<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
FORM 10-Q
(Mark One)
<S> <C>
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to_______
Commission file number 0-20686
UNIROYAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0341868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 N. Tamiami Trail, Suite 900, Sarasota, FL 34236
(Address of principal executive offices) (Zip Code)
(941) 361-2100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of
each of the issuer's classes of common stock as of the latest practicable date.
Total number of shares of outstanding stock as of April 30, 1999
Common stock 11,916,598
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
March 28, September 27,
1999 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,555 $ 5,585
Trade receivables (less estimated reserve for doubtful
accounts of $241 and $246, respectively) 23,180 26,320
Inventories (Note 2) 36,405 38,139
Deferred income taxes 4,955 5,837
Prepaid expenses and other current assets 1,667 1,008
----------- ------------
Total current assets 69,762 76,889
Property, plant and equipment - net 74,514 65,551
Property, plant and equipment held for sale 5,843 5,924
Investment in preferred stock (Note 3) 10,768 -
Note receivable 5,000 5,000
Goodwill - net 8,776 8,951
Deferred income taxes 8,069 7,759
Other assets 14,243 16,277
----------- ------------
TOTAL ASSETS $ 196,975 $ 186,351
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 28, September 27,
1999 1998
------------ -------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 10,400 $ 7,713
Trade accounts payable 18,562 15,302
Accrued expenses:
Compensation and benefits 9,903 9,743
Interest 1,587 149
Taxes, other than income 943 1,258
Accrued income taxes 617 921
Other 3,576 5,657
----------- ------------
Total current liabilities 45,588 40,743
Long-term debt 102,426 97,945
Other liabilities 15,139 15,061
----------- ------------
Total liabilities 163,153 153,749
----------- ------------
Commitments and contingencies (Note 7)
Minority interest (Note 5) 4,711 291
Stockholders' equity (Note 6):
Preferred stock:
Series C - 0 shares issued and outstanding; par value $0.01;
450 shares authorized - -
Common stock:
14,548,486 and 14,182,956 shares issued or to be issued,
respectively; par value $0.01; 35,000,000 shares authorized 145 142
Additional paid-in capital 56,529 54,613
Unrealized gain on securities available for sale - net 992 -
Deficit (10,554) (11,632)
----------- ------------
47,112 43,123
Less treasury stock at cost - 2,462,223 and 1,499,868
shares, respectively (18,001) (10,812)
----------- ------------
Total stockholders' equity 29,111 32,311
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 196,975 $ 186,351
=========== ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 49,273 $ 54,533 $ 98,362 $ 105,715
Costs and expenses:
Costs of goods sold 35,251 39,759 72,708 76,660
Selling and administrative (Note 5) 8,061 6,919 15,316 13,933
Depreciation and other amortization 2,232 2,153 4,449 4,296
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets - 189 - 377
------------ ------------ ------------ ------------
Income before interest, income taxes
and minority interest 3,729 5,513 5,889 10,449
Interest expense - net (2,257) (2,499) (4,533) (5,044)
------------ ------------ ------------ ------------
Income before income taxes and
minority interest 1,472 3,014 1,356 5,405
Income tax expense (Note 4) (764) (1,270) (858) (2,298)
------------ ------------ ------------ ------------
Income before minority interest 708 1,744 498 3,107
Minority interest in losses of consolidated
subsidiary 351 - 580 -
------------ ------------ ------------ ------------
Net income $ 1,059 $ 1,744 $ 1,078 $ 3,107
============ ============ ============ ============
Net income per common share -
basic (Note 8) $ 0.09 $ 0.13 $ 0.09 $ 0.23
============ ============ ============ ============
Net income per common share -
assuming dilution (Note 8) $ 0.08 $ 0.12 $ 0.08 $ 0.22
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 1,059 $ 1,744 $ 1,078 $ 3,107
Unrealized (loss) gain on securities
available for sale, net of income taxes (576) - 992 -
------------ ------------ ------------ ------------
Comprehensive income (Note 9) $ 483 $ 1,744 $ 2,070 $ 3,107
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
March 28, March 29,
1999 1998
------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,078 $ 3,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,449 4,296
Deferred tax provision 572 1,849
Minority interest in losses of consolidated subsidiary (580) -
Amortization of reorganization value in excess of
amounts allocable to identifiable assets - 377
Amortization of Senior Secured Notes discount - 63
