
$2,300,000 and $2,039,000 at September 26, 1999 and September 27, 1998,
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 16).
During the fiscal year ended September 26, 1999, the Company paid the
final installment of $500,000 related to the technology license. The
technology license will be amortized over the estimated life of the
technology once sales from internal production have commenced.
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 10).
At September 27, 1998, deposits include $1,797,000 paid to Emcore in
Fiscal 1998 as a down payment for machinery ordered from Emcore by
Uniroyal Optoelectronics, LLC. During Fiscal 1999, the deposit was
reclassed to property, plant and equipment upon delivery of the
machines from Emcore.
F-15
9. OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
September 26, September 27,
1999 1998
--------------- --------------
Accrued retirement benefits $ 14,653 $ 13,454
Taxes, other than income 71 395
Other 564 351
----------- -----------
Total $ 15,288 $ 14,200
=========== ===========
10. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 26, September 27,
1999 1998
--------------- --------------
Revolving credit agreement $ 6,878 $ 4
Unsecured promissory notes 4,524 2,450
Capital lease obligations 18,249 138
----------- -----------
29,651 2,592
Less current portion (5,282) (1,708)
----------- -----------
Long-term debt, net of current portion $ 24,369 $ 884
=========== ===========
Debt amounts become due during subsequent fiscal years ending in
September as follows (in thousands):
2000 $ 5,282
2001 11,289
2002 4,670
2003 5,035
2004 3,375
----------
Total debt $ 29,651
==========
Interest expense for Fiscal 1999, 1998 and 1997 was approximately
$1,003,000, $2,705,000 and $3,909,000, respectively.
HPPI Credit Agreement (see Note 21)
---------------------
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
F-16
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 and were 1.25% and 2.25%,
respectively, at September 26, 1999. The weighted average interest rate
on the Term A Advance during Fiscal 1999 and Fiscal 1998 was 7.36% and
7.84%, respectively.
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 and were 1.50% and 2.50%, respectively, at September 26, 1999.
The weighted average interest rate on the Term B Advance during Fiscal
1999 and Fiscal 1998 was 7.57% and 8.09%, respectively.
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
26, 1999, the Company had approximately $7,550,000 of outstanding
borrowings under the Revolving Credit Advance and approximately
$12,450,000 of availability. The weighted average interest rate on the
Revolving Credit Advance during Fiscal 1999 and Fiscal 1998 was 8.31%
and 8.20%, respectively.
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 26, 1999. 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.
No such prepayment was due on 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 had the option to
cancel this swap on May 14, 1999 which it did not exercise. 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 26, 1999, the Company would have
received approximately $195,000 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%
($3,264,000). In connection with the June 1, 1998
F-17
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).
In connection with the Fleet Financing, the Company incurred
approximately $3,545,000 in debt issuance costs. The costs were
capitalized and are amortized using the interest method over the lives
of the agreements (Note 18).
CIT Credit Agreement
--------------------
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. On April 1, 1999, in
connection with the creation of Uniroyal Engineered Products, Inc., the
CIT revolving credit agreement was assumed by Uniroyal Engineered
Products, Inc. The collateral securing the credit line includes only
the assets of Uniroyal Engineered Products, Inc. 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 Uniroyal Engineered Products, Inc.
trade accounts receivables and inventories 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 26, 1999. At September 26,
1999, the Company had approximately $6,878,000 of outstanding
borrowings under the revolving credit agreement and $1,369,000 of
availability. The Company had $4,000 of outstanding borrowings under
this agreement at September 27, 1998. The weighted average interest
rates on the CIT revolving credit agreement were 8.28% during Fiscal
1999 and 9.00% during Fiscal 1998.
Unsecured Promissory Notes
--------------------------
On June 14, 1999, in connection with the purchase of Happel Marine,
Inc. (Note 7), the Company issued unsecured promissory notes for
$2,400,000 and $511,007. The $2,400,000 note is payable in four equal
annual installments beginning January 15, 2000, plus accrued interest
at the stated rate of 7.75% per annum. The $511,007 note is payable in
two equal annual installments beginning January 15, 2000, plus accrued
interest at the stated rate of 7.75%. The notes were adjusted to
$2,500,030 and $533,114, respectively, in connection with a subsequent
purchase price adjustment in September, 1999.
The Company has entered into an unsecured promissory note approximating
$817,000 at September 26, 1999 in connection with a prior year treasury
stock purchase at a stated rate of 8.0%. To the extent the stated rate
was below the current market rate, the Company imputed interest at the
market rate in effect on the date of the respective transaction.
