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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 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to __________
Commission file number 0-20686
UNIROYAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0341868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Tamiami Trail, Suite 900
Sarasota, Florida 34236-5568
(Address of principal executive offices) (Zip Code)
(941) 361-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (29,405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of November 28, 1997 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 $38,952,000 based on the
closing price for the stock on November 28, 1997. The foregoing aggregate market
value is based on issuance of only 97% of the shares authorized for initial
issuance; the registrant believes that the foregoing aggregate market value
would be approximately $40,812,000 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 28, 1997, 13,121,517 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
1998.
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TABLE OF CONTENTS
Part 1..........................................................................1
Item 1. Business................................................................1
General....................................................................1
Corporate Developments.....................................................1
Disposition of Stock of PBGC..........................................1
Exit From the Mishawaka Plant.........................................2
Acquisition of C. Gunther Company.....................................2
Acquisition of Lucite(R) S-A-R Business...............................2
Acquisition of Townsend Plastics......................................2
Sale of the Automotive Operations of the Coated Fabrics Segment.......2
Settlement of Retiree Medical Claims..................................2
Transaction with Emcore...............................................3
Business Segments..........................................................3
High Performance Plastics Segment.....................................3
Coated Fabrics Segment................................................9
Specialty Adhesives Segment...........................................11
Employees..................................................................13
Trademarks and Patents.....................................................13
Research and Development...................................................14
Backlog ...................................................................14
Working Capital Items......................................................14
Environmental Matters......................................................15
History of Company.........................................................16
Predecessor Companies.................................................16
Reorganization........................................................17
Item 2. Properties..............................................................18
Item 3. Legal Proceedings.......................................................19
Item 4. Submission of Matters to a Vote of Security Holders.....................19
Part II.........................................................................19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...19
Item 6. Selected Financial Data.................................................20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................21
Results Of Operations...................................................21
Comparison of Fiscal 1997 with Fiscal 1996............................21
Comparison of Fiscal 1996 with Fiscal 1995............................22
Liquidity and Capital Resources.......................................25
Effects of Inflation..................................................25
Forward Looking Information...........................................25
Item 8. Consolidated Financial Statements and Supplementary Data................25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................25
Part III........................................................................26
Item 10. Directors and Executive Officers of the Registrant.....................26
Item 11. Executive Compensation.................................................26
Item 12. Security Ownership of Certain Beneficial Owners and Management.........26
Item 13. Certain Relationships and Related Transactions.........................26
Part IV.........................................................................26
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.........26
Signatures......................................................................
Index to Financial Statements and Financial Statement Schedule..................
Exhibit Index...................................................................
Item 1. Business
General
Uniroyal Technology Corporation (the "Company") is a leader in
the development, manufacture and sale of a broad range of materials
employing plastics and specialty chemicals technologies used in the
production of consumer, commercial and industrial products. Its
products, many of which are based on proprietary technology, include
thermoplastic sheet for use in the manufacture of seating, interior
paneling and other applications in the transportation, recreational,
agricultural and industrial vehicle and computer manufacturing
industries; acrylic sheet for use in the manufacture of aircraft
canopies, cabin windows and windshields, tanning 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 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
eleven sites located in Indiana, Delaware, Iowa, 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 consists of two divisions: Royalite Thermoplastics
("Royalite"), which manufactures specialty and general purpose
thermoplastic sheet, injection molding resins, color concentrates and
extruded profiles and Polycast Technology ("Polycast"), which
manufactures acrylic sheet for the aerospace, specialty and general
purpose markets as well as acrylic rods and tubes. The Coated Fabrics
Segment manufactures the Company's line of vinyl coated fabrics and
vinyl laminated composites, and the Specialty Adhesives Segment
(formerly, the Specialty Foams and Adhesives Segment), manufactures
liquid adhesives and sealants.
The Company's Fiscal 1997 net sales were approximately $208.5
million. Approximate net sales for each of the Company's three business
segments during such period were as follows: High Performance Plastics
- $118.8 million, Coated Fabrics - $68.8 million, and Specialty
Adhesives - $20.9 million. For certain financial information with
respect to the Company's business segments, see "Note 17 to
Consolidated 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 1997. The descriptions of such developments should
be read in conjunction with the other parts of this Form 10-K and with
the Consolidated Financial Statements and Notes to Consolidated
Financial Statements and other financial information which form a part
hereof.
Disposition of Stock of PBGC
On December 16, 1996, the Company redeemed 15 shares of Series
B Preferred Stock held by the Pension Benefit Guaranty Corporation (the
"PBGC") for $2.3 million. On February 4, 1997, the Company redeemed the
remaining 20 shares of Series B Preferred Stock for $3.0 million.
Shortly after the end of Fiscal 1997, the Company, directors and
officers of the Company and certain other persons acquired all the
Company's common stock owned by the PBGC.
Exit from the Mishawaka Plant
On March 31, 1997, the Company vacated the Mishawaka, Indiana
plant. Earlier in the year the Company moved its adhesives operations,
the Royalite headquarters and certain corporate operations from the
Mishawaka plant to the South Bend plant acquired during Fiscal 1996 and
renovated during the first half of Fiscal 1997. The Company is
realizing substantial cost savings and other efficiencies from this
move.
Acquisition of C. Gunther Company
On March 31, 1997, the Company acquired all of the common
stock of C. Gunther Company ("Gunther"), a distributor of mirror mastic
adhesives, for $1.7 million in cash and 100,000 shares of common stock
of the Company. Gunther was subsequently merged into the Company. Much
of the production of the Gunther products was moved into the Company's
South Bend plant during Fiscal 1997. The results of operations are
included in the Specialty Adhesive Segment. See "Note 6 to Consolidated
Financial Statements."
Acquisition of Lucite(R) S-A-R Business
On August 29, 1997, the Company acquired the Lucite(R) Super
Abrasion Resistant ("S-A-R") business of the Lucite(R) Acrylic Division
of ICI Acrylics, Inc. for $3.0 million, consisting of $2.0 million in
cash and a promissory note in the amount of $1.0 million bearing an
interest rate of eight percent (8%). The acquisition will add an
additional level of value-added products to the bullet resistant and
transportation industry products of the Polycast Technology Division of
the Company's High Performance Plastics Segment. See "Notes 6 and 9 to
Consolidated Financial Statements."
Acquisition of Townsend Plastics
On September 5, 1997, the Company acquired substantially all
of the assets of the Townsend Plastics Division of Townsend Industries,
Inc. near Des Moines, Iowa for a price of $4.5 million in cash and
300,000 shares of common stock of the Company. Townsend Plastics, which
produces acrylic rods and tubes, complements and has been consolidated
with the Polycast Technology Division of the Company's High Performance
Plastics Segment. In connection with this purchase, the Company amended
its financing agreement with The CIT Group Business/Credit, Inc. to
include a term note of $1.5 million. See "Notes 6 and 9 to Consolidated
Financial Statements."
Sale of the Automotive Operation of the Coated Fabrics Segment
On May 15, 1997, the Company agreed to sell certain assets of
the automotive interior trim operation of the Coated Fabrics Segment
located at the Company's Stoughton, Wisconsin facility for $6.7
million; $4.7 million received in cash and a $2.0 million holdback. On
October 17, 1997, the Company agreed to sell certain assets of the
automotive operation of the Coated Fabrics Segment located at the
Company's Port Clinton, Ohio facility for approximately $5.3 million.
The Company should receive $4.3 million in June of 1998 and the
remaining amount in December of 1998, both based on obtaining certain
customer approvals. As of September 29, 1996, the Company had
established reserves for the impairment of assets to be disposed of
related to the Port Clinton, Ohio automotive operation of the Coated
Fabrics Segment. The Company does not expect to incur any further
significant gain or loss relating to the sales. For further description
of the sale of the automotive operation of the Coated Fabrics Segment
and litigation surrounding the $2.0 million holdback, see "Note 14 to
Consolidated Financial Statements."
Settlement of Retiree Medical Claims
On February 13, 1997 the Company settled litigation with
Uniroyal Retiree Benefits, Inc. ("URBI"), an organization that is
unaffiliated with the Company. URBI 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 funded by the Company in accordance with the
terms of an agreement entered into by the predecessors of URBI and the
Company in connection with the Predecessor Companies' Plan. The Company
had disputes with URBI concerning the eligibility of certain
participants in URBI's medical plan and the level of payments due. The
settlement agreement settled all previous claims asserted or assertable
and provides a future formula pursuant to which the Company will make
payments to URBI in order for URBI to provide medical, drug and life
benefits to participants in its programs.
Transaction with Emcore Corporation
Through a technology license dated September 29, 1997, the
Company has acquired from Emcore Corporation ("Emcore") certain
technology for the manufacture of epitaxial wafers used in high
brightness light emitting diodes (LEDs) for lamps and display devices
for license fees aggregating up to approximately $5 million during
Fiscal 1998. A wholly owned subsidiary of the Company plans to enter
into a joint venture agreement with Emcore, whereby a joint venture, to
be managed by the subsidiary of the Company, will purchase machines
from Emcore and will sell and eventually manufacture epitaxial wafers,
lamps and display devices. Thomas J. Russell, the Chairman of the Board
of Directors of Emcore, is a director and major stockholder of the
Company, and Howard R. Curd, the Chairman of the Board of Directors and
Chief Executive Officer of the Company, is a director of Emcore.
Business Segments
High Performance Plastics Segment
The High Performance Plastics Segment of the Company's
business accounted for approximately $118.8 million (approximately 57
percent (57%)) of the Company's net sales in Fiscal 1997. It consists
of two divisions: the Royalite Thermoplastics Division ("Royalite"),
which manufactures thermoplastic products, and the Polycast Technology
Division ("Polycast"), which manufactures acrylic products.
Royalite - Thermoplastic Products
General
Royalite is a leading manufacturer of custom 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 and extruded
profiles.