Amortization of refinancing and debt issuance costs 286 235
Other 96 148
Changes in assets and liabilities:
Decrease in trade accounts receivable 3,090 1,683
Decrease (increase) in inventories 1,734 (4,055)
Decrease (increase) in prepaid expenses and other assets 914 (2,047)
Increase in trade accounts payable 3,260 4,986
Decrease in other accrued expenses (963) (653)
Increase in other liabilities 77 262
------------ ------------
Net cash provided by operating activities 14,013 10,251
------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 10) (6,150) (3,171)
Purchase of preferred stock (9,143) -
------------ ------------
Net cash used in investing activities (15,293) (3,171)
------------ ------------
FINANCING ACTIVITIES (Note 10):
Increase (decrease) in revolving loan balance 2,832 (4,183)
Repayment of term loans (3,386) (384)
Proceeds from term loan 785 -
Investment by joint venture partner 5,000 -
Purchase of treasury stock (6,196) (2,843)
Stock options exercised 276 161
Purchase of warrants (61) -
------------ ------------
Net cash used in financing activities (750) (7,249)
------------- -------------
Net decrease in cash (2,030) (169)
Cash and cash equivalents at beginning of period 5,585 244
------------ ------------
Cash and cash equivalents at end of period $ 3,555 $ 75
============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months and Six Months Ended
March 28, 1999 and March 29, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements relate to
Uniroyal Technology Corporation and its wholly-owned subsidiaries
Uniroyal HPP Holdings, Inc., Uniroyal Liability Management Company,
Inc. and Uniroyal Optoelectronics, Inc. (the "Company"). Uniroyal HPP
Holdings, Inc. includes its wholly-owned subsidiary, High Performance
Plastics, Inc. ("HPPI") and HPPI's wholly-owned subsidiary, ViPlex
Corporation. ViPlex Corporation was merged into HPPI as of December 31,
1998. Uniroyal Optoelectronics, Inc. includes its majority-owned
limited liability company, Uniroyal Optoelectronics, LLC. The interim
Condensed Consolidated Financial Statements of the Company are
unaudited and should be read in conjunction with the Company's audited
financial statements and notes thereto for the fiscal years ended
September 27, 1998, September 28, 1997 and September 29, 1996. The
Company's fiscal year ends on the Sunday following the last Friday in
September.
Certain reclassifications were made to the prior year financial
statements to conform to current period presentations. In the opinion
of the Company, all adjustments necessary for a fair presentation of
such interim Condensed Consolidated Financial Statements have been
included. Such adjustments consist only of normal recurring items.
Interim results are not necessarily indicative of results for a full
year. The interim Condensed Consolidated Financial Statements and notes
thereto are presented as permitted by the Securities and Exchange
Commission and do not contain certain information included in the
Company's annual financial statements and notes thereto.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 28, September 27,
1999 1998
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<S> <C> <C>
Raw materials, work in process
and supplies $ 21,749 $ 22,844
Finished goods 14,656 15,295
----------- -----------
Total $ 36,405 $ 38,139
=========== ===========
</TABLE>
3. INVESTMENT IN PREFERRED STOCK
On November 30, 1998, the Company purchased 642,857 shares of the
Series I Redeemable Convertible Preferred Stock ("Preferred Stock") of
Emcore Corporation ("Emcore") for approximately $9,000,000 ($14.00 per
share). The shares were offered pursuant to a private placement by
Emcore.
Dividends on the Preferred Stock are cumulative and are payable, at
Emcore's option, in cash or additional shares of Preferred Stock on
March 31, June 30, September 30 and December 31, commencing December
31, 1998 at the annual rate of 2% per share of Preferred Stock on the
liquidation preference thereof (equivalent to $0.28 per annum per share
of Preferred Stock).
Shares of the Preferred Stock are convertible at any time, at the
option of the holders thereof, into shares of common stock of Emcore on
a one for one basis, subject to adjustment for certain events. On March
26, 1999, the closing sales price of Emcore's common stock on the
Nasdaq National Market was $16.75.
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.
The Preferred Stock and the underlying common stock of Emcore have not
been registered under the Securities Act of 1933 and are subject to
certain restrictions on transfer. Emcore has agreed to use its best
efforts to file a registration statement covering the resale of the
shares of common stock issuable upon conversion of the Preferred Stock.