Capital Lease Obligations
-------------------------
The Company leases certain machinery and equipment under non-cancelable
capital leases which extend for varying periods up to 5 years. Capital
lease obligations entered into during Fiscal 1999 were primarily
related to the Company's majority owned joint venture, Uniroyal
Optoelectronics, LLC. The Company is a guarantor of the Uniroyal
Optoelectronics obligation capital lease obligations. The weighted
average interest rate on these obligations was 8.8% (Note 14).
F-18
11. INCOME TAXES
The effective tax rate differs from the statutory federal income tax
rate for the following reasons (in thousands):
Fiscal Years Ended
--------------------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- --------------
Income tax calculated at the statutory
rate applied to income before
income tax and extraordinary item $ (435) $ 1,925 $ (1,083)
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
Capital loss from medical benefits
subsidiary (15,980) - -
Valuation allowance 13,702 - -
State income tax 103 (31) 129
Other 90 448 (129)
----------- ----------- -----------
Income tax benefit $ (2,520) $ (344) $ (928)
=========== =========== ===========
Allocation of income tax benefit is as follows (in thousands):
Fiscal Years Ended
-----------------------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- -------------
(Loss) income before
extraordinary item $ (2,520) $ 2,443 $ (928)
Extraordinary item - (2,787) -
----------- ----------- ----------
Income tax benefit $ (2,520) $ (344) $ (928)
=========== =========== ==========
Income tax expense (benefit) consisted of the following components (in thousands):
Fiscal Years Ended
------------------------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- ------------
Current:
Federal $ (2,948) $ (2,593) $ (1,633)
State (278) (31) 44
----------- ----------- -----------
Total $ (3,226) $ (2,624) $ (1,589)
=========== =========== ===========
Net deferred tax expense:
Federal $ 325 $ 2,280 $ 576
State 381 - 85
----------- ----------- -----------
Total $ 706 $ 2,280 $ 661
=========== =========== ===========
Total:
Federal $ (2,623) $ (313) $ (1,057)
State 103 (31) 129
----------- ----------- -----------
Total $ (2,520) $ (344) $ (928)
=========== =========== ===========
F-19
The components of the deferred tax assets and liabilities were as
follows (in thousands):
September 26, 1999
-------------------------------------------------------------------
Assets Liabilities Total
---------------- ------------------- -----------------
Current
Accrued expenses deductible in
future periods $ 2,779 $ - $ 2,779
========== ========= ==========
Non-Current
Acquired tax loss carryforward
benefits $ 4,951 $ - $ 4,951
Net operating loss carryforward 5,496 - 5,496
Capital loss 13,702 - 13,702
Valuation allowance (13,702) - (13,702)
Book basis in excess of tax basis of
assets - (1,577) (1,577)
Long-term accrual of expenses
deductible in future periods 6,141 - 6,141
AMT credit carryforward 339 - 339
---------- --------- ----------
Total $ 16,927 $ (1,577) $ 15,350
========== ========= ==========
September 27, 1998
-----------------------------------------------------------------------------
Assets Liabilities Total
----------------------- ----------------------- -----------------------
Current
Accrued expenses deductible in future
periods $ 4,103 $ - $ 4,103
========== ========= ==========
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 - (1,484) (1,484)
Long-term accrual of expenses
deductible in future periods 6,920 - 6,920
---------- --------- ----------
Total $ 15,729 $ (1,484) $ 14,245
========== ========= ==========
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.
In Fiscal 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 in Fiscal 1998.
In Fiscal 1999, the Company established a subsidiary to administer the
Company's employee medical benefits program. The Company realized a
one-time combined federal and state capital loss tax benefit of
approximately $15,980,000 arising from the sale of a portion of the
stock of this subsidiary. However, due to the uncertainty regarding the
Company's ability to utilize this capital loss in the future, only $2.3
million of this benefit was recognized in Fiscal 1999 as an offset
against current and previous capital gains.
F-20
12. 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 26, 1999, 29,362,838 shares of common
stock were issued.
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.
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 1999, Fiscal 1998 and Fiscal 1997.
Treasury Stock Transactions
---------------------------
During Fiscal 1999 and Fiscal 1998, the Company received 260,764 and
184,570 shares of its common stock, respectively, in lieu of cash for
the exercise of stock options from officers and employees of the
Company. These shares were valued at approximately $1,345,000 in Fiscal
1999 and $894,000 in Fiscal 1998 (which were 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 26, 1999 and
September 27, 1998.
During Fiscal 1999 and Fiscal 1998, the Company repurchased 1,810,970
and 1,004,000 shares of its common stock, respectively, in the open
market for approximately $8,451,000 and $4,479,000, respectively.