Thermoplastic sheet is manufactured by the Company from a
variety of polymers and chemical additives and is constructed either of
solid plastic, a core of inexpensive plastic covered with a thin layer
of high-quality thermoplastic or a base or substrate of plastic foam
surrounded by solid thermoplastic. It is sold to equipment
manufacturers, who incorporate the sheet into their products; custom
fabricators, who cut and form the sheet for specific applications and
supply finished components to original equipment manufacturers (OEMs);
and distributors, who resell raw sheet to equipment manufacturers or
custom fabricators. The Company manufactures two types of thermoplastic
sheet: specialized sheet, which is made by varying the polymer and
chemical components of the sheet in order to achieve particular
performance characteristics; and general purpose sheet, which is used
by manufacturers for a variety of products not requiring particular
performance characteristics.
Specialty thermoplastic sheet is sold by Royalite into a
number of niche markets, depending upon the performance characteristics
of the sheet. The following is a chart setting forth the particular
performance characteristics and the related applications of the
specialized sheet:
Performance Characteristics Principal Uses
--------------------------- ------------------
flame and smoke retardancy mass transportation vehicle
seating and interior panels,
aircraft interior trim and
computer and other electronic
equipment component housings
static dissipation and
conductivity computer chip carriers, hard
drive housings and electronic
tote boxes
weatherability/temperature
resistance marine and recreational vehicle
instrument panels, interior
trim for agricultural and
other off road vehicles
and exterior boat trim
buoyant, hydrodynamic and/or
strength-to-weight ratio canoes, kayaks, other
watersport crafts, amusement park
vehicles and large exterior
equipment housings
The Company believes it has a substantial share of the markets in which
it competes for specialty thermoplastic sheet due to its ability to
manufacture sheet with the wide variety of performance characteristics
set forth above; the performance characteristics are, in many cases,
customized to meet its customers' exact specifications. Net sales of
specialty thermoplastic sheet accounted for approximately 66 percent
(66%) of total net sales of thermoplastic sheet by Royalite during
Fiscal 1997.
The Company maintains a scientific and technical staff and the
necessary production capabilities to design specialty thermoplastic
sheet with performance characteristics to suit its customers'
specifications. See "- Research and Development." In addition, the
Company has advanced coloring technology, including a database of up to
2,500 color formulas developed by Royalite, which enables it to color
its thermoplastic sheet to match customer specifications precisely and
consistently. The Company also has the ability to texturize its sheet
with what it believes to be one of the most extensive selections of
embossing grains available in the market.
By contrast to specialty thermoplastic sheet, general purpose
thermoplastic sheet is used in the manufacture of numerous consumer and
industrial products, such as luggage, musical instrument and equipment
cases, tote boxes and vehicle mud flaps, which do not require that the
thermoplastic material used in their manufacture possess any of the
performance characteristics which distinguish specialty sheet. The
market for general purpose thermoplastic sheet is significantly broader
than the market for specialty thermoplastic sheet due to the almost
limitless uses to which such sheet 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 1997 accounted for approximately 37 percent (37%) of total net
sales of Royalite.
In addition to the Company's extensive list of sheet products,
it also produces injection molding resins, some of which use the same
proprietary formulations as the sheet products, and extruded profile
products.
The Company introduced injection molding resin products as
part of its "life cycle sourcing" strategy implemented to satisfy each
customer's needs for thermoplastic material with respect to a
particular product from the product's development stage through
maturity, including matching products to the variety of production
methods used at different volume levels. When a customer is in the
initial stages of developing a product requiring a thermoplastic
component, the Company employs its technological capabilities and
scientific expertise to design and produce customized thermoplastic
sheet, which the customer then generally "thermoforms" through the
application of heat into particular applications to be incorporated
into its final product. Due to its low cost, "thermoforming" is used in
connection with the manufacture of thermoplastic components not
required in large volume manufacturing runs. When a customer's unit
volume of a product attains levels at which it becomes economical for
the customer to manufacture the thermoplastic application by injection
molding, a capital intensive but more efficient process than
thermoforming, the Company can continue to supply the customer with the
polymer resins and color concentrates, achieving the same properties
and color as when the application was produced through thermoforming.
By using the Company's injection molding resins and color concentrates,
which have been customized to meet the customer's particular
specifications, the customer avoids any disruption in its production
that may result from having to qualify a thermoplastic material from
another manufacturer.
Although injection molding resins constitute less than one
percent (1%) of net sales of Royalite for Fiscal 1997, the Company
believes that significant opportunities for growth exist in this market
and that such product lines will enhance the division's specialty sheet
lines by assuring customers that the Company will be able to meet their
specialized thermoplastic needs throughout every stage of a product's
life cycle.
Royalite also produces extruded profile products, including
both proprietary and general purpose materials. The products are used
for applications requiring flexibility and resilience, such as boat
dock bumpers and gaskets which are sold to and used in production of
acrylic sheet by Polycast. This product line was implemented to fully
utilize the division's available production capacity at its Warsaw,
Indiana facility. Even though sales of extruded profile products do not
represent a significant part of Royalite'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 - General." Royalite competes
effectively in this market by providing new custom product development,
state-of-the-art color technology and strong customer service through
technical support. The division maintains highly knowledgeable
technical representatives who work directly with customers to ensure
that the division's materials used in the manufacture of a customer's
product conform to the customer's specifications and work efficiently
with the customers' manufacturing processes. In addition, the Company
has polymer expertise and custom compounding capabilities to customize
the performance characteristics and color of its thermoplastic
products, whereas many of its competitors do not have this capability.
Its technological capabilities have also permitted the Company to
develop successful new products which enhance its competitiveness in
this segment. For example, recently, Royalite introduced low smoke, low
heat, fire retardant material for aircraft and mass transit interiors
and graffiti-resistant seating material, developed for the mass
transportation market. The addition of injection molding resins and
profile products and implementation of life cycle sourcing have
enhanced Royalite's competitiveness by assuring customers that the
Company will be able to meet their thermoplastic needs throughout every
stage of a product's life.
The Company is also able to compete effectively with respect
to price due in part to its low production costs, its ability to
produce its own color concentrates and savings resulting from its use
of recycled material in the manufacture of thermoplastic sheet. See "-
Royalite - Raw Materials." The Company's ability to internally produce
and laminate a thin layer of high quality colored thermoplastic film
over a less costly substrate allows it to compete favorably with most
other specialty thermoplastic sheet manufacturers, which use a single
layer of relatively expensive colored plastic sheet to produce the
desired end product.
The Company's principal competitors in the flame and smoke
retardant thermoplastic product market are Empire, Kleerdex Company and
Spartech Corporation. Goodrich and HMS are the Company's principal
competitors in the static control thermoplastic product market, and
Primex Plastics Corp. and Spartech Corporation are the Company's
principal competitors in the general purpose thermoplastic sheet
market. The Company's competitors have in the past increased their
market shares in the thermoplastic industry generally through
acquisitions.
Marketing
Royalite's thermoplastic sheet products are marketed under the
ROYALITE(R) and SPECTRUM(R) brand names. Thermoplastic sheet with
specialized characteristics is also marketed under individual brand
names, such as ROYALSTAT(R) (thermoplastic sheet designed to dissipate
or conduct static electric charges), ROYALEX(R) (multilayer
thermoplastic sheet with a foam core and highly weather-resistant layer
on one or both sides, resulting in a high strength-to-weight ratio,
designed for recreational, marine and sporting applications), and
ROYALTHOTIC(R) (thermoplastic sheet designed to be thermoformed at low
temperatures to permit orthopedic medical practitioners to form
individual patient orthopedic devices).
Royalite markets its thermoplastic products primarily through
a national sales force of approximately 14 sales representatives, who
are employees of the Company, and through wholesale distributors to
whom it supplies its products for resale to fabricators and
manufacturers. Representative customers of Royalite and representative
end users of its products include: American Seating Company,
Bombardier, Inc., Caterpillar, Inc., Commercial Plastics and Supplies
Corp., Curbell Plastics, a division of Curbell, Inc., General Motors
Corporation, Hewlett-Packard Company, Laird Plastics, Inc., McDonnell
Douglas Corporation, National Railroad Passenger Corp. (Amtrak),
Seagate Technology, Inc., Sensormatic Electronics Corporation and the
U.S. Navy. The Company has a broad customer base for its thermoplastic
products and it does not believe that it is dependent upon any single
customer or group of customers for sale of its thermoplastic products.
Pricing and terms offered to customers are generally consistent with
those found in the industry.
Manufacturing Facilities
The Company manufactures its thermoplastic products at three
wholly owned facilities, the largest of which is located in Warsaw,
Indiana. The Company's other thermoplastic sheet manufacturing
facilities are located in Rome, Georgia and Redlands, California. See
"Item 2. Properties."
Raw Materials
The principal raw materials used by the Company in the
manufacture of thermoplastic sheet, injection molding resins, color
concentrates and extruded profiles are acrylonitrile butadiene styrene
("ABS") resins and polyethylene, polypropylene and 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 less expensive than new raw materials.
Polycast - Acrylic Products
General
Polycast manufactures high performance acrylic sheet, rods and
tubes which are sold principally to custom fabricators and original
equipment manufacturers, who heat and form the Polycast product into
shapes for specific applications, such as aircraft window units,
furniture components and orthopedic braces. The division's acrylic
products have a unique combination of physical properties and
performance characteristics which are required by the manufacturers who
use them as a component of their products. For example, they weigh
considerably less than, but are superior in clarity and impact
resistance to, 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 windscreens and enclosures,
bullet-resistant security enclosures for banks, convenience stores and
other businesses, hockey rink protective barriers, furniture, tanning
bed shields and municipal aquarium transparent panels; and the general
purpose market for acrylic sheet, in which acrylic sheet is used for
such applications as store displays and signage, where high performance
characteristics are not required and do not require specialized
manufacturing techniques. The division's acrylic rods and tubes are
used for a variety of applications, including the manufacture of
lighting fixtures, furniture, medical instruments, orthopedic devices,
such as orthopedic braces and lens materials used to replace defective
lenses of the eye in cataract surgery and certain types of hard contact
lenses.