The Company believes that this registration will take place during the
current fiscal year.
The Company accounts for this investment in Preferred Stock in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management has classified this investment as available for
sale and, in accordance with SFAS No. 115, carries the investment at
fair value with the unrealized gains and losses, net of income taxes,
reported as a separate component of Stockholders' Equity. The fair
value is determined by the most recently traded price of Emcore's
common stock at the balance sheet date.
4. INCOME TAXES
The provisions for income tax expense for the three and six months
ended March 28, 1999 and March 29, 1998 were calculated through the use
of the estimated annual income tax rates based on annualized income.
5. MINORITY INTEREST
On November 30, 1998, Emcore made a capital contribution to Uniroyal
Optoelectronics, LLC of $5,000,000. The Company will fund its
equivalent capital contribution to the joint venture of approximately
$5,200,000 as cash is required by the joint venture. Also included in
minority interest is Emcore's share of joint venture losses ($580,000
for the six months ended March 28, 1999).
Included in selling and administrative expenses of the Company for the
three and six months ended March 28, 1999, are joint venture losses
attributable to start-up costs of $758,000 and $1,207,000,
respectively.
6. STOCKHOLDERS' EQUITY
During the six months ended March 28, 1999, the Company repurchased
629,500 shares of its common stock in the open market for approximately
$6,023,000.
During the six months ended March 28, 1999, the Company received
100,077 shares of its common stock in lieu of cash for the exercise of
stock options from officers and employees of the Company. These shares
were valued at approximately $993,000 (which was calculated based upon
the closing market value of the stock on the day prior to the exercise
dates) and are included as treasury shares as of March 28, 1999.
During the six months ended March 28, 1999, the Company received
252,450 shares of its common stock in connection with the final
distributions of the bankruptcy proceedings, 17,431 of which were
purchased at a cost of $173,000.
7. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
Notwithstanding the confirmation and effectiveness of the Plan of
Reorganization (the "Plan") of the Company's predecessors (the
"Predecessor Companies"), the United States Bankruptcy Court for the
Northern District of Indiana, South Bend Division (the "Bankruptcy
Court") continues to have jurisdiction to, among other things, resolve
disputed pre-petition claims and to resolve other matters that may
arise in connection with or relate to the Predecessor Companies' Plan.
The Company has resolved, through negotiation or through dismissal by
the Bankruptcy Court, approximately $38,000,000 in disputed claims.
Approximately 9,990,000 shares have been issued to the holders of
unsecured claims against the Predecessor Companies in settlement of the
allowed unsecured claims against the estates of the Predecessor
Companies and to the Company's ESOP. The remaining approximately 10,000
shares of the original 10,000,000 shares allocated for disposition of
the bankruptcy claims are being held pending resolution of certain
miscellaneous claims.
Litigation
The Company is engaged in litigation arising from the ordinary course
of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or leased facilities. The Company's
policy is to accrue environmental and cleanup-related costs of a
non-capital nature when it is probable both that a liability has been
incurred and that the amount can be reasonably estimated.
In March 1999, the Company paid $525,000 to the Environmental
Protection Agency ("EPA") to settle the Company's liability for
environmental remediation at a facility formerly leased by the Company
at 312 North Hill Street, Mishawaka, Indiana. The liability had been
fully accrued for in a prior fiscal year.
Based on information available as of March 28, 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.