During Fiscal 1999, the Company received 506,580 shares of its common
stock in connection with the final distributions of the bankruptcy
proceedings, 36,542 of which were purchased at a cost of approximately
$181,000. No such shares were received or purchased during Fiscal 1998.
During Fiscal 1999, the Company repurchased 95,424 shares of its common
stock from the Uniroyal Technology Corporation Employee Stock Ownership
Plan for approximately $482,000. No such shares were repurchased during
Fiscal 1998.
During Fiscal 1998, the Company repurchased 1,000,000 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. Also during Fiscal 1998, The Company
repurchased 600,000 shares of its common stock, previously issued in
connection with the Fiscal 1997 purchase of Townsend Plastics, for
$250,000 cash and an unsecured promissory note for $2,450,000 (Note 10)
and repurchased 100,000 shares of its common stock, previously issued
in connection with the Fiscal 1997 acquisition of C. Gunther Company,
for $431,250.
Subsequent to the fiscal year ended September 26, 1999 and as of
December 10, 1999, the Company repurchased approximately 264,900 shares
of its common stock in the open market for approximately $1,263,000.
Warrants
--------
The Company has 537,535 warrants outstanding to purchase an aggregate
of 1,075,070 shares of its common stock at a price equal to $4.375 per
warrant, 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
1,600,000 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 Fiscal 1999 and Fiscal 1998, the Company
repurchased 45,615 and 216,850, respectively, of its outstanding
warrants for approximately $292,000 and $1,314,000, respectively. As of
September 26, 1999, no warrants had been exercised.
F-21
Stock Compensation Plans
------------------------
At September 26, 1999, 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
except as indicated below. 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 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 26, September 27, September 28,
1999 1998 1997
---------------- ---------------- ---------------
Net income:
As reported $ 5,520 $ 2,390 $ 379
Pro forma $ 4,778 $ 2,175 $ 308
Earnings per share - basic:
As reported $ 0.23 $ 0.09 $ 0.01
Pro forma $ 0.20 $ 0.08 $ 0.01
Earnings per share - assuming dilution:
As reported $ 0.21 $ 0.08 $ 0.01
Pro forma $ 0.18 $ 0.07 $ 0.01
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 26, 1999, September 27, 1998 and September 28, 1997,
respectively: expected volatility of 44.16%, 45.46% and 45.89%,
dividend yield of 0% for all years, risk-free interest rates of 6.014%,
4.523% and 6.042% and expected lives of 3 to 10 years.
The Company has reserved 2,727,272 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 granted under
this plan, 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. Compensation expense
related to these options was $109,000, $64,000 and $28,000 during
Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
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 1,624,000 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 20,000 shares of the
Company's common stock in the case of the initial grant and 10,000
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 60,000 shares of Common Stock in any
calendar year under all of the Company's Stock Option Plans. The plan
was amended
F-22
by the Stockholders in 1999 to increase the annual amount from 20,000
to 35,000 shares of the Company's common stock.
The following table summarizes all stock option transactions for the
fiscal years ended September 26, 1999 and September 27, 1998:
Fiscal Years Ended
------------------------------------------------------------------------------
September 26, 1999 September 27, 1998
------------------ ------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Outstanding at Beginning of Year 4,352,786 $ 2.53 3,790,500 $ 1.68
Grants 374,200 $ 3.88 1,525,316 $ 4.05
Exercised (996,926) $ 1.71 (951,190) $ 1.60
Forfeited (35,000) $ 3.92 (11,840) $ 1.79
---------- -----------
Outstanding at End of Year 3,695,060 $ 2.87 4,352,786 $ 2.53
========== =========
Exercisable at End of Year 2,059,210 2,591,630
========== =========
Weighted-average fair value of
options granted during the year $ 1.85 $ 1.69
The following table summarizes information about stock options at September 26, 1999:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- ------------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 9/26/99 Contractual Life Exercise Price at 9/26/99 Exercise Price
--------------- ------------- ------------------ -------------- ------------- --------------
$0.735 - $1.032 103,266 5.41 Years $ 0.83 103,266 $ 0.83
$1.310 - $1.580 963,898 5.17 Years $ 1.41 807,514 $ 1.41
$1.630 - $2.000 457,664 3.22 Years $ 1.74 451,784 $ 1.74
$2.060 - $2.530 647,536 4.41 Years $ 2.11 596,696 $ 2.07
$3.500 - $4.310 364,000 2.31 Years $ 3.94 74,620 $ 3.55
$4.560 - $5.000 1,158,696 8.77 Years $ 4.81 25,330 $ 4.80
----------- ----------
3,695,060 5.65 Years $ 2.87 2,059,210 $ 1.76
=========== ==========
Employee Stock Ownership Plan
-----------------------------
The Company established the Uniroyal Technology Corporation Employee
Stock Ownership Plan (the "ESOP") in 1992. The ESOP was 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 850,000 shares
of common stock. Future contributions by the Company were
discretionary. The initial contribution was 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 nor did they have any ESOP
expense during Fiscal 1999, Fiscal 1998 and Fiscal 1997. During Fiscal
1999, the Company merged 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 February 6, 1998 are vested.