Polycast manufactures its acrylic products through cell
cast manufacturing, a process which enables it to customize the
performance characteristics of its acrylic aerospace sheet, 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 can be achieved through other manufacturing
processes, such as continuous cast, extrusion and calender processes.
For example, Polycast's scientific staff have used the cell cast
process to develop a specialized sheet which transmits rather than
filters ultraviolet rays for use in tanning beds and an aerospace sheet
with consistently high optical quality and exact color shading for use
in constructing aerospace transparencies such as aircraft and
helicopter window products. The division can manufacture acrylic
products in more than 60 colors and acrylic sheet in gauges ranging
from 0.030 to 6.00 inches. Acrylic sheet manufactured by the cell cast
process, which is more labor intensive than continuous cast, extrusion
or calender processes, generally yields higher margins than acrylic
sheet produced by such other processes.
The division markets its aerospace acrylic sheet in the
military and commercial aerospace industries, which require products
meeting precise specifications. The division is one of a few acrylic
manufacturers in the United States qualified to produce acrylic sheet
meeting military manufacturing standards, specifications and
requirements ("MIL SPEC"), a designation made by the U.S. Navy's Naval
Air Development Center which is a prerequisite for supplying the
military aerospace industry. The division and the Predecessor Companies
have maintained this qualification since 1976. The division's aerospace
acrylic sheet is also qualified by several commercial aerospace
manufacturers, including Bell-Helicopter, a division of Textron, Inc.,
Boeing Company, McDonnell-Douglas Corporation and Sikorsky Aircraft
Corporation which include a supplier's products on their "qualified
product lists" only after such products have met MIL SPEC requirements
and passed the manufacturer's additional and more stringent testing and
approval procedures. Although unlikely, any failure of the division's
aerospace acrylic products to continue to meet required specifications
under which they are provided to an aerospace manufacturer could have a
material adverse effect on the division.
The division sells its specialty acrylic sheet in a wide
variety of niche markets, including manufacturers of boat windscreens
and enclosures, bullet resistant enclosures and protective barriers for
athletic facilities, furniture and tanning bed shields and aquariums.
The division markets its acrylic products to such industries through
customization of the performance and physical characteristics of its
specialty sheet to meet customer specifications.
Competition
The division faces continuing competition from North American
producers and from certain foreign producers, particularly from Asian
and South American countries. Many of these competitors have greater
resources than the Company. These competitors primarily produce
standard sizes of general purpose acrylic sheet by continuous cast,
extrusion or calender processes. The division concentrates on the
production of aerospace and specialty acrylic sheet, which in certain
cases has unique characteristics that cannot be obtained by such other
manufacturing processes. Net sales of aerospace and specialty acrylic
sheet accounted for approximately 65 percent (65%) of total net sales
by Polycast.
The Company believes that the division has a significant share
of the niche markets in which it sells its aerospace and specialty
acrylic sheet. See "- Polycast - General." The division's principal
competitors in the specialty acrylic sheet market are AtoHaas Americas
Inc. ("AtoHaas"), Cyro Industries, a division of Cytec Industries, Inc.
("Cyro") and ICI Acrylics, Inc., a subsidiary of Imperial Chemicals
Industries plc ("ICI"). The division's principal competitors in the
acrylic aerospace sheet market are Cyro, Nordam, Inc. ("Nordam"),
Pilkington Aerospace Swedlow Division, a subsidiary of Pilkington plc
("Pilkington") and Rohm Darmstadt GmbH.
In order to compete with vertically integrated companies in
the aerospace acrylic sheet market, such as Pilkington and Nordam,
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 can 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 acrylic rod and
tube products.
AtoHaas, Cyro and ICI, which are North American producers of
acrylic sheet, also produce methyl methacrylate monomer ("MMA"), the
principal raw material used in the manufacture of acrylic sheet, rods
and tubes, or certain of the components thereof, making it possible for
them to absorb increases in the cost of MMA and buy in large
quantities, thereby availing themselves of volume discounts not
available to the division. Since the Company does not itself produce
MMA, Polycast is unable to compete effectively with the low prices
charged by these companies for general purpose acrylic sheet. See "-
Polycast - Raw Materials."
Marketing
Polycast's acrylic products are marketed under the POLYCAST(R)
brand name. Acrylic products with special performance characteristics
are also marketed under individual brand names, such as PILOTS'
CHOICE(TM) (aerospace sheet with high optical quality) for helicopter
windshields, SOLACRYL(R) (specialty sheet which transmits ultraviolet
rays) for tanning bed shields, POLYDOR(R) (thermoformable sheet) used
for orthopedic product and S-A-R coatings for specialty acrylic
applications. The Company's acrylic rods and tubes are also marketed
under the TOWNSEND/GLASFLEX(TM) brand name.
The division markets its acrylic sheets, rods and tubes
primarily through five sales representatives, who are employees of the
division, and through wholesale distributors.
Representative domestic customers of Polycast and
representative end users of its acrylic products include Beech Aircraft
Corp., Bell-Helicopter Textron, Inc., Boeing Company, Cadillac Plastic
& Chemical Co., The Cessna Aircraft Company, Chris-Craft Industries,
Inc., Commercial Plastics and Supply Corp., Laird Plastics, Inc.,
Llamas Plastics, Inc., Sensormatic Electronics Corporation,
Sierracin/Sylmar Corporation, Sikorsky Aircraft Corporation, Texstar
Inc., Thunderbird Products Corp. and Wellcraft Marine. Representative
foreign customers and end users include Airbus Industries, Alenia,
Augusta Helicopters, Embraer and Hindustan Aeronautics Limited. The
Company is not dependent upon a single customer or group of customers
for sales of its acrylic products.
Manufacturing Facilities
The division manufactures acrylic sheet at its facility in
Stamford, Connecticut and finishes and further processes acrylic sheet
for certain applications at its facilities in Newport, Delaware and
Hackensack, New Jersey; the Hackensack facility also serves as the
principal warehouse for acrylic sheet products. Acrylic sheet is also
manufactured, along with acrylic rods and tubes, at the division's
facility in Stirling, New Jersey and acrylic rods and tubes at the
division's facility in Pleasant Hill, Iowa. The Company owns the
manufacturing and processing facilities in Stamford, Hackensack,
Stirling and Pleasant Hill and leases its facility in Newport,
Delaware. The division leases office space used for its division
headquarters adjacent to its Stamford, Connecticut manufacturing
facility. See "Item 2. Properties."
Raw Materials
Since October 1, 1991, all of the division's requirements of
MMA have been purchased from ICI or its predecessor owner of the
monomer business, E.I. duPont de Nemours & Co., currently pursuant to a
supply agreement which obligates the division to purchase from ICI and
ICI to supply the division with its requirements for MMA through March
16, 2005, subject to termination by the division upon eighteen months'
advance notice or by ICI upon a three years' advance notice. Under the
supply agreement, the division is entitled to purchase MMA from other
suppliers that offer the product at prices lower than those ICI is
willing to match. In addition, the supply agreement requires that any
party that acquires all or substantially all of ICI's assets used to
manufacture MMA assume the obligations of ICI under the agreement and
further requires that any party that acquires all or substantially all
of the Company's assets used to manufacture its acrylic sheet, rods and
tubes assume the obligations of the division under the agreement.
In the event that ICI elects to terminate the supply
agreement, the Company believes that the division could obtain MMA from
one or more alternate sources. However, each of the two major alternate
domestic manufacturers and certain other major alternate foreign
manufacturers of MMA compete (as does ICI) with the division in the
manufacture and sale of acrylic sheet. Thus, there can be no assurance
that the division would be able to obtain MMA from these alternate
sources at satisfactory prices, on a reliable basis or on terms
otherwise satisfactory to the division.
Coated Fabrics Segment
The Company's Coated Fabrics Segment, which accounted for
approximately $68.8 million (33 percent (33%)) of the Company's net
sales for Fiscal 1997, 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 61 percent (61%) of total net sales of the segment for
Fiscal 1997, and the well known Naugahyde(R) brand name vinyl coated
fabric products, which accounted for 39 percent (39%) of total net
sales of the segment 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 decided to exit the
automotive operation of this segment. The operation consists of the
vinyl laminated composite line manufactured in the Port Clinton, Ohio
and Stoughton, Wisconsin facilities. See "Corporate Developments - Sale
of the Automotive Operation of the Coated Fabric Segment" and "Note 14
to Consolidated Financial Statements."
The segment's Naugahyde(R) vinyl coated fabrics products have
varying performance characteristics and are sold in various markets
depending upon the performance characteristics required by end users.
For example, for recreational products which are used outdoors, such as
boats, personal watercraft, golf carts and snowmobiles, the segment
sells a Naugahyde(R) product that is designed primarily for
weatherability. It also manufactures Naugahyde(R) products that can
withstand powerful cleaning agents, which are widely used in hospitals
and in other medical facilities. Flame and smoke retardant Naugahyde(R)
vinyl coated fabrics are used for a variety of commercial and
institutional furniture applications, including hospital furniture and
school bus seats. 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. This resulted in the introduction of three new patterns
which were well received by the customers.
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 two state-of-the-art production lines which
produce coated fabrics and laminated composites in more than 600 colors
and 45 textures and patterns.
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 and continued to increase in
Fiscal 1997 to $16.2 million. The products are currently being provided
to GM for use in several of its automobile models.
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 1997.
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.
Pursuant to a technical collaboration agreement 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 certain products using Okamoto's
technology.
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 over-head
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.
Competition
The Coated Fabrics segment competes with respect to its
Naugahyde(R) products primarily on the basis of style, color and
quality, as well as price and customer service through technical
support and performance characteristics which meet customer needs. 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.