8. INCOME PER COMMON SHARE
The reconciliation of the numerators and denominators of the basic and
diluted earnings per share computation are as follows for the three and
six months ended March 28, 1999 and March 29, 1998:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 28, 1999 March 29, 1998
-------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 1,059,000 $ 1,744,000
Basic EPS
Income available to com-
mon stockholders $ 1,059,000 12,116,718 $ 0.09 $ 1,744,000 13,148,656 $ 0.13
======== ========
Effect of Dilutive Securities
Stock options 825,759 1,078,351
Warrants 299,629 313,754
---------- ----------
Diluted EPS
Income available to com-
mon stockholders $ 1,059,000 13,242,106 $ 0.08 $ 1,744,000 14,540,761 $ 0.12
============ ========== ======== ============ ========== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 28, 1999 March 29, 1998
-------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 1,078,000 $ 3,107,000
Basic EPS
Income available to com-
mon stockholders $ 1,078,000 12,314,230 $ 0.09 $ 3,107,000 13,263,419 $ 0.23
======== ========
Effect of Dilutive Securities
Stock options 912,523 933,302
Warrants 310,455 232,923
---------- ----------
Diluted EPS
Income available to com-
mon stockholders $ 1,078,000 13,537,208 $ 0.08 $ 3,107,000 14,429,644 $ 0.22
============ ========== ======== ============ ========== ========
</TABLE>
9. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive income,"
during the quarter ended December 27, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. Comprehensive income is defined as the change in equity of
a business during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. SFAS No. 130 requires that the Company's
change in unrealized gains and losses on equity securities available
for sale be included in comprehensive income. The unrealized (loss)
gain on securities available for sale is shown net of a tax benefit of
$368,000 for the three months ended March 28, 1999 and net of tax
expense of $634,000 for the six months ended March 28, 1999.
<PAGE>
10. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows (in
thousands):
<TABLE>
Six Months Ended Six Months Ended
March 28, 1999 March 29, 1998
------------------ -----------------
<S> <C> <C>
Income tax payments $ 740 $ 115
Interest payments 3,087 4,940
</TABLE>
The purchases of property, plant and equipment and net cash used in
financing activities for the six months ended March 28, 1999 do not
include $6,937,000 related to property held under capitalized leases.
The new leases relate to property, plant and equipment purchased for
Uniroyal Optoelectronics, LLC. The Company did not enter into any
capital lease agreements during the six months ended March 29, 1998.
During the six months ended March 28, 1999 and March 29, 1998, the
Company made matching contributions to its 401(k) Savings Plan by the
re-issuance of 19,672 and 30,260 common shares from treasury,
respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Second Quarter Fiscal 1999 Compared with
the Second Quarter Fiscal 1998
Net Sales. The Company's net sales decreased in the second quarter of Fiscal
1999 by approximately 10% ($5,260,000) to $49,273,000 from $54,533,000 in the
second quarter of Fiscal 1998. The decrease is attributable to decreased net
sales for both the High Performance Plastics and Coated Fabrics Segments. The
decreases were partially offset by increased net sales in the Specialty
Adhesives Segment. During Fiscal 1998, the Company sold its coated fabrics
automotive business and is transitioning that business to the buyer. Excluding
the automotive business from both periods, sales increased 4% versus the
previous year.
Net sales by the High Performance Plastics Segment decreased in the second
quarter of Fiscal 1999 by approximately 2% ($719,000) to $32,308,000 from
$33,027,000 in the second quarter of Fiscal 1998. The decrease is due to a
decline in unit volume at Royalite Thermoplastics division which was partially
offset by incremental sales resulting from the acquisition of ViPlex Corporation
in the third quarter of Fiscal 1998.
Net sales by the Coated Fabrics Segment decreased in the second quarter of
Fiscal 1999 by approximately 39% ($6,527,000) to $10,408,000 from $16,935,000 in
the second quarter of Fiscal 1998 due to the gradual phase-out of its automotive
business which was sold in Fiscal 1998. Automotive sales approximated $2,505,000
in the second quarter of Fiscal 1999 compared to $9,744,000 in the second
quarter of Fiscal 1998. Excluding the automotive sales from both periods, net
sales by the Coated Fabrics Segment increased by approximately 10% as a result
of an increase in unit volume and selling prices for Naugahyde(R) vinyl-coated
fabrics.
Net sales by the Specialty Adhesives Segment increased in the second quarter of
Fiscal 1999 by approximately 42% ($1,901,000) to $6,472,000 from $4,571,000 in
the second quarter of Fiscal 1998. The increase is attributable to strong demand
for roofing adhesives and sealants as well as increased sales as a result of a
tolling agreement with a major adhesives company.
Net sales by the Optoelectronics Segment in the second quarter of Fiscal 1999
were $85,000. The Segment did not exist in the second quarter of Fiscal 1998.
The Segment is still in the developmental stage with the Tampa, Florida
production facility currently under construction. Inventory was provided to the
Segment under a supply agreement with the Segment's joint venture partner.
Production from the Tampa facility for commercial applications is expected in
the fourth quarter of Fiscal 1999.
