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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from
___________ to __________
Commission file number 0-20686
UNIROYAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0341868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Tamiami Trail, Suite 900
Sarasota, Florida 34236-5568
(Address of principal executive offices) (Zip Code)
(941) 366-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (29,405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of November 29, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant (assuming for this purpose that all directors
and officers of the registrant and all holders of 5% or more of the common stock
of the registrant are affiliates) was approximately $19,390,000 based on the
closing price for the stock on November 29, 1996. The foregoing aggregate market
value is based on issuance of only 98% of the shares authorized for initial
issuance; the registrant believes that the foregoing aggregate market value
would be approximately $20,062,000 if all 10,000,000 shares authorized for
initial issuance had been issued.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
As of November 29, 1996, 13,266,708 shares of the registrant's common stock were
outstanding.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No _____
DOCUMENTS INCORPORATED BY REFERENCE
Parts III - Portions of the registrant's definitive proxy statement to be issued
in connection with the registrant's annual meeting of stockholders to be held in
1997.
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ii
TABLE OF CONTENTS
PART I
ITEM 1 BUSINESS.................................................................
GENERAL....................................................................
CORPORATE DEVELOPMENTS...................................................
Ensolite Sale.........................................................
Acquisition of South Bend Facility....................................
Revolving Credit Agreement............................................
SAP Business Information System ......................................
Settlement of Uniroyal Retiree Benefits Litigation ...................
Introduction of New Coated Fabrics Product ...........................
Shareholders' Rights Plan.............................................
Redemption of Series B Preferred Stock................................
Disposition of Port Clinton, Ohio Automotive Operation................
BUSINESS SEGMENTS..........................................................
High Performance Plastics Segment.....................................
Coated Fabrics Segment................................................
Specialty Adhesives Segment..........................................
EMPLOYEES..................................................................
TRADEMARKS AND PATENTS.....................................................
RESEARCH AND DEVELOPMENT...................................................
BACKLOG....................................................................
WORKING CAPITAL ITEMS......................................................
ENVIRONMENTAL MATTERS......................................................
HISTORY OF THE COMPANY.....................................................
Predecessor Companies.................................................
Reorganization........................................................
ITEM 2 PROPERTIES...............................................................
ITEM 3 LEGAL PROCEEDINGS......................................................
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................................
ITEM 6 SELECTED FINANCIAL DATA................................................
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................
RESULTS OF OPERATIONS............................................
Comparison of Fiscal 1996 with Fiscal 1995 .................
Comparison of Fiscal 1995 with Fiscal 1994 .................
Liquidity and Capital Resources ............................
Effects of Inflation .......................................
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE......................................
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................
ITEM 11 EXECUTIVE COMPENSATION..................................................
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..............................................................
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........
SIGNATURES......................................................................
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE..................
EXHIBIT INDEX...................................................................
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Item 1. Business
General
Uniroyal Technology Corporation (the "Company") is a leader in
the development, manufacture and sale of a broad range of materials
employing plastics and specialty chemicals technologies used in the
production of a wide range of consumer, commercial and industrial
products. Its products, many of which are based on proprietary
technology, include thermoplastic sheet for use in the manufacture of
seating, interior paneling and other applications in the
transportation, recreational, agricultural and industrial vehicle and
computer manufacturing industries; acrylic sheet for use in the
manufacture of aircraft canopies, cabin windows and windshields, sun
tanning beds and bullet resistant enclosures; acrylic rods and tubes
used in the manufacture of orthopedic devices and hard contact lenses;
a wide selection of plastic vinyl coated fabrics for use in automobile
and furniture manufacturing; and liquid adhesives and sealants for use
in the commercial roofing industry and in the manufacture of furniture,
truck trailers and recreational vehicles. The Company's technologies
allow it to incorporate into its specialized materials, such as
thermoplastic and acrylic sheets, performance characteristics such as
fire retardancy, static dissipation, weatherability, optical clarity,
high strength to weight ratio, light filtration capability and others
required in the specialty markets on which it focuses. The Company is a
leading supplier in such markets due to its ability to provide
materials with such varying performance characteristics, to customize
such materials and to provide technical and customer support in
connection with the use of its products in manufacturing.
The manufacturing operations of the Company are conducted at
nine sites located in Indiana, Connecticut, New Jersey, California,
Georgia, Ohio and Wisconsin, through three business segments: High
Performance Plastics, Coated Fabrics and Specialty Adhesives. The High
Performance Plastics Segment of the Company's business is comprised of
two divisions: Royalite, which manufactures specialty and general
purpose thermoplastic sheet, injection molding resins, color
concentrates and extruded profiles, and Polycast Technology
("Polycast"), which manufactures acrylic sheet for the aerospace,
specialty and general purpose markets as well as acrylic rods and
tubes. The Coated Fabrics Segment manufactures the Company's line of
vinyl coated fabrics and vinyl laminated composites, and the Specialty
Adhesives Segment (formerly, the Specialty Foams and Adhesives
Segment), manufactures liquid adhesives and sealants.
The Company's Fiscal 1996 net sales were approximately $209.3
million. Approximate net sales for each of the Company's three business
segments during such period were as follows: High Performance Plastics
- $115.1 million, Coated Fabrics - $58.7 million, and Specialty
Adhesives - $35.5 million. For certain financial information with
respect to the Company's business segments, see "Note 16 to Financial
Statements." The Company is the successor to an affiliated group of
reorganized entities from which the Company acquired all of its
businesses in 1992 pursuant to a plan of reorganization adopted on
September 27, 1992. See "- History of the Company."
Corporate Developments
The following are certain corporate developments which
occurred in Fiscal 1996. The descriptions of such developments should
be read in conjunction with the other parts of this Form 10-K and with
the Financial Statements and Notes to Financial Statements and other
financial information which form a part hereof.
Ensolite Sale
On June 10, 1996, the Company sold substantially all of the
assets used in the Specialty Foams Division of its Specialty Adhesives
Segment to Rubatex Corporation ("Rubatex") for a purchase price of
$25.0 million. Pursuant to its agreement with Rubatex, the Company will
continue manufacturing specialty foam products for Rubatex until not
later than July 31, 1997. See "- Business Segments - Specialty
Adhesives" and "Note 3 to Financial Statements."
In connection with the Ensolite Sale, the Company has retained
certain liabilities related to its Specialty Foams Division, including
liabilities for employee severance, facility clean-up and environmental
remediation costs. See "- Acquisition of South Bend Facility," "-
Business Segments - Specialty Adhesives," "Environmental Matters" and
"Note 3 to Financial Statements."
Acquisition of South Bend Facility
The Company acquired on July 17, 1996 a manufacturing facility
in South Bend, Indiana consisting of approximately 240,000 square feet
for approximately $1.8 million. The manufacturing operations of the
Specialty Adhesives Segment, as well as certain other Company
operations, will relocate to the South Bend, Indiana facility during
the first half of Fiscal 1997. During Fiscal 1996 and Fiscal 1995, the
Company incurred approximately $900,000 and $1.3 million, respectively,
in excess facility costs associated with the operation of the
Mishawaka, Indiana facility, the current site of the manufacturing
operations of the Company's Specialty Adhesives Segment. See "-
Business Segments - Specialty Adhesives" and "- Environmental Matters."
The Company expects significant savings in facility expenditures in
future periods from the elimination of the excess facility costs
related to the operation of the Mishawaka, Indiana facility and reduced
operating expenses resulting from operating efficiencies of the new
plant, including reduced energy costs, property taxes and personnel
requirements. Approximately $1.0 million of the purchase price for the
South Bend, Indiana Facility has been placed in escrow and will be
drawn upon to pay for the costs of environmental remediation at such
facility. The Company expects to incur this approximately $1.0 million
in environmental remediation costs over a five to seven year period in
connection with such facility. The Company has reserved $4.3 million
for severance, environmental remediation and other relocation costs
associated with the closure of the Mishawaka, Indiana facility. See "-
Business Segments - Specialty Adhesives" and "- Environmental Matters."
Revolving Credit Agreement
On June 10, 1996, the Company entered into a new revolving
credit agreement with The CIT Group/Business Credit, Inc., pursuant to
which the Company may, subject to certain conditions, borrow up to
$25.0 million, but generally in no event more than an amount equal to
the lesser of 85 percent (85%) of its trade accounts receivable and
seventy-five percent (75%) of certain accounts of the Company,
including, but not limited to, its trade accounts receivable. Interest
under the agreement is payable, at the Company's election, either at
the rate of a specified prime rate plus a margin of one-half of one
percent (.5%) per annum, or the applicable London Interbank Offer Rate
plus a margin of two and three-quarters percent (2.75%). All of the
Company's trade accounts receivable are pledged to the lender as
collateral for this agreement. The Company believes that this agreement
provides it with borrowing conditions more beneficial to it than the
terms of the revolving credit agreement it previously had in place with
Heller Financial, Inc., as to aggregate borrowing availability,
interest rate and restrictions applicable to the Company's operations.
SAP Business Information System
In October 1996, the Company completed implementation of a new
business information system utilizing software developed by SAP
America, Inc. ("SAP"). The SAP system is expected to make the Company
more competitive and responsive to customer needs through the
integration of order entry, production, inventory control, shipping and
billing information and financial systems generally. The new system had
been under development at the Company since 1994 and has cost
approximately $4.7 million as of September 29, 1996.
Settlement of Uniroyal Retiree Benefits Litigation
The Company has reached an agreement in principle with
Uniroyal Retiree Benefits, Inc. ("URBI"), a non-profit corporation
unaffiliated with the Company which provides medical and life insurance
benefits to certain retired employees of the Predecessor Companies (as
hereinafter defined) and affiliates thereof and their dependents. See
"- History of the Company." Since 1994, URBI has contested the level of
funding to be provided to it by the Company under the terms of a
funding agreement that was part of the Plan of Reorganization of the
Predecessor Companies. See "Item 3. - Legal Proceedings." The proposed
settlement provides, among other things, for a compromise on the level
of funding to reflect URBI's current program needs. The Company
anticipates that the final documentation with respect to the settlement
should be completed in the near future, but no assurance can be given
to that effect.
Introduction of New Coated Fabrics Product
During Fiscal 1996, the Company commenced production of
significant amounts of a new line of coated fabric products, sales of
which had commenced in Fiscal 1995. Such products had been in
development since 1992. The material has been qualified for use in the
door panels for several General Motors Corporation ("GM") automobile
models. It accounted for approximately $6.0 million in sales in Fiscal
1996. In 1995, sales of this product were nominal. It has been the
Company's experience that product specifications developed for
particular automobile models are generally effective for a period of
three to four years. The Company thus has expectations that its new
product series will be usable in the door panels for the GM models in
which they are presently used for a like period, but no assurance
exists to such effect. Moreover, at the present time, the Company is
the only manufacturer that has satisfied the rigorous specifications
imposed by GM for materials for use in the manufacture of such door
panels. These product specifications require a material characterized
by light weight, deep grain patterns, softness, cohesion upon exposure
to heat and processability, among others. There can be no assurance,
however, that other suppliers will not in the future introduce products
which satisfy such requirements.
Redemption of Series B Preferred Stock
On December 16, 1996, the Company redeemed 15 shares of the
Company's Series B Preferred Stock held by the Pension Benefit Guaranty
Corporation for an aggregate redemption price of approximately $2.3
million.
Shareholder Rights Plan
On December 18, 1996, the Company's Board of Directors (the
"Board") declared a dividend distribution of one preferred shared
purchase right (a "Right") for each share of the Company's Common
Stock, par value $.01 per share ("Common Stock"), outstanding as of
December 30, 1996. Each Right entitles the holder to purchase from the
Company 1/100,000 of a share of participating preferred stock of the
Company for $17.00, subject to adjustment. Initially, the Rights are
attached to the Common Stock and are not represented by separate
certificates or exercisable until the earlier to occur of (i) ten days
after the public announcement (the date of such first public
announcement being the "Stock Acquisition Date") that a person or group
has acquired 15% or more of the Common Stock (other than the existing
15% owners who do not increase their ownership), or (ii) ten business
days (or such later date as may be determined by the Board) after the
commencement of a tender or exchange offer that would result in owning
an Acquiring Person 15% or more of the Common Stock, the earlier of
such dates being the "Distribution Date". If after the Distribution
Date a person shall become an Acquiring Person (other than pursuant to
certain offers approved by the Board) each holder of a Right (other
than the Acquiring Person and, in certain circumstances, his
transferees) will have the right to receive, upon exercise, Common
Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a value equal to two times the purchase price of
the Right. In addition, if after a Stock Acquisition Date the Company
enters into certain business combinations, or 50% or more of the
Company's assets or earning power is sold or transferred, each holder
of a Right shall have the right to receive, upon exercise, Common Stock
of the acquiring company having a value equal to two times the purchase
price of the Right. The Board may, subject to certain limitations,
amend the Rights and may redeem all but not less than all of the Rights
for $0.001 per Right. The Rights have certain anti-take-over-effects.
The Rights will expire on December 18, 2006 unless earlier redeemed.
The Rights may cause substantial dilution to a person that
attempts to acquire the Company without the approval of the Board
unless the offer is conditioned on a substantial number of Rights being
acquired or on redemption of the Rights. The Rights, however, should
not affect offers for all outstanding shares of Common Stock at a fair
price and otherwise in the best interests of the Company and its
stockholders as determined by the Board.
Dispostion of Port Clinton, Ohio Automotive Operation
Due to the operating losses experienced by the Port Clinton,
Ohio operation of the Coated Fabrics Segment during the past three
fiscal years, management of the Company has proposed to sell or close
that operation during Fiscal 1997.
Business Segments
High Performance Plastics Segment
The High Performance Plastics Segment of the Company's
business accounted for approximately $115.1 million (approximately 55
percent (55%)) of the Company's net sales in Fiscal 1996. It consists
of two divisions: the Royalite Division, which manufactures
thermoplastics products, and the Polycast Division, which manufactures
acrylic products.
The Royalite Division - Thermoplastic Products
General
The Company's Royalite Division is a leading manufacturer of
thermoplastic products. Thermoplastics are polymers, such as
acrylonitrile butadiene styrene and polyvinylchloride, made from the
polymerization of monomers, which can be reshaped after they have been
formed by the application of heat and are used in the manufacture of a
wide assortment of commercial and consumer products. The Division's
products include thermoplastic sheet, injection molding resins, color
concentrates and extruded profiles.
Thermoplastic sheet is manufactured by the Company from a
variety of polymers and chemical additives and is constructed either of
solid plastic, a core of inexpensive plastic covered with a thin layer
of high-quality thermoplastic or a base or substrate of plastic foam
surrounded by solid thermoplastic. It is sold to equipment
manufacturers, who incorporate the sheet into their product, custom
fabricators, who cut and form the sheet for specific applications and
supply finished components to equipment manufacturers, and
distributors, who resell raw sheet to equipment manufacturers or custom
fabricators. The Company manufactures two types of this sheet,
specialized sheet, which is made by varying the polymer and chemical
components of the sheet in order to achieve particular performance
characteristics, and general purpose sheet, which is used by
manufacturers for a variety of products not requiring particular
performance characteristics.
Specialty thermoplastic sheet is sold by the Royalite Division
in a number of niche markets, depending upon the performance
characteristics of the sheet. The following is a chart setting forth
the application of specialized sheet with particular performance
characteristics:
Performance Characteristics Principal Uses
--------------------------- --------------------
flame and smoke retardancy mass transportation vehicle
seating and interior panels,
aircraft interior trim and
computer and other electronic
equipment component housings
static dissipation and
conductivity computer chip and hard drive
carriers
weatherability/temperature
resistance recreational camper tops,
interior trim for agricultural
and other off road vehicles and
exterior boat trim
buoyant, hydrodynamic and/or
high strength-to-weight ratio canoes, kayaks, other watersport
craft and amusement park
vehicles
The Company believes it has a substantial share of the markets
for specialty thermoplastic sheet due to its ability to manufacture
sheet with the wide variety of performance characteristics set forth
above, and which are, in many cases, customized to meet its customers'
exact specifications. Net sales of specialty thermoplastic sheet
accounted for approximately 65 percent (65%) of total net sales of
thermoplastic sheet by the Royalite Division during Fiscal 1996.
The Company maintains a scientific and technical staff and the
necessary production capabilities to design specialty thermoplastic
sheet with performance characteristics to suit its customers'
specifications. See "- Research and Development." In addition, the
Company has advanced coloring technology, including a database of up to
2,500 color formulas developed by the Royalite Division, which enables
it to color its thermoplastic sheet to match customer specifications
precisely and consistently. The Company also has the ability to
texturize its sheet with what it believes to be one of the most
extensive selections of embossing grains available in the market.
By contrast to specialty thermoplastic sheet, general purpose
thermoplastic sheet is used in the manufacture of numerous consumer and
industrial products, such as luggage, musical instrument and equipment
cases, tote boxes and vehicle mudflaps, which do not require that the
thermoplastic material used in their manufacture possess any of the
performance characteristics which distinguish specialty sheet and which
are referred to above. The market for general purpose thermoplastic
sheet is significantly broader than the market for specialty
thermoplastic sheet due to the almost limitless uses to which such
sheet may be put in the manufacture of products. Such market is
generally characterized by intense competition, high volume and low
margins. The Company does not have a significant share of this market.
Sales of general purpose sheet during Fiscal 1996 accounted for
approximately 35 percent (35%) of total net sales of the Royalite
Division.
In Fiscal 1995, the Royalite Division introduced two new
product lines: injection molding resins, which are used in the
manufacture of thermoplastic products through injection molding, and
color concentrates, which are used to color thermoplastic sheet
materials and injection molding products during the manufacturing
process.
The Company introduced these product lines as part of its
"life cycle sourcing" strategy implemented in 1995, aimed at satisfying
a customer's needs for thermoplastic material with respect to a
particular product from the product's development stage through
maturity, including matching products to production methods used at
different production volume levels. When a customer is in the initial
stages of developing a product requiring a thermoplastic component, the
Company employs its technological capabilities and scientific expertise
to design and produce customized thermoplastic sheet, which the
customer then generally "thermoforms" through the application of heat
into particular applications to be incorporated into its final product.
Due to its low cost, "thermoforming" is used in connection with the
manufacture of thermoplastic components not required in large volume
manufacturing runs. When a customer's unit volume of a product attains
those levels at which it becomes economical for the customer to
manufacture the thermoplastic application by injection molding, a more
capital intensive but efficient process when compared to thermoforming,
the Company, which does not compete in the injection molding
manufacturing industry, can continue to supply the customer with the
polymer resins and color concentrates used in the injection molding
process, which will achieve the same properties and color as when the
application was produced through thermoforming. By using the Company's
injection molding resins and color concentrates, which have been
customized to meet the customer's particular specifications, the
customer avoids any disruption in its production that may result from
having to qualify a thermoplastic material from a new manufacturer.
Although injection molding resins and color concentrates
constitute less than five percent (5%) of net sales of the Royalite
Division for Fiscal 1996, the Company believes that significant
opportunities for growth exist in this market and that such product
lines will enhance the division's specialty sheet lines by assuring
customers that the Company will be able to meet their specialized
thermoplastics needs throughout every stage of a product's life cycle.
In Fiscal 1995, the Royalite Division combined its
technological capabilities with the Polycast Division's expertise in
extrusion production methods (see " - High Performance Plastics Segment
- Polycast Division") to commence manufacturing an extruded profile
line of products which are used for applications requiring flexibility
and resilience, such as dock/boat bumpers and gaskets which are sold to
the Polycast Division for use in the manufacture of acrylic sheet. This
product line was implemented primarily to make use of the Company's
available production capacity at the division's Warsaw, Indiana
facility. Even though sales of extruded profiles do not represent a
significant part of the Royalite Division's business, the Company
believes that significant opportunities for growth exist in this
market.
Competition
The market for thermoplastic sheet in the United States is
highly competitive, with companies competing primarily on the basis of
product specifications, price, customer service and technical support.
The Company competes in this market principally by maintaining or
increasing its market share in the specialty thermoplastic niche
markets described above. See "- Royalite Division - General." The
Company believes that it competes effectively with other producers in
such markets by providing strong customer service through technical
support, state-of-the-art color technology and new product development.
The Division maintains highly knowledgeable technical representatives
who work directly with customers to ensure that the Division's
materials used in the manufacture of a customer's product conform to
the customer's specifications and work efficiently with the customers'
manufacturing processes. In addition, the Company has polymer expertise
and custom compounding capabilities to customize the performance
characteristics and color of its thermoplastic products, whereas many
of its competitors do not have such capability. Its technological
capabilities have also permitted the Company to develop successful new
products which enhance its competitiveness in this segment. For
example, recently, the Royalite Division introduced graffiti-resistant
seating material, developed for the mass transportation market. The
addition of injection molding resins and color concentrates and
implementation of life cycle sourcing have enhanced the Royalite
Division's competitiveness by assuring customers that the Company will
be able to meet their thermoplastics needs throughout every stage of a
product's life.
The Company is also able to compete effectively with respect
to price due in part to its low production costs and savings resulting
from its use of recycled material in the manufacture of thermoplastic
sheet. See "Royalite Division - Raw Materials." The Company's ability
to internally produce and laminate a thin layer of high quality colored
thermoplastic film over a less costly substrate allows it to compete
favorably with most other specialty thermoplastic sheet manufacturers,
which use a single layer of relatively expensive colored plastic sheet
to produce the desired end product.