The 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's principal competitors with respect to its
Naugahyde(R) products are C.G. Spradling & Company, GenCorp Inc. and
Morbern Inc. The segment's principal competitors in the domestic
automotive markets are Canadian General-Tower, Ltd. and Sandusky
Plastics, Inc., and its principal competitors in the transplant
automotive markets are O'Sullivan Corporation and foreign importers.
Marketing
The segment's coated fabrics products were introduced by one
of its predecessors more than 45 years ago and today are marketed under
several nationally recognized brand names, including NAUGAHYDE(R),
NAUGAFORM(R) and DURAN(R). BEAUTYGARD(R) is the name under which the
segment markets its cleaning agent-resistant coated fabrics, and its
flame and smoke retardant coated fabrics are marketed under the brand
name FLAME BLOCKER(TM).
The segment markets and sells its coated fabrics and laminated
composites primarily through 11 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 47 percent (47%) of the
segment's non-automotive market sales in Fiscal 1997 were to
distributors.
Representative customers and end users of the segment's coated
fabrics and laminated composites include Bombardier, Inc., Club Car,
Inc., GM, Harley-Davidson, Inc., Honda, Kawasaki Heavy Industries,
Inc., Mazda Motors of America, Inc., Michigan Seat Co., Okamoto USA,
Inc., Polaris Industries, Inc., Shelby Williams Industries, Inc., TS
Trim, Inc. and United Technologies Automotive Division.
Manufacturing Facilities
The segment manufactures its coated fabrics at facilities
located in Stoughton, Wisconsin and Port Clinton, Ohio. Both of these
facilities are owned by the Company. See "Item 2. Properties."
Raw Materials
The principal raw materials for the segment's coated fabrics
are casting paper, knit fabric, polyolefin foam, PVC plastic resins and
plasticizers. The segment generally has multiple sources for casting
paper, knit fabric, PVC plastic resins, and plasticizers. 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.
Specialty Adhesives Segment
The Company's Specialty Adhesives Segment accounted for
approximately $20.9 million (10 percent (10%)) of the Company's total
net sales for Fiscal 1997.
General
The Specialty Adhesives Segment (formerly, the Specialty Foam
and Adhesives Segment) is composed of three general product lines:
roofing adhesives and sealants, industrial adhesives and sealants and
Gunther mirror mastics. 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 1997, sales of splice adhesives represented 16 percent (16%) of
the total net sales of the segment's adhesives and sealants. In
addition, the segment manufactures more than 210 industrial adhesives
and sealants in brush, roll, tube and spray-on form which are used in a
number of different industries such as furniture manufacturing, truck
trailer and recreational vehicle manufacturing, foam and plastic
fabrication and commercial and residential mirror installations.
Since moving to its newly renovated facility, the segment's
management has been aggressively pursuing a strategy 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, the segment commenced sales of
water-based adhesives which it expects will become an increasingly
significant part of its business as environmental and worker health and
safety requirements become more stringent. In a major strategic move,
the Company acquired, on March 31, 1997, the C. Gunther Company, a
major marketer of mirror mastics located in Cary, Illinois. All
operations were subsequently moved from Cary to the Company's South
Bend location. See "- Corporate Developments - Acquisition of C.
Gunther Company."
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 splice and bonding adhesives for the EPDM rubber
roofing market. In Fiscal 1997, 1996 and 1995, Firestone purchased 79
percent (79%), 83 percent (83%) and 69 percent (69%), respectively, of
the Company's total net sales of adhesives and sealants for such
periods. Sales to Firestone during the fiscal year ended September 28,
1997 represented eight percent (8%) 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.
Competition
Pursuant to the exclusivity terms of the Firestone Agreement,
the Company does not compete with respect to its roofing adhesives and
sealants. As to its industrial adhesives and sealants, the Company
competes principally on the basis of price and the performance
characteristics of its products.
The segment's principal competitors in the adhesives and
sealants market for EPDM rubber roofing applications are Adco
Technologies, Inc., Ashland Chemical Company and TACC International
Corp. In addition, Carlisle Syntec Systems, supplies these adhesives
primarily for its own single-ply roofing system and consequently
competes indirectly with the segment. In the industrial adhesives and
sealants markets, the segment's primary competitors include Imperial
Adhesives, Inc., Minnesota Mining and Manufacturing Company, Palmer
Products Corp. and Sika Corporation.
Marketing
The segment's industrial adhesives and sealants are marketed
under the brand name SILAPRENE(R). Its water-based adhesives are also
marketed under the brand name Hydra Fast-En(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 are beginning to
establish market share in the foam and plastic fabrication markets.
Recognized trademarks in the mirror and glass industry, purchased as
part of the C. Gunther acquisition, are Ultra/Bond(TM),
Extra/Build(TM), Prime-N-Seal(TM), Premier(TM), Mirror & More
Cleaner(TM) and Seal-Kwik(TM).
The segment's roofing adhesives and sealants are marketed
under Firestone's brand names. The Company indirectly controls a
significant share of the splice adhesives and bond adhesives market
through Firestone, which continues to control significant market share
of the EPDM rubber roofing market.
The segment markets its industrial adhesives and sealants
primarily to manufacturers through a network of 200 authorized
distributors, 19 outside sales representatives and four sales
representatives who are employees of the segment, located throughout
the United States and Canada. Pursuant to its obligation under the
Firestone Agreement, the segment does not market its splice and bonding
adhesives for the EPDM rubber roofing market.
The segment's roofing adhesives business is seasonal,
increasing in the warmer months of the year due to an increase in
roofing and other construction activities in such months, and is
sensitive to adverse weather conditions.
Manufacturing Facilities
On July 17, 1996, the Company acquired a manufacturing
facility in South Bend, Indiana consisting of approximately 240,000
square feet for $1.8 million and spent an additional $6.7 million for
building renovations, new equipment and moving expenses. The move was
completed on February 18, 1997 and now provides a modern and efficient
manufacturing plant with significant additional capacity, an excellent
research center and office space for the Royalite segment headquarters
and certain other corporate operations. See "Item 2. Properties."
Raw Materials
The division's adhesives and sealants use a variety of raw
materials such as rubber, resins and solvents, which are generally
available from multiple sources. The division's principal suppliers of
such raw materials and containers include Cleveland Steel Container
Corp., E.I. duPont de Nemours & Co. and Unocal Chemicals, a division of
Unocal 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 1,100 employees, including
approximately 730 hourly wage employees and 370 salaried employees. The
Company believes that at the present time its workforce is adequate to
conduct its business and that its relations with employees are
generally satisfactory.
The Company is a party to a number of collective bargaining
agreements. Approximately 130 hourly wage employees of the Company's
acrylic sheet manufacturing facility located in Stamford, Connecticut
are covered by an agreement expiring on March 31, 2000 with Teamsters
Local 191, which is affiliated with the International Brotherhood of
Teamsters, Chauffeurs, Warehousemen and Helpers of America (the
"Teamsters"). Approximately 35 employees at the Company's Hackensack,
New Jersey acrylic sheet manufacturing and warehouse facility are
covered by an agreement expiring on February 3, 2002 with the
Amalgamated Clothing & Textile Workers Union of America (AFL-CIO). At
the Company's coated fabrics manufacturing facility located in
Stoughton, Wisconsin, another 142 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 26
hourly wage employees at the Company's adhesives and sealants
manufacturing facility located in South Bend, Indiana, and
approximately 95 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 is in
the process of negotiating a collective bargaining agreement with it.
Richard D. Kimbel, the former President of USWA Local 65
(Mishawaka), is a director of the Company.
Trademarks and Patents
The Company owns and controls patents, trade secrets,
trademarks, trade names, copyrights and confidential information, which
in the aggregate are material to its business. The Company is not
materially dependent, however, upon any single patent or trademark. The
Company has several trademarks that have wide recognition and are
valuable to its business. Among the trademarks that are of material
importance to the Company are NAUGAHYDE(R), NAUGAFORM(R), DURAN(R),
ROYALITE(R), PILOTS' CHOICE(TM), POLYCAST(R), SILAPRENE(R), GUNTHER
ULTRA/BOND(TM) and GUNTHER EXTRA/BUILD(TM). The Company's trademarks
are registered in the United States and in a number of foreign
jurisdictions with terms of registration expiring generally between
1997 and 2004. No trademark registration of material importance to the
Company expired during Fiscal 1997. The Company intends to renew in a
timely manner all those trademarks that are required for the conduct of
its business. The Company also holds more than 20 patents and pending
patents worldwide.
The Company uses the trade name and trademark "Uniroyal"
pursuant to a license from Uniroyal Goodrich Licensing Services, Inc.
Research and Development
The Company is actively engaged in research and development
programs designed to develop new products, manufacturing processes,
systems and technologies and to enhance its existing products and
processes. Research and development is conducted within each business
segment of the Company. Investment in research and development has been
an important factor in establishing and maintaining the Company's
competitive position in many of the specialized niche markets in which
its products are marketed. For example, the Company's research and
development efforts have led to the development of water-based
adhesives (see "-Business Segments - Specialty Adhesives"), bullet
resistant acrylic sheet, 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 $3.7
million for research and development during Fiscal 1997 compared to
approximately $4.9 million during Fiscal 1996.
The Company currently employs a staff of approximately 37
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:
15 at High Performance Plastics, 15 at Coated Fabrics and seven at
Specialty Adhesives.
Backlog
At September 28, 1997, the Company had backlog orders
aggregating approximately $26.0 million, as compared to approximately
$22.7 million as of September 29, 1996. 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 28, 1997 September 29, 1996
------------------ ------------------
(in thousands)
High Performance Plastics $ 16,321 $ 13,727
Coated Fabrics 5,923 4,784
Specialty Adhesives 3,805 4,222
-------- --------
Total $ 26,049 $ 22,733
======== ========
Working Capital Items
Many of the markets in which the Company competes, including
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. Although the Company believes
that cash from its operations and its ability to borrow under its
revolving credit agreement (see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources") will provide it sufficient liquidity to finance its
efforts to develop new products, there can be no assurance that the
Company's operations together with amounts available under its
revolving credit 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 1997, 1996 and 1995, the amount of capital
expenditures related to environmental matters was immaterial and the
amount of such expenditures is expected to be immaterial in Fiscal
1998. 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.