13. 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
F-23
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 14), 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's
post-retirement benefit plans are not funded.
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.
The components of net periodic benefit costs are as follows (in
thousands):
September 26, September 27, September 28,
1999 1998 1997
-------------- ------------- -------------
Service cost $ 61 $ 52 $ 67
Interest cost 1,864 2,212 2,315
Amortization of prior service credit (14) (14) (14)
Amortization of transition obligation 1,114 1,114 1,134
Recognized actuarial loss 151 289 205
--------- --------- ---------
Net periodic benefit cost $ 3,176 $ 3,653 $ 3,707
========= ========= =========
A reconciliation of the beginning and ending balances of benefit
obligations and the funded status of the plans are as follows (in
thousands):
September 26, September 27,
1999 1998
-------------- --------------
Change in benefit obligations:
Benefit obligation at beginning of year $ 34,163 $ 34,221
Service cost before expenses 61 52
Interest cost 1,864 2,212
Benefit payments (2,649) (2,752)
Actuarial (gain)/loss (4,788) 430
---------- -----------
Benefit obligation at end of year $ 28,651 $ 34,163
=========== ===========
Reconciliation of funded status:
Benefit obligation at end of year $ 28,651 $ 34,163
Unrecognized actuarial loss (2,762) (7,701)
Unrecognized prior service credit 247 261
Unrecognized transition obligation (10,022) (11,137)
---------- -----------
Net amount recognized at year-end $ 16,114 $ 15,586
=========== ===========
The weighted average discount rate assumptions were 6.75% at September
26, 1999, 6.25% at September 27, 1998 and 7.0% at September 28, 1997.
F-24
The assumed health care cost trend rate used in measuring the
healthcare benefits for Fiscal 1999 was a 6.0% average annual rate of
increase in the per capita cost health care benefits. This rate is
assumed to change over the years as follows: 5.8% for the fiscal years
beginning in 2000, 5.3% for the fiscal years beginning in 2003, 5.1%
for the fiscal years beginning in 2005, 4.9% for the fiscal years
beginning in 2010, 4.8% for the fiscal years beginning in 2015 and 4.8%
for the fiscal years beginning in 2020 and later.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point
change in assumed cost trend would have the following effects for
Fiscal 1999 (in thousands):
1% Point Increase 1% Point Decrease
----------------- -----------------
Effect on total of service and interest cost components for 1999 $ 172 $ (165)
Effect on year-end 1999 post-retirement benefit obligation 2,476 (2,131)
Post-retirement Benefit Plan
----------------------------
Effective October 1, 1998, the Company established an unfunded
post-retirement defined benefit plan for officers and certain key
employees of the Company. The net periodic benefit cost recognized in
Fiscal 1999 was approximately $525,000 and consisted entirely of
service cost. The following tables provide a reconciliation of the
changes in the plan's benefit obligations and a reconciliation of the
funded status for Fiscal 1999 (in thousands):
Accrued benefit obligation at September 27, 1998 $ -
Service cost 525
Benefits paid -
----------
Accrued benefit obligation at September 26, 1999 $ 525
==========
Projected benefit obligation $ 484
Unrecognized prior service cost -
Unrecognized loss 41
----------
Accrued benefit obligation at September 26, 1999 $ 525
==========
The discount rate used as of September 26, 1999 was 7.75%.
In connection with the post-retirement defined benefit plan, the
Company purchased life insurance contracts on the lives of officers and
certain key employees of the Company during Fiscal 1999. Life insurance
premiums of approximately $383,000 were paid by the Company in Fiscal
1999 with respect to these policies. As of September 26, 1999, $303,000
has been capitalized to reflect the cash surrender value of the
contracts.
Other Benefit Plans
-------------------
The UEP and UAS divisions provide additional retirement benefits to
their union wage employees through two defined contribution savings
plans. The plans provide for employee contributions and employer
matching contributions to employee savings. Employer contributions are
at rates per hour ranging generally from $.05 to $.66 based on years of
service. The expenses pertaining to these plans amounted to
approximately $98,000, $280,000 and $ 347,000 for the fiscal years
ended in 1999, 1998 and 1997, 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 $85,000, $88,000 and $65,000 for the
fiscal years ended 1999, 1998 and 1997. During Fiscal 1999 and Fiscal
1998 the Company contributed 39,344 and 60,520 shares of its common
stock with a market value of approximately $199,000 and $191,000,
respectively, to the savings plan. These contributions included
contributions to employees of discontinued operations. The Company did
not make any such contributions during Fiscal 1997.