The Company's principal competitors in the flame and smoke
retardant thermoplastic product market are Kleerdex Company, GenCorp
Inc. and Spartech Corporation. Mitech Corp. is the Company's principal
competitor in the static control thermoplastic product market, and
Spartech Corporation and Primex Plastics Corp. are the Company's
principal competitors in the general purpose thermoplastic sheet
market. The Company's competitors have in the past increased their
market shares in the thermoplastic industry generally through
acquisitions.
Marketing
The Royalite Division's thermoplastic sheet products are
marketed under the ROYALITE(R) and SPECTRUM(R) brand names.
Thermoplastic sheet with specialized characteristics is also marketed
under individual brand names, such as ROYALSTAT(R) (thermoplastic sheet
designed to dissipate or conduct static electric charges), ROYALEX(R)
(multilayer thermoplastic sheet with a foam core and highly
weather-resistant layer on one or both sides, resulting in a high
strength-to-weight ratio, designed for recreational, marine and
sporting applications), ROYALTHOTIC(R) (thermoplastic sheet designed to
be thermoformed at low temperatures to permit orthopedic medical
practitioners to form individual patient orthopedic devices in their
offices).
The Royalite Division markets its thermoplastic products
primarily through a national sales force of approximately 14 sales
representatives, who are employees of the Company, and through
wholesale distributors to whom it supplies its products for resale to
fabricators and manufacturers. Representative customers of the Royalite
Division and representative end users of its products include: American
Seating Company, National Railroad Passenger Corp. (Amtrak),
Bombardier, Inc., Caterpillar, Inc., Curbell Plastics, a division of
Curbell, Inc., Commercial Plastics and Supplies Corp., General Motors
Corporation, Hewlett-Packard Company, Laird Plastics, Inc., McDonnell
Douglas Corporation, Sensormatic Electronics Corporation, Seagate
Technology, Inc. and the U.S. Navy. The Company has a broad customer
base for its thermoplastic products and it does not believe that it is
dependent upon any single customer or group of customers for sale of
its thermoplastic products. Pricing and terms offered to customers are
generally consistent with those found in the industry.
Manufacturing Facilities
The Company manufactures its thermoplastic products at three
wholly-owned facilities, the largest of which is located in Warsaw,
Indiana. The Company's other thermoplastic sheet manufacturing
facilities are located in Rome, Georgia and Redlands, California. See
"Item 2. Properties."
Raw Materials
The principal raw materials used by the Company in the
manufacture of thermoplastic sheet, injection molding resins, color
concentrates and extruded profiles are acrylonitrile butadiene styrene
("ABS") resins and polyethylene, polypropylene and polyvinylchloride
("PVC") resins and alloys of such resins. The Company has no long-term
purchasing agreements with any suppliers for such raw materials, other
than GE Plastics (a division of General Electric Company) from which
the Company acquires a substantial portion of its ABS resins. The
Company purchases PVC resins and other raw materials from a variety of
domestic and international suppliers. These products are all currently
readily available from a variety of suppliers.
The Company recycles scraps of thermoplastic material that
result from customers' forming sheet for their specific applications
for use in the manufacture of new sheet. Recycled material is generally
used by the Company to replace the raw materials that would otherwise
be required to manufacture specialized and general purpose
thermoplastic sheet. Recycled material is purchased from customers and
brokers and is significantly less expensive than new raw materials.
The Polycast Division - Acrylic Products
General
The Polycast Division manufactures high performance acrylic
sheet, rods and tubes which are sold principally to custom fabricators
and original equipment manufacturers, who heat and form the Polycast
product into shapes for specific applications, such as aircraft window
units, furniture components and orthopedic braces. The Division's
acrylic products have a unique combination of physical properties and
performance characteristics which are required by the manufacturers who
use them as a component of their products. For example, they weigh
considerably less than, but are superior in clarity and impact
resistance to, glass. They are thermoformable, remain stable under
sustained exposure to the elements and can be processed to transmit or
filter ultraviolet light, depending on customer requirements.
The Company manufactures acrylic sheet for three markets - the
aerospace market, which includes the commercial and military aerospace
industries, in which the Division's products are used for such
applications as aircraft cockpit canopies and cabin windows and
helicopter windshields; the specialty acrylic sheet market, which
includes a variety of niche markets in which the Division's products
are used in the manufacture of boat windshields, bullet-resistant
security enclosures for banks, convenience stores and other businesses,
basketball backboards, hockey rink protective barriers, furniture, sun
tanning beds, aquariums and atriums; and the general purpose market for
acrylic sheet, in which general purpose acrylic sheet is used for such
applications as store displays and signage, where specific performance
characteristics are not required. The Division's acrylic rods and tubes
are used for a variety of applications, including the manufacture of
lighting fixtures, furniture, medical instruments, orthopedic devices,
such as orthopedic braces, and lens materials used to replace defective
lenses of the eye in cataract surgery and certain types of hard contact
lenses.
The Polycast Division manufactures its acrylic products
through cell cast manufacturing, a process which enables it to
customize the performance characteristics of its acrylic aerospace
sheet, specialized sheet and rods and tubes, to meet the exact
specifications of its customers and to offer its products with a
broader range of physical characteristics than generally can be
achieved through other manufacturing processes, such as continuous
cast, extrusion and calender processes. For example, the Polycast
Division's scientific staff have used the cell cast process to develop
a specialized sheet which transmits rather than filters ultraviolet
rays for use in sun tanning beds and an aerospace sheet with
consistently high optical quality and exact color shading for use in
constructing aerospace transparencies such as aircraft and helicopter
window products. The Division can manufacture acrylic products in more
than 60 colors and acrylic sheet in widths ranging from 0.030 to 6.00
inches. Acrylic sheet manufactured by the cell cast process, which is
more labor intensive than continuous cast, extrusion or calender
processes, generally yields higher margins than acrylic sheet produced
by such other processes.
The Division markets its aerospace acrylic sheet in the
military and commercial aerospace industries, which require products
meeting precise specifications. The Division is one of a few acrylic
manufacturers in the United States qualified to produce acrylic sheet
meeting military manufacturing standards, specifications and
requirements ("MILSPEC"), a designation made by the U.S. Navy's Naval
Air Development Center which is a prerequisite for supplying the
military aerospace industry. The Division and the Predecessor Companies
have maintained this qualification since 1976. The Division's aerospace
acrylic sheet is also qualified by several commercial aerospace
manufacturers, including McDonnell-Douglas Corporation, Boeing Company,
Sikorsky Aircraft Corporation and Bell-Helicopter,Textron, Inc., which
include a supplier's products on their "qualified product lists" only
after such products have met MILSPEC requirements and passed the
manufacturer's additional and more stringent testing and approval
procedures. Any failure of the Division's aerospace acrylic products to
continue to meet required specifications under which they are provided
to an aerospace manufacturer could have a material adverse effect on
the Division.
The Division sells its specialty acrylic sheet in a wide
variety of niche markets, including to manufacturers of boat
windshields, bullet resistant enclosures and protective barriers for
athletic facilities, furniture and sun tanning beds and aquariums and
atriums. The Division markets its acrylic products to such industries
through customization of the performance and physical characteristics
of its specialty sheet to meet customer specifications.
Competition
The Division faces continuing competition from North American
producers and from certain foreign producers, particularly from Asian
and South American countries. Many of these competitors have greater
resources than the Company. These competitors primarily produce
standard sizes of general purpose acrylic sheet by continuous cast,
extrusion or calender processes. The Division concentrates on the
production of aerospace and specialty acrylic sheet, which in certain
cases has unique characteristics that cannot be obtained by such other
manufacturing processes. Net sales of aerospace and specialty acrylic
sheet accounted for approximately 63 percent (63%) of total net sales
by the Polycast Division.
The Company believes that the Division has a significant share
of the niche markets in which it sells its aerospace and specialty
acrylic sheet. See "- Polycast Division - General." The Division's
principal competitors in the specialty acrylic sheet market are ICI
Acrylics, Inc., a subsidiary of Imperial Chemicals Industries plc
("ICI"), AtoHaas Americas Inc. ("AtoHaas"), Cyro Industries, a division
of Cytec Industries, Inc. ("Cyro"), and Nordam, Inc. ("Nordam"). The
Division's principal competitors in the acrylic aerospace sheet market
are Swedlow, Inc., a subsidiary of Pilkington plc ("Pilkington"), Rohm
Darmstadt GmbH, and Cyro.
In order to compete with vertically integrated companies in
the aerospace acrylic sheet market, such as Pilkington and Nordam,
which manufacture such sheet as well as form it into finished aircraft
window products for sale to commercial aircraft manufacturers, the
Division entered into an agreement in 1995 with PPG Industries, Inc.
("PPG"), pursuant to which an affiliate of PPG in Italy uses acrylic
window blanks constructed of Polycast(R) aerospace acrylic sheet to
manufacture finished aircraft window systems for sale to the commercial
aerospace market. The Polycast(R) acrylic sheet is stretched to form
window blanks by Aerospace Composite Technologies Limited ("ACT") in
England pursuant to an agreement with the Company and then sold to PPG.
The purchase price paid by PPG for the acrylic blanks is based, in
part, on PPG's profits from sales of aircraft windows incorporating
such blanks. Both the agreement with PPG and the agreement with ACT
expire in 1998 but may be renewed for successive 12-month periods.
In the acrylic rod and tube market, the Division's competitors
are various small companies that typically produce only these products.
ICI, Cyro, and AtoHaas, which are North American producers of
acrylic sheet, also produce methyl methacrylate monomer ("MMA"), the
principal raw material used in the manufacture of acrylic sheet, rods
and tubes, or certain of the components thereof, making it possible for
them to absorb increases in the cost of MMA, and buy in large
quantities, thereby availing themselves of volume discounts not
available to the Division. Since the Company does not itself produce
MMA, the Polycast Division is unable to compete with the low prices
charged by these companies for general purpose acrylic sheet. See "-
Polycast Division - Raw Materials."
Marketing
The Polycast Division's acrylic products are marketed under
the POLYCAST(R) brand name. Acrylic products with special performance
characteristics are also marketed under individual brand names, such as
PILOTS' CHOICE(TM) (aerospace sheet with high optical quality) for
helicopter windshields, SOLACRYL(R) (specialty sheet which transmits
ultraviolet rays) for sun tanning beds and POLYDOR(R) (thermoformable
sheet) used for orthopedic products. The Company's acrylic rods and
tubes are also marketed under the GLASFLEX(TM) brand name.
The Division markets its acrylic sheets, rods and tubes
primarily through five sales representatives, who are employees of the
Division, and through wholesale distributors.
Representative domestic customers of the Polycast Division and
representative end users of its acrylic products include Beech Aircraft
Corp., Bell-Helicopter Textron, Inc., Boeing Company, Cadillac Plastic
& Chemical Co., The Cessna Aircraft Company, Chris-Craft Industries,
Inc., Llamas Plastics, Inc, Commercial Plastics and Supply Corp., Laird
Plastics, Inc., Sensormatic Electronics Corporation, Sierracin/Sylmar
Corporation, Sikorsky Aircraft Corporation, Texstar Inc., Thunderbird
Products Corp. and Wellcraft Marine. Representative foreign customers
and end users include Augusta Helicopters and Embraer. The Company is
not dependent upon a single customer or group of customers for sales of
its acrylic products.
Manufacturing Facilities
The Division manufactures acrylic sheet at its facility in
Stamford, Connecticut and finishes and further processes acrylic sheet
for certain applications at its facility in Hackensack, New Jersey,
which also serves as the principal warehouse for acrylic sheet
products. Acrylic sheet is also manufactured, along with acrylic rods
and tubes, at the Division's facility in Stirling, New Jersey. The
Company owns all three of these facilities. The Division leases office
space used for its division headquarters adjacent to its Stamford,
Connecticut manufacturing facility. See "Item 2. Properties."
Raw Materials
Since October 1, 1991, all of the Division's requirements of
MMA have been purchased from ICI or its predecessor owner of the
monomer business, E.I. duPont de Nemours & Co., pursuant to a supply
agreement which obligates the Division to purchase from ICI and ICI to
supply the Division with its requirements for MMA on a year-to-year
basis, subject to termination by either party upon one year's advance
notice. Under the supply agreement, the Division is entitled to
purchase MMA from other suppliers who offer the product at prices lower
than those ICI is willing to match. In addition, the supply agreement
requires that any party that acquires all or substantially all of ICI's
assets used to manufacture MMA assume the obligations of ICI under the
agreement and further requires that any party that acquires all or
substantially all of the Company's assets used to manufacture its
acrylic sheet, rods and tubes assume the obligations of the Division
under the agreement.
In the event that ICI elects to terminate the supply
agreement, the Company believes that the Division could obtain MMA from
one or more alternate sources. However, each of the two major alternate
domestic manufacturers and certain other major alternate foreign
manufacturers of MMA compete (as does ICI) with the Division in the
manufacture and sale of acrylic sheet. Thus, there can be no assurance
that the Division would be able to obtain MMA from these alternate
sources at satisfactory prices, on a reliable basis or on terms
otherwise satisfactory to the Division.
Coated Fabrics Segment
The Company's Coated Fabrics Segment, which accounted for
approximately $58.7 million (28 percent (28%)) of the Company's net
sales for Fiscal 1996, is a leading manufacturer of vinyl coated
fabrics and vinyl laminated composites. The segment's product lines
consist of products for the automobile manufacturing industry, which
accounted for 56 percent (56%) of total net sales for Fiscal 1996, and
the well known Naugahyde(R) brand name vinyl coated fabric products,
which accounted for 44 percent (44%) of total net sales for such fiscal
year.
General
The segment's automotive product line consists of plastic
vinyl coated fabrics and vinyl laminated composites used by
manufacturers and custom fabricators in the production of vehicle seat
coverings, door panels, arm rests, consoles and instrument panels. Its
coated fabrics are durable, stain resistant, cost-effective
alternatives to leather and cloth coverings. The segment's vinyl
laminated composites are durable, easily formed, economical
alternatives to fabric coverings used for applications such as
automobile instrument and door panels. The materials manufactured by
the segment can be hand or machine sewn or glued to an underlying
structure, such as a seat frame or automobile door panel, or
thermoformed to cover various underlying structures or into
freestanding shapes for a variety of applications, and come in a wide
range of colors and textures. The Company has determined to exit the
Port Clinton, Ohio operation of this Segment. The operation consists of
the vinyl laminated composite line. See "- Corporate Developments -
Disposition of Port Clinton, Ohio Automotive Operation" and "Note 15 to
Financial Statements."
The segment's Naugahyde(R) vinyl coated fabrics products have
varying performance characteristics and are sold in markets depending
upon the performance characteristics required by end users. For
example, for recreational products which are used outdoors, such as
boats, personal watercraft, golf carts and snowmobiles, the segment
sells a Naugahyde(R) product that is designed primarily for
weatherability. It also manufactures Naugahyde(R) products that can
withstand powerful cleaning agents, which are widely used in hospitals
and in other medical facilities. Flame and smoke retardant Naugahyde(R)
vinyl coated fabrics are used for a variety of commercial and
institutional furniture applications, including hospital furniture and
school bus seats. In Fiscal 1996, the segment employed a designer to
commence development of additional styles and patterns for its
Naugahyde(R) products in order to respond to changing needs of its
customers. See "Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Comparison of Fiscal
1996 with Fiscal 1995."
The segment is one of the few manufacturers that can produce
coated fabrics through composite, continuous cast and calender
manufacturing processes. These processes allow it to produce coated
fabrics and laminated composites with different characteristics:
composite manufacturing produces a material which is light in weight
with sharply defined borders; the continuous cast method produces a
material with a soft finish, deep grain pattern and a wide temperature
range and high malleability factors for thermoforming; and calender
manufacturing produces a material with less of a soft finish but which
can be manufactured economically in high volume.
The segment has three state-of-the-art production lines which
produce coated fabrics and laminated composites in more than 450 colors
and 25 textures and patterns. However, one of such lines was installed
to penetrate the market for the application of coatings for the
automobile air bag market, which the segment subsequently decided to
exit in Fiscal 1996. Such line continues idle at this time. Management
is currently evaluating alternate uses for such line.
The segment's automotive products are marketed to domestic
automobile manufacturers as well as to foreign automobile manufacturers
producing vehicles in the United States ("transplant manufacturers").
The coated fabrics and laminated composites which comprise this line
are designed to meet the performance specifications set by automobile
manufacturers such as crisp lines or soft finishes of interior
components or the ability to thermoform the products into specific
applications. In Fiscal 1995, the segment introduced a new series of
coated fabrics products in response to performance specifications of
General Motors Corporation ("GM") for a coated fabric with limited
propensity to lose cohesion upon exposure to heat and that would meet
processability requirements but would also be lighter in weight and
softer to the touch. Such products had been in development since 1992
and in Fiscal 1995 represented a nominal amount of the segment's sales.
In Fiscal 1996, sales of such products to GM accounted for
approximately $6.0 million in net sales. The products are currently
being provided to GM for use in several of its automobile models. See
"-Corporate Developments- Introduction of New Coated Fabrics Product."
In order to supply coated fabrics and laminated composites to
the domestic automotive market, a supplier must first satisfy extensive
product standards and specifications established by the manufacturer.
The segment and the Predecessor Companies have had products that
satisfied the standards of domestic automobile manufacturers for many
years. In fact, the Company and its predecessors have supplied coated
fabrics to GM for more than 30 years. As a result of the introduction
of its new series of coated fabrics products, sales to GM increased
substantially in Fiscal 1996. Although this segment has not had
significant sales to other domestic automobile manufacturers in Fiscal
1996, the Company believes that an opportunity for significant
expansion exists in the domestic automotive market for such product
line for use in seat upholstery trim, door panels and other interior
vinyl covered components for trucks and automobiles.
Similar to the domestic automotive market, a supplier must
first satisfy extensive quality and manufacturing specifications in
order to supply coated fabrics and laminated composites to transplant
manufacturers. The segment has satisfied these standards of Honda
America Manufacturing, Inc. ("Honda") with respect to seat covers and
laminated composite door and instrument panels and for Mazda Motor
Corporation with respect to seat covers and door panels. The Company
believes that transplant manufacturers represent a growing market for
its coated fabrics and laminated composites.
Pursuant to a technical collaboration agreement entered into
with Okamoto Industries, Inc. ("Okamoto"), a Japanese manufacturer of
coated fabrics products, the segment holds an exclusive license to use
Okamoto's advanced technology for the manufacture of certain coated
fabrics in the United States and Canada until 2003. This arrangement
has provided the segment with the capability to manufacture materials
using the composite production process, and has allowed it to supply
product to transplant manufacturers such as Honda. The Company is
required to pay Okamoto a royalty on net sales of products under the
agreement.
The coated fabrics and laminated composites market for the
automobile manufacturing industry is characterized by long lead times
for new products requiring significant working capital investment and
extensive testing, qualification and approval by automobile
manufacturers. The segment faces a significant risk that automobile
manufacturers might not select its new products after it has incurred
significant cost for, among other things, research and development,
manufacturing equipment, training and facility-related overhead
expenses to develop such products. Moreover, even if the segment's
products are eventually approved and purchased by automobile
manufacturers, its working capital investment might fail to generate
revenues for several years while the segment develops such products and
automobile manufacturers conduct their testing, qualification and
approval procedures for such products. For example, in 1992 the segment
incurred significant costs for research and development, equipment and
facility costs to develop a new series of coated fabric products but
sales of such products were nominal or nonexistent until Fiscal 1996
when GM began purchasing significant quantities of the product for use
in several automobile models, resulting in sales of approximately $6.0
million in such fiscal year. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations- Comparison
of Fiscal 1996 with Fiscal 1995."
Competition
The Coated Fabrics Segment competes in the domestic and
transplant automotive markets for coated fabrics and laminated
composites primarily on the basis of price. In the case of unique
product lines developed by the segment, such as the new product series
discussed above, the segment competes on the basis of the performance
characteristics of its products. In the domestic and transplant
automotive markets, the segment generally sells its coated fabrics and
laminated composites directly to automobile manufacturers and to custom
fabricators, who use the segment's coated fabrics and laminated
composites to make finished products, such as seats and door panels,
which are then sold to automobile manufacturers.
The segment competes with respect to its Naugahyde(R) products
primarily on the basis of style, color and quality, as well as price
and customer service through technical support and performance
characteristics which meet customer needs. In Fiscal 1996, it employed
a designer to commence development of additional styles and patterns in
order to respond to changing needs of end-users of Naugahyde(R)
products. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Comparison of Fiscal
1996 with Fiscal 1995."
The segment's principal competitors in the domestic automotive
markets are Canadian General Tower, Ltd. and Sandusky Vinyl Products
Corporation, and its principal competitors in the transplant automotive
markets are O'Sullivan Industries Corp. and foreign importers. Its
principal competitors with respect to its Naugahyde(R) products are
C.G. Spradling & Company, GenCorp Inc. and Morbern Inc.
Marketing
The segment's coated fabrics products were introduced by one
of its predecessors more than 45 years ago and today are marketed under
several nationally recognized brand names, including NAUGAHYDE(R),
NAUGAFORM(R) and DURAN(R). BEAUTYGARD(R) is the name under which the
segment markets its cleaning agent-resistant coated fabrics, and its
flame and smoke retardant coated fabrics are marketed under the brand
name FLAME BLOCKER(TM).
The segment markets and sells its coated fabrics and laminated
composites primarily through 12 national sales representatives, who are
employees of the Company, and independent sales representatives. In the
furniture manufacturing market, it generally sells its coated fabrics
through its sales representatives and to distributors who sell to
furniture manufacturers, upholsterers and fabric distributors, which
supply furniture manufacturers. Approximately 50 percent (50%) of the
segment's non-automotive market sales in Fiscal 1996 were to
distributors.