Pursuant to a 1992 settlement agreement with the United States
Environmental Protection Agency (the "EPA"), the United States
Department of the Interior and the States of Wisconsin and Indiana (the
"EPA Settlement Agreement") entered into in connection with the Plan of
Reorganization of the Predecessor Companies (see "- History of Company
- Predecessor Companies"), the Predecessor Companies compromised and
settled (in exchange for Common Stock of the Company) substantially all
of their pre-petition liabilities relating to disposal activities under
Sections 106 and 107 of the Comprehensive Environmental Response,
Compensation & Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation & Recovery Act ("RCRA") and similar state laws for the
cleanup of 20 designated sites not owned by any of the Predecessor
Companies (the "Known Sites") and for natural resource damages at 15 of
the 20 Known Sites. Pursuant to the EPA Settlement Agreement, the
United States and the States of Indiana and Wisconsin agreed not to sue
for response costs and, with the exception of five Known Sites, natural
resource damages at each of the Known Sites. In addition, pursuant to
Section 113(f)(2) of CERCLA, and as provided under the Settlement
Agreement, the Predecessor Companies and the Company will be protected
against contribution claims filed by private parties for any Known Site
for matters covered by the EPA Settlement Agreement. The EPA Settlement
Agreement established a mechanism for the Company to resolve its
liability for any other sites (the "Additional Sites"), except those
owned by the Company, arising from pre-petition disposal activity. The
Company also agreed to share with such governmental parties the
proceeds of claims relating to the Known Sites made against certain
insurers of the Predecessor Companies and their affiliates.
In the event that the United States, Wisconsin or Indiana
asserts a claim against the Predecessor Companies or the Company for
response costs associated with pre-petition disposal activities at any
Additional Site, the governmental party will be entitled to pursue its
claim in the ordinary course, and the Company and the Predecessor
Companies will be entitled to assert all of their defenses. However, if
and when the Company or any of the Predecessor Companies is held
liable, and if the liability is determined to arise from pre-petition
disposal activities, the Company or such Predecessor Company may pay
the liability in discounted "plan dollars" (i.e., the value of the
consideration that the party asserting such claim would have received
if the liability were treated as a general unsecured claim under the
Plan of Reorganization). Such payment may be made in cash or in the
Company's stock, or a combination thereof, at the Company's or such
Predecessor Company's option. Claims arising from real property owned
by the Company are not affected by the EPA Settlement Agreement.
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."
The Company's acquisition of assets of Townsend Plastics in
September 1997 included the building in which the business operates in
Pleasant Hill, Iowa. The seller retained the underlying real property,
which is leased to the Company for a term of ten years. The Company
also has an option to acquire such real property until September 30,
2007. The real property is subject to a RCRA Facility
Investigation/Corrective Measures Study with Interim Measurers ordered
by the EPA pursuant to RCRA. Two former lessees of the property are
performing corrective measures on the real property to remediate soil
and ground water contamination. The Company does not anticipate that
such corrective measures will interfere with the Company's use of the
property. The Company does not anticipate any liability to the Company
in connection with such contamination or corrective measures as long as
the Company remains a lessee of the property.
Based upon information available as of September 28, 1997, 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 application of coatings to fabric for automotive airbags) and
certain capital expenditure programs. The segments most adversely
affected by the decreased working capital condition were the Coated
Fabrics and Specialty Adhesives Segments.
The plan of reorganization of the Predecessor Companies was
substantially consummated on September 27, 1992. Pursuant to the Plan
of Reorganization, each of the Predecessor Companies transferred
substantially all of its assets to a newly organized subsidiary of the
Company with a name that was substantially identical to the name of its
corresponding Predecessor Company. In exchange, each of these new
subsidiaries, including Polycast Technology Corporation ("Polycast"),
Uniroyal Engineered Products, Inc. ("UEP"), Uniroyal Adhesives and
Sealants Company, Inc. ("UAS") and Ensolite, Inc. ("Ensolite"), agreed
to assume certain of the liabilities of its corresponding Predecessor
Company. In addition, the Company issued, or authorized for issuance,
9,575,000 shares of its Common Stock to holders of allowed unsecured
claims against the Predecessor Companies and 50 shares of Series A
Preferred Stock and 50 shares of Series B Preferred Stock to the
Pension Benefit Guaranty Corporation (the "PBGC"). On June 7, 1993, in
conjunction with the public offering of the Company's 11.75% Senior
Secured Notes, the Company merged each of its operating subsidiaries
into the Company. In May 1993 the Company called and repurchased from
the PBGC all of the outstanding shares of Series A Preferred Stock and
15 shares of the outstanding shares of Series B Preferred stock. On
December 16, 1996, the Company repurchased an additional 15 shares of
such stock, and on February 4, 1997, the Company repurchased the
remaining 20 shares of preferred stock. On November 13, 1997, the
Company, certain officers and directors of the Company and certain
other persons purchased all of the common stock held by the PBGC.
See "- Corporate Developments - Disposition of Stock of PBGC."
On November 8, 1993, the Plan of Liquidation of UPAC became
effective and was substantially consummated. Pursuant to the UPAC Plan
of Liquidation, the Company received a cash distribution of
approximately $6.8 million following the liquidation of the assets of
the UPAC estate and accordingly recorded income from the UPAC Plan of
Liquidation in the amount of approximately $6.8 million.
In connection with matters relating to UPAC's acquisition of
UPC, on May 6, 1993 the Company entered into a settlement agreement
(the "Company Settlement") with Uniroyal, Inc., CDU Holding Liquidating
Trust and Uniroyal Holding, Inc. (collectively, the "Uniroyal Parties")
pursuant to which the Company and the Uniroyal Parties resolved certain
existing and potential disputes arising from the acquisition of UPC by
UPAC from Uniroyal, Inc. Uniroyal, Inc. was dissolved in December 1986.
CDU Holding Liquidating Trust and Uniroyal Holding, Inc. were
affiliates of Uniroyal, Inc. In connection with the resolution of the
matters covered by the Company Settlement, the Uniroyal Parties paid
$2.25 million in cash to the Company. In exchange, the Company agreed
to certain matters involving the prosecution and settlement of claims
under insurance policies, including certain claims of the Uniroyal
Parties that covered environmental liabilities at certain of the Known
Sites. See " Environmental Matters." As a result of this agreement and
related agreements reached with insurance companies during Fiscal 1994
as to amounts with respect to environmental claims, the Company
recorded as income in Fiscal 1994 approximately $1,176,000 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 " - 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 1997 was approximately $832,000. 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 11,000 Corporate offices Leased
High Performance Plastics
Segment
South Bend, Indiana 12,000 Offices Owned
Stamford, Connecticut 5,500 Offices Leased
Stamford, Connecticut 81,000 Manufacture of cell cast acrylics Owned
Hackensack, New Jersey 46,000 Manufacture of cell cast acrylics Owned
Rome, Georgia 45,000 Manufacture of thermoplastic products Owned
Redlands, California 60,000 Manufacture of thermoplastic products Owned
Stirling, New Jersey 50,000 Manufacture of acrylic sheet rods & tubes Owned
Warsaw, Indiana 225,000 Manufacture of thermoplastic products, Owned
custom compounding and warehouse
Newport, Delaware 14,000 Manufacture of acrylics Leased
Pleasant Hill, Iowa 49,000 Manufacture of acrylic rods & tubes Owned(Ground Lease
On Real Estate)
Coated Fabrics Segment
Stoughton, Wisconsin 198,275 Manufacture of coated fabrics products Owned
Port Clinton, Ohio 240,000 Manufacture of coated fabrics products Owned
Specialty Adhesives Segment
South Bend, Indiana 240,000 Manufacture of adhesives and sealants Owned
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 9 to Consolidated Financial Statements."
Item 3. Legal Proceedings
The Company is involved in certain proceedings in the ordinary
course of its business which, if determined adversely to the Company
would, in the opinion of management, not have a material adverse effect
on the Company or its operations.
In connection with its reorganization, the Company entered
into a number of settlement agreements, including certain agreements
relating to environmental matters. See "Item 1. Business - History of
the Company - Reorganization."
In Fiscal 1997, the Company settled litigation with the
provider of medical, prescription drug and life insurance benefits to
certain retired employees of the predecessor Companies and their
affiliates. See "Item 1. Business - Corporate Developments - Settlement
of Retiree Medical Claims."
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of Fiscal
1997 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
28, 1997, the price per share of Common Stock was $5.5625. 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 28, 1997,
approximately 9,666,000 of such shares of Common Stock had been issued
pursuant to the Plan of Reorganization (including shares transferred to
the Company's treasury as a result of the election by certain claim
holders, as provided under the Plan of Reorganization, to receive cash
in lieu of Common Stock). The remaining shares are being held pending
resolution of certain retiree medical claims.
As of November 28, 1997, there were 897 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 28, 1997 September 29, 1996
-------------------------- --------------------------
Quarter High Low High Low
First $3.250 $2.688 $4.375 $3.125
Second $3.188 $2.500 $3.875 $3.125
Third $4.000 $2.125 $4.438 $3.375
Fourth $4.750 $3.125 $3.750 $3.000
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 9 to Consolidated Financial Statements."
Item 6. Selected Financial Data
The following historical financial data as of September 28,
1997 and September 29, 1996 and for each of the three years in the
period ended September 28, 1997 have been derived from consolidated
financial statements of the Company audited by Deloitte & Touche LLP
and contained elsewhere in this Form 10-K. The selected historical
financial data presented below as of October 1, 1995, October 2, 1994
and September 26, 1993 and for the fiscal years ended October 2, 1994
and September 26, 1993 have been derived from audited financial
statements of the Company. All of the financial data set forth below
should be read in conjunction with the Consolidated Financial
Statements and related notes and other financial information contained
in this Form 10-K.