F-25
14. 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.
As of September 26, 1999, all 20,000,000 shares of the Company's common
stock allocated for the disposition of bankruptcy claims have been
issued for full settlement to the holders of unsecured claims against
the estates of the Predecessor Companies and to the Company's ESOP. The
Bankruptcy Court issued its final decree closing the bankruptcy of the
Predecessor Companies on September 27, 1999.
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 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.
Litigation
----------
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 clean-up 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
F-26
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 clean-up 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 clean-up. 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
clean-up 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 facility formally leased 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 whereby the EPA was given an allowed unsecured claim of
$1,700,000 under the Plan, and the Company made a payment of $525,000
to the EPA in March of 1999. The liability had been fully accrued for
in a prior fiscal year.
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
F-27
to be used for such clean-up in accordance with the terms of the
agreement for the purchase of the facility. As of September 26, 1999,
the Company had incurred approximately $615,000 of related remediation
costs.
The Company's acquisition of 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 on information available as of September 26, 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.
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 26, September 27,
1999 1998
-------------- ------------
Buildings and improvements $ 5,426 $ -
Machinery, equipment and office furnishings 5,380 928
Construction in progress 9,755 -
---------- ----------
20,561 928
Less accumulated amortization (311) (190)
---------- ----------
Total $ 20,250 $ 738
========== ==========
The approximate minimum future lease obligations on long-term
non-cancelable capital lease obligations included in long-term debt
(Note 10) during subsequent fiscal years ending in September are as
follows (in thousands):
FISCAL YEAR
-----------
2000 $ 4,957
2001 4,509
2002 4,768
2003 4,768
2004 3,464
---------
22,466
Less imputed interest (4,217)
---------
Total $ 18,249
=========
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):
F-28
FISCAL YEAR
-----------
2000 $ 978
2001 682
2002 614
2003 512
2004 399
Subsequent years 1,569
--------
Total $ 4,754
========
Rent expense was approximately $617,000, $516,000 and $769,000 for
Fiscal 1999, Fiscal 1998 and Fiscal 1997, 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 26, 1999 and September 27, 1998 participant deferrals, which
are included in accrued liabilities, were $726,000 and $519,000,
respectively. The expense during the Fiscal 1999, Fiscal 1998 and
Fiscal 1997 was $208,000, $184,000 and $161,000, 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 26, 1999 and September
27, 1998, $929,000 and $717,000, respectively, has been capitalized to
reflect the cash surrender value of these contracts due the Company,
net of loan balances.
As of September 26, 1999, the Company had employment contracts with
four officers of the Company, providing for total annual payments of
approximately $1,509,000 plus bonuses through September 1, 2000.
15. 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 operations
of the Coated Fabrics Segment was probable. The automotive operations
were comprised of 100% of the operations at the Port Clinton, Ohio
("Port Clinton") facility and a portion of overall operations at the
Stoughton, Wisconsin facility ("Stoughton"). Further, on December 11,
1996, the Board of Directors approved the closure of the Port Clinton
operation of the Coated Fabrics Segment during the fiscal year ending
September 28, 1997 in the event a sale did not occur. Port Clinton had
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 related to the automotive operations totaling
approximately $8,900,000 during the fiscal year ended September 29,
1996. The related assets were classified as held for sale and
depreciation ceased on September 29, 1996. The carrying value of the
remaining long-lived assets to be disposed of was $3,217,000 as of
September 26, 1999 and $4,530,000 as of September 27, 1998. The Company
expects to dispose of the remaining automotive assets, the majority of
which represent the real property at Port Clinton, in Fiscal 2000.
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
Textileather retained $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
F-29
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.
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 received an
additional $800,000 when CGT secured purchase orders for the twelve
months following the door panel closing from certain customers as
identified in the agreement. The Company also received an additional
$900,000 on July 19, 1999 for certain customer approvals and resulting
transfer to CGT of purchased assets that relate to the Company's
instrument panel programs. During Fiscal 1999 and Fiscal 1998, the
Company recognized a gain of $667,000 and $133,000, respectively, in
connection with this transaction.
Management believes that the Company will not have any further
significant gain or loss upon the disposal of the remaining Port
Clinton assets.
16. 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 26, 1999 are license
fees relating to the technology agreement of $5,000,000 paid to Emcore
during the fiscal year ended September 26, 1999 and September 27, 1998
(Note 8). 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, entered into a joint venture (Uniroyal Optoelectronics, LLC)
with Emcore which Uniroyal Optoelectronics, Inc. manages and owns a 51%
interest. 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.