Representative customers and end users of the segment's coated
fabrics and laminated composites include Becker Group, Inc.,
Bombardier, Inc., Club Car, Inc., GM, Honda, Kawasaki Heavy Industries,
Inc., Harley-Davidson, Inc., Mazda Motors of America, Inc., Michigan
Seat Co., Okamoto USA, Inc., Polaris Industries, Inc., Shelby Williams
Industries, Inc., TS Trim, Inc. and United Technologies Automotive
Division.
Manufacturing Facilities
The segment manufactures its coated fabrics at facilities
located in Stoughton, Wisconsin and Port Clinton, Ohio. Both of these
facilities are owned by the Company. The segment also leases offices in
Troy, Michigan for its sales representatives serving the automotive
industry and in Sarasota, Florida for customer service representatives
of its Naugahyde(R) product line. See "Item 2. Properties."
Raw Materials
The principal raw materials for the segment's coated fabrics
are casting paper, knit fabric, polyolefin foam, PVC plastic resins and
plasticizers. The segment generally has multiple sources for casting
paper, knit fabric and plasticizers. Although it obtains PVC plastic
resins from several domestic and foreign suppliers, a substantial
portion of its requirements of PVC plastic resins are purchased from
The Goodyear Tire and Rubber Company ("Goodyear"). In 1996, Goodyear
announced that commencing in early 1997 it would cease the manufacture
and sale of PVC plastic resins. The segment has identified alternative
sources of such materials and incurred costs of approximately $300,000
in Fiscal 1996 in connection with the reformulation of its current
products to use such substitute resins in order to meet its customers'
specifications. Although several of the Coated Fabrics Segment's
customers have approved, for certain applications, such reformulation
of the PVC plastic resins which the segment uses to manufacture its
coated fabrics products, many of its customers, including GM, have not
approved such reformulation as to all applications. The Company does
not believe it will be adversely impacted in the future by Goodyear's
decision to cease selling PVC plastic resins, since it expects that all
PVC resin reformulations will be approved prior to such cessation or
shortly thereafter.
The segment purchases polyolefin foam from Toray Industries,
Inc. which currently is the only supplier of polyolefin foam approved
by end users of the segment's foam-based products. Although the Company
believes that polyolefin foam would be available from alternative
suppliers, if polyolefin foam from Toray Industries, Inc. were to
become unavailable, production of the segment's coated fabrics and
laminated composites could be affected, because the segment would have
to obtain approval from its customers of product using polyolefin foam
purchased from alternative suppliers. The segment is currently in the
process of seeking such approvals from its most significant customers
with respect to alternative suppliers of polyolefin foam. The Company
does not expect that the segment will have to incur significant costs
to obtain such approval.
Specialty Adhesives Segment
The Company's Specialty Adhesives Segment accounted for
approximately $35.5 million (17 percent (17%)) of the Company's total
net sales for Fiscal 1996. Approximately $17.2 million of this amount
was attributable to net sales of Ensolite products. See "Note 3 to
Financial Statements" and "Corporate Developments - Ensolite Sale."
General
The Specialty Adhesives Segment (formerly, the Specialty Foam
and Adhesives Segment) is composed of two general product lines:
roofing adhesives and sealants and industrial adhesives and sealants.
The segment is one of the leading manufacturers of liquid adhesives and
sealants for the commercial EPDM rubber roofing market. The segment's
adhesives for this market, known as "splice adhesives" and "bonding
adhesives," are used to splice rubber roofing sheets and to bond them
to the underlying structure. They have the ability to withstand the
stress of extensive thermal expansion and contraction. The Company
believes that its patented splice adhesive is the best selling splice
adhesive in the EPDM rubber roofing market. In Fiscal 1996, sales of
splice adhesives represented 27 percent (27%) of the total net sales of
the segment's adhesives and sealants. In addition, the segment
manufactures more than 200 industrial adhesives and sealants in brush,
roll and spray-on form which are used in a number of different
industries such as furniture manufacturing, truck trailer and
recreational vehicle manufacturing, and foam and plastic fabrication.
The Company's strategy for the development of this segment is
to add to its existing product lines of industrial adhesives and
sealants through acquisition and/or development of new products which
satisfy unfulfilled market needs. For example, in Fiscal 1996 the
segment commenced sales of water-based adhesives which it expects will
become an increasingly more significant part of its business as
environmental and worker health and safety requirements become more
stringent. See "- Research and Development."
The segment sells splice and bonding adhesives for the EPDM
rubber roofing market exclusively to Firestone Building Products
Company, a division of Bridgestone/Firestone, Inc. ("Firestone"),
pursuant to a five-year contract which was entered into in Fiscal 1995
and expires on February 20, 2000 (the "Firestone Agreement"). Under the
terms of the Firestone Agreement, Firestone is obligated to purchase
from the segment a minimum of 80 percent (80%) of its annual volume
requirements of the splice and bonding adhesives for the EPDM rubber
roofing market. In Fiscal 1996, 1995 and 1994, Firestone purchased 83
percent (83%), 69 percent (69%) and 63 percent (63%), respectively, of
the Company's total net sales of adhesives and sealants for such
periods. Sales to Firestone during the fiscal year ended September
29,1996 represented seven percent (7%) of the Company's net sales for
such fiscal year. The loss of Firestone as a customer would have an
adverse effect on the Company's Specialty Adhesives Segment. Firestone
will acquire the Company's patent for splice adhesive upon expiration
of the Firestone Agreement. See "-Trademarks and Patents."
This segment also manufactured and sold closed cell foam
products until June 10, 1996, when the Company sold substantially all
of the segment's assets relating to the manufacture of foam products to
Rubatex for $25.0 million (the "Ensolite Sale"). See "- Corporate
Developments - The Ensolite Sale." The segment's closed cell foam
products were marketed under the brand name ENSOLITE(R), a registered
trademark which was transferred to Rubatex.
Competition
Pursuant to the exclusivity terms of the Firestone Agreement,
the Company does not compete with respect to its roofing adhesives and
sealants. As to its industrial adhesives and sealants, the Company
competes principally on the basis of price and the performance
characteristics of its products.
The segment's principal competitors in the adhesives and
sealants market for EPDM rubber roofing applications are Ashland
Chemical Company, Adco Technologies, Inc. and TACC International Corp.
In addition, Carlisle Syntec Systems, supplies these adhesives
primarily for its own single-ply roofing system and consequently
competes indirectly with the segment. In the industrial adhesives and
sealants markets, the segment's primary competitors include Sika Corp.,
Imperial Adhesives, Inc. and Minnesota Mining and Manufacturing
Company.
Marketing
The segment's industrial adhesives and sealants are marketed
under the brand name SILAPRENE(R). Its water-based adhesives are also
marketed under the brand name Hydra Fast-En(TM). The segment's
SILAPRENE(R) products have established name recognition in, and hold a
significant share of the recreational vehicle and truck trailer
manufacturing markets. Hydra Fast-En(TM) adhesives, sales of which
commenced in Fiscal 1996, are beginning to establish market share in
the foam and plastic fabrication markets.
The segment's roofing adhesives and sealants are marketed
under Firestone's private brand names. The Company indirectly controls
a significant share of the splice adhesives and bond adhesives market
through Firestone, which continues to control significant market share
in the EPDM rubber roofing market.
The segment markets its industrial adhesives and sealants
primarily to manufacturers through a network of 50 authorized
distributors and ten sales representatives who are employees of the
segment, located throughout the United States and Canada. Pursuant to
its obligation under the Firestone Agreement, the segment does not
market its splice and bonding adhesives for the EPDM rubber roofing
market.
The segment's roofing adhesives business is seasonal,
increasing in the warmer months of the year due to an increase in
roofing and other construction activities in such months, and is
sensitive to adverse weather conditions. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations Comparison of Fiscal 1996 with Fiscal 1995."
Manufacturing Facilities
The segment manufactures specialty foam products and adhesives
and sealants at its manufacturing facility in Mishawaka, Indiana, which
is leased from Uniroyal Plastics Company, Inc., a company related to
the Predecessor Companies. See "- History of Company." The term of the
current lease expires on January 31, 1997 with options to extend the
lease for two six-month periods. See "Item 2. Properties" and "-
Business Corporate Developments - Acquisition of South Bend Facility."
On July 17, 1996, the Company acquired a manufacturing
facility in South Bend, Indiana, consisting of approximately 240,000
square feet for $1.8 million. The new facility will house the Company's
adhesives and sealants product lines as well as certain other Company
operations, including the headquarters of the Royalite segment. The
Company expects to move these operations to the South Bend, Indiana
facility from the existing leased facility in Mishawaka, Indiana during
the first six months of Fiscal 1997. See "- Corporate Developments -
Acquisition of South Bend Facility."
Raw Materials
The Division's adhesives and sealants use a variety of raw
materials such as rubber, resins and solvents, which are generally
available from multiple sources. The Division's principal suppliers of
such raw materials and containers include E.I. duPont de Nemours & Co.,
Unocal Chemicals, a division of Unocal Corp. and Cleveland Steel
Container Corp. The Company believes that adequate supplies of raw
materials for its adhesives and sealants will be available to the
Division from alternate suppliers. However, if the Division is required
to use alternate suppliers, production could be affected while the raw
materials produced by such alternate suppliers are qualified by the
Division to meet the product specifications of its customers.
Employees
The Company has approximately 1,285 employees, including
approximately 845 hourly wage employees and 440 salaried employees. The
Company believes that at the present time its workforce is adequate to
conduct its business and that its relations with employees are
generally satisfactory.
The Company is a party to a number of collective bargaining
agreements. Approximately 130 hourly wage employees of the Company's
acrylic sheet manufacturing facility located in Stamford, Connecticut
are covered by an agreement expiring on March 31, 2000 with Teamsters
Local 191, which is affiliated with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America (the
"Teamsters"). Approximately 33 employees at the Company's Hackensack,
New Jersey acrylic sheet manufacturing and warehouse facility are
covered by an agreement expiring on February 3, 2002 with the
Amalgamated Clothing & Textile Workers Union of America (AFL-CIO). At
the Company's coated fabrics manufacturing facility located in
Stoughton, Wisconsin, another 160 hourly employees of the Company are
covered by an agreement expiring on September 17, 2001 with Local 1207
of the United Paperworkers International Union. Separate agreements
expiring on April 20, 1999 with the United Steel Workers of America,
United Rubber Workers Division (the "USWA") cover approximately 140
hourly wage employees at the Company's adhesives and sealants
manufacturing facility located in Mishawaka, Indiana, and approximately
120 employees at the coated fabrics and laminated composites
manufacturing facility located in Port Clinton, Ohio.
On July 20, 1995 the National Labor Relations Board certified
the United Paperworkers International Union as the exclusive collective
bargaining representative for the hourly wage employees at the
Company's thermoplastic products plant in Warsaw, Indiana. The Company
challenged the election which led to such certification and,
accordingly, did not recognize the union. On October 24, 1996, the
United States Court of Appeals for the Seventh Circuit denied the
Company's appeal. The Company has since recognized the union and
intends to negotiate a collective bargaining agreement with it.
Richard D. Kimbel, the former President of USWA Local 65
(Mishawaka), is a member of the Company's Board of Directors. See "Item
10. Directors and Executive Officers of the Registrant."
Trademarks and Patents
The Company owns and controls patents, trade secrets,
trademarks, trade names, copyrights and confidential information, which
in the aggregate are material to its business. The Company is not
materially dependent, however, upon any single patent or trademark. The
Company has several trademarks that have wide recognition and are
valuable to its business. Among the trademarks that are of material
importance to the Company are NAUGAHYDE(R), NAUGAFORM(R), DURAN(R),
ROYALITE(R), PILOTS' CHOICE(TM), POLYCAST(R) and SILAPRENE(R). The
Company's trademarks are registered in the United States and in a
number of foreign jurisdictions with terms of registration expiring
generally between 1996 and 2004. No trademark registration of material
importance to the Company expired during Fiscal 1996. The Company
intends to renew in a timely manner all those trademarks that are
required for the conduct of its business.
The Company also holds more than 40 patents and pending
patents worldwide. While in the past the Company considered the patent
on its splice adhesives technology to be the most important patent
owned by it, its value has since been determined by management to have
eroded significantly due to the relatively short remaining life of the
patent, the consolidation of the EPDM rubber roofing market and the
development of competitive products. Consequently, in 1995, the Company
entered into the Firestone Agreement pursuant to which the Company will
transfer ownership of this patent to Firestone on February 20, 2000.
The Company's splice adhesive patent expires on July 28, 2003. The loss
of such patent would not have a material adverse effect on the
Company's Adhesives Segment unless such loss were to affect the ability
of the Company to perform under the Firestone Agreement. See "-
Business Segments - Specialty Adhesives."
The Company uses the trade name and trademark "Uniroyal"
pursuant to a license from Uniroyal Goodrich Licensing Services, Inc.
Research and Development
The Company is actively engaged in research and development
programs designed to develop new products, manufacturing processes,
systems and technologies and to enhance its existing products and
processes. Research and development is conducted within each business
segment of the Company. Investment in research and development has been
an important factor in establishing and maintaining the Company's
competitive position in many of the specialized niche markets in which
its products are marketed. For example, the Company's research and
development efforts have led to the development of water-based
adhesives (see "-Business Segments - Specialty Adhesives"), bullet
resistant acrylic sheet, acrylic sheet for use in commercial aquariums
(see "- Business Segments - High Performance Plastics - Polycast
Division") and the new coated fabrics product line (see "Business
Segments - Coated Fabrics"). The Company spent approximately $4.9
million for research and development during Fiscal 1996 compared to
approximately $4.7 million during Fiscal 1995.
The Company currently employs a staff of approximately 30
individuals in connection with its research and development efforts.
The individuals include chemists, process development engineers and
laboratory technicians and are responsible for new product development
and improvement of production processes. The allocation of research and
development staff among the Company's business segments is as follows:
seven at High Performance Plastics, 14 at Coated Fabrics and nine at
Specialty Adhesives.
Backlog
At September 29, 1996, the Company had backlog orders
aggregating approximately $22.7 million, as compared to approximately
$25.6 million as of October 1, 1995. Management presently anticipates
that all backlog orders will be filled within the next 12 months.
Backlog orders for each of the Company's business segments were as
follows as of the indicated dates:
September 29, 1996 October 1, 1995
------------------ -----------------
(in thousands)
High Performance Plastics $ 13,727 $ 15,059
Coated Fabrics 4,784 4,360
Specialty Adhesives 4,222 6,144(1)
-------- ---------
Total $ 22,733 $ 25,563
======== =========
(1) This amount includes $2.8 million in backlog orders for Ensolite
products.
Working Capital Items
Many of the markets in which the Company competes, the
aerospace acrylic sheet market and the coated fabric and laminated
composite markets for the automobile manufacturing industry, are
characterized by long lead times for new products requiring significant
working capital investment by the Company and extensive testing,
qualification and approval by the Company's customers and end users of
its products. The Company faces a significant risk that customers and
end users in such markets may not select the Company's new products
after it has incurred significant costs for, among other things,
research and development, manufacturing equipment, training and
facility-related overhead expenses to develop such products.
Moreover, even if the Company's products are eventually
approved and purchased by customers and end users in such markets, the
working capital investment made by the Company could fail to generate
revenues for several years while the Company develops such products and
its customers and end users conduct their testing, qualification and
approval procedures for such products. For example, in 1992 through
Fiscal 1995 the Company's Coated Fabrics Segment incurred significant
costs for research and development, equipment and facility costs to
develop a new series of coated fabrics products in response to GM's
performance specifications for a coated fabrics product that would be
lighter in weight and with a softer finish but that would not be
affected by exposure to heat. See "- Business Segments - Coated
Fabrics." Sales of such products were nominal or nonexistent until
Fiscal 1996, when GM approved the products for use in several
automobile models, resulting in sales of approximately $6.0 million in
such fiscal year. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Comparison of Fiscal
1996 with Fiscal 1995." Although the Company believes that cash from
its operations and its ability to borrow under its revolving credit
agreement (see " - Corporate Developments - Revolving Credit Agreement"
and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources")
will provide it sufficient liquidity to finance its efforts to develop
new products, there can be no assurance that the Company's operations
together with amounts available under its revolving credit agreement
will be sufficient to finance such development efforts and to meet the
Company's other obligations.
Environmental Matters
The Company is subject to federal, state and local laws and
regulations designed to protect the environment and worker health and
safety. The Company's management emphasizes compliance with such laws
and regulations and has instituted programs throughout the Company to
provide education and training in compliance at and auditing of all
Company facilities. Whenever required under applicable law, the Company
has implemented product or process changes or invested in pollution
control systems to ensure compliance with such laws and regulations.
Such investments may in the future provide financial returns to the
Company as a result of increased efficiencies or product improvements.
In Fiscal 1996, 1995 and 1994, the amount of capital
expenditures related to environmental matters was immaterial and the
amount of such expenditures is expected to be immaterial in Fiscal
1997. In the future, as the requirements of applicable law impose more
stringent controls at Company facilities, expenditures related to
environmental and worker health and safety are expected to increase.
While the Company does not currently anticipate having to make any
material capital expenditures in order to comply with these laws and
regulations, if the Company is required to do so, such expenditures
could have a material impact on its earnings or competitive position in
the future.
In connection with its acquisition of a manufacturing facility in South
Bend, Indiana on July 17, 1996, the Company assumed the costs of
remediation of soil and groundwater contamination resulting from the
leaking of solvents used in the operation of the plant by its former
owner. The Company is conducting the remediation voluntarily pursuant
to an agreement with the Indiana Department of Environmental
Management. The Company estimates that such remediation will cost
approximately $1.0 million over a five-to-seven-year period. In
connection with its acquisition of the facility, the Company placed in
escrow in accordance with the terms of the purchase agreement $1.0
million of the $1.8 million purchase price to be applied to such
remediation costs. See "-Corporate Developments - Acquisition of South
Bend Facility."
The Company established a $610,000 reserve for environmental
remediation costs related to its Mishawaka, Indiana facility. The
Company intends to exit from the Mishawaka, Indiana facility to its
South Bend, Indiana facility during the first six months of Fiscal
1997. While the Company estimates the cost of such environmental
remediation will be approximately $610,000, the ultimate cost will
depend on the extent of contamination discovered following the
relocation process. The Company expects the environmental remediation
to be substantially completed within one year. The Indiana Department
of Environmental Management ("IDEM") has conducted tests of the soil
and water at the facility in response to requests from local government
officials. According to press accounts, IDEM has found low levels of
polychlorinated biphenyls (PCBs) in soil samples and ground water
contamination. The Company believes that further testing might be
necessary to determine the extent of contamination and that there might
then need to be an allocation of any liability between the Company and
UPC (see "- History of the Company ` Predecessor Companies"), since the
Company's operations at the Mishawaka, Indiana facility do not employ
PCBs.
Pursuant to a 1992 settlement agreement with the United States
Environmental Protection Agency (the "EPA"), the United States
Department of the Interior and the States of Wisconsin and Indiana (the
"EPA Settlement Agreement") entered into in connection with the Plan of
Reorganization of the Predecessor Companies (see "History of Company -
Predecessor Companies"), the Predecessor Companies compromised and
settled (in exchange for Common Stock of the Company) substantially all
of their prepetition liabilities relating to disposal activities under
Sections 106 and 107 of the Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation & Recovery Act ("RCRA") and similar state laws for the
cleanup of 20 designated sites not owned by any of the Predecessor
Companies (the "Known Sites") and for natural resource damages at 15 of
the 20 Known Sites. Pursuant to the EPA Settlement Agreement, the
United States and the States of Indiana and Wisconsin agreed not to sue
for response costs and, with the exception of five Known Sites, natural
resource damages at each of the Known Sites. In addition, pursuant to
Section 113(f)(2) of CERCLA, and as provided under the Settlement
Agreement, the Predecessor Companies and the Company will be protected
against contribution claims filed by private parties for any Known Site
for matters covered by the EPA Settlement Agreement. The EPA Settlement
Agreement established a mechanism for the Company to resolve its
liability for any other sites (the "Additional Sites"), except those
owned by the Company, arising from prepetition disposal activity. The
Company also agreed to share with such governmental parties the
proceeds of claims relating to the Known Sites made against certain
insurers of the Predecessor Companies and their affiliates.
In the event that the United States, Wisconsin or Indiana
asserts a claim against the Predecessor Companies or the Company for
response costs associated with prepetition 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 prepetition
disposal activities, the Company or such Predecessor Company may pay
the liability in discounted "plan dollars" (i.e., the value of the
consideration that the party asserting such claim would have received
if the liability were treated as a general unsecured claim under the
Plan of Reorganization). Such payment may be made in cash or in the
Company's stock, or a combination thereof, at the Company's or such
Predecessor Company's option. Claims arising from real property owned
by the Company are not affected by the EPA Settlement Agreement.
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 unit sent any hazardous
materials to the site. The Company does not presently anticipate any
material liability in connection with the site, and in any event, if
the Company is found to have liability in connection with the site,
such liability will be subject to the terms of the EPA Settlement
Agreement. See "- History of Company- Predecessor Companies."
Based upon information available as of September 29, 1996, the
Company believes that the costs of environmental remediation for which
it may be liable have either been adequately reserved for or are
otherwise unlikely to have a material adverse effect on the Company's
operations, cash flows or financial position.