Income Before Interest, Income Taxes and Minority Interest. Income before
interest, income taxes and minority interest for the second quarter of Fiscal
1999 was $3,729,000, compared to $5,513,000, for the second quarter of Fiscal
1998. The decrease is attributable to the loss of revenues associated with the
gradual phase-out of the automotive operations of the Coated Fabrics Segment,
production inefficiencies from plant consolidations in the High Performance
Plastics Segment and start-up losses for the Optoelectronics Segment.
The High Performance Plastics Segment's income before interest, income taxes and
minority interest for the second quarter of Fiscal 1999 increased slightly to
$4,783,000 from $4,775,000 in the second quarter of Fiscal 1998. Improved sales
of acrylic products to the aerospace industry and fire-rated thermoplastic
products to the mass transportation industry led to the margin improvements.
The Coated Fabrics Segment's income before interest, income taxes and minority
interest decreased in the second quarter of Fiscal 1999 to $858,000 from
$1,681,000 in the second quarter of Fiscal 1998 primarily due to the phase-out
of the Segment's automotive operations and certain incremental costs related to
the closure of the Port Clinton, Ohio facility used to produce automotive
products.
The Specialty Adhesives Segment had income before interest, income taxes and
minority interest in the second quarter of Fiscal 1999 of $193,000 compared to a
loss before interest, income taxes and minority interest of $56,000 in the
second quarter of Fiscal 1998. The increase is attributable to a stronger sales
volume.
The Optoelectronics Segment incurred a loss before interest, income taxes and
minority interest of $889,000 in the second quarter of Fiscal 1999. The losses
relate to the start-up costs of the Segment. The Segment did not exist in the
second quarter of Fiscal 1998.
Miscellaneous expense not allocated to the segments in the second quarter of
Fiscal 1999 was approximately $1,216,000 compared to $887,000 in the second
quarter of Fiscal 1998.
Interest Expense. Interest expense in the second quarter of Fiscal 1999
decreased to $2,257,000 from $2,499,000 in the second quarter of Fiscal 1998
primarily as a result of a decrease in interest rates as a result of a Fiscal
1998 third quarter debt refinancing.
Income Tax Expense. Income tax expense in the second quarter of Fiscal 1999 was
$764,000 as compared to income tax expense of $1,270,000 in the second quarter
of Fiscal 1998. The provisions for income tax expense were calculated through
the use of the estimated income tax rates based on annualized income.
First Two Fiscal Quarters 1999 Compared with
the First Two Fiscal Quarters 1998
Net Sales. The Company's net sales decreased in the first two quarters of Fiscal
1999 by approximately 7% ($7,353,000) to $98,362,000 from $105,715,000 in the
first two quarters of Fiscal 1998, primarily due to the sale of the automotive
operations of the Coated Fabrics Segment in Fiscal 1998 and the gradual
phase-out of those operations. Excluding automotive sales from both periods,
sales increased 5% in the first two quarters of Fiscal 1999 compared to the
first two quarters of Fiscal 1998.
Net sales by the High Performance Plastics Segment increased in the first two
quarters of Fiscal 1999 by approximately 2% ($1,047,000) to $63,271,000 from
$62,224,000 in the first two quarters of Fiscal 1998. Declines in unit volume at
the Royalite Thermoplastics division were more than offset by the incremental
sales resulting from the acquisition of ViPlex Corporation in the third quarter
of Fiscal 1998.
Net sales by the Coated Fabrics Segment decreased in the first two quarters of
Fiscal 1999 by approximately 32% ($10,865,000) to $23,205,000 from $34,070,000
in the first two quarters of Fiscal 1998 due to the gradual phase-out of its
automotive business. Automotive sales approximated $8,783,000 in the first two
quarters of Fiscal 1999 compared to $20,540,000 in the first two quarters of
Fiscal 1998. Excluding automotive sales from both periods, sales of Naugahyde(R)
vinyl-coated fabrics increased by approximately 7%.
Net sales by the Specialty Adhesives Segment increased in the first two quarters
of Fiscal 1999 by approximately 25% ($2,380,000) to $11,801,000 from $9,421,000
in the first two quarters of Fiscal 1998, primarily due to a strong demand for
roofing adhesives and sealants, a tolling agreement with a major adhesives
company and increased sales of its industrial adhesives and sealant products.