During Fiscal 1999, Emcore made additional capital contributions to the
joint venture of $5,500,000. The Company is required to fund its
equivalent contribution of approximately $5,700,000 as cash is required
by the joint venture.
Included in selling and general administrative expenses of the Company
for Fiscal 1999 and Fiscal 1998 are $4,345,000 and $302,000,
respectively, of joint venture start-up costs.
In July 1998, the joint venture entered into a supply agreement with
Emcore whereby Emcore agreed to supply epitaxial wafers, dies and
package-ready devices to the joint venture until the joint venture was
ready to produce its own products. During Fiscal 1999, Uniroyal
Optoelectronics, LLC sales of approximately $479,000 were a result of
product supplied by Emcore.
In July 1998, the joint venture entered into a lease agreement for a
facility in Tampa, Florida and has completed construction of leasehold
improvements. It is anticipated that the joint venture will begin
production for commercial applications in the second quarter of Fiscal
2000.
17. 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
F-30
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 26, 1999, September 27, 1998 and
September 28, 1997.
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 26, 1999
---------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per Share Amount
------------------------ ------------------------- -------------------------
Income from continuing opera-
tions before discontinued
operations and extraordinary
item $ 1,251,000
Basic EPS
---------
Income available to common
stockholders 1,251,000 24,315,992 $ 0. 05
==========
Effect of Dilutive Securities
------------------------------
Stock options 1,656,920
Warrants 599,756
---------------
Diluted EPS
------------
Income available to common
stockholders $ 1,251,000 26,572,668 $ 0.05
=============== =============== ==========
For the Fiscal Year Ended September 27, 1998
---------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per Share Amount
-------------------- ------------------------- -------------------------
Income from continuing opera-
tions before discontinued
operations and extraordinary
item $ 2,301,000
Basic EPS
---------
Income available to common
stockholders 2,301,000 26,463,084 $ 0. 09
==========
Effect of Dilutive Securities
---------------------------------
Stock options 2,140,244
Warrants 658,808
------------
Diluted EPS
------------
Income available to common
stockholders $ 2,301,000 29,262,136 $ 0.08
=============== ============ ==========
For the Fiscal Year Ended September 28, 1997
---------------------------------------------------------------------------
Income (Numerator) Shares (Denominator) Per Share Amount
---------------------- ------------------------- -------------------------
Loss from continuing opera-
tions before discontinued
operations and extraordinary
item $ (2,258,000)
Less: Preferred stock dividends (220,000)
Basic EPS
----------
Loss to common stock holders (2,478,000) 26,633,930 $ (0.09)
=========
Effect of Dilutive Securities
---------------------------------
Stock options
Diluted EPS
-----------
Loss to common stockholders $ (2,478,000) 26,633,930 $ (0.09)
=============== =============== =========
F-31
Additional stock options to purchase 1,157,696, 1,155,696 and 2,448,956
shares of common stock at various prices were outstanding at September
26, 1999, September 27, 1998 and September 28, 1997, respectively.
These shares 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. Warrants to purchase 1,600,000
shares of common stock at $2.1875 per share were not included in the
computation of diluted earnings per share at September 28, 1997 because
the exercise price was greater than the average market price of the
common shares. Stock options to purchase 213,178 shares of stock were
excluded from the computation of earnings per share in Fiscal 1997 as
the effect would have been antidilutive.
The calculation for earnings per share for Fiscal 1997 has been revised
to include the effect of the dividends paid to the owners of preferred
stock paid in common stock.
18. 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
investment banking firm has provided financial advisory services to the
Company for fees of approximately $157,000, $732,000 and $274,000
during Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. Of the
$732,000 incurred during Fiscal 1998, $650,000 was incurred in
connection with the Fleet Financing.
During the fiscal years ended September 26, 1999 and September 27,
1998, the Company incurred legal fees of approximately $299,000 and
$326,000, respectively, with a law firm of which one of the Company's
directors is a senior partner. Approximately $231,000 of the legal fees
incurred in Fiscal 1998, were incurred in connection with the Fleet
Financing. No legal fees were paid to this firm during the fiscal year
ended September 28, 1997.
19. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of
Enterprise and Related Information," which establishes standards for
reporting information about a Company's operating segments, in the
fourth quarter of Fiscal 1999. Operating segments are defined as
components of an enterprise for which separate financial information is
available that is evaluated on a regular basis by the chief operating
decision maker, or decision making group, in deciding how to allocate
resources to an individual segment and in assessing performance of the
Segment.