History of Company
Predecessor Companies
The Company's businesses trace their origins to a number of
predecessor companies which eventually were reorganized pursuant to the
Third Amended Plan of Reorganization under the Bankruptcy Code for
Polycast Technology Corporation and Its Affiliated Debtors (as
subsequently modified, the "Plan of Reorganization"). See "- History of
the Company - Reorganization."
The Company's acrylic sheet business originated in the 1960's
in a company known as Polycast Technology Corporation ("Polycast
Technology"), which subsequently changed its name to The Jesup Group,
Inc. ("Jesup"). In 1984, Jesup acquired the business of Shenandoah
Plastics ("Shenandoah"), a company engaged since 1967 in the
manufacture of thermoplastic sheet, and Glasflex Corporation
("Glasflex"), a manufacturer since 1954 of acrylic sheet, rods and
tubes. These businesses eventually became part of what is known today
as the Company's High Performance Plastics Segment.
A substantial portion of the thermoplastic sheet business of
the High Performance Plastics Segment (other than that acquired from
Shenandoah ), as well as the businesses of the Coated Fabrics Segment
and the Specialty Adhesives Segment (formerly the Specialty Foams and
Adhesives Segment), originated in the chemical and plastics operations
of the U.S. Rubber Company (later known as Uniroyal, Inc.
("Uniroyal")), which date from the mid-1940's. These operations were
conducted by segments of Uniroyal until 1985, when Uniroyal Plastics
Company, Inc. ("UPC") was formed by Uniroyal as a wholly-owned
subsidiary to hold these operations. In October 1986, Jesup,
indirectly, through its wholly-owned subsidiary, Uniroyal Plastics
Acquisition Corp. ("UPAC"), acquired UPC from Uniroyal. Following its
acquisition of UPC, Jesup combined the thermoplastic sheet operations
acquired from UPC with its existing thermoplastic sheet and acrylic
sheet, rod and tube businesses in a subsidiary known as Polycast
Technology Corporation ("Old Polycast"). Jesup also transferred what is
now the Coated Fabrics Segment of the Company's business into Uniroyal
Engineered Products, Inc. ("Old UEP") and the adhesives and sealants
business of what is now its Specialty Adhesives Segment into Uniroyal
Adhesives and Sealants Company, Inc. ("Old UAS"). The assets of the
specialty foam business were transferred from UPC to Ensolite, Inc.
("Old Ensolite"). Old Polycast, Old UEP, Old Ensolite and Old UAS are
referred to herein as the "Predecessor Companies." UPC is currently in
bankruptcy liquidation and is an affiliate of the Predecessor
Companies. UPAC's plan of reorganization was substantially implemented
in November 1993.
In October and November 1991, the Predecessor Companies and
one other subsidiary of Jesup filed voluntary bankruptcy petitions with
the United States Bankruptcy Court for the Northern District of
Indiana, South Bend Division (the "Bankruptcy Court") for relief under
Chapter 11 of Title 11 of the United States Code, as amended (the
"Bankruptcy Code").
Reorganization
The Predecessor Companies sought protection under the
Bankruptcy Code primarily as a result of their inability to meet
significant obligations for retiree medical expenses, unfunded pension
obligations and interest on indebtedness incurred in connection with
the acquisition of UPC. Prior to the commencement of the Predecessor
Companies' bankruptcy proceedings (the "Bankruptcy Proceedings") in
Fiscal 1991, these non-operating expenses, combined with the loss of
sales in certain economically depressed markets (particularly the
automobile markets), caused a significant and increasing drain on the
Predecessor Companies' working capital and resulted in certain of the
Predecessor Companies' significantly reducing their operations
(including profitable, but working capital-intensive, operations such
as the Company's application of coatings to fabric for automotive
airbags) and certain capital expenditure programs. The segments most
adversely affected by the decreased working capital condition were the
Coated Fabrics and Specialty Adhesives Segments.
The plan of reorganization of the Predecessor Companieswas
substantially consummated on September 27, 1992. Pursuant to the Plan
of Reorganization, each of the Predecessor Companies transferred
substantially all of its assets to a newly organized subsidiary of the
Company with a name that was substantially identical to the name of its
corresponding Predecessor Company. In exchange, each of these new
subsidiaries, including Polycast Technology Corporation ("Polycast"),
Uniroyal Engineered Products, Inc. ("UEP"), Uniroyal Adhesives and
Sealants Company, Inc. ("UAS") and Ensolite, Inc. ("Ensolite"), agreed
to assume certain of the liabilities of its corresponding Predecessor
Company. In addition, the Company issued, or authorized for issuance,
9,575,000 shares of its Common Stock to holders of allowed unsecured
claims against the Predecessor Companies and 50 shares of Series A
Preferred Stock and 50 shares of Series B Preferred Stock to the
Pension Benefit Guaranty Corporation (the "PBGC"). (See "Item 13.
Certain Relationships and Related Transactions.") On June 7, 1993, in
conjunction with the public offering of the Company's 11.75% Senior
Secured Notes, the Company merged each of its operating subsidiaries
into the Company. In May 1993 the Company called and repurchased from
the PBGC all of the outstanding shares of Series A Preferred Stock and
15 shares of the outstanding shares of Series B Preferred stock. On
December 16, 1996, the Company repurchased an additional 15 shares of
such stock. See "Item 1. Business Corporate Developments - Redemption
of Series B Preferred Stock."
On November 8, 1993, the Plan of Liquidation of UPAC became
effective and was substantially consummated. Pursuant to the UPAC Plan
of Liquidation, the Company received a cash distribution of
approximately $6.8 million following the liquidation of the assets of
the UPAC estate and accordingly recorded income from the UPAC Plan of
Liquidation in the amount of approximately $6.8 million shown as
recovery of pension expense in the accompanying financial statements
for the fiscal year ended October 2, 1994.
In connection with matters relating to its acquisition of UPC,
on May 6, 1993 the Company entered into a settlement agreement (the
"Company Settlement") with Uniroyal, Inc., CDU Holding Liquidating
Trust, and Uniroyal Holding, Inc. (collectively, the "Uniroyal
Parties") pursuant to which the Company and the Uniroyal Parties
resolved certain existing and potential disputes arising from the
acquisition of UPC by UPAC from Uniroyal, Inc. Uniroyal, Inc. was
dissolved in December 1986. CDU Holding Liquidating Trust and Uniroyal
Holding, Inc. were affiliates of Uniroyal, Inc. In connection with the
resolution of the matters covered by the Company Settlement, the
Uniroyal Parties paid $2.25 million in cash to the Company. In
exchange, the Company agreed to certain matters involving the
prosecution and settlement of claims under insurance policies,
including certain claims of the Uniroyal Parties that covered
environmental liabilities at certain of the Known Sites. See "Item 1.
Business - Environmental Matters." As a result of this agreement and
related agreements reached with insurance companies during Fiscal 1994
as to amounts with respect to environmental claims, the Company
recorded as income in Fiscal 1994 approximately $1,176,000 and in
Fiscal 1995 approximately $70,000, net of certain professional fees and
other expenses.
The Company Settlement also provides that the Company will
indemnify and hold harmless the Uniroyal Parties with respect to: (i)
environmental liabilities associated with sites that were owned or
operated by the Company or the Predecessor Companies on or before May
6, 1993; and (ii) future environmental expenditures by the Uniroyal
Parties with respect to the businesses of UPC, net of recoveries from
third parties (including insurance proceeds), but only with respect to
the portion of such expenditures, if any, that exceeds $30 million and
is less than $45 million. See "Item 1. Business - Environmental
Matters."
Pursuant to the Company Settlement, the Company and the
Uniroyal Parties also agreed to share on a 35 percent (35%) - 65
percent (65%) basis, respectively, the costs of providing medical,
prescription drug and life insurance benefits to certain retired former
salaried employees of UPC or Uniroyal who are class members in a
federal class action lawsuit against certain of the Uniroyal Parties.
The Company's cost for providing such medical, prescription drug and
life insurance benefits in Fiscal 1996 was approximately $943,000. The
Company and the Uniroyal Parties also mutually released each other from
all claims and causes of action, if any, related to or arising in
connection with the acquisition of UPC from Uniroyal in 1986 and all of
the agreements entered into in connection therewith.
In a separate settlement agreement entered into on May 6, 1993
(the "UPAC Settlement"), UPAC and Jesup (each of which was an affiliate
of the Predecessor Companies) settled their claims against the Uniroyal
Parties and certain of their insiders and affiliates, The Uniroyal
Parties and such insiders and affiliates are collectively referred to
as the "Uniroyal Affiliated Parties". Pursuant to the UPAC Settlement,
the Uniroyal Affiliated Parties paid $16.0 million in cash to UPAC.
Such cash constituted the major portion of the bankruptcy estate of
UPAC.
Item 2. Properties
The following table sets forth the location, size, general
character and nature of the Company's facilities:
SQUARE FEET GENERAL CHARACTER OWNED OR
LOCATION AND ENTITY OF FACILITY OF PROPERTY LEASED
Sarasota, Florida 18,000 Corporate offices Leased
High Performance Plastics Segment
Mishawaka, Indiana(1) 12,000 Offices Leased
Stamford, Connecticut 5,500 Offices Leased
Stamford, Connecticut 81,000 Manufacture of cell cast Owned
acrylics
Hackensack, New Jersey 46,000 Manufacture of cell cast Owned
acrylics
Rome, Georgia 45,062 Manufacture of thermoplastic Owned
products
Redlands, California 60,000 Manufacture of thermoplastic Owned
products
Stirling, New Jersey 50,000 Manufacture of acrylic sheet Owned
rods and tubes
Warsaw, Indiana 225,000 Manufacture of thermoplastic Owned
products and warehouse
Coated Fabrics Segment
Sarasota, Florida 6,000 Offices Leased
Stoughton, Wisconsin 198,275 Manufacture of coated Owned
fabrics products
Port Clinton, Ohio 240,000 Manufacture of coated Owned
fabrics products
Troy, Michigan 2,200 Offices Leased
Specialty Adhesives
Segment
Mishawaka, Indiana (1) (2) 692,245 Manufacture of closed-cell Leased
foam products, adhesives and
sealants
South Bend, Indiana (2) 240,000 Offices Owned
Manufacture of adhesives and
sealants
All of the owned properties are subject to the liens of mortgages
securing the Company's 11.75% Senior Secured Notes Due 2003. (See Note
8 to the Financial Statements.)
(1) Applicable fire and safety regulations and the configuration of the 704,245
square feet currently leased and used by the Company in the Mishawaka,
Indiana facility require the Company to heat and light at its own expense
an additional approximately 829,060 square feet of adjacent or nearby pre-
mises that currently are not used by the Company. Such expenses may be
credited against the rent expenses due under the Company's lease.
(2) On July 17, 1996, the Company acquired a manufacturing facility in South
Bend, Indiana. The new facility will house the Company's Specialty
Adhesives Segment, the headquarters of the Royalite Division and certain
other Company operations. The Company plans to move these operations from
the existing leased facility in Mishawaka, Indiana to the South Bend,
Indiana facility during the first six months of Fiscal 1997.
Item 3. Legal Proceedings
URBI, an organization unaffiliated with the Company,
administers medical, prescription drug and life insurance programs for
certain retired employees of the Predecessor Companies and certain of
their affiliates. The Company contributes funding for a portion of the
costs of the benefits programs administered by URBI in accordance with
the terms of an agreement entered into with URBI's predecessor in
connection with the Plan of Reorganization. See "Business - History of
Company." As a result of disputes between the Company and URBI
concerning the eligibility requirements applicable to URBI's medical
plan and the level of payments due from the Company, URBI filed a
complaint with the United States Bankruptcy Court for the Northern
District of Indiana, South Bend Division (the "Bankruptcy Court"),
claiming that the Company had breached its agreement to fund URBI's
operations. The Company filed counterclaims against URBI claiming
breach of contract, fraud, negligent misrepresentation, unjust
enrichment, declaratory judgment and clarification or reformation of
contract. On December 20, 1995, the Bankruptcy Court ruled in favor of
URBI with respect to certain matters and in favor of the Company with
respect to other matters resulting in a net judgment against the
Company of approximately $211,000. The Company filed an appeal of the
Bankruptcy Court's December 20, 1995 ruling with the United States
District Court for the Northern District of Indiana, South Bend
Division, which appeal is still pending. On November 28, 1995, URBI
filed an additional complaint with the Bankruptcy Court, concerning
funding payments due in Fiscal 1996. The Bankruptcy Court ordered the
Company to increase its monthly payments to URBI to approximately
$160,000 through September 1996. In December 1996 the Bankruptcy Court
ordered the Company to continue payments at such level through January
1997. The Company has agreed in principle with URBI to settle the
foregoing litigation The proposed settlement provides, among other
things, for a compromise on the level of funding to reflect URBI's
current program needs. A definitive settlement agreement between the
Company and URBI has not yet been executed.
Approximately 130 hourly employees at the Company's acrylic
sheet manufacturing facility in Stamford, Connecticut are represented
by Teamsters Local 191, which is affiliated with the Teamsters. The
Teamsters declared a strike on July 11, 1994 on the grounds that the
Company was allegedly bargaining in bad faith and called off the strike
on December 10, 1994. The Company and Teamsters settled their dispute
in June 1996. The Company agreed to settle the claim of the striking
employees for back pay following the release of claims of such
employees in exchange for a payment of approximately $808,000
(inclusive of employment taxes of approximately $58,000) in August
1996. The settlement amount paid by the Company in connection with such
matter was less than the accrued back pay at issue.
The Company is also involved in certain other proceedings in
the ordinary course of its business which, if determined adversely to
the Company would, in the opinion of management, not have a material
adverse effect on the Company or its operations.
In connection with its reorganization, the Company entered
into a number of settlement agreements, including certain agreements
relating to environmental matters. See "Item 1. Business - History of
the Company - Reorganization."
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of Fiscal
1996 to a vote of security holders, through the solicitation of proxies
or otherwise.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to the effective date of the Plan of Reorganization,
none of the Company's common stock, par value $.01 per share (the
"Common Stock"), was issued, and consequently there was no public
market for the Common Stock. The Common Stock was admitted to trading
on the Nasdaq National Market System ("Nasdaq") on September 28, 1992
and trades under the symbol "UTCI." At the close of trading on November
29, 1996, the price per share of Common Stock was $2.75. The Plan of
Reorganization provides for the issuance of a maximum of 10,000,000
shares of Common Stock in settlement of claims and other matters in
connection with the Bankruptcy Proceedings. As of November 29, 1996,
9,861,986 of such shares of Common Stock had been issued pursuant to
the Plan of Reorganization (including shares transferred to the
Company's treasury as a result of the election by certain claim
holders, as provided under the Plan of Reorganization, to receive cash
in lieu of Common Stock). The remaining shares are being held pending
resolution of certain retiree medical claims.
As of November 29, 1996, there were 966 holders of record of
shares of Common Stock.
The following table sets forth the high and low sales price
per share of the Company's Common Stock as reported by Nasdaq for the
indicated dates:
Fiscal Year Ended Fiscal Year Ended
September 29, 1996 October 1, 1995
--------------------------- -------------------------
Quarter High Low High Low
First $3.750 $3.125 $4.000 $2.750
Second $3.563 $3.125 $4.250 $3.000
Third $4.438 $3.313 $3.625 $3.063
Fourth $3.750 $3.000 $4.500 $3.125
The holders of record of shares of Common Stock are entitled
to receive dividends when and as declared by the Board of Directors of
the Company, provided that the Company has funds legally available for
the payment of such dividends and is not otherwise contractually
restricted from making payment thereof. The Company has not paid any
cash dividends on the common stock in the last three fiscal years. The
Company's ability to pay cash dividends on Common Stock currently is
restricted by the indenture in connection with the Company's Senior
Secured Notes. See "Note 10 to Financial Statements."
Item 6. Selected Financial Data
The following historical financial data as of and for the
fiscal years ended September 29, 1996, October 1, 1995, and October 2,
1994 have been derived from financial statements of the Company audited
by Deloitte & Touche LLP and contained elsewhere in this Form 10-K. The
selected historical financial data presented below as of September 26,
1993 and September 27, 1992 and for the fiscal year ended September 26,
1993 have been derived from audited financial statements of the
Company. The selected historical financial data presented below for the
fiscal year ended September 27, 1992 have been derived from audited
financial statements of the Predecessor Companies. All of the financial
data set forth below should be read in conjunction with the Financial
Statements and related notes and other financial information contained
in this Form 10-K.
SELECTED FINANCIAL DATA
------------------ ---------------- --------------- ----------------- ----------------
September 29, October 1, October 2, September 26, September 27,
1996 1995 1994(1) 1993 1992
------------------ ---------------- --------------- ----------------- ----------------
(in thousands, except ratios, share and per share data)
Operating Data:
Net sales.............................. $ 209,348 $ 214,951 $ 197,536 $ 173,361 $ 165,565
Depreciation and amortization (2)...... 9,848 9,521 8,356 8,872 7,358
(Loss) income before interest, reorgan-
ization items, income taxes and extra-
ordinary item........................ (12,749) 9,549 15,414 6,462 (15,148)
Interest expense(3).................... (9,773) (10,029) (10,109) (9,295) (4,974)
Reorganization items................... - - - - 52,520
Income tax benefit (expense)........... 8,121 189 (2,217) 853 (5,085)
(Loss) income before extraordinary
item ................................ (14,401) (291) 3,088 (1,980) 27,313
Extraordinary gain..................... - 363 727 - 127,842
Net (loss) income...................... (14,401) 72 3,815 (1,980) 155,155
(Loss) income per common share and common
stock equivalent:
Primary and fully diluted: (4)
(Loss) income before extraordinary item $ (1.09) $ (0.02) $ 0.22 $ (0.20)
Extraordinary gain..................... - 0.02 0.05 - N/A
----------- ------------ ----------- -----------
Net (loss) income per share............ $ (1.09) $ 0.00 $ 0.27 $ (0.20)
=========== ============ =========== ===========
Average number of shares used in
computation(5) ........................ 13,167,466 14,507,605 14,317,298 9,971,552 (4)
========== ========== ========== =========
Balance Sheet Data:
Cash and cash equivalents.............. $ 2,023 $ 291 $ 4,249 $ 3,683 $ 1,047
Working capital........................ 29,148 31,292 34,454 25,174 7,723
Total assets........................... 170,786 180,483 179,274 186,288 168,078
Long-term debt (including current
portion)............................... 72,775 76,763 79,371 89,953 69,904
Shareholders' equity................... 43,499 57,669 57,533 53,936 54,400
(1) All fiscal years presented are 52-week periods except for the fiscal
year ended October 2, 1994 which was a 53-week fiscal year.
(2) Excludes amortization of reorganization value in excess of amounts
allocable to identifiable assets of $765,000, $769,000, $1,003,000 and
$714,000 for the fiscal years ended September 29, 1996, October 1,
1995, October 2, 1994 and September 26, 1993, respectively. There was
no corresponding charge for the fiscal year ended September 27, 1992.
(3) Does not include $3,927,000 of contractual interest on indebtedness of
one of the Predecessor Companies for the fiscal year ended September
27, 1992 for which the Company ceased accruing interest during the
Bankruptcy Proceedings.
(4) Net (loss) income per common share based on the capital structures of
the Predecessor Companies is not meaningful due to the debt discharge
and issuance of new common stock of the Company. See "Note 2 to Financial
Statements."
(5) See Note 2 to Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis by the Company's
management should be read in conjunction with Item 6. Selected
Financial Data and Item 8. The Financial Statements and Supplementary
Data appearing elsewhere in this Form 10-K.
Results Of Operations
Comparison of Fiscal 1996 with Fiscal 1995
Net Sales. The Company's net sales decreased in Fiscal 1996 by
approximately three percent (3%) to $209.3 million from $215.0 million
in Fiscal 1995. While overall net sales decreased during the period,
net sales in the Company's High Performance Plastics and Coated Fabrics
Segments increased in the aggregate approximately three percent (3%) to
$173.8 million in Fiscal 1996 from $168.3 million in Fiscal 1995. Such
increase was offset by decreased net sales in the Specialty Adhesives
Segment resulting principally from the Ensolite Sale, the prices
received by the Company for its roofing adhesives and sealants under
the Firestone Agreement, which are generally lower than those which the
Company had historically been able to obtain in the relevant market,
and the impact on the commercial roofing sector generally of severe
winter weather conditions in the Northeastern United States. See "Item
1. Business - Business Segments - Specialty Adhesives" and "Note 3 to
Financial Statements."
Net sales in the High Performance Plastics Segment increased
in Fiscal 1996 by approximately three percent (3%) to approximately
$115.1 million from $112.2 million in Fiscal 1995. This increase was
principally due to increased sales prices and unit volume of the
Royalite Division's specialty thermoplastic sheet. Decreases in the
unit volume of Royalite's general purpose thermoplastic sheet partially
offset such increase. Management believes that this shift in unit
volume resulted, in part, from its efforts to focus on the production
of specialty sheet for sale in niche markets rather than on the
production of general purpose sheet. See "Item 1. Business - Business
Segments - High Performance Plastics - Royalite Division." Increases in
unit volume sales of both specialty and general purpose acrylic sheet
by the Polycast Division also contributed to such increase in net
sales. These increases were partially offset by decreased sales prices
for aerospace specialty acrylic sheet in response to market conditions.