SELECTED FINANCIAL DATA
----------------- ---------------- ------------- -------------- ---------------
September 28, September 29, October 1, October 2, September 26,
1997 1996 1995 1994(1) 1993
----------------- ---------------- ------------- -------------- ---------------
(in thousands, except share and per share data)
Operating Data:
Net sales $208,524 $209,348 $214,951 $197,536 $173,361
Depreciation and amortization(2) 8,304 9,848 9,521 8,356 8,872
Income (loss) before interest, income
taxes and extraordinary item 10,594 (12,749) 9,549 15,414 6,462
Interest expense - net (9,384) (9,773) (10,029) (10,109) (9,295)
Income tax (expense) benefit (831) 8,121 189 (2,217) 853
Income (loss) before extraordinary
item 379 (14,401) (291) 3,088 (1,980)
Extraordinary gain - - 363 727 -
Net income (loss) $ 379 $(14,401) $ 72 $ 3,815 $ (1,980)
Income (loss) per common share and
common stock equivalent:
Primary and fully diluted:
Income (loss) before
extraordinary item $ 0.03 $ (1.09) $ (0.02) $ 0.22 $ (0.20)
Extraordinary gain - - 0.02 0.05 -
-------- -------- -------- -------- --------
Net income (loss) per share $ 0.03 $ (1.09) $ 0.00 $ 0.27 $ (0.20)
======== ======== ======== ======== ========
Average number of shares used in
computation(3) 13,423,554 13,167,466 14,507,605 14,317,298 9,971,522
========== ========== =========== ========== =========
Balance Sheet Data:
Cash and cash equivalents $ 244 $ 2,023 $ 291 $ 4,249 $ 3,683
Working capital 33,358 29,148 31,292 34,454 25,665
Total assets 181,491 170,786 180,483 179,274 186,288
Long-term debt (including current
portion) 89,647 72,775 76,763 79,371 89,953
Stockholders' equity 40,032 43,499 57,669 57,533 53,936
(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 $754,000, $765,000, $769,000,
$1,003,000 and $714,000 for the fiscal years ended September 28, 1997,
September 29, 1996, October 1, 1995, October 2, 1994 and September 26,
1993, respectively.
(3) See "Note 2 to Consolidated 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. Consolidated Financial Statements and
Supplementary Data" appearing elsewhere in this Form 10-K.
Results Of Operations
Comparison of Fiscal 1997 with Fiscal 1996
Net Sales. The Company's net sales decreased in Fiscal 1997
less than one percent (1%) to $208.5 million from $209.3 million in
Fiscal 1996. During 1996 the Company sold its Ensolite specialty foams
division. Included in 1996 are net sales of Ensolite of approximately
$17.2 million. Excluding such sales from the prior period amounts, net
sales of the Company's continuing businesses increased by approximately
nine percent (9%). This increase is attributable to increased net sales
in all three business segments of the Company.
Net sales in the High Performance Plastics Segment increased
in Fiscal 1997 by approximately three percent (3%) to $118.8 million
from $115.1 million in Fiscal 1996. Royalite had sales increases in its
niche businesses including flame retardancy products principally in the
mass transit market; weatherability products in the construction market
and soft feel laminate products sold in conjunction with the Company's
Coated Fabrics Segment into the truck market. These increases at
Royalite were partially offset by lower sales in its lower margin
general purpose products which was consistent with management's focus
on higher margin specialty sheet. Polycast experienced increased sales
in its specialty markets as well as increases from its acquisitions in
Fiscal 1997. See "Item 1. Business Corporate Developments - Acquisition
of Lucite(R) S-A-R Business and Acquisition of Townsend Plastics."
The Coated Fabrics Segment's net sales increased in Fiscal
1997 approximately 17 percent (17%) to $68.8 million from $58.7 million
in Fiscal 1996. This increase resulted primarily from increased unit
volume of products sold to the automotive industry. This increase
resulted from car volume increases in the transplant industry and the
Company's introduction of a new product line qualified for use in the
manufacture of several automobile models by General Motors. See "Item
1. Business - Corporate Developments - Sale of the Automotive Operation
of the Coated Fabrics Segment and Business Segments Coated Fabrics." In
addition, the Company experienced sales increases of Naugahyde(R)
coated vinyl products primarily in the mass transit, electronic and
athletic equipment markets.
Net sales in the Specialty Adhesives Segment decreased in
Fiscal 1997 by approximately 41 percent (41%) to $20.9 million from
$35.5 million in Fiscal 1996. This decrease resulted principally from
the Ensolite Sale. In Fiscal 1996, net sales of Ensolite(R) products
for the 8 month period preceding consummation of the Ensolite Sale on
June 10, 1996, were approximately $17.2 million. Excluding such sales
from the prior period amounts, net sales of liquid adhesives and
sealants increased approximately 14 percent (14%) from Fiscal 1996 to
Fiscal 1997. This increase in sales is primarily attributable to the
acquisition of C. Gunther Company on March 31, 1997 (see "Item 1.
Business - Corporate Developments."), increased sales of Hydra
Fast-En(TM) products, primarily in the truck body and trailer markets,
increased bonding sales to Firestone, reflecting stronger commercial
roofing business and increased customer market share.
Income (Loss) Before Interest, Income Taxes and Extraordinary
Item. In Fiscal 1997, the Company had income before interest, income
taxes and extraordinary item of $10.6 million as compared to a loss
before interest, income taxes and extraordinary item of $12.7 million
for Fiscal 1996.
Income before interest, income taxes and extraordinary item
for the High Performance Plastics Segment increased in Fiscal 1997 by
approximately 50 percent (50%) to $10.5 million from $7.0 million in
Fiscal 1996 primarily as a result of lower MMA costs on average and
lower operating costs for Polycast. In Fiscal 1996, Polycast incurred
an $808,000 charge for estimated back pay and retraining costs in
connection with the settlement of a strike at the Polycast Division's
Stamford, Connecticut facility and a temporary decline in manufacturing
efficiency at such facility in Fiscal 1996 as a result of the required
retraining of employees returning from the strike. In addition, in
Fiscal 1996, the Royalite Division incurred certain non-recurring
professional and development costs.
The Coated Fabrics Segment's income before interest, income
taxes and extraordinary item in Fiscal 1997 was approximately $2.1
million compared to a loss of approximately $19.0 million in Fiscal
1996. In Fiscal 1996 the Company established reserves totaling
approximately $12.5 million related to its decision to exit the Port
Clinton, Ohio automotive operation. Excluding this reserve, the segment
lost approximately $6.5 million from operations in Fiscal 1996. In
Fiscal 1996, the Company suffered a loss of sales and incurred
additional costs on instrument panels for a transplant automotive
company as a result of defective adhesion materials provided by one of
the Company's suppliers. The problems caused by such defective
materials have been resolved. The improvement in earnings is primarily
related to the increased volume, lower scrap costs and higher
productivity from the increased volume.
Loss before interest, income taxes and extraordinary item for
the Specialty Adhesives Segment was $346,000 in Fiscal 1997 as compared
to income of $70,000 in Fiscal 1996. Excluding the gain on the sale of
the Ensolite Division in Fiscal 1996, the segment lost $2.0 million.
The reduction in the loss before interest, income taxes and
extraordinary item was due to the incremental earnings from C. Gunther
Company and operating efficiencies as a result of the relocation to the
new South Bend facility. Energy represented a significant cost of
operating the Mishawaka, Indiana facility and due to configuration and
applicable fire and safety regulations, the entire facility had to be
heated and lighted even though the Company's operations occupied less
than 50% of the facility. See "Item 1. Business - Corporate
Developments - Exit from the Mishawaka Plant."
Amortization of reorganization value in excess of amounts
allocable to identifiable assets in Fiscal 1997 decreased to $754,000
from $765,000 in Fiscal 1996. This decrease resulted from the write-off
of the assets transferred in connection with the Ensolite Sale.
Approximately $958,000 of miscellaneous expense in Fiscal 1997
was not allocated to any segment of the Company's business. There were
no such unallocated amounts in Fiscal 1996.
Interest Expense. Interest expense in Fiscal 1997 decreased to
approximately $9.4 million from $9.8 million in Fiscal 1996 due to
interest income earned by the Company on the $5.0 million, 11.75
percent (11.75%) note issued to the Company by RBX, Inc. as part of the
purchase price of the Ensolite Sale. See "Note 5 to Consolidated
Financial Statements."
Income Tax (Expense) Benefit. Income tax expense in Fiscal
1997 was approximately $831,000 as compared to a benefit of $8.1
million in Fiscal 1996. The provisions for income tax benefit were
calculated by the Company through use of the effective income tax rates
based upon its actual income.
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 5 to
Consolidated 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 principally 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 - 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 5 to Consolidated 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, Income Taxes and Extraordinary
Item. In Fiscal 1996, the Company incurred a loss before interest,
income taxes and extraordinary item of $12.7 million as compared to
income before interest, 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 Polycast and costs of implementing quality assurance
programs and improved manufacturing efficiency at Royalite. In the
Coated Fabrics Segment, the Company established reserves totaling
approximately $12.5 million related to its decision to exit the Port
Clinton, Ohio automotive operations. See "Note 14 to Consolidated
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, income taxes and extraordinary item
for the High Performance Plastics Segment decreased in Fiscal 1996 to
$7.0 million from $13.0 million 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 Polycast'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, Royalite 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, 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 totaling 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 totaling $12.5 million described above) and $5.5 million in
Fiscal 1996 and 1995, respectively. In addition, the increased losses
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, 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 the 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 represented a significant cost of operating
the Mishawaka, Indiana facility. Due to its configuration and
applicable fire and safety regulations, the entire facility had to be
heated and lighted even though the Company's operations occupied less
than 50 percent (50%) of the facility. The Specialty Adhesives Segment
relocated its operations from the Mishawaka, Indiana facility to its
facility in South Bend, Indiana in February, 1997. See "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
- Corporate Developments - Exit from the Mishawaka Plant and 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. The decrease resulted 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 "Note 5 To Consolidated
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 the use of the effective income tax rates based upon its actual
income.