Net sales by the Optoelectronics Segment for the first two quarters of Fiscal
1999 were $85,000. The Segment did not exist in the first two quarters of Fiscal
1998. The Segment is still in the developmental stage with the Tampa, Florida
production facility currently under construction. Inventory was provided to the
Segment under a supply agreement with the Segment's joint venture partner.
Production from the Tampa facility for commercial applications is expected in
the fourth quarter of Fiscal 1999.
Income Before Interest, Income Taxes and Minority Interest. Income before
interest, income taxes and minority interest for the first two quarters of
Fiscal 1999 was $5,889,000, compared to $10,449,000 for the first two quarters
of Fiscal 1998. The decrease is due to a loss of revenues associated with the
gradual phase-out of the automotive operations of the Coated Fabrics Segment,
production inefficiencies from plant consolidations in the High Performance
Plastics Segment and start-up losses for the Optoelectronics Segment.
The High Performance Plastics Segment's income before interest, income taxes and
minority interest for the first two quarters of Fiscal 1999 decreased to
$7,518,000 from $8,537,000 in the first two quarters of Fiscal 1998. The
decrease is attributable to a major plant consolidation at the Polycast cell
cast acrylic division as well as reduced sales volume at the Royalite
Thermoplastics division.
The Coated Fabrics Segment's income before interest, income taxes and minority
interest in the first two quarters of Fiscal 1999 was $1,636,000 compared to
$3,757,000 in the first two quarters of Fiscal 1998. The decrease is
attributable to the loss of revenues from the gradual phase-out of its
automotive operations, as well as certain incremental costs related to the
closure of the Port Clinton, Ohio facility used to produce automotive products.
The Specialty Adhesives Segment's income before interest, income taxes and
minority interest in the first two quarters of Fiscal 1999 was $370,000 versus a
loss before interest, income taxes and minority interest of $225,000. The
increase in income before interest, income taxes and minority interest is due to
the increase in sales volume.
The Optoelectronics Segment's loss before interest, income taxes and minority
interest in the first two quarters of Fiscal 1999 was $1,482,000. The losses
relate to the start-up and training costs of the Segment. The Segment did not
exist in the first two quarters of Fiscal 1998.
Miscellaneous expense not allocated to the segments in the first two quarters of
Fiscal 1999 was approximately $2,153,000 compared to $1,620,000 in the first two
quarters of Fiscal 1998.
Interest Expense. Interest expense in the first two quarters of Fiscal 1999
decreased to $4,533,000 from $5,044,000 in the first two quarters of Fiscal
1998. The higher level of debt during the first two quarters of Fiscal 1999
versus the first two quarters of Fiscal 1998 was more than offset by a decrease
in interest rates resulting from the Fiscal 1998 debt refinancing.
Income Tax Expense. Income tax expense in the first two quarters of Fiscal 1999
was $858,000 as compared to $2,298,000 in the first two quarters of Fiscal 1998.
The provisions for income tax expense were calculated through the use of the
estimated income tax rates based on annualized income.
Liquidity and Capital Resources
For the first two quarters of Fiscal 1999, operating activities provided
$14,013,000 of cash as compared to $10,251,000 provided during the first two
quarters of Fiscal 1998. The increase in cash provided by operating activities
for the Fiscal 1999 period is primarily attributable to the decrease in accounts
receivable and inventories due to the gradual phase-out of the Coated Fabrics
Segment automotive business.
Net cash used in investing activities for the first two quarters of Fiscal 1999
was $15,293,000 as compared to $3,171,000 used during the first two quarters of
Fiscal 1998. The increase is due to the purchase of preferred stock in Emcore
Corporation and capital expenditures for the modernization of the Polycast
acrylic sheet division's production facility in Stamford, Connecticut and the
Optoelectronics Segment's production facility in Tampa, Florida.
Net cash used in financing activities was $750,000 during the first two quarters
of Fiscal 1999 as compared to $7,249,000 used during the first two quarters of
Fiscal 1998. Cash was provided by a capital contribution to the Optoelectronics
Segment by the joint venture partner. Cash was used primarily to repurchase
Company common stock in the open market.