The Coated Fabrics Segment's net sales increased in Fiscal
1996 approximately five percent (5%) to $58.7 million from $56.1
million in Fiscal 1995. This increase resulted primarily from increased
sales prices for, and unit volume of, products sold to the automotive
industry. Increased sales to the automotive industry resulted
principally from the Company's introduction of a new product line (see
"Item 1. Business - Corporate Developments - Introduction of New Coated
Fabric Product" and "- Business Segments - Coated Fabrics") qualified
for use in the manufacture of several automobile models by General
Motors. This increase was partially offset by decreased net sales of
Naugahyde(R) coated vinyl products resulting primarily from a delay in
developing and marketing products in new styles and patterns which in
Fiscal 1996 were generally in greater demand than the styles and
patterns offered by the Company. In response to such market conditions,
the Company employed a designer in 1996 in order to design and commence
production of newer styles and patterns.
Net sales in the Specialty Adhesives Segment decreased in
Fiscal 1996 by approximately 24 percent (24%) to $35.5 million from
$46.7 million in Fiscal 1995. This decrease resulted principally from
the Ensolite Sale and the impact of severe winter weather conditions in
the Northeastern United States on the commercial roofing sector
generally. See "Item 1. Business - Business Segments - Specialty
Adhesives" and "Note 3 to Financial Statements." In Fiscal 1996, net
sales of Ensolite(R) products for the 8 month period preceding
consummation of the Ensolite Sale on June 10, 1996, were approximately
$17.2 million as compared to net sales of approximately $24.6 million
during Fiscal 1995. Net sales of liquid adhesives and sealants
decreased approximately 17 percent (17%) from Fiscal 1995 to Fiscal
1996.
(Loss) Income Before Interest, Reorganization Items, Income
Taxes and Extraordinary Item. In Fiscal 1996, the Company incurred a
loss before interest, reorganization items, income taxes and
extraordinary item of $12.7 million as compared to income before
interest, reorganization items, income taxes and extraordinary item of
$9.5 million for Fiscal 1995. This loss resulted from factors which
impacted all of the Company's segments. The performance of the High
Performance Plastics Segment was impacted principally by a back pay
labor settlement at the Polycast Division and costs of implementing
quality assurance programs and improved manufacturing efficiency at the
Royalite Division. In the Coated Fabrics Segment, the Company
established reserves totalling approximately $12.5 million related to
its decision to exit the Port Clinton, Ohio automotive operations. See
Item 1. Business - Corporate Developments - Disposition of Port
Clinton, Ohio Automotive Operation" and "Note 15 to Financial
Statements". In addition the Company suffered incremental losses
resulting primarily from production problems encountered as a result of
defective adhesion materials purchased from one of its suppliers. In
the Specialty Adhesives Segment, performance was adversely affected
principally by the Ensolite Sale and the impact of the Firestone
Agreement for all of Fiscal 1996. See "Item 1. Business - Business
Segments - Specialty Adhesives - General."
Income before interest, reorganization items, income taxes and
extraordinary item for the High Performance Plastics Segment decreased
in Fiscal 1996 to $7.0 million from $13.0 million approximately in
Fiscal 1995 primarily as a result of higher MMA costs on average and an
$808,000 charge incurred for estimated back pay and retraining costs in
connection with the settlement of a strike at the Polycast Division's
Stamford, Connecticut facility and a temporary decline in manufacturing
efficiency at such facility during Fiscal 1996 as a result of the
required retraining of employees returning from the strike. In
addition, the Royalite Division incurred approximately $560,000 in
consulting fees for production and reengineering studies relating to
its Warsaw, Indiana facility and certain additional costs in connection
with the implementation of improved quality standards, training and
support programs for employees and a more efficient manufacturing
process at such facility.
The Coated Fabrics Segment's loss before interest,
reorganization items, income taxes and extraordinary item increased in
Fiscal 1996 to approximately $19.0 million from a loss of approximately
$4.9 million in Fiscal 1995. In Fiscal 1996 the Company established
reserves totalling approximately $12.5 million related to its decision
to exit the Port Clinton, Ohio automotive operation. The automotive
products business incurred operating losses of approximately $7.6
million (before consideration of reserves totalling $12.5 million
described above) and $5.5 million in Fiscal 1996 and 1995,
respectively. In addition, the increased losss resulted from decreased
sales of instrument panels for a transplant automotive customer as a
result of defective adhesion materials provided by one of the Company's
suppliers and the continued incurrence of fixed costs associated with
the operation of such facility at less than 50 percent (50%) of its
capacity as a result of the decreased sales caused by such defective
adhesion. While the production problems caused by such defective
materials have been satisfactorily resolved, the Port Clinton, Ohio
facility has continued to operate at significantly reduced levels as
the Company sought to recover the segment's lost automotive sales and
to expand the segment's sales in the automotive sector generally.
Income before interest, reorganization items, income taxes and
extraordinary item for the Specialty Adhesives Segment decreased in
Fiscal 1996 to $70,000 from approximately $2.1 million in Fiscal 1995.
This decrease resulted from decreased sales resulting principally from
the effect of the Ensolite Sale, the impact of reduced sales prices for
roofing adhesives under the Firestone Agreement and the effect on the
EPDM roofing adhesives market of severe winter weather conditions in
the Northeastern United States which caused delays in the commercial
roofing industry and increased costs at the Company's Mishawaka,
Indiana manufacturing facility resulting from general energy price
increases. Energy prices represent a significant cost of operating the
Mishawaka, Indiana facility. Due to its configuration and applicable
fire and safety regulations, the entire facility must be heated and lit
even though the Company's operations occupy less than 50 percent (50%)
of the facility. The Specialty Adhesives Segment will relocate its
operations from the Mishawaka, Indiana facility to its facility in
South Bend, Indiana during the first six months of Fiscal 1997. See
"Item 2. Properties, Note 2" and "Item 1. Business - Business Segments
- Specialty Adhesives - Manufacturing Facilities." The effects of these
items were partially offset by reduced costs of raw materials and an
approximately $2.1 million gain from the Ensolite Sale. The gain from
the Ensolite Sale is net of an approximately $4.3 million reserve
established in Fiscal 1996 for fixed asset write-offs, severance and
incentive packages for Ensolite employees to be terminated and facility
clean-up costs. In prior years, the Company established a relocation
reserve for its planned restructuring and move of the Specialty
Adhesives Segment. Management believes that such reserves are adequate
to cover the costs to be incurred in connection with the relocation of
the Specialty Adhesives Segments to the new plant at South Bend,
Indiana. See "Item 1. Business - Business Segments - Specialty
Adhesives - General."
Amortization of reorganization value in excess of amounts
allocable to identifiable assets in Fiscal 1996 decreased to $765,000
from $769,000 in Fiscal 1995. This decrease results from the write-off
of the assets transferred in connection with the Ensolite Sale.
Approximately $73,000 of miscellaneous income in Fiscal 1995
was not allocated to any segment of the Company's business. There were
no such unallocated amounts in Fiscal 1996.
Interest Expense. Interest expense in Fiscal 1996 decreased to
approximately $9.8 million from $10.0 million in Fiscal 1995 due to
interest income earned by the Company on the $5.0 million, 11.75
percent (11.75%) note issued to the Company by RBX, Inc. as part of the
purchase price of the Ensolite Sale. See "Item 1. Business - Business
Segments - Specialty Adhesives - General" and "Note 3 to Financial
Statements."
Income Tax Benefit. Income tax benefit in Fiscal 1996 was
approximately $8.1 million as compared to $189,000 in Fiscal 1995. The
provisions for income tax benefit were calculated by the Company
through use of the estimated income tax rates based upon its projected
annualized income.
Extraordinary Gain on the Extinguishment of Debt.
Extraordinary gain on the extinguishment of debt for Fiscal 1995 was
$363,000. This amount represents a gain recognized by the Company as a
result of open market purchases of approximately $7.5 million of face
amount of its Senior Secured Notes (see "Note 8 to Financial
Statements") net of the write-off of applicable debt issuance costs and
unamortized debt discount associated therewith and approximately
$310,000 of income taxes.
Comparison of Fiscal 1995 With Fiscal 1994
Net Sales. The Company's net sales increased in Fiscal 1995 by
approximately nine percent (9%) to approximately $215.0 million from
approximately $197.5 million in Fiscal 1994, as a result of increased
net sales in each of the Company's three business segments. Fiscal 1995
contained 52 weeks of operations as compared to 53 weeks of operations
in Fiscal 1994.
Net sales by the High Performance Plastics Segment increased
in Fiscal 1995 by approximately six percent (6%) to approximately
$112.2 million from approximately $105.5 million in Fiscal 1994. This
increase was primarily due to increased sales prices for both
Royalite(R) thermoplastic products and Polycast(R) acrylic products.
These increases were partially offset by decreased unit volume of
thermoplastic products generally. Total unit volume for the Royalite
Division decreased ten percent (10%), principally as a result of Fiscal
1995 decreases in sales of general purpose thermoplastic sheet and, to
a lesser extent, of specialty thermoplastic sheet. Overall unit volume
of sales of acrylic products in Fiscal 1995 was comparable to Fiscal
1994.
The Coated Fabrics Segment's net sales increased in Fiscal
1995 approximately 14 percent (14%) to approximately $56.1 million from
approximately $49.2 million in Fiscal 1994, as a result of increased
sales prices for both Naugahyde(R) vinyl coated fabric products
generally and products sold to the automotive industry. This increase
was offset by decreased unit volume of Naugahyde(R) products generally.
Overall, the segment's unit volume in Fiscal 1995 increased six percent
(6%) compared to Fiscal 1994. Unit volume increased in products sold to
the automotive industry as a result of sales of laminated composite
products produced using new technology introduced at the Company's Port
Clinton, Ohio facility pursuant to the technical collaberation
agreement with Okamoto. See "Item 1. Business - Business Segment -
Coated Fabrics - General" For example, Honda commenced making purchase
of such laminated composites from the Company in 1995.
Net sales of the Specialty Adhesives Segment increased in
Fiscal 1995 by approximately nine percent (9%) to $46.7 million from
approximately $42.8 million in Fiscal 1994. This increase resulted
particularly from an increase in the segment's total unit volume. Such
increase in unit volume is attributable principally to a 27 percent
(27%) increase in unit volume of sales of liquid adhesives and sealants
for the EPDM roofing market as a result of sales to Firestone pursuant
to the Firestone Agreement. See "Item 1. Business - Business Segments
Specialty Adhesives." The increase in total unit volume was partially
offset by decreased sales prices of liquid adhesives and sealants under
the Firestone Agreement. Also contributing to the increase in net sales
were increases of unit volume and sales prices of Ensolite's foam
products. Ensolite unit volume increased four percent (4%) in Fiscal
1995.
(Loss) Income Before Interest, Reorganization Items, Income
Taxes and Extraordinary Item. Income before interest, reorganization
items, income taxes and extraordinary item for Fiscal 1995 was
approximately $9.5 million compared to approximately $15.4 million for
Fiscal 1994. This decrease was primarily due to gains recorded in
Fiscal 1994 of approximately $6.8 million and $1.2 million from the
recovery of pension expenses incurred in previous years pursuant to the
UPAC Settlement and from insurance settlements, respectively. See "Item
3. Litigation." In addition, after refining its estimate of the
restructuring reserve required in connection with the relocation of
certain manufacturing operations within its Mishawaka, Indiana
facility, the Company, in Fiscal 1994, reduced the reserve recorded in
a prior period by approximately $1.8 million to reflect the anticipated
reduced costs of such relocation. The original relocation plan assumed
these operations would be moved to a new facility. In Fiscal 1994,
management developed a plan to reconfigure the existing facility to
improve efficiencies, and, therefore, reduced the reserve to reflect
the revised plan. Excluding these nonrecurring gains in Fiscal 1994 and
a $70,000 nonrecurring gain in Fiscal 1995, operating income would have
increased $3.8 million. This increase is primarily due to increased
sales and improved margins which were partially offset by an increase
in excess facility expenses at the Company's facility in Mishawaka,
Indiana. As a result of the present configuration of such plant, the
Company incurs the cost of heating and lighting the entire facility
even though the Company occupies less than 50 percent (50%) of the
facility.
The High Performance Plastics Segment's income before
interest, reorganization items, income taxes and extraordinary item for
Fiscal 1995 increased to approximately $13.0 million from $9.2 million
in Fiscal 1994. This increase was principally due to an increase in net
sales of and improved margins on, Royalite products and Polycast
products. During the third quarter of Fiscal 1994, the Teamsters, which
represent the hourly wage workers at the Acrylic Products Division's
Stamford, Connecticut facility, went on strike. As a result,
productivity at such facility decreased, causing reduced margins on
acrylic products produced at such manufacturing facility. During Fiscal
1995, the division made significant improvements in productivity and
produced acrylic sheet at pre-strike productivity levels. The strike
was settled during Fiscal 1996. See "Item 3. Litigation."
The Coated Fabrics Segment's loss before interest,
reorganization items, income taxes and extraordinary item marginally
increased in Fiscal 1995 to approximately $4.9 million from $4.8
million in Fiscal 1994. Although such segment's net sales increased,
such increase was offset by decreased margins caused by increased
production costs resulting from increased raw material costs and
production problems encountered in the manufacturing of certain coated
fabrics for an automotive customer stemming from certain equipment
failure at the Company's Port Clinton, Ohio facility which has been
remedied.
The Specialty Adhesives Segment's income before interest,
reorganization items, income taxes and extraordinary item decreased in
Fiscal 1995 to approximately $2.1 million from $4.1 million in Fiscal
1994. The effect of the increase in net sales was offset by margin
decreases caused by reduced sales prices for product under the
Firestone Agreement. See "Item 1. Business - Business Segments -
Specialty Adhesives - Marketing and Competition." Also contributing to
the decrease was an increase in certain excess facility expenses
associated with the operation of the Company's Mishawaka, Indiana
leased facility. See "Item 2. Properties" and "Item 1. Business -
Business Segments - Specialty Adhesives - Manufacturing Facilities." In
previous years, the excess facility costs were charged to reserves
established in connection with the Plan of Reorganization. See "Item 1.
Business - History of the Company." In addition, during Fiscal 1994 the
restructuring reserve recorded in prior periods was reduced by
approximately $1.8 million as the Company refined its estimate of the
costs associated with relocating the segment's manufacturing
operations.
Amortization of reorganization value in excess of amounts
allocable to identifiable assets in Fiscal 1995 decreased to $769,000
from approximately $1.0 million in Fiscal 1994. The decrease is due to
adjustments made to reorganization value in excess of amounts allocable
to identifiable assets in Fiscal 1994.
Not allocated to any of the Company's business segments in
Fiscal 1995 was approximately $70,000 of miscellaneous income. Also,
the gains of approximately $70,000 and approximately $1.2 million
resulting from the settlement of certain environmental claims with
insurance companies recorded during Fiscal 1995 and Fiscal 1994,
respectively, and the gain of approximately $6.8 million from the UPAC
Settlement recorded during Fiscal 1994 were unallocated to any segment.
Interest Expense. Interest expense in Fiscal 1995 marginally
decreased to $10.0 million from $10.1 million in Fiscal 1994. This
decrease resulted primarily from reduced total interest expense on the
Company's Senior Secured Notes as a result of the Company's open market
purchases of $7.5 million of face amount of Senior Secured Notes during
Fiscal 1995. See "Note 8 to Financial Statements." This decrease was
partially offset by increased interest expense on capitalized lease
obligations incurred in the last two quarters of Fiscal 1994 and during
Fiscal 1995 and increased borrowings by the Company under its revolving
line of credit agreement during the last two quarters of Fiscal 1995.
See "Note 8 to Financial Statements."
Income Tax Benefit (Expense). Income tax benefit in Fiscal
1995 was $189,000 as compared to an income tax expense of approximately
$2.2 million in Fiscal 1994. The provisions for income tax benefit
(expense) were calculated through the use of estimated income tax rates
based on annualized income.
Extraordinary Gain on the Extinguishment of Debt.
Extraordinary gain on the extinguishment of debt in Fiscal 1995 was
$363,000. This amount represents the gain recognized as a result of the
Company's acquisition of approximately $7.5 million of face amount of
its Senior Secured Notes net of the write-off of applicable debt
issuance costs and unamortized debt discount and approximately $310,000
of income taxes. Extraordinary gain on the extinguishment of debt for
Fiscal 1994 was $727,000. This amount represents a gain in the amount
of $2.2 million on the early retirement of a $10 million note issued by
the Company pursuant to the Reorganization Plan and payable to the
PBGC, less applicable professional fees, expenses and income taxes. See
"Note 8 to Financial Statements."
Liquidity and Capital Resources
For Fiscal 1996, the Company's operations used approximately
$3.8 million of cash as compared to approximately $6.4 million provided
during Fiscal 1995. This increase in cash used in operations for Fiscal
1996 resulted primarily from increased net losses, trade accounts
receivable and inventories and was partially offset by the timing of
payments of trade accounts payable and increases in other liabilities
resulting from the establishment of reserves in connection with the
Ensolite Sale.
Net cash provided by investing activities of the Company in
Fiscal 1996 was approximately $10.5 million as compared to
approximately $7.4 million used during Fiscal 1995. Approximately $19.6
million of such cash was provided from the Ensolite Sale. The primary
use of cash during Fiscal 1996 and Fiscal 1995 was to purchase
property, plant and equipment. The Company used approximately $1.8
million to purchase the facility located in South Bend, Indiana. See
"Item 1. Business - Corporate Developments." The Company does not have
any significant specific commitments for the purchase of property,
plant and equipment.
Net cash used in financing activities was $4.9 million during
Fiscal 1996 as compared to approximately $3.0 million used during
Fiscal 1995. Cash was used during Fiscal 1996 to repay the Company's
obligation under its revolving credit agreement. See "Note 8 to
Financial Statements." At September 29, 1996 the Company did not have
any borrowings outstanding under this agreement. The principal use of
cash during Fiscal 1995 was to purchase on the open market
approximately $7.5 million of face value of the Company's Senior
Secured Notes. See "Note 8 to Financial Statements."
The Company on September 29, 1996, had approximately $2.0
million in cash and cash equivalents as compared to approximately
$291,000 at October 1, 1995. Working capital at September 29, 1996 was
approximately $29.1 million compared to approximately $31.3 million at
October 1, 1995. The Company had short-term borrowings of approximately
$3.8 million under a $15 million revolving credit agreement at October
1, 1995. The Company had no outstanding borrowings under its $25
million revolving credit agreement at September 29, 1996. See "Note 8
to Financial Statements."
The Company believes that cash from its operations and its
ability to borrow under the revolving credit facility 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 facility will continue to be
sufficient to finance its existing level of operations and meet its
debt service obligations. The Company's ability to meet its debt
service and other obligations depends on its future performance, which
in turn, is subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's
control. If the Company is unable to generate sufficient cash flow from
operations, it may be required to refinance all or a portion of its
existing debt or obtain additional financing. There can be no assurance
that the Company will be able to obtain such refinancing or additional
financing.
Effects of Inflation
The markets in which the Company sells products are
competitive. In particular, the Company has encountered in connection
with its sales of coated fabrics to the automotive industry and its
sales of acrylics to the aerospace industry, effective resistance to
price increases generally. Thus, in an inflationary environment the
Company may not in all instances be able to pass through to consumers
general price increases in which event the Company's operations may be
materially impacted if such conditions were to occur. The Company has
not in the past been adversely impacted by general price inflation.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements on Page F-1.
Item 9. Changes in and Disagreements wit Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Item 11. Executive Compensation
Information with respect to the directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to the directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Item 13. Certain Relationships and Related Transactions
Information with respect to the directors and executive officers of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Financial Statements as of September 29, 1996, and October 1,
1995 and for the Years Ended September 29, 1996, October 1, 1995
and October 2, 1994:
Independent Auditors' Report F-2
Balance Sheets as of September 29, 1996 and October 1, 1995 F-3
Statements of Operations for the Years Ended September 29,
1996, October 1, 1995 and October 2, 1994 F-5
Statements of Changes in Stockholders' Equity for the Years
Ended September 29, 1996, October 1, 1995 and October 2, 1994 F-6
Statements of Cash Flows for the Years Ended September 29, 1996,
October 1, 1995 and October 2, 1994 F-7
Notes to Financial Statements F-9
(b) Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule VIII - Valuation and Qualifying Accounts S-2
(c) Exhibits:
2.1 Certificate of Ownership and Merger, dated June 7, 1993, of Polycast Technology Corporation, Uniroyal
Engineered Products, Inc., Uniroyal Adhesives and Sealants, Inc. and Ensolite, Inc. with the Company.
(8)
3.1 Amended and Restated Certificate of Incorporation of the Company as corrected by a Certificate of
Correction of the Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 By-Laws of the Company, as amended to November 14, 1996.