Extraordinary Gain on the Extinguishment of Debt.
Extraordinary gain on the extinguishment of debt for Fiscal 1995 was
$363,000. The amount represents the 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 9 to Consolidated
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.
Liquidity and Capital Resources
For Fiscal 1997, the Company's operations provided
approximately $3.4 million of cash as compared to approximately $3.8
million used during Fiscal 1996. This increase in cash provided by
operations for Fiscal 1997 resulted primarily from increased net income
and was partially offset by decreases in the reserves established for
the relocation to the South Bend facility.
Net cash used in investing activities of the Company in Fiscal
1997 was approximately $15.5 million as compared to approximately $10.5
million provided during Fiscal 1996. Approximately $19.6 million of
such cash in Fiscal 1996 was provided from the Ensolite Sale. The
primary use of cash during Fiscal 1997 and Fiscal 1996 was to purchase
property, plant and equipment. The Company also used $8.0 million in
Fiscal 1997 for business acquisitions. The Company does not have any
significant specific commitments for the purchase of property, plant
and equipment.
Net cash provided by financing activities was $10.3 million
during Fiscal 1997 as compared to approximately $4.9 million used
during Fiscal 1996. Cash was provided by the Company's revolving credit
agreement, term loan and partially offset by the use of cash to redeem
the Preferred Stock. See "Item 1. Corporate Developments - Disposition
of Stock of PBGC."
The Company at September 28, 1997, had approximately $244,000
in cash and cash equivalents as compared to approximately $2.0 million
at September 29, 1996. Working capital at September 28, 1997 was
approximately $33.4 million compared to approximately $29.1 million at
September 29, 1996. The Company had borrowings of approximately $15.2
million under its $25 million revolving credit agreement at September
28, 1997. See "Note 9 to Consolidated 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.
Forward Looking Information
Statements made herein that are forward-looking in nature
within the meaning of the Private Securities Litigation Reform Act of
1995 are subject to risks and uncertainties that could cause actual
results to differ materially. Such risks and uncertainties include, but
are not limited to, those related to business conditions and the
financial strength of the various markets served by the Company, the
level of spending for such products and the ability of the Company to
successfully manufacture and market its products.
Item 8. Consolidated Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors and executive
officers of the Company is incorporated herein by reference to the
Company's definitive proxy statement pursuant to Regulation 14A, which
statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report.
Item 11. Executive Compensation
Information with respect to executive compensation is
incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, which statement will be filed not
later than 120 days after the end of the fiscal year covered by this
Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to the security ownership of
directors and executive officers and substantial stockholders of the
Company is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, which statement will be
filed not later than 120 days after the end of the fiscal year covered
by this Report.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and
transactions between directors, executive officers and substantial
stockholders of the Company with the Company is incorporated herein by
reference to the Company's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days
after the end of the fiscal year covered by this Report.
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Consolidated Financial Statements as of September 28, 1997
and September 29, 1996 and for the Years Ended September 28,
1997, September 29, 1996 and October 1, 1995:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 28, 1997 and
September 29, 1996 F-3
Consolidated Statements of Operations for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 28, 1997, September 29, 1996
and October 1, 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-7
Notes to Consolidated Financial Statements F-9
(b) Consolidated Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying Accounts S-2
(c) Exhibits:
2.1 Certificate of Ownership and Merger, dated June 7, 1993, of Polycast Technology
Corporation, Uniroyal Engineered Products, Inc., Uniroyal Adhesives and Sealants,
Inc. and Ensolite, Inc. with the Company. (6)
3.1 Amended and Restated Certificate of Incorporation of the Company as corrected by a Certificate of
Correction of the Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 By-Laws of the Company, as amended to November 14, 1996. (13)
4.1 Indenture, dated as of June 1, 1993, between the Company and The Bank of New York,
as trustee. (6)
4.2 Warrant Agreement, dated as of June 1, 1993, between the Company and The Bank of New
York, as warrant agent. (6)
10.1 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Polycast,
Polycast and the Company. (2)
10.2 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UEP, UEP and
the Company. (2)
10.3 Asset Acquisition Agreement, dated as of September 27, 1992, among Old Ensolite,
Ensolite and the Company. (2)
10.4 Asset Acquisition Agreement, dated as of September 27, 1992, among Old UAS, UAS and
the Company. (2)
10.5 Asset Acquisition Agreement, dated as of September 27, 1992, between Plastics
Support Corp. ("PSC") and the Company. (2)
10.6 Asset Acquisition Agreement, dated as of September 27, 1992, among U.E. Systems,
Inc., Ensolite and the Company. (2)
10.7 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Howard R. Curd and the Company. (7)
10.8 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Oliver J. Janney and the Company. (7)
10.9 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
Robert L. Soran and the Company. (7)
10.10 Amended and Restated Employment Agreement, dated as of April 25, 1995, between
George J. Zulanas, Jr. and the Company. (7)
10.11 Joint Stipulation Between the Debtors and the United States of America on Behalf of
Its Agency, The Internal Revenue Service, Regarding Treatment of Tax Claims. (3)
10.15 Uniroyal Technology Corporation Employee Stock Ownership Plan. (4)
10.16 Amended and Restated Uniroyal Technology Corporation 1992 Stock Option Plan. (13)
10.21 Settlement Agreement among Old Polycast, Old UAS, Old UEP, Old Ensolite and the
Official Retirees' Committee. (3)
10.22 Settlement Agreement and Stipulated Order among Old Polycast, Old UAS, Old UEP, Old Ensolite, the
United States of America, the State of Indiana and the State of Wisconsin. (3)
10.23 Plan Disbursing Agent Agreement, dated September 27,1992, among Old Polycast, Old
UAS, Old UEP, Old Ensolite and the Company. (2)
10.24 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. (13)
10.29 Agreement dated August 20, 1993 among the Company, UPAC and the Official Committee of Unsecured
Creditors of UPAC.(5)
10.30 Settlement Agreement dated December 6, 1993 among the Company, UPAC, Jesup and the
PBGC.(5)
10.34 Uniroyal Technology Corporation Deferred Compensation Plan Effective as of August 1,
1995. (8)
10.35 Split-Dollar Insurance Agreement dated as of August 15, 1995 by and between Uniroyal
Technology Corporation and Howard R. Curd. (9)
10.39 Financing Agreement dated as of June 5, 1996 by and between The CIT Group/Business
Credit, Inc. and Uniroyal Technology Corporation. (10)
10.40 Amended and Restated Uniroyal Technology Corporation 1994 Stock Option Plan. (13)
10.41 Amended and Restated Uniroyal Technology Corporation 1995 Non-Qualified Stock Option Plan.
(13)
10.42 Asset Purchase Agreement between Rubatex Corporation and Uniroyal Technology
Corporation, dated June 5, 1996. (11)
10.43 Amendment No. 3 to Technical Collaboration Agreement, dated March 1, 1996, between Uniroyal
Technology Corporation and Okamoto Industries, Inc. (13)
10.44 Shareholder Rights Agreement, dated as of December 18, 1996, between Uniroyal Technology Corporation
and The Bank of New York, as rights agent. (12)
10.45 First Amendment to Financing Agreement dated September 5, 1997 by and between The CIT
Group/Business Credit, Inc. and Uniroyal Technology Corporation.
11.1 Statement Regarding Computation of Per Share Earnings
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
(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 Form 10-K, dated December 17, 1993.
(6) Incorporated by reference to the Company's Form 8-K, dated June 9, 1993.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
April 2, 1995.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
July 2, 1995.
(9) 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.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996 filed August 13, 1996.
(11) Incorporated by reference to the Company's Form 8-K, dated June 10, 1996.
(12) Incorporated by reference to the Company's Registration Statement on Form 8-A, dated December 20, 1996.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 29,
1996.
(d) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of
Fiscal 1997.