The Company had approximately $3,555,000 in cash and cash equivalents on March
28, 1999 as compared to approximately $5,585,000 at September 27, 1998. Working
capital at March 28, 1999 was $24,174,000 compared to $36,146,000 at September
27, 1998. The Company had $9,673,000 of outstanding borrowings under its
revolving credit facility with Fleet National Bank (subject to a borrowing base
limitation of approximately $20,000,000 at March 28, 1999) and $4,501,000 under
its $10,000,000 revolving credit facility with The CIT Group/Business Credit,
Inc. (subject to a borrowing base limitation of approximately $8,087,000 at
March 28, 1999). The principal uses of cash during the first two quarters of
Fiscal 1999 were to purchase preferred stock of Emcore Corporation, to
repurchase Company stock for treasury and to fund capital expenditures for the
new Optoelectronics facility in Tampa, Florida and the modernization of the
Stamford, Connecticut facility. The Company plans to spend an additional
$17,000,000 to finish the construction of the Optoelectronics facility in Fiscal
1999 and has secured additional outside financing for these expenditures.
The Company believes that cash from its operations and its ability to borrow
under the revolving credit facilities mentioned above provide it sufficient
liquidity to finance its existing level of operations and meet its debt service
obligations. However, there can be no assurance that the Company's operations
together with amounts available under the revolving credit facilities will
continue to be sufficient to finance its existing level of operations and meet
its debt service obligations. The Company's ability to meet its debt service and
other obligations depends upon its future performance, which in turn, is subject
to general economic conditions and to financial, business and other factors,
including factors beyond the Company's control. If the Company is unable to
generate sufficient cash flow from operations, it may be required to obtain
additional financing. There can be no assurance that the Company will be able to
obtain such additional financing. The Company believes that it currently has
sufficient liquidity to finance its existing level of operations.
Effects of Inflation
The markets in which the Company sells products are competitive. In particular,
the Company has generally encountered effective resistance to price increases in
connection with its sales of acrylics to the aerospace industry. Thus, in an
inflationary environment the Company may not in all instances be able to pass
through to consumers general price increases; the Company's operations could be
materially impacted if such conditions were to occur. The Company has not in the
past been adversely impacted by general price inflation.
Year 2000
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
Year 2000 could result in miscalculations or system failures, which could result
in an adverse impact on the Company's operations.
The Company has instituted a Year 2000 task force that reports to the Audit
Committee of the Board of Directors. The Company has also initiated a
comprehensive project, overseen by the task force, to prepare its computer
systems, communication systems and manufacturing/testing equipment for the Year
2000. The project primarily includes three phases which are: 1) identification
and assessment of all software, hardware and equipment that could potentially be
affected by the Year 2000 issue, 2) remedial action necessary to bring such
systems into compliance and 3) further testing, if necessary. The Company has
generally completed the identification and assessment phase of its project and
is at various stages of remediation and testing the noted systems. The Company
plans to complete this project by July 31, 1999. The Company believes that the
majority of its major systems are currently Year 2000 compliant and costs to
transition the remaining systems to Year 2000 compliance are not anticipated to
exceed approximately $200,000. The Company has primarily used internal resources
in its Year 2000 project thus far and has incurred costs of less than $600,000.
The Company is also contacting critical suppliers of products and services and
customers to determine the extent to which the Company might be vulnerable to
such parties' failure to resolve their own Year 2000 issues. Where practicable,
the Company will access and attempt to mitigate its risks with respect to the
failure of these entities to be Year 2000 ready. No single supplier or customer
accounts for a material portion of the Company's business. The effect, if any,
on the Company's results of operations from the failure of such parties to be
Year 2000 ready is not reasonably estimable.
Currently the Company does not expect to experience significant disruptions of
its operations as a result of the change to the new millenium and therefore has
not formulated a contingency plan for such occurrence.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
The Company is exposed to various market risks, including changes in interest
rates. The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates on its floating rate long-term debt and revolving
credit advances. The Company's risk management policy includes the use of
derivative financial instruments (interest rate swaps) to manage its interest
rate exposure. The counter parties are major financial institutions. The Company
does not enter into derivatives or other financial instruments for trading or
speculative purposes.
The Company's interest rate swaps involve the exchange of fixed and variable
interest rate payments without exchanging the notional principal amount.
Payments or receipts on the agreements are recorded as adjustments to interest
expense. At March 28, 1999, the Company had outstanding swap agreements,
maturing at various dates through 2003, with an aggregate notional amount of
$80.0 million. Under these agreements the Company receives a floating rate based
on USD-LIBOR-BBA and pays a fixed weighted average interest rate of 5.80%. These
swaps effectively change the Company's payment of interest on $80.0 million of
its $102.5 million variable rate debt at March 28, 1999 to fixed rate debt.