The Company's operations are classified into three reportable segments:
Coated Fabrics, Specialty Adhesives and Optoelectronics. The Coated
Fabrics Segment manufactures vinyl coated fabric products. The
Specialty Adhesives Segment manufactures industrial adhesives and
sealants. The Optoelectronics Segment will manufacture epitaxial
wafers, dies and package-ready dies used in high brightness
light-emitting diodes (LEDs) once operations commence.
The Company's reportable segments are strategic business units that
offer different products and are managed separately based on
fundamental differences in their operations.
The Coated Fabrics Segment includes Uniroyal Engineered Products,
Inc.'s operating division, Uniroyal Engineered Products. The Specialty
Adhesives Segment includes Uniroyal Engineered Products, Inc.'s
operating division, Uniroyal Adhesives and Sealants. The
Optoelectronics Segment includes Uniroyal Optoelectronics, Inc. and its
majority-owned subsidiary, Uniroyal Optoelectronics, LLC. All other
subsidiaries are considered part of corporate.
The Company's assets and operations are located in the United States.
The principal markets for the Company's products are in the United
States. Export sales to foreign countries, based upon where the
products are shipped to, were approximately $2,544,000, $5,980,000 and
$4,155,000 in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
Sales to one customer of the Coated Fabrics Segment represented
approximately 14.5% and 13.1% of consolidated net sales in Fiscal 1998
and Fiscal 1997, respectively. Sales to another customer of the
Specialty Adhesives Segment represented approximately 27%, 17.5% and
18.1% of consolidated net sales in Fiscal 1999, Fiscal 1998 and Fiscal
1997, respectively.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Management evaluates
a Segment's performance based upon profit or loss from operations
before interest and income taxes. Intersegment sales are not
significant.
F-32
Segment data for Fiscal 1999, Fiscal 1998 and Fiscal 1997 is as follows
(in thousands):
September 26, September 27, September 28,
1999 1998 1997
------------- -------------- -----------
Net Sales:
Coated Fabrics $ 42,341 $ 67,906 $ 68,772
Specialty Adhesives 28,388 24,130 20,905
Optoelectronics 485 - -
----------- ----------- -----------
Total $ 71,214 $ 92,036 $ 89,677
=========== =========== ===========
Operating Income (loss):
Coated Fabrics $ 4,202 $ 8,868 $ 2,105
Specialty Adhesives 2,686 1,911 (346)
Optoelectronics (5,080) (398) -
Corporate (4,490) (3,673) (1,712)
------------ ----------- -----------
Total $ (2,682) $ 6,708 $ 47
=========== =========== ===========
Identifiable assets:
Coated Fabrics $ 23,547 $ 35,959 $ 43,654
Specialty Adhesives 15,972 15,755 15,012
Optoelectronics 22,474 2,677 -
Corporate 44,963 35,456 34,415
----------- ----------- -----------
Total $ 106,956 $ 89,847 $ 93,081
=========== =========== ===========
Depreciation and amortization:
Coated Fabrics $ 1,702 $ 1,704 $ 1,847
Specialty Adhesives 873 842 882
Optoelectronics 210 1 -
Corporate 720 1,071 1,388
----------- ----------- -----------
Total $ 3,505 $ 3,618 $ 4,117
=========== =========== ===========
Capital Expenditures:
Coated Fabrics $ 535 $ 448 $ 1,213
Specialty Adhesives 578 911 7,311
Optoelectronics 21,353 292 -
Corporate 787 238 802
Discontinued operations 7,564 5,399 2,951
----------- ----------- -----------
Total $ 30,817 $ 7,288 $ 12,277
=========== =========== ===========
Included in each Segment's operating income in Fiscal 1999 is an
allocation of corporate overhead based upon 3.5% of Segment sales with
the exception of the Optoelectronics Segment for which the corporate
overhead allocation was $876,000.
During Fiscal 1998, the Company changed its methodology for the
allocation of corporate overhead from an allocation of 100% of certain
corporate costs to an allocation of costs based upon 3.0 - 3.5% of
Segment sales. Prior fiscal year allocations were not restated. Had
prior year allocations been restated for consistency with current year
allocations, it would have resulted in additional corporate overhead
allocation to the Coated Fabrics and Specialty Adhesives Segments' in
Fiscal 1998 of $177,000 and $48,000, respectively. It would have
resulted in additional (less) corporate overhead allocation to the
Coated Fabrics and Specialty Adhesives Segments in Fiscal 1997 of
$273,000 and ($772,000), respectively.