4.1 Indenture, dated as of June 1, 1993, between the Company and The Bank of New York, as trustee. (8)
4.2 Warrant Agreement, dated as of June 1, 1993, between the Company and The Bank of New York, as warrant
agent. (8)
10.1 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Polycast, Polycast and the
Company. (2)
10.2 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UEP, UEP and the Company. (2)
10.3 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Ensolite, Ensolite and the
Company. (2)
10.4 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UAS, UAS and the Company. (2)
10.5 Asset Acquisition Agreement, dated as of September 27, 1992, between Plastics Support Corp. ("PSC")
and the Company. (2)
10.6 Asset Acquisition Agreement, dated as of September 27, 1992, among U.E. Systems, Inc., Ensolite and
the Company. (2)
10.7 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Howard R. Curd and the
Company. (9)
10.8 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Oliver J. Janney and
the Company. (9)
10.9 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Robert L. Soran and the
Company. (9)
10.10 Amended and Restated Employment Agreement, dated as of April 25, 1995, between George J. Zulanas, Jr.
and the Company. (9)
10.11 Joint Stipulation Between the Debtors and the United States of America on Behalf of Its Agency, The
Internal Revenue Service, Regarding Treatment of Tax Claims. (3)
10.14 Supply Agreement, dated as of February 17, 1992, between Old Polycast and E.I. duPont de Nemours &
Company, Inc. assumed by ICI Acrylics Inc. (3)
10.15 Uniroyal Technology Corporation Employee Stock Ownership Plan. (4)
10.16 Amended and Restated Uniroyal Technology Corporation 1992 Stock Option Plan.
10.19 Registration Rights Agreement, dated September 27, 1992, between the PBGC and the Company. (2)
10.21 Settlement Agreement among Old Polycast, Old UAS, Old UEP, Old Ensolite and the Official
Retirees' Committee. (3)
10.22 Settlement Agreement and Stipulated Order among Old Polycast, Old UAS, Old UEP, Old Ensolite,
the United States of America, the State of Indiana and the State of Wisconsin. (3)
10.23 Plan Disbursing Agent Agreement, dated September 27,1992, among Old Polycast, Old UAS, Old UEP, Old
Ensolite and the Company. (2)
10.24 Technical Collaboration Agreement, dated June 20, 1988, between UPC and Okamoto Industries, Inc. (3)
10.25 Assignment of Technical Collaboration Agreement, among UPC, Old UEP, The Jesup Group, Inc. and Okamoto
Industries, Inc. (3)
10.26 Letter Amendment to Technical Collaboration Agreement, dated January 21, 1991, between Old UEP and
Okamoto Industries, Inc. (3)
10.27 Amendment No. 2 to Technical Collaboration Agreement, dated as of July 31, 1992, between Old UEP and
Okamoto Industries, Inc. (3)
10.28 Amended and Restated Uniroyal Technology Corporation 1992 Non-Qualified Stock Option Plan.
10.29 Agreement dated August 20, 1993 among the Company, UPAC, and the Official Committee of Unsecured
Creditors of UPAC.(7)
10.30 Settlement Agreement dated December 6, 1993 among the Company, UPAC, Jesup and the PBGC.(7)
10.34 Uniroyal Technology Corporation Deferred Compensation Plan Effective as of August 1, 1995. (10)
10.35 Split-Dollar Insurance Agreement dated as of August 15, 1995 by and between Uniroyal Technology
Corporation and Howard R. Curd. (11)
10.39 Financing Agreement dated as of June 5, 1996 by and between The CIT Group/Business Credit, Inc. and
Uniroyal Technology Corporation. (12)
10.40 Amended and Restated Uniroyal Technology Corporation 1994 Stock Option Plan.
10.41 Amended and Restated Uniroyal Technology Corporation 1995 Non-Qualified Stock Option Plan.
10.42 Asset Purchase Agreement between Rubatex Corporation and Uniroyal Technology Corporation, dated June
5, 1996. (13)
10.43 Amendment No. 3 to Technical Collaboration Agreement, dated March 1, 1996, between Uniroyal Technology
Corporation and Okamoto Industries, Inc.
10.44 Shareholder Rights Agreement, dated as of December 18, 1996, between Uniroyal Technology Corporation and
The Bank of New York, as rights agent. (14)
23.1 Independent Auditors' Consent
(1) Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form 10, dated
September 25, 1992.
(2) Incorporated by reference to Amendment No. 4 to the Company's Registration Statement on Form 10, dated
October 1, 1992.
(3) Incorporated by reference to the Company's Amendment No. 1 to the Company's Registration Statement on
Form 10, dated September 17, 1992.
(4) Incorporated by reference to the Company's Form 10-K, dated December 24, 1992.
(5) Incorporated by reference to the Company's Registration Statement on Form 10, dated July 28, 1992.
(6) Incorporated by reference to the Company's Form 10-K/A, dated May 26, 1993.
(7) Incorporated by reference to the Company's Form 10-K, dated December 17, 1993.
(8) Incorporated by reference to the Company's Form 8-K, dated June 9, 1993.
(9) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended April 2, 1995.
(10) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended July 2, 1995.
(11) Incorporated by reference to the Company's Form 10-Q dated August 14, 1995. Virtually identical
agreements were entered into between the Company and each of Robert L. Soran, George J. Zulanas, Jr.,
Oliver J. Janney and Martin J. Gutfreund.
(12) Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1996
filed August 13, 1996.
(13) Incorporated by reference to the Company's Form 8-K, dated June 10, 1996.
(14) Incorporated by reference to the Company's Registration Statement on Form 8-A,
dated December 20, 1996.
(d) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of
Fiscal 1996.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Financial Statements as of September 29, 1996 and October 1, 1995 and
for the Years Ended September 29, 1996, October 1, 1995 and October 2, 1994:
Independent Auditors' Report F-2
Balance Sheets as of September 29, 1996 and October 1, 1995 F-3
Statements of Operations for the Years Ended September 29, 1996,
October 1, 1995 and October 2, F-5
Statements of Changes in Stockholders' Equity for the Years
Ended September 29, 1996, October 1, 1995 and October 2, 1994 F-6
Statements of Cash Flows for the Years Ended September 29, 1996,
October 1, 1995 and October 2, 1994 F-7
Notes to Financial Statements F-9
Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule VIII - Valuation and Qualifying Accounts S-2
Schedules Omitted - Certain other schedules have been omitted
because they are not required or because the information
required therein has been included in Notes to the Financial
Statements.
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the accompanying balance sheets of Uniroyal Technology
Corporation (the "Company") as of September 29, 1996 and October 1, 1995, and
the related statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended September 29, 1996. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 29,
1996 and October 1, 1995 and the results of its operations and its cash flows
for each of the three years in the period ended September 29, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
during the year ended September 29, 1996.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
December 20, 1996
UNIROYAL TECHNOLOGY CORPORATION
BALANCE SHEETS
(In thousands)
ASSETS
September 29, October 1,
1996 1995
----------- -----------
Current assets:
Cash and cash equivalents (including restricted cash
and cash equivalent of $764 at September 29, 1996) (Note 2) $ 2,023 $ 291
Trade accounts receivable (less estimated reserve for
doubtful accounts of $369 and $437, respectively) (Notes 2 and 8) 25,094 27,042
Inventories (Notes 2, 4 and 8) 33,170 32,632
Prepaid expenses and other current assets 1,507 1,903
Deferred income taxes (Notes 2 and 9) 7,408 6,541
---------- ----------
Total current assets 69,202 68,409
Property, plant and equipment - net (Notes 2, 5 and 8) 63,312 90,728
Property, plant and equipment held for sale (Notes 2 and 15) 11,504 -
Note receivable (Note 3) 5,000 -
Reorganization value in excess of amounts allocable to identifiable
assets - net (Note 2) 8,288 9,228
Deferred income taxes (Notes 2 and 9) 1,485 -
Other assets (Notes 6 and 8) 11,995 12,118
---------- ----------
TOTAL ASSETS $ 170,786 $ 180,483
========== ==========
UNIROYAL TECHNOLOGY CORPORATION
BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 29, October 1,
1996 1995
------------- ------------
Current liabilities:
Current portion of long-term debt (Note 8) $ 659 $ 4,290
Trade accounts payable 16,549 16,686
Accrued expenses:
Compensation and benefits 10,166 8,145
Interest 2,861 2,930
Taxes, other than income 1,939 2,061
State income taxes 259 253
Other 7,621 2,752
----------- -----------
Total current liabilities 40,054 37,117
Long-term debt (Note 8) 72,116 72,473
Other liabilities (Note 7) 15,117 6,804
Deferred income taxes (Notes 2 and 9) - 6,420
----------- -----------
Total liabilities 127,287 122,814
----------- -----------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 8 and 10):
Preferred stock - par value $0.01; 1,000 shares authorized;
Series B - 35 shares issued and outstanding (redemption value
of $150,000 per share) 5,250 5,250
Common stock - par value $0.01; 35,000,000 shares authorized;
13,233,912 and 13,103,113 shares issued or to be issued,
respectively 133 131
Additional paid-in capital 52,517 52,331
Deficit (14,401) -
----------- -----------
43,499 57,712
Less treasury stock at cost - 50,843 and 52,369 shares, respectively - (43)
----------- -----------
Total stockholders' equity 43,499 57,669
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 170,786 $ 180,483
=========== ===========
See notes to financial statements.
UNIROYAL TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Fiscal Years Ended
-------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------ ------------ -----------
Net sales $ 209,348 $ 214,951 $ 197,536
Costs, expenses and (other income):
Costs of goods sold 170,088 166,384 154,710
Selling and administrative 28,626 26,783 26,770
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 765 769 1,003
Depreciation and other amortization 9,848 9,521 8,356
Excess facility expense 924 1,307 409
Reorganization professional fees subsequent to effective date 640 708 599
Gain on sale of division (Note 3) (2,102) - -
Loss on assets to be disposed of (Note 15) 12,500 - -
Strike settlement and training expense 808 - -
Recovery from insurance settlement (Note 13) - (70) (1,176)
Recovery of pension expense (Note 11) - - (6,761)
Reduction of restructuring reserve (Note 5) - - (1,788)
---------- ---------- ----------
(Loss) income before interest, income taxes
and extraordinary item (12,749) 9,549 15,414
Interest expense - net (9,773) (10,029) (10,109)
---------- ---------- ----------
(Loss) income before income taxes and extraordinary item (22,522) (480) 5,305
Income tax benefit (expense) (Notes 2 and 9) 8,121 189 (2,217)
---------- ---------- ----------
(Loss) income before extraordinary item (14,401) (291) 3,088
Extraordinary gain on the extinguishment of
debt - net (Note 8) - 363 727
---------- ---------- ----------
Net (loss) income $ (14,401) $ 72 $ 3,815
========== ========== ==========
(Loss) income per common share and common stock equivalent
(Notes 2 and 10)
Primary and fully diluted:
(Loss) income before extraordinary item $ (1.09) $ (0.02) $ 0.22
Extraordinary gain - 0.02 0.05
---------- ---------- ----------
Net (loss) income $ (1.09) $ 0.00 $ 0.27
========== ========== ==========
Average number of shares used in computation 13,167,466 14,507,605 14,317,298
========== ========== ==========
See notes to financial statements.
UNIROYAL TECHNOLOGY CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Preferred Stock Additional
-------------------- Common Paid-In Treasury Stockholders'
Series A Series B Stock Capital Deficit Stock Equity
-------- -------- -------- -------- -------- -------- --------
Balance at September 26, 1993 $ 7,500 $ 7,500 $ 100 $ 40,845 $ (1,980) $ (29) $ 53,936
Common stock issued in
conjunction with Private
Placement - - 25 10,500 - - 10,525
Stock issuance costs - - - (775) - - (775)
Preferred stock repurchase
in conjunction with Private
Placement (7,500) (2,250) - (322) - - (10,072)
Common stock issued under
stock option plan - - - 7 - - 7
Amounts received pursuant
to Directors' stock option
plan - - - 111 - - 111
Purchase of treasury stock - - - - - (14) (14)
Stock dividends paid (Note 10) - - 5 1,830 (1,835) - -
Net income - - - - 3,815 - 3,815
-------- -------- -------- -------- -------- -------- --------
Balance at October 2, 1994 - 5,250 130 52,196 - (43) 57,533
Common stock issued under
stock option plans - - - 8 - - 8
Amounts received pursuant
to Directors' stock option plan - - - 56 - - 56
Stock dividends paid (Note 10) - - 1 71 (72) - -
Net income - - - - 72 - 72
-------- -------- -------- -------- -------- -------- --------
Balance at October 1, 1995 - 5,250 131 52,331 - (43) 57,669
Common stock issued under
stock option plans - - 1 20 - - 21
Common stock issued to
employee benefit plan - - 1 166 - 43 210
Stock dividends paid (Note 10) - - - - - - -
Net loss - - - - (14,401) - (14,401)
-------- -------- -------- -------- -------- -------- --------
Balance at September 29, 1996 $ - $ 5,250 $ 133 $ 52,517 $(14,401) $ - $ 43,499
======== ======== ======== ======== ======== ======== ========
See notes to financial statements.
UNIROYAL TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended
-------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------- ------------ ------------
OPERATING ACTIVITIES:
Net (loss) income $(14,401) $ 72 $ 3,815
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and other amortization 9,848 9,521 8,356
Deferred tax (benefit) expense (8,904) (431) 2,053
(Recovery of) provision for doubtful accounts (6) (217) 38
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 765 769 1,003
Amortization of Senior Secured Notes discount 100 92 85
Amortization of debt issuance costs 457 466 436
Reduction of restructuring reserve - - (1,788)
Gain on sale of division (2,102) - -
Loss on assets to be disposed of 12,500 - -
Extraordinary gain - (363) (727)
Other 106 299 370
Changes in assets and liabilities:
Increase in trade accounts receivable (1,858) (5,837) (2,175)
Increase in inventories (2,456) (2,995) (1,924)
(Increase) decrease in prepaid expenses and
other assets (359) 1,532 (2,167)
Increase in trade accounts payable 757 3,363 2,457
Increase (decrease) in accrued expenses 1,130 (773) (1,300)
Increase (decrease) in other liabilities 609 920 (1,503)
--------- ---------- ---------
Net cash (used in) provided by operating activities (3,814) 6,418 7,029
--------- ---------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (9,181) (7,422) (6,042)
Proceeds from sale of division 19,641 - -
Proceeds from sale of U.S. Treasury Notes - restricted - - 10,094
--------- --------- ---------
Net cash provided by (used in) investing activities 10,460 (7,422) 4,052
--------- --------- ---------
FINANCING ACTIVITIES:
Note retirement costs - - (823)
Repurchase of Senior Secured Notes - (6,223) -
Other(decrease) increase in debt, net (4,934) 3,261 (9,363)
Preferred stock redeemed - - (10,072)
Common stock issued - - 10,525
Stock options exercised 20 8 7
Purchases of treasury stock - - (14)
Common stock issuance costs - - (775)
--------- --------- ---------
Net cash used in financing activities (4,914) (2,954) (10,515)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 1,732 (3,958) 566
Cash and cash equivalents at beginning of year 291 4,249 3,683
--------- --------- ---------
Cash and cash equivalents at end of year $ 2,023 $ 291 $ 4,249
========= ========= =========
UNIROYAL TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Disclosures:
Payments for income taxes and interest expense were (in thousands):
Fiscal Years Ended
--------------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------------- ----------------- ----------------
Income tax payments $ 570 $ 155 $ 172
Interest payments 9,549 9,784 9,626
The amounts shown as payment of debt is the net activity for the Company's
revolving loan and term loan facilities which includes draws and payments on the
revolving loan facilities during the periods shown. The following summarizes the
activity of these facilities (in thousands):
Fiscal Years Ended
--------------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------------- ----------------- ----------------
Term loan payments $ - $ (500) $ (9,363)
(Decrease) increase in revolver loan balances (4,934) 3,761 -
--------- ------- --------
Other (decrease) increase in debt, net $ (4,934) $ 3,261 $ (9,363)
========= ======= ========
The purchases of property, plant and equipment and the other increase (decrease)
in debt, net for the fiscal years ended September 29, 1996, October 1, 1995 and
October 2, 1994 do not include $846,000, $1,404,000 and $696,000, respectively,
related to property held under capitalized leases (Note 12).
Net cash used in financing activities for the fiscal years ended September 29,
1996, October 1, 1995 and October 2, 1994 do not include the dividends declared
on the Series A Preferred Stock or the Series B Preferred Stock since they were
paid with the issuance of 115,657, 125,588 and 495,403 shares, respectively, of
the Company's common stock (Note 10). Net cash used in financing activities for
the fiscal years ended October 1, 1995 and October 2, 1994 do not include 36,409
and 48,999 options purchased pursuant to the 1992 Non-Qualified Stock Option
Plan. No such options were purchased during the fiscal year ended September 29,
1996.
See notes to financial statements.
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Fiscal Years Ended September 29, 1996,
October 1, 1995 and October 2, 1994
1. THE COMPANY
Uniroyal Technology Corporation, a Delaware corporation, through its
operating divisions, Royalite Thermoplastics ("Royalite"), Polycast
Technology ("Polycast"), Uniroyal Engineered Products ("UEP"), and
Uniroyal Adhesives and Sealants ("UAS") (collectively, the "Company")
is engaged in the manufacture and sale of high performance plastics,
coated fabrics and specialty adhesives. During Fiscal 1996 the Company
sold substantially all the assets, net of certain liabilities, of its
Ensolite closed cell foam division (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 29, 1996, October 1, 1995 and October
2, 1994. Fiscal 1996 and Fiscal 1995 were 52-week periods and Fiscal
1994 was a 53-week period.
Use of Estimates
The preparation of 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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes all highly liquid investments
purchased with an original maturity of three months or less. Restricted
cash and cash equivalents are the net proceeds from the sale of the
Ensolite division placed in escrow in accordance with the terms of the
indenture agreement for the Company's Senior Secured Notes (Notes 3 and
8).
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the 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.
Trade Accounts Receivable
The Company grants credit to its customers generally in the form of
short-term trade accounts receivable. The creditworthiness of customers
is evaluated prior to the sale of inventory. There are no significant
concentrations of credit risk to the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using a monthly average basis for raw materials and supplies
and the first-in, first-out ("FIFO") basis of accounting or standard
costs (which approximates actual costs) for work in process and
finished goods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of property,
plant and equipment held under capital leases is equal to the lower of
the net present value of the minimum lease payments or the fair value
of the leased asset at the inception of the lease. Depreciation is
computed principally under the straight-line method based on the cost
and estimated useful lives of the related assets including assets held
under capital leases.
During March 1995 the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 121 ("SFAS No.121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
for long-lived assets and certain identifiable intangibles to be
disposed of. In accordance with SFAS No. 121, during the fiscal year
ended September 29, 1996 the Company established reserves totalling
approximately $12,500,000 related to its decision to exit the Port
Clinton, Ohio automotive operation of the Coated Fabrics Segment. See
Note 15. Other than the establishment of these reserves the adoption of
SFAS No. 121 did not have a significant effect on the Company's
financial statements.
Property, Plant and Equipment Held for Sale
Property, plant and equipment held for sale is stated at the lower of
cost or market.
Amortization
Debt discount and debt issuance costs are amortized using the interest
method over the life of the related debt. Patents and trademarks are
being amortized using the straight-line method over periods ranging
from 7 to 20 years. Reorganization value in excess of amounts allocable
to identifiable assets is amortized on a straight-line basis over 15
years. Reorganization value in excess of amounts allocable to
identifiable assets is reported net of accumulated amortization of
$3,251,000 and $2,486,000 at September 29, 1996 and October 1, 1995,
respectively.
Research and Development Expenses
Research and development expenditures are expensed as incurred.
Research and development expenditures were $4,918,000, $4,689,000 and
$4,021,000 for the fiscal years ended September 29, 1996, October 1,
1995 and October 2, 1994, respectively.
Employee Compensation
The cost of post-retirement benefits other than pensions are recognized
in the 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 net deferred tax asset of approximately
$8,893,000. Realization is dependent on generating sufficient taxable
income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than
not that all of the deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced
in the near term if estimates of future taxable income during the
carryforward period are reduced.
Net (Loss) Income Per Common Share
Primary and fully diluted loss per common share for the fiscal year
ended September 29, 1996 do not include the assumed conversion of the
Series B Preferred Stock nor the exercise of the warrants and the
employee stock options since their inclusion would have been
anti-dilutive. The computations of primary and fully diluted income per
common share for the fiscal years ended October 1, 1995 and October 2,
1994 are based on the weighted average number of common shares issued
and outstanding (or to be issued pursuant to the Plan, as defined in
Note 12) less the average number of shares held in treasury for the
period and also include the assumed conversion of the Series B
Preferred Stock and the exercise of all stock options and warrants
having exercise prices less than the average market price of the common
stock using the treasury stock method. The convertible preferred stock
issued to the Pension Benefit Guaranty Corporation ("PBGC"), the
warrants and stock options are considered to be common stock
equivalents.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
3. SALE OF ENSOLITE DIVISION
Pursuant to an asset purchase agreement, the Company sold on June 10,
1996 substantially all the assets net of certain liabilities of its
Ensolite closed-cell foam division to Rubatex Corporation ("Rubatex")
for $25,000,000 consisting of cash in the amount of $20,000,000 and a
promissory note of the parent of Rubatex in the amount of $5,000,000
(the "Ensolite Sale"). Interest on the promissory note is payable
semi-annually at 11.75% per annum. The promissory note matures on May
1, 2006. Cash proceeds from the sale were used to pay off the Company's
borrowings under its revolving credit agreement. The remaining cash
proceeds, net of amounts placed in escrow in accordance with the
Company's indenture agreement for the Senior Secured Notes, were
invested in short-term highly liquid investments. The Company
recognized a pre-tax gain on the sale of approximately $2,102,000 net
of transaction costs, the write-down of certain fixed assets not
acquired by Rubatex and after consideration of reserves for severance
and incentive packages for Ensolite employees, facility clean-up costs
and the recognition of Ensolite's pro rata share of the Company's
transition obligation, net of a curtailment gain of $664,000 in
accordance with Statement of Financial Accounts Standards No. 106,
Employer's Accounting for Postretirement Benefits Other Than Pensions
("SFAS No. 106"). In connection with the Ensolite Sale Rubatex received
an option to purchase certain additional equipment housed at the
Company's Mishawaka, Indiana manufacturing facility for $250,000 which
it exercised in November 1996. The purchase price was adjusted for
changes in working capital, as defined in the asset purchase agreement,
between October 1, 1995 and June 10, 1996. The change in working
capital resulted in additional proceeds and select assets paid to the
Company by Rubatex of approximately $700,000. Such amount has been
included in the pre-tax gain on sale. The Company and Rubatex also
entered into an earn-out agreement whereby the Company could earn
between $.15 and $.20 per board foot of Ensolite products produced by
Rubatex in excess of the base volume as defined in such agreement
during each of the four year periods following the closing of the
Ensolite Sale. In no event will the total amount earned by the Company
under the earn-out agreement during the forty-eight month period
following the closing of the sale exceed $3,000,000.