The fair value of these interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At March
28, 1999, the Company would have paid approximately $1.2 million to terminate
the agreements. A decrease of 100 basis points in the yield curve would increase
the amounts paid by approximately $2.1 million. The fair value is based on
dealer quotes, considering current interest rates.
At March 28, 1999, approximately $22.5 million of the Company's floating rate
long-term debt and revolving credit advances was not covered under an interest
swap agreement. For floating rate debt, interest changes generally do not affect
the fair market value but do impact future earnings and cash flows assuming
other factors are held constant. Based upon this balance, a change of one
percent in the interest rate would cause a change in interest expense of
approximately $225,000 on an annual basis
Forward Looking Information
Statements made herein that are forward-looking in nature within the meaning of
the Private Securities Litigation Reform Act of 1995 are subject to risks and
uncertainties that could cause actual results to differ materially. Such risks
and uncertainties include, but are not limited to, those related to business
conditions and the financial strength of the various markets served by the
Company, the level of spending for such products and the ability of the Company
to successfully manufacture and market its products.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company knows of no material pending legal proceedings to
which the Company or any of its subsidiaries is a party or of
which any of their property is the subject other than routine
litigation incidental to the Company's business except as
described below.
(b) By letter dated April 2, 1998, the United States Environmental
Protection Agency ("EPA") sent the Company a general notice of
liability concerning the plant previously leased by the
Company's Uniroyal Adhesives and Sealants Division in
Mishawaka, Indiana. In March 1999, the Company paid $525,000
to the EPA to settle this liability.
(c) No legal proceedings were terminated during the second quarter
ended March 28, 1999, other than routine litigation incidental
to the Company's business.
Item 2. Changes in Securities
None.
Item 3. Default upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On February 23, 1999, the Company held its annual meeting of
stockholders in Tampa, Florida. A total of 12,361,302 shares
of capital stock of the Company were entitled to vote at the
meeting. Of this amount, 8,718,580 shares were represented by
proxy, and 43 were present in person. The number of shares
that were present at the meeting constituted a quorum for the
transaction of all business that was to be considered at the
meeting. At that time certain proposals were submitted to a
vote by the stockholders.
Proposal number 1 was to elect the eight incumbent directors
for a term of one year to be elected by the holders of common
stock. The following directors were elected:
<TABLE>
<CAPTION>
Voted For Withheld
<S> <C> <C>
Peter C. B. Bynoe 8,613,535 105,088
Thomas E. Constance 8,610,370 108,253
Howard R. Curd 8,610,338 108,285
Richard D. Kimbel 8,562,167 156,456
Curtis L. Mack 8,610,831 107,792
Roland H. Meyer 8,611,831 106,792
John A. Porter 8,613,769 104,854
Robert L. Soran 8,611,629 106,994
</TABLE>
Proposal number 2 was to consider and take action upon the
ratification of the selection of Deloitte & Touche LLP to
serve as the independent public accountants for the Company
for the fiscal year ending September 26, 1999. The following
summarizes the results of the vote:
Voted For Voted Against Abstained
8,612,462 31,018 75,143
Proposal number 3 was to consider and act upon amendments to
the Company's 1992 Non-Qualified Stock Option Plan. The
following summarizes the results of the vote:
Voted For Voted Against Abstained
8,337,855 247,719 133,059
Proposal number 4 was to consider and act upon amendments to
the Company's 1995 Non-Qualified Stock Option Plan. The
following summarizes the result of the vote:
Voted For Voted Against Abstained
8,380,318 211,929 126,376
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 10, 1999 By:/s/ George J. Zulanas, Jr.
------------- ---------------------------------
George J. Zulanas, Jr.
Vice President, Chief Financial
Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Condensed
Consolidated Balance Sheet as of March 28, 1999 and the Condensed
Consolidated Statement of Operations for the six months ended March 28,
1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 890096
<NAME> Uniroyal Technology Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Sep-26-1999
<PERIOD-START> Sep-28-1998
<PERIOD-END> Mar-28-1999
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<SECURITIES> 0
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0
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</TABLE>