F-33
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS):
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
1999
- ----
Net sales $ 18,126 $ 16,965 $ 18,522 $ 17,601
Gross profit 3,281 3,812 4,931 5,510
Income before extraordinary item 19 1,059 1,931 2,511
Net Income 19 1,059 1,931 2,511
Earnings per common share:
Basic:
Income before extraordinary item $ - $ 0.04 $ 0.08 $ 0.10
Net income $ - $ 0.04 $ 0.08 $ 0.10
Diluted:
Income before extraordinary item $ - $ 0.04 $ 0.07 $ 0.10
Net income $ - $ 0.04 $ 0.07 $ 0.10
1998
- ----
Net sales $ 21,985 $ 21,506 $ 23,370 $ 25,175
Gross profit 5,722 5,063 5,120 6,263
Income before extraordinary item 1,363 1,744 2,618 2,302
Net income 1,363 1,744 (3,019) 2,302
Earnings per common share:
Basic:
Income before extraordinary item $ 0.05 $ 0.07 $ 0.10 $ 0.09
Net income $ 0.05 $ 0.07 $ (0.11) $ 0.09
Diluted:
Income before extraordinary item $ 0.05 $ 0.07 $ 0.09 $ 0.08
Net income $ 0.05 $ 0.07 $ (0.10) $ 0.08
The quarterly financial information has been restated to reflect
discontinued operations.
21. SUBSEQUENT EVENT
Pursuant to an asset purchase agreement dated December 24, 1999, HPPI
sold substantially all of its net assets to Spartech Corporation. The
transaction closed on February 28, 2000. The consolidated financial
statements presented herein have been restated to reflect the
discontinued operations of HPPI in accordance with Accounting
Principles Board ("APB") Opinion No. 30, "REPORTING THE RESULTS OF
OPERATIONS."
Net liabilities of the discontinued operations of the High Performance
Plastics Segment have been segregated on the September 26, 1999 and
September 27, 1998 balance sheets, the components of which are as
follows (in thousands):
F-34
Net Liabilities of Discontinued Operations
September 26, September 27,
1999 1998
---------------- -----------------
Assets:
Cash $ 37 $ 1,486
Trade receivables 18,261 17,033
Inventories 30,028 27,877
Deferred income taxes 2,030 1,734
Prepaids and other assets 1,712 210
Property, plant and equipment - net 45,099 42,083
Goodwill - net (Note 7) 11,142 7,582
Other assets - net 4,258 4,985
----------- -----------
Total assets 112,567 102,990
----------- -----------
Liabilities:
Current portion of long-term debt (Note 10) 8,805 6,005
Trade payables 13,323 6,065
Other accrued expenses 7,429 5,490
Long-term debt, net of current portion (Note 10) 84,552 97,061
Deferred income taxes 6,322 6,486
Other liabilities 516 861
----------- -----------
Total liabilities 120,947 121,968
----------- -----------
Net liabilities of discontinued operations $ 8,380 $ 18,978
=========== ===========
The results of operations for all periods presented have been restated
for discontinued operations. The operating results of discontinued
operations are as follows (in thousands):
Fiscal Years Ended
-----------------------------------------------------------
September 26, September 27, September 28,
1999 1998 1997
-------------- -------------- -------------
Net sales $ 130,219 $ 128,580 $ 118,847
Cost of goods sold 93,367 90,638 86,507
Selling and administrative 15,538 15,947 16,852
Depreciation and other amortization 5,652 5,479 4,941
Loss on assets to be disposed of 144 407 -
----------- ----------- ---------
Income before interest expense and income taxes 15,518 16,109 10,547
Interest expense (8,574) (7,219) (6,151)
----------- ----------- ---------
Income before taxes 6,944 8,890 4,396
Tax expense (2,675) (3,164) (1,759)
----------- ----------- ---------
Net income from discontinued operations $ 4,269 $ 5,726 $ 2,637
=========== =========== =========
On March 10, 2000, the Company declared a two-for-one stock split in
the form of a 100% stock dividend to its common shareholders of record
on March 20, 2000. The consolidated financial statements presented
herein have been restated to retroactively reflect the effect of the
split.
On April 10, 2000, the Company signed a merger agreement with Sterling
Semiconductor, Inc. ("Sterling"). The merger agreement provides for the
exchange of the Company's common stock for Sterling's issued and
outstanding preferred and common stocks. The resulting merged entity
will become a wholly-owned subsidiary of the Company called Sterling
Semiconductor, Inc. The transaction is subject to the approval of
Sterling's stockholders and is expected to close in May of 2000. It is
estimated that approximately 1,469,000 shares of the Company's common
stock having a value of approximately $34,335,000 will be exchanged in
the transaction and approximately 492,000 stock options of the Company
having a value of approximately $8,236,000 will be issued to Sterling's
employees in exchange for the cancellation of existing employee stock
options under Sterling's stock option plans.
F-35