In conjunction with the Ensolite Sale, the Company entered into a toll
manufacturing agreement with Rubatex. The Company is producing Ensolite
products for the benefit of Rubatex at its leased Mishawaka, Indiana
manufacturing facility for an initial period of approximately twelve
months, and in no event beyond July 31, 1997. The Company is being
reimbursed by Rubatex for the variable costs incurred in the production
of Ensolite products and is being paid a fixed amount for manufacturing
period costs based on actual costs incurred by the Company during
Fiscal 1995 and adjusted for inflation. In addition the Company
provides certain support services to Rubatex and is reimbursed by
Rubatex for the costs of such services.
4. INVENTORIES
Inventories consisted of the following (in thousands):
September 29, October 1,
1996 1995
------------------ -----------------
Raw materials and supplies $ 17,058 $ 14,926
Work in process 4,400 5,253
Finished goods 11,712 12,453
--------- ---------
Total $ 33,170 $ 32,632
========= =========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
thousands):
Estimated
Useful September 29, October 1,
Lives 1996 1995
---------------- ------------------ ----------------
Land and improvements - $ 5,014 $ 5,358
Buildings and improvements 3-40 years 16,083 19,025
Machinery, equipment and office
furnishings 3-15 years 57,170 85,097
Construction in progress - 7,412 5,959
--------- --------
85,679 115,439
Accumulated depreciation (22,367) (24,711)
--------- --------
Total $ 63,312 $ 90,728
========= ========
On July 17, 1996 the Company acquired a manufacturing facility in South
Bend, Indiana for a purchase price of approximately $1,800,000 in cash.
This facility will house the Company's UAS division and the Royalite
division's headquarters as well as certain other Company operations.
The Company plans to move all these operations from their existing
leased facility in Mishawaka, Indiana during the first six months of
Fiscal 1997.
In prior years the Company had established reserves for the estimated
costs for asset write-offs, property clean-up costs and relocation
costs associated with the Company's move of its UAS division. The
reserves totaled $1,658,000 as of September 29, 1996. Such amounts are
classified as current and are included in other accrued expenses in the
accompanying financial statements.
6. OTHER ASSETS
Other assets consisted of the following (in thousands):
September 29, October 1,
1996 1995
----------------- ----------------
Patents and trademarks $ 5,322 $ 6,457
Debt issuance costs 4,110 4,425
Other 2,563 1,236
-------- ---------
Total $ 11,995 $ 12,118
======== =========
Patents and trademarks are reported net of accumulated amortization of
$2,142,000 and $1,776,000 at September 29, 1996 and October 1, 1995,
respectively. During the fiscal year ended October 1, 1995 the Company
wrote off $466,000 of debt issuance costs in connection with the
acquisition of $7,497,000 of face value of the Company's Senior Secured
Notes (Note 8). During the fiscal year ended October 2, 1994 the
Company wrote off $228,000 of debt issuance costs related to the PBGC
debt retirement (Note 8). Debt issuance costs are shown net of
accumulated amortization of $1,502,000 and $1,045,000 at September 29,
1996 and October 1, 1995, respectively.
7. OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
September 29, October 1,
1996 1995
------------------ ----------------
Accrued retirement benefits $ 13,639 $ 5,058
Taxes, other than income 1,478 1,746
-------- --------
Total $ 15,117 $ 6,804
======== ========
8. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 29, October 1,
1996 1995
----------------- ----------------
11.75% Senior Secured Notes, principal due June 1, 2003,
interest due semi-annually on December 1 and June 1 $ 72,503 $ 72,503
Revolving credit agreement - 3,761
Unamortized debt discount (1,130) (1,230)
--------- ---------
71,373 75,034
Other obligations 1,402 1,729
--------- ---------
72,775 76,763
Less current portion (659) (4,290)
--------- ---------
Long-term debt $ 72,116 $ 72,473
========= =========
Debt amounts become due during subsequent fiscal years ending in
September as follows (in thousands):
1997 $ 659
1998 450
1999 161
2000 118
2001 14
Subsequent years 72,503
Less unamortized debt discount (1,130)
--------
72,775
Less current portion (659)
--------
Total $ 72,116
========
Prior to Fiscal 1994, the Company consummated a public offering of
80,000 units, consisting of $80,000,000 aggregate principal amount of
its 11.75% Senior Secured Notes Due 2003 ("Senior Secured Notes") and
warrants to purchase an aggregate of 800,000 shares of its common
stock. The warrants issued with the Senior Secured Notes are detachable
and therefore were allocated a portion of the proceeds in the amount of
approximately $1,566,000 which was an estimate of their market value at
the time they were issued. The proceeds allocated to the notes were
approximately $78,434,000 resulting in a note discount of $1,566,000,
which is being amortized using the interest method. The effective
interest rate of the notes based on the allocated proceeds was
calculated to be approximately 12.09%. The notes will mature on June 1,
2003. Interest is payable on June 1 and December 1 of each year at the
rate of 11.75% per annum. The notes are collateralized by a lien on
substantially all of the non-cash assets of the Company (other than
trade accounts receivable) and net cash proceeds of the sale of
collateral. The notes are redeemable at the option of the Company, in
whole or in part, on or after June 1, 1998, at 104.41% of the principal
amount, declining to par on and after June 1, 2001. The indenture
contains certain covenants which limit, among other things, the
Company's ability to incur additional debt, pay cash dividends, make
certain other payments, sell its assets, and redeem its capital stock.
The Company was in compliance with these covenants at September 29,
1996 and October 1, 1995.
During the fiscal year ended October 1, 1995 the Company acquired
$7,497,000 of face value of the Senior Secured Notes through open
market purchases. These purchases resulted in an extraordinary gain
(net of the write-off of applicable debt issuance costs, unamortized
debt discount and other transaction costs totaling $601,000, and net of
applicable income taxes of $310,000) of approximately $363,000. The
Company did not acquire any such notes during the fiscal years ended
September 29, 1996 and October 2, 1994.
On June 5, 1996, the Company entered into a revolving credit agreement
with The CIT Group/Business Credit Inc., pursuant to which, subject to
the satisfaction of certain borrowing conditions, the Company may
borrow the lesser of $25,000,000 or 85% of eligible accounts receivable
but in no event at any time more than 75% of the Company's Accounts, as
defined in the agreement, determined in accordance with generally
accepted accounting principles. Interest is payable monthly at prime
plus .5% per annum or at the LIBOR rate plus 2.75% if the Company
elects to borrow funds under a LIBOR Loan as defined in the agreement.
The loan matures on June 5, 2001. All of the Company's trade accounts
receivable 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
29, 1996. The Company repaid in full its obligations to Heller
Financial, Inc. with borrowings under this agreement. At September 29,
1996 the Company had approximately $19,727,000 available under the
revolving credit agreement. The Company had no outstanding borrowings
under this agreement at September 29, 1996.
On December 7, 1993, the Company repaid at a discount its remaining
obligation to the PBGC in the amount of $10,000,000 plus accrued
interest of $243,000 with a payment of $8,000,000. Concurrent with the
payment, the PBGC released its lien on the Company's $10,000,000
investment in U.S. Treasury Notes, which were sold and the proceeds
therefrom were used, in part, to make the repayment. A gain of $727,000
resulting from this transaction, net of applicable income tax of
$465,000 and certain expenses, including the write-off of loan costs of
$228,000, is shown in the accompanying financial statements as an
extraordinary item for the fiscal year ended October 2, 1994. In
addition to the forgiveness of debt, the PBGC also agreed to make
certain payments to the Company as a result of any recoveries the PBGC
receives on account of its claims against the estate 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, which are the predecessors of
the Company's current operating divisions. The Company acquired the
businesses of the Predecessor Companies in connection with the
consummation of their plan of reorganization (the "Plan") on September
27, 1992. The amount and timing of the recovery of additional amounts,
if any, cannot be estimated and are not included in the accompanying
financial statements.
The Company leases certain machinery and equipment under non-cancelable
capital leases which extend for varying periods up to 5 years. Other
obligations include remaining capitalized lease obligations of
$1,402,000 and $1,729,000 as of September 29, 1996 and October 1, 1995,
respectively (Note 12).
9. INCOME TAXES
The effective tax rate differs from the statutory federal income tax
rate for the following reasons (in thousands):
Fiscal Years Ended
---------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------------ ---------------- ---------------
Income tax calculated at the statutory
rate applied to income before income
tax $ (7,657) $ (163) $ 1,804
Increase (decrease) resulting from:
Exclusion of extraordinary gain
on the extinguishment of debt - 310 465
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 145 145 204
State income taxes (593) - -
Other (16) (171) 209
---------- ---------- ----------
Income tax (benefit) expense $ (8,121) $ 121 $ 2,682
========== ========== ==========
Income tax (benefit) expense consisted of the following components (in
thousands):
Fiscal Years Ended
---------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
------------------ ----------------- --------------
Current
Federal $ 118 $ - $ -
State 533 242 164
---------- ---------- ----------
Total $ 651 $ 242 $ 164
========== ========== ==========
Net deferred tax
(benefit) expense
Federal $ (7,647) $ (106) $ 2,195
State (1,125) (15) 323
---------- ---------- ----------
Total $ (8,772) $ (121) $ 2,518
========== ========== ==========
Total
Federal $ (7,529) $ (106) $ 2,195
State (592) 227 487
---------- ---------- ----------
Total $ (8,121) $ 121 $ 2,682
========== ========== ==========
The total income tax expense of $121,000 and $2,682,000 for the fiscal
years ended October 1, 1995 and October 1, 1994, respectively, includes
an expense in the amount of $310,000 and $465,000, respectively,
applicable to the extraordinary item (Note 8).
The components of the deferred tax assets and liabilities consisted of
the following (in thousands):
September 29, 1996
-----------------------------------------------------------
Assets Liabilities Total
---------------- ------------------ -----------------
Current
Accrued expenses deductible in future
period $ 7,408 $ - $ 7,408
========== ========== ==========
Non-Current
Acquired tax loss carryforward benefits $ 7,872 $ - $ 7,872
Net operating loss carryforward 4,906 - 4,906
Book basis in excess of tax basis of
assets - (7,931) (7,931)
Long-term accrual of expenses deductible
in future periods 4,510 - 4,510
Valuation allowance (7,872) - (7,872)
---------- ---------- ----------
Total $ 9,416 $ (7,931) $ 1,485
========== ========== ==========
October 1, 1995
-----------------------------------------------------------
Assets Liabilities Total
---------------- ------------------ -----------------
Current
Accrued expenses deductible in future
period $ 6,541 $ - $ 6,541
========== ========== ==========
Non-Current
Acquired tax loss carryforward benefits
$ 7,872 $ - $ 7,872
Net operating loss carryforward 6,395 - 6,395
Book basis in excess of tax basis of
assets - (12,815) (12,815)
Valuation allowance (7,872) - (7,872)
---------- ---------- ----------
Total $ 6,395 $ (12,815) $ (6,420)
========== ========== ==========
The ultimate realization of the acquired tax loss carryforward benefits
is uncertain and subject to interpretation of the tax law as it applies
to the Company's bankruptcy reorganization.
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 Company's
September 27, 1992 bankruptcy reorganization. The annual limitation on
utilization of the acquired benefits for tax purposes is approximately
$700,000 per year. Utilization of the acquired tax loss carryforward
benefits in future periods will be applied to reduce reorganization
value in excess of amounts allocable to identifiable assets.
10. 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 29, 1996, 13,002,595 shares of common
stock had been issued. Approximately 230,000 shares of common stock are
reserved for issuance pending resolution of disputed claims in the
bankruptcy proceedings (Note 12).
The holder of the Series B Preferred Stock is entitled to vote as a
separate class of shareholders for the purpose of electing one director
to the Board of Directors of the Company. A holder of Series B
Preferred Stock has no preemptive or preferential rights to purchase or
subscribe to any additional shares of capital stock except for the
conversion rights described below.
The Company has the right to redeem all or any portion of the Series B
Preferred Stock at any time following 30 days' notice to the holder of
such Preferred Stock by (a) paying $150,000 per share for each share of
Series B Preferred Stock that the Company, in its sole discretion,
elects to redeem; and (b) issuing all common stock dividends then
accrued but unpaid on the Preferred Stock to be redeemed. The Company
has the right, but no obligation, to redeem, at its option, any or all
whole or fractional shares of Preferred Stock. In the event of a
liquidation of the Company, the holder of the Preferred Stock will be
entitled to receive, following all distributions to creditors of the
Company required under Delaware law, a liquidation payment of $150,000
per share plus all accrued but unpaid dividends prior to any
distributions to common stockholders.
The holder of Series B Preferred Stock may require that the Company
convert all of its Series B Preferred Stock into common stock (a)
during a period commencing on November 1 and ending on the last
business day prior to November 30 of each year for so long as the
Series B Preferred Stock is outstanding (the "Series B Conversion
Period") or (b) during a 30-day period following notice by the Company
of its intention to exercise its redemption option with respect to the
Series B Preferred Stock (the "Series B Redemption Conversion Period").
Pursuant to the certificate of incorporation, the number of common
shares into which each share of Series B Preferred Stock is convertible
has been fixed at approximately 38,071 shares for the remaining
outstanding shares of Series B Preferred Stock.
On May 31, 1994, the Company issued 2,476,586 shares of the Company's
common stock (the "Private Placement") at a price of $4.25 per share
for aggregate proceeds of approximately $10,525,000. The net proceeds
after certain expenses totalling approximately $775,000 were
approximately $9,750,000 or $3.94 per share. The Company used these net
proceeds together with approximately $322,000 of the Company's cash on
hand to repurchase all of the outstanding shares (50 shares) of the
Company's Series A Preferred Stock and 15 of the 50 outstanding shares
of Series B Preferred Stock (aggregate redemption value of $9,750,000)
for an aggregate of approximately $10,072,000 representing a price of
$4.07 for the Underlying Common Stock. The excess redemption price of
$322,000 has been charged to additional paid-in capital. On December
16, 1996, the Company redeemed 15 shares of Series B Preferred 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's ability to pay cash dividends
on common stock currently is restricted by the indenture in connection
with the Senior Secured Notes.
Since September 1, 1992, the holder of shares of Series A Preferred
Stock and Series B Preferred Stock has been entitled to receive an
annual dividend equal to 8% of the redemption price for outstanding
shares of Series A Preferred Stock and Series B Preferred Stock, as
applicable, payable only in shares of common stock which number of
shares is based on the average of the last reported bid prices for the
30 calendar days preceding the declaration date. The Company has
declared such dividends, on a quarterly basis, since January 1, 1994,
and pays such dividends within 30 days after each such declaration. To
the extent that outstanding shares of Series A Preferred Stock and
Series B Preferred Stock were repurchased in connection with the
Private Placement, the PBGC agreed that no dividends of common stock
would accrue on such repurchased shares of preferred stock subsequent
to March 31, 1994. In connection with such repurchase the Company
agreed to issue to the PBGC shares of the Company's common stock in an
amount equal to the dividends that would have accrued on the shares
repurchased for a period of 30 days subsequent to March 31, 1994.
During the fiscal years ended September 29, 1996, October 1, 1995, and
October 2, 1994, the Company declared stock dividends of $420,000,
$420,000 and $2,069,000, respectively, resulting in the issuance of
115,657, 125,588 and 495,403 shares of common stock, respectively, at
an average price per common share of $3.63, $3.34 and $4.18,
respectively. The $420,000 of dividends declared during the fiscal year
ended September 29, 1996 were charged to additional paid-in capital. Of
the $420,000 of dividends declared during the fiscal year ended October
1, 1995, $72,000 were charged to retained earnings and the remaining
$348,000 was charged to additional paid-in capital. Of the $2,069,000
of dividends declared during the fiscal year ended October 2, 1994,
$1,835,000 were charged to retained earnings and the remaining $234,000
were charged to additional paid-in capital.
The dividend for the period July 1, 1996 through September 29, 1996 as
declared on October 1, 1996 was approximately $105,000, which resulted
in the issuance in October 1996 of 32,796 shares of common stock based
on a share price of $3.20.
On December 18, 1996, The Board designated a new series of preferred
stock of the Company termed Series C Participating Preferred Stock $.01
par value ("Series C Preferred") and reserved 500 shares of 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 the
Shareholders Rights Plan adopted on the same date. The Rights will
trade with the common stock and be detachable from the common stock and
exercisable only in the event of an acquistion of 15% or more of the
common stock by one party or a common group or a tender offer to
acquire 15% or more of the Common Stock.
Warrants
The Company has 800,000 warrants outstanding to purchase an aggregate
of 800,000 shares of its Common Stock at a price equal to $4.375 per
share subject to adjustments under certain circumstances. All
outstanding warrants are exercisable at any time on or prior to June 1,
2003, at which time they will terminate and become void. The warrants
are detachable from the Senior Secured Notes and, therefore, were
allocated a portion of the proceeds of the sale of the Senior Secured
Notes and warrants 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. As of September 29, 1996 no warrants had
been exercised.
Stock Options
The Company has reserved 1,363,636 shares of common stock to be issued
and sold pursuant to the 1992 Stock Option Plan that was adopted by the
Company effective September 27, 1992. Generally, of the options under
this plan granted, 60% vested on May 1, 1994 and the remainder vested
on November 1, 1995. Vesting provisions for any additional options will
be determined by the Board of Directors of the Company at the time of
the grant of such options. The stock options are exercisable over a
period determined by the Board of Directors or its Option Committee,
but not 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 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 starting
with the date of the grant of each option. The plan provides for the
granting of stock options to purchase up to 150,000 shares of common
stock.
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 800,000 shares of common stock to be
issued under this plan, provided that the aggregate number of options
that may be granted under the 1994 Stock Option Plan and all other
stock option plans of the Company for employees may not at any time
exceed in the aggregate 15% of the then currently authorized common
stock outstanding, on a fully diluted basis. Stock options granted
under this plan are exercisable until not later than January 1, 2004.
During the fiscal year ended September 29, 1996, the Company adopted
the 1995 Non-Qualified Stock Option Plan available for directors. Each
director is granted an option to purchase 10,000 shares of the
Company's common stock in the case of the initial grant and 5,000
shares for any subsequent grant. The initial grant occurred upon the
adoption of this plan. 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.
Transactions in stock options under these plans are summarized as
follows (in thousands):
Fiscal Years Ended
-------------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
---------------- ----------------- -----------------
Options outstanding at beginning
of year 1,734 1,409 788
Options granted 96 421 641
Options exercised 7 3 2
Options canceled 29 93 18
----------- ---------- ----------
Options outstanding at end of year 1,794 1,734 1,409
=========== ========== ==========
Options exercisable at end of year 1,778 840 851
=========== ========== ==========
Option prices per share:
Granted $3.375 $1.69-$4.25 $1.75-$4.13
Exercised $2.75-$3.44 $2.75 $2.75-$3.44
Canceled $2.75-$4.13 $2.75-$4.13 $2.75-$4.13
Approximately 570,000 options are available for grant under the
Company's stock option plans as of September 29, 1996.
In October 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123 establishes a
fair value based method of accounting for stock-based compensation
plans, including stock option and stock purchase plans. It encourages
entities to adopt that method in place of the provisions of Accounting
Practice Bulletin No. 25, Accounting for Stock Issued to Employees, for
all arrangements under which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities
to employees in amounts based on the price of its stock. SFAS No. 123
also establishes fair value as the measurement basis for transactions
in which an entity acquires goods or services from nonemployees in
exchange for equity instruments. SFAS No. 123 is effective for fiscal
years beginning after December 15, 1995 and will become effective for
the Company beginning in Fiscal 1997. The adoption of SFAS No. 123 is
not expected to have a significant effect on the Company's results of
operations, cash flows or financial condition.
Employee Stock Ownership Plan
The Company has established the Uniroyal Technology Corporation
Employee Stock Ownership Plan (the "ESOP") effective September 27,
1992. The ESOP is a stock bonus plan intended to encourage eligible
employees to save for their retirement and to increase their
proprietary interest in the Company by accumulating the Company's
common stock. Eligible employees generally are all employees employed
by the Company on or after January 1, 1993, excluding executive
officers of the Company.
The Company made an initial contribution to the ESOP of 425,000 shares
of common stock. Future contributions by the Company are discretionary.
The initial contribution has been allocated to eligible employees of
the Company ratably based upon the respective compensation levels of
the eligible employees. Shares allocated to each participant account
under the ESOP become vested upon the participant's completion of three
years of cumulative service with the Company. The Company did not make
any contributions to the ESOP during the fiscal years ended September
29, 1996, October 1, 1995 and October 2, 1994. The Company did not have
any ESOP expense during the fiscal years ended September 29, 1996,
October 1, 1995 and October 2, 1994.
11. EMPLOYEE COMPENSATION
Retirement Plan
All salaried and non-union hourly employees and certain union employees
of the Predecessor Companies were covered by a retirement plan prior to
September 27, 1992. The PBGC approved the termination of the retirement
plan effective February 20, 1992. During the fiscal year ended October
2, 1994, the Company received approximately $6,761,000, net of certain
expenses, from the Uniroyal Plastics Acquisition Corp. ("UPAC") estate
related to a claim filed by the Company with the Bankruptcy Court
against the UPAC estate. The claim was filed to recover amounts paid by
the Company to the PBGC on behalf of UPAC. UPAC was an affiliate of the
Predecessor Companies. Such amount is shown as a recovery of pension
expense in the accompanying financial statements.
Post-retirement Health Care and Life Insurance Benefits
Certain retired employees are currently provided with specified health
care and life insurance benefits. Generally, the plan provides for
reimbursement of approved medical and prescription drug costs not fully
covered by Medicare. The plan also provides for certain deductibles and
co-payments. The life insurance benefits provide for amounts based upon
the retirees' compensation at the time of their retirement. Eligibility
requirements for such benefits vary by division, but generally provide
that benefits are available to employees who retire after a certain age
with specified years of service or a combined total of age and years of
service. The Company has the right to modify or terminate certain of
these benefits. The Company's policy is to pay the actual expenses
incurred by the retirees; the Company does not intend to fund any
amounts in excess of those obligations. The Company is also obligated
to provide benefits to certain salaried retirees of UPC or Uniroyal,
Inc. ("Uniroyal") (not affiliated with the Company) who are class
members under a federal district court order. In the Company Settlement
(Note 13), the Company and the Uniroyal Parties (Note 13), 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 an administrative
corporation established to provide benefits to certain retirees of the
Predecessor Companies and UPC.
The Company adopted SFAS No. 106 as of September 27, 1992, which
requires that the cost of the foregoing benefits be recognized in the
Company's 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 is expected to be
approximately 16 years. In connection with the Ensolite Sale (Note 3),
the Company recognized approximately $4,500,000 of the Transition
Obligation relating to this employee group as reduction to the gain on
the sale.
The following table summarizes the accumulated post-retirement and
benefit obligation included in the Company's balance sheets (in
thousands):
September 29, October 1, 1995
1996
------------------ ----------------
Accumulated post-retirement benefit obligation:
Retirees $ 25,919 $ 26,731
Fully eligible active plan participants 4,836 4,554
Other active plan participants 2,904 4,302
Plan assets at fair value - -
Unrecognized prior service cost (290) (322)
Unamortized transition obligation (16,613) (22,819)
Unrecognized net loss (6,279) (8,123)
------------ ------------
Accrued post-retirement benefit obligation $ 10,477 $ 4,323
============ ============
Not reflected in the above table is approximately $3,600,000 of the
Transition Obligation the Company recognized as of September 29, 1996
in connection with its decision to exit the Port Clinton, Ohio
automotive operation (Note 15).
The net periodic post-retirement benefit cost contains the following
components (in thousands):
Fiscal Years Ended
-------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
---------------- -------------- ----------------
Service cost $ 205 $ 196 $ 196
Interest cost on projected benefit 2,366 2,202 2,202
obligation
Amortization of unrecognized transition
obligation 1,651 1,755 1,755
Amortization of net loss 362 140 140
---------- ---------- ---------
Net periodic post-retirement benefit cost $ 4,584 $ 4,293 $ 4,293
========== ========== =========
All post-retirement benefits are based on actual costs incurred except
for a certain group of retirees which is covered under an agreement
providing payments based on the number of beneficiaries. For
measurement purposes, an approximately 7.6% annual rate of increase in
the cost of covered health care benefits was assumed for years one
through four, approximately 6.5% for years five through seven, and
approximately 5.5% thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For
example, increasing the health care trend rate by one percentage point
in each year would increase the accumulated post-retirement benefit
obligation as of September 29, 1996 by $3,265,000 and the net periodic
post-retirement benefit cost by $283,000.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation and net periodic post-retirement
benefit cost was 7.75% for the fiscal year ended September 29, 1996 and
7.00% for the fiscal years ended October 1, 1995 and October 2, 1994.
Other Benefit Plans
The Royalite, UEP and UAS divisions provide additional retirement
benefits to substantially all of their employees and the Polycast
division provides such benefits to certain of its employees through two
defined contribution savings plans. The plans provide for employee
contributions and employer contributions to employee savings. Employer
contributions are generally either 2% of salaried and certain non-union
hourly participants' gross earnings or rates per hour ranging generally
from $.05 to $.51 based on years of service. The expenses pertaining to
these plans amounted to approximately $699,000, $670,000 and $608,000,
for the fiscal years ended in 1996, 1995 and 1994, 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
pretax 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 $228,000 and $174,000 for the fiscal
years ended 1996 and 1995. No expenses were incurred by the Company for
the fiscal year ended 1994. During Fiscal 1996 the Company contributed
60,648 shares of its common stock with a market value of approximately
$212,000 to the savings plan. The Company did not make any such
contributions during the fiscal years ended in 1995 and 1994.
12. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
Notwithstanding the confirmation and effectiveness of the Plan, 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 prepetition
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. During Fiscal 1996,
pursuant to the Predecessor Companies' Plan, the Company distributed
1,061,998 shares of common stock reserved for the satisfaction of
disputed claims; a total of 9,768,683 such shares have been issued to
the holders of unsecured claims against the Predecessor Companies in
settlement of the allowed unsecured claims against the estates of the
Predecessor Companies and to the Company's ESOP. The Company retained
50,843 shares of common stock which are included in treasury stock. The
remaining shares are being held pending resolution of certain retiree
medical claims.
Litigation
Uniroyal Retiree Benefits, Inc. ("URBI"), an organization that is
unaffiliated with the Company, administers a medical, prescription drug
and life insurance program for certain retired employees of the
Predecessor Companies and certain affiliates of the Predecessor
Companies. This program is partially funded by the Company in
accordance with terms of an agreement entered into by and between the
predecessors of URBI and the Company in connection with the Predecessor
Companies' Plan. The Company has had disputes with URBI concerning the
eligibility of certain participants in URBI's medical plan and the
level of payments due. URBI had filed a complaint with the Bankruptcy
Court claiming the Company had breached its agreement relating to
funding URBl's operations. The Company filed counterclaims against URBI
claiming breach of contract, fraud, negligent misrepresentation, unjust
enrichment, declaratory judgment and clarification or reformation of
contract. The Bankruptcy Court ruled in favor of URBI with respect to
certain matters and in favor of the Company with respect to other
matters. The effect to the Company was a net judgment against the
Company of approximately $211,000. URBI filed an additional complaint
with the Bankruptcy Court concerning payments due in Fiscal 1996. The
Bankruptcy Court then ordered the Company to increase its monthly
payments to URBI to approximately $160,000 through September 1996 and
later ordered the Company to continue payments at that level through
January 1997. The Company filed an appeal of Bankruptcy Court's
December 20, 1995 ruling with the United States District Court for the
Northern District of Indiana, South Bend Division which is still
pending. The Company has agreed in principle with URBI to settle the
foregoing litigation on a level of funding to reflect URBI's current
program needs.
Approximately 130 hourly employees at the Company's acrylic sheet
manufacturing facility in Stamford, Connecticut are represented by
Teamsters Local 191, which is affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America (the "Teamsters"). The Teamsters declared a strike on July 11,
1994 and called off the strike December 10, 1994. The Company and
Teamsters settled their dispute in June 1996. The Company agreed to
settle the claim of the striking employees for back pay following the
receipt of release of claims from such employees. The Company settled
its obligation to the employees in August 1996 with a payment of
approximately $808,000, inclusive of employment taxes of $58,000.
The Company is also engaged in litigation arising in the ordinary
course of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or leased facilities. The Company's
policy is to accrue environmental and cleanup-related costs of a
non-capital nature when it is probable both that a liability has been
incurred and that the amount can be reasonably estimated.
The Company may become subject to claims relating to certain
environmental matters. The operations of the Predecessor Companies and
certain of their affiliates produced waste materials that, prior to
1980, were disposed of at some 36 known unregulated sites throughout
the United States. After 1980, waste disposal was limited to sites
permitted under federal and state environmental laws and regulations.
If any of the disposal sites (unregulated or regulated) are found to be
releasing hazardous substances into the environment, under current
federal and state environmental laws, the companies that sent hazardous
waste materials to such sites could be subject to liability for cleanup
and containment costs.
Prior to the effective date of the Predecessor Companies' Plan several
sites were identified where there were potential liabilities for the
cost of environmental cleanup. In most instances, this potential
liability resulted from the alleged arrangement for the off-site
disposal of hazardous substances by Uniroyal, Inc.
Pursuant to a settlement agreement with the United States Environmental
Protection Agency ("EPA"), the United States Department of the Interior
and the States of Wisconsin and Indiana (the "EPA Settlement
Agreement"), entered into in connection with the Plan, the Predecessor
Companies compromised and settled (in exchange for common stock of the
Company) substantially all of the prepetition liabilities of the
Predecessor Companies and the Company relating to disposal activities
under Sections 106 and 107 of the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation and Recovery Act ("RCRA") and similar state laws for
cleanup of the remaining unsettled 20 designated sites not owned by any
of the Predecessor Companies (the "Known Sites") and for natural
resource damages at 15 of the 20 Known Sites. Pursuant to the EPA
Settlement Agreement, the Predecessor Companies and the Company
received from the United States and the States of Indiana and Wisconsin
a covenant not to sue for response costs and, with the exception of
five Known Sites, natural resource damages at each of the Known Sites.
In addition, pursuant to Section 113(f)(2) of CERCLA, and as provided
under the EPA Settlement Agreement, the Predecessor Companies and the
Company will be protected against contribution claims filed by private
parties for any Known Site for matters covered by the EPA Settlement
Agreement. The EPA Settlement Agreement established a mechanism for the
Company to resolve its liability for any other sites, except those
owned by the Company (the "Additional Sites"), arising from prepetition
disposal activity. The Company also agreed to share with such
governmental parties the proceeds of claims relating to the Known Sites
made against certain insurers of the Predecessor Companies and their
affiliates.
In the event that the United States, 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 prepetition
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 prepetition disposal activities, the Company or such Predecessor
Company may pay the claims in discounted "plan dollars" (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 is not aware of any material claims related to
Additional Sites.
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 has placed $1,000,000 in an
escrow account to be used for such clean-up in accordance with the
terms of the purchase agreement.
The Company has established a reserve for cleanup costs, including
environmental remediation costs, related to the Ensolite Sale and the
Company's planned exit from its Mishawaka, Indiana leased manufacturing
facility. The Company estimates the cost for all such cleanup costs to
be approximately $610,000; however, the ultimate cost will depend on
the extent of contamination found as the project progresses. The
Company expects the clean-up to be substantially completed within one
year.
Based on information available as of September 29, 1996, 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 5) consists of the following (in
thousands):
September 29, October 1,
1996 1995
---------------- --------------
Machinery, equipment and office furnishing $ 1,445 $ 1,199
Construction in progress 969 969
Less accumulated amortization (308) (146)
------------- -----------
$ 2,106 $ 2,022
============= ===========
The approximate minimum future lease obligations on long-term
non-cancelable capital lease obligations included in long-term debt
(Note 8) during subsequent fiscal years ending in September are as
follows (in thousands):
Fiscal Year
1997 $ 761
1998 500
1999 182
2000 125
2001 14
-------------
1,582
Less imputed interest 180
-------------
Total $ 1,402
=============
Interest is imputed using the rate that would equate the present value
of the minimum lease payments to the fair value of the leased
equipment.
The Company leases equipment, vehicles and warehouse and office space
under various lease agreements, certain of which are subject to
escalations based upon increases in specified operating expenses or
increases in the Consumer Price Index. The approximate future minimum
rentals under non-cancelable operating leases during subsequent fiscal
years ending in September are as follows (in thousands):
Fiscal Year
1997 $ 1,021
1998 650
1999 505
2000 497
2001 47
-------------
Total $ 2,720
=============
Rent expense was approximately $1,592,000, $1,643,000 and $2,056,000
for the years ended September 29, 1996, October 1, 1995 and October 2,
1994, 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 29, 1996 and October 1, 1995 participant deferrals which are
included in accrued liabilities were $173,000 and $17,000,
respectively. The expense during the fiscal year ended September 29,
1996 and October 1, 1995 was $156,000 and $17,000, 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. Insurance premiums of $186,000 were paid during each of the
fiscal years ended September 29, 1996 and October 1, 1995. As of
September 29, 1996 and October 1, 1995, $356,000 and $178,000,
respectively, had been capitalized to reflect the cash surrender value
of these contracts net of loan balances.
As of September 29, 1996, the Company had employment contracts with
four officers of the Company, providing for total annual payments of
approximately $1,339,000 plus bonuses through September 1997.
13. RECOVERY FROM INSURANCE SETTLEMENT
As a result of the EPA Settlement Agreement (Note 12), the Company
filed claims to recover amounts payable under various insurance
policies issued in the name of Uniroyal. To consolidate the processing
of claims of the Company and Uniroyal and to establish their respective
entitlement to proceeds, if any, of the claims submitted, on May 6,
1993, the Company entered into a settlement agreement (the "Company
Settlement") with Uniroyal, CDU Holding Liquidating Trust ("CDU") and
Uniroyal Holding, Inc. ("UHI") (collectively the "Uniroyal Parties")
pursuant to which the Company and the Uniroyal Parties resolved certain
existing and potential disputes arising from the acquisition by UPAC of
UPC from Uniroyal. Uniroyal was dissolved in December 1986 and CDU and
UHI were affiliates of Uniroyal. In connection with the resolution of
the matters covered by the Company Settlement, the Uniroyal Parties
paid $2,250,000 in cash to the Company upon execution of the Company
Settlement. In exchange, the Company agreed to certain matters
involving the prosecution and settlement of claims under insurance
policies of the Uniroyal Parties that covered environmental liabilities
at certain of the Known Sites (the "Class A Sites").
The Company Settlement also provides that the Company will indemnify
and hold harmless the Uniroyal Parties with respect to: (a)
environmental liabilities associated with sites that were owned or
operated by the Company or the Predecessor Companies on or prior to the
date of the Company Settlement; and (b) future environmental
expenditures by the Uniroyal Parties with respect to the businesses of
UPC net of recoveries from third parties (including insurance), but
only with respect to the portion of such expenditures, if any, that
exceeds $30,000,000 and is less than $45,000,000.
During the fiscal years ended October 1, 1995 and October 2, 1994, the
Company reached agreements with several insurance companies to recover
amounts with respect to environmental claims. As a result of these
agreements, the Company recorded as income approximately $1,176,000 net
of certain professional fees and other expenses in the fiscal year
ended October 2, 1994 and approximately $70,000 in the fiscal year
ended October 1, 1995.
14. RELATED PARTY TRANSACTIONS
In connection with the Ensolite Sale, the Company utilized the services
of an investment banking firm that employs a relative of one of the
Company's executive officers. This firm also provides certain other
services to the Company on a periodic basis. The Company incurred
expenses related to services provided by this firm of approximately
$258,000 during the fiscal year ended September 29, 1996.
15. SUBSEQUENT EVENT
On December 11, 1996 the Company determined to exit the Port Clinton,
Ohio automotive operation of the Coated Fabrics Segment. The automotive
operation incurred operating losses of approximately $7,640,000 (before
consideration of the estimated loss reserves totalling $12,500,000),
$5,540,000 and $3,696,000 during the fiscal years ended September 29,
1996, October 1, 1995 and October 2, 1994, respectively. In accordance
with SFAS No. 121 the Company established reserves totalling
approximately $12,500,000 during the fiscal year ended September 29,
1996. The carrying value of the long-lived assets to be disposed of was
$11,504,000 as of September 29, 1996.
16. SEGMENT INFORMATION
Identifiable assets by segment are those assets that are used solely in
the Company's operations in each segment. The Company did not derive
10% or more of its sales from any single customer during the fiscal
years ended September 29, 1996, October 1, 1995 and October 2, 1994 .
Segment data for the fiscal years ended September 29, 1996, October 1,
1995 and October 2, 1994 are as follows (in millions):
Fiscal Years Ended
------------------------------------------------------------
September 29, October 1, October 2,
1996 1995 1994
----------------- --------------- --------------
Net sales:
High performance plastics $ 115.1 $ 112.2 $ 105.5
Coated fabrics 58.7 56.1 49.2
Specialty adhesives 35.5 46.7 42.8
------------ ------------ ------------
Total $ 209.3 $ 215.0 $ 197.5
============ ============ ============
Operating (loss) income:
High performance plastics $ 7.0 $ 13.0 $ 9.2
Coated fabrics (19.0) (4.9) (4.8)
Specialty adhesives 0.1 2.1 4.1
Unallocated (0.8) (0.7) 6.9
------------ ------------ ------------
Total $ (12.7) $ 9.5 $ 15.4
============ ============ ============
Identifiable assets:
High performance plastics $ 81.7 $ 80.1 $ 74.0
Coated fabrics 45.9 51.0 51.3
Specialty adhesives 9.3 24.9 24.9
Corporate 33.9 24.5 29.1
------------ ------------ ------------
Total $ 170.8 $ 180.5 $ 179.3
============ ============ ============
Depreciation and amortization:
High performance plastics $ 4.4 $ 4.0 $ 3.5
Coated fabrics 3.7 3.6 3.1
Specialty adhesives 1.6 1.9 1.8
Unallocated 0.9 0.8 1.0
------------ ------------ ------------
Total $ 10.6 $ 10.3 $ 9.4
============ ============ ============
Capital expenditures:
High performance plastics $ 3.9 $ 4.5 $ 4.1
Coated fabrics 2.4 1.3 1.1
Specialty adhesives 1.8 0.8 1.1
Corporate 2.0 2.2 0.4
------------ ------------ ------------
Total $ 10.1 $ 8.8 $ 6.7
============ ============ ============
The amount shown as unallocated operating (loss) income for the fiscal
year ended October 2, 1994 includes (i) amortization of reorganization
value in excess of amounts allocable to identifiable assets of
$1,003,000; (ii) recovery from insurance settlement of $1,176,000; and
(iii) recovery of pension expense of $6,761,000.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the balance sheets of Uniroyal Technology Corporation (the
"Company") as of September 29, 1996 and October 1, 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 29, 1996 and have issued
our report thereon dated December 20, 1996 (included in this Form 10-K). Our
audits also included the accompanying financial statement schedule listed in
Item 14 of this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
December 20, 1996
S-1
SCHEDULE VIII
UNIROYAL TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED (CREDITED) CHARGED
BEGINNING OF TO COSTS AND TO OTHER BALANCE AT
PERIOD EXPENSES ACCTS. DEDUCTION END OF PERIOD
DESCRIPTION
(a) (b)
Year ended September 29, 1996 $ 437 $ (6) $ 27 $ (89) $ 369
Estimated reserve for
doubtful accounts
Year ended October 1, 1995 $ 629 $ (217) $ 114 $ (89) $ 437
Estimated reserve for
doubtful accounts
(a) Amount represents recovery of amounts previously written-off.
(b) Amount includes write-off of uncollectible accounts.
S-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNIROYAL TECHNOLOGY CORPORATION
Date: December 20, 1996 By: /s/ Howard R.Curd
---------------------
Howard R. Curd, Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Howard R. Curd /s/ Curtis L.Mack
- ---------------------- ------------------------
Howard R. Curd, Chairman of Curtis L. Mack, Director
the Board and Chief Executive Officer Date: December 20, 1996
Date: December 20, 1996
/s/ Robert L. Soran /s/ Roland H. Meyer
- -------------------------- ------------------------
Robert L. Soran, Director, President Roland H. Meyer, Director
and Chief Operating Officer Date: December 20, 1996
Date: December 20, 1996
/s/ George J. Zulanas Jr. /s/ John A. Porter
- -------------------------- ------------------------
George J. Zulanas Jr.Executive Vice John A. Porter, Director
President and Chief Financial Officer Date: December 20, 1996
Date: December 20, 1996
/s/ Peter C. B. Bynoe /s/ Thomas J. Russell
- -------------------------- ------------------------
Peter C. B. Bynoe, Director Thomas J. Russell, Director
Date: December 20, 1996 Date: December 20, 1996
/s/ Richard D.Kimbel
- --------------------------
Richard D. Kimbel, Director
Date: December 20, 1996
POWER OF ATTORNEY
Each person whose signature to this report appears below hereby appoints Howard
R. Curd, Robert L. Soran and Oliver J. Janney, and each individually, any one of
whom may act without the joinder of the others, as his agent and
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all amendments to this report, which amendments make such
changes and additions to this report as such agent and attorney-in-fact may deem
necessary and appropriate.
/s/ Howard R. Curd /s/ Peter C. B. Bynoe
- ---------------------- ------------------------
Howard R. Curd, Chairman of Peter C. B. Bynoe, Director
the Board and Chief Executive Officer Date: December 20, 1996
Date: December 20, 1996
/s/ Robert L. Soran /s/ Richard D. Kimbel
- -------------------------- ------------------------
Robert L. Soran, Director, President Richard D.Kimbel, Director
and Chief Operating Officer Date: December 20, 1996
Date: December 20, 1996
/s/ Curtis L. Mack
--------------------------
Curtis L. Mack, Director
Date: December 20, 1996
/s/ Roland H. Meyer
--------------------------
Roland H. Meyer, Director
Date: December 20, 1996
/s/ John A. Porter
--------------------------
John A. Porter, Director
Date: December 20, 1996
/s/ Thomas J. Russell
-------------------------
Thomas J. Russell, Director
Date: December 20, 1996