Item 8. Consolidated Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Consolidated Financial Statements as of September 28, 1997 and
September 29, 1996 and for the Years Ended September 28, 1997,
September 29, 1996 and October 1, 1995:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 28, 1997 and
September 29, 1996 F-3
Consolidated Statements of Operations for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 28, 1997, September 29, 1996
and October 1, 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended
September 28, 1997, September 29, 1996 and October 1, 1995 F-7
Notes to Consolidated Financial Statements F-9
Consolidated Financial Statement Schedule:
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying Accounts S-2
Schedules Omitted - Certain other schedules have been omitted
because they are not required or because the information
required therein has been included in Notes to the
Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the accompanying consolidated balance sheets of Uniroyal
Technology Corporation and subsidiary (the "Company") as of September 28, 1997
and September 29, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended September 28, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 28, 1997 and September 29, 1996 and the results of its operations and
its cash flows for each of the three years in the period ended September 28,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial 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 12, 1997
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 28, September 29,
1997 1996
------------- -------------
Current assets:
Cash and cash equivalents (including restricted cash and cash
equivalents of $764 at September 29, 1996) (Note 2) $ 244 $ 2,023
Trade accounts receivable (less estimated reserve for doubtful
accounts of $257 and $369, respectively) (Notes 2 and 9) 28,784 25,094
Inventories (Notes 2, 3 and 9) 34,528 33,170
Prepaid expenses and other current assets 1,192 1,507
Deferred income taxes (Notes 2 and 10) 6,944 7,408
---------- ----------
Total current assets 71,692 69,202
Property, plant and equipment - net (Notes 2, 4 and 9) 68,314 63,984
Property, plant and equipment held for sale (Note 2) 9,346 10,832
Note receivable (Note 5) 5,000 5,000
Goodwill - net (Notes 2 and 6) 7,350 -
Reorganization value in excess of amounts allocable to identifiable
assets - net (Note 2) 7,534 8,288
Deferred income taxes (Notes 2 and 10) 1,402 1,485
Other assets (Notes 7 and 9) 10,853 11,995
---------- ----------
TOTAL ASSETS $ 181,491 $ 170,786
========== ==========
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 28, September 29,
1997 1996
------------- -------------
Current liabilities:
Current portion of long-term debt (Note 9) $ 1,277 $ 659
Trade accounts payable 15,551 16,549
Accrued expenses:
Compensation and benefits 10,573 10,166
Interest 3,019 2,861
Taxes, other than income 1,666 1,939
State income taxes 402 259
Other 5,846 7,621
---------- ----------
Total current liabilities 38,334 40,054
Long-term debt (Note 9) 88,370 72,116
Other liabilities (Note 8) 14,755 15,117
---------- ----------
Total liabilities 141,459 127,287
---------- ----------
Commitments and contingencies (Note 13)
Stockholders' equity (Notes 9 and 11):
Preferred stock :
Series B - 35 shares issued and outstanding at September 29, 1996
(redemption value of $150,000 per share); 1,000 shares
authorized; par value $.0.01 - 5,250
Series C - 0 shares issued and outstanding; par value $0.01;
450 shares authorized - -
Common stock:
13,707,360 and 13,233,912 shares issued or to be issued,
respectively; par value $0.01; 35,000,000 shares authorized 138 133
Additional paid-in capital 54,037 52,517
Deficit (14,022) (14,401)
---------- ----------
40,153 43,499
Less treasury stock at cost - 85,843 and 50,843 shares,
respectively (121) -
---------- ----------
Total stockholders' equity 40,032 43,499
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,491 $ 170,786
========== ==========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Fiscal Years Ended
----------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------- ------------- -----------
Net sales $ 208,524 $ 209,348 $ 214,951
Costs, expenses and (other income):
Costs of goods sold 161,122 170,088 166,314
Selling and administrative 27,545 28,626 26,783
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 754 765 769
Depreciation and other amortization 8,304 9,848 9,521
Excess facility expense 51 924 1,307
Reorganization professional fees subsequent to
effective date 154 640 708
Gain on sale of division (Note 5) - (2,102) -
Loss on assets to be disposed of (Note 14) - 8,900 -
Curtailment loss (Note 14) - 3,600 -
Strike settlement and training expense - 808 -
---------- ---------- ----------
Income (loss) before interest, income taxes and extraordinary item 10,594 (12,749) 9,549
Interest expense - net (9,384) (9,773) (10,029)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item 1,210 (22,522) (480)
Income tax (expense) benefit (Notes 2 and 10) (831) 8,121 189
---------- ---------- ----------
Income (loss) before extraordinary item 379 (14,401) (291)
Extraordinary gain on the extinguishment of debt - net
(Note 9) - - 363
---------- ---------- ----------
Net income (loss) $ 379 $ (14,401) $ 72
========== ========== ==========
Income (loss) per common share and common stock
equivalent (Notes 2 and 11)
Primary and fully diluted:
Income (loss) before extraordinary item $ 0.03 $ (1.09) $ (0.02)
Extraordinary gain - - 0.02
---------- ---------- ----------
Net income (loss) $ 0.03 $ (1.09) $ 0.00
========== ========== ==========
Average number of shares used in computation 13,423,554 13,167,466 14,507,605
========== ========== ==========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
Additional
Preferred Stock Common Paid-In Treasury Stockholders'
Series B Stock Capital Deficit Stock Equity
----------- --------- ---------- --------- --------- --------
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 11) 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 11) - - - - - -
Net loss - - - (14,401) - (14,401)
-------- -------- -------- -------- -------- --------
Balance at September 29, 1996 5,250 133 52,517 (14,401) - 43,499
Common stock issued for
acquisitions - 4 1,483 - - 1,487
Stock dividends paid (Note 11) - 1 - - - 1
Preferred stock redemption (5,250) - - - - (5,250)
Amounts received pursuant
to Directors' stock option plan - - 37 - - 37
Purchase of treasury stock - - - - (121) (121)
Net income - - - 379 - 379
-------- -------- -------- -------- -------- --------
Balance at September 28, 1997 $ - $ 138 $ 54,037 $(14,022) $ (121) $ 40,032
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Years Ended
------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------- ------------- ----------
OPERATING ACTIVITIES:
Net income (loss) $ 379 $(14,401) $ 72
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and other amortization 8,304 9,848 9,521
Deferred tax expense (benefit) 547 (8,904) (431)
Recovery of doubtful accounts - (6) (217)
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 754 765 769
Amortization of Senior Secured Notes discount 114 100 92
Amortization of debt issuance costs 431 457 466
Gain on sale of division - (2,102) -
Loss on assets to be disposed of - 8,900 -
Curtailment loss - 3,600 -
Extraordinary gain - - (363)
Other 351 106 299
Changes in assets and liabilities:
Increase in trade accounts receivable (2,845) (1,858) (5,837)
Increase in inventories (398) (2,456) (2,995)
Decrease (increase) in prepaid expenses
and other assets 567 (359) 1,532
(Decrease) increase in trade accounts payable (1,080) 757 3,363
(Decrease) increase in accrued expenses (2,804) 1,130 (773)
(Decrease) increase in other liabilities (884) 609 920
-------- -------- --------
Net cash provided by (used in) operating activities 3,436 (3,814) 6,418
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,200) (9,181) (7,422)
Proceeds from sale of assets 4,657 19,641 -
Business acquisitions, net of cash acquired (7,986) - -
-------- -------- --------
Net cash (used in) provided by investing activities (15,529) 10,460 (7,422)
-------- -------- --------
FINANCING ACTIVITIES:
Repurchase of Senior Secured Notes (243) - (6,223)
Other increase (decrease) in debt - net 14,428 (4,934) 3,261
Proceeds from term loan 1,500 - -
Preferred stock redeemed (5,250) - -
Stock options exercised - 20 8
Purchases of treasury stock (121) - -
-------- -------- --------
Net cash provided by (used in) financing activities 10,314 (4,914) (2,954)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (1,779) 1,732 (3,958)
Cash and cash equivalents at beginning of year 2,023 291 4,249
-------- -------- --------
Cash and cash equivalents at end of year $ 244 $ 2,023 $ 291
======== ======== ========
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Disclosures:
Payments for income taxes and interest expense were as follows (in thousands):
Fiscal Years Ended
--------------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------------- ------------------ ----------------
Income tax payments $ 82 $ 570 $ 155
Interest payments 9,664 9,549 9,784
Non-cash investing activities were as follows (in thousands):
Fiscal Years Ended
--------------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------------- ------------------ ----------------
Business acquisitions purchased with
Company common stock $ 1,488 $ - $ -
Business acquisition purchased with
note payable 1,000 - -
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 28, September 29, October 1,
1997 1996 1995
------------------- ------------------- ----------------
Term loan payments $ (741) $ (1,173) $ (500)
Increase (decrease) in revolver loan balances 15,169 (3,761) 3,761
-------- -------- --------
Other increase (decrease) in debt - net $ 14,428 $ (4,934) $ 3,261
======== ======== ========
The purchases of property, plant and equipment and the other increase (decrease)
in debt, net for the fiscal years ended September 28, 1997, September 29, 1996
and October 1, 1995 do not include $77,000, $846,000 and $1,404,000 related to
property held under capitalized leases (Note 13).
Net cash used in financing activities for the fiscal years ended September 28,
1997, September 29, 1996 and October 1, 1995 do not include the dividends
declared on the Series B Preferred Stock since they were paid with the issuance
of 73,448, 115,657 and 125,588 shares, respectively, of the Company's common
stock (see Note 11). Net cash used in financing activities for the fiscal years
ended September 28, 1997 and October 1, 1995 do not include 25,000 and 36,409
options purchased pursuant to the 1992 Non-Qualified Stock Option Plan,
respectively. No such options were purchased during the fiscal year ended
September 29, 1996.
See notes to consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended September 28, 1997,
September 29, 1996, and October 1, 1995
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") and its wholly owned subsidiary
ULC Corporation (collectively, the "Company"), is engaged in the
manufacture and sale of high performance plastics, coated fabrics and
specialty adhesives. During Fiscal 1997 the Company sold certain assets
of the Stoughton, Wisconsin automotive division and agreed to sell
certain assets of the Port Clinton, Ohio automotive division of its
Coated Fabrics Segment (Note 14). During Fiscal 1996 the Company sold
substantially all the assets, net of certain liabilities, of its
Ensolite closed cell foam division (Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany transactions
and balances have been eliminated.
Fiscal Year End
The Company's fiscal year ends on the Sunday following the last Friday
in September. The dates on which the fiscal year ended for the past
three fiscal years were September 28, 1997, September 29, 1996 and
October 1, 1995.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes all highly liquid investments
purchased with an original maturity of three months or less. 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 (Note 9).
Fair Value of Financial Instruments
The estimated fair value of amounts reported in the consolidated
financial statements have been determined using available market
information and valuation methodologies, as applicable. The carrying
value of all current assets and liabilities approximates the fair value
because of their short-term nature. The fair values of non-current
assets and liabilities approximate their carrying value.
Trade Accounts Receivable
The Company grants credit to its customers generally in the form of
short-term trade accounts receivable. The creditworthiness of customers
is evaluated prior to the sale of inventory. There are no significant
concentrations of credit risk to the Company.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using a monthly average basis or standard costs (which
approximates actual costs) for raw materials and supplies and the
first-in, first-out ("FIFO") basis of accounting or standard costs
(which approximates actual costs) for work in process and finished
goods.
Property. Plant and Equipment
Property, plant and equipment are stated at cost. The cost of property,
plant and equipment held under capital leases is equal to the lower of
the net present value of the minimum lease payments or the fair value
of the leased asset at the inception of the lease. Depreciation is
computed under the straight-line method based on the cost and estimated
useful lives of the related assets including assets held under capital
leases.
During March 1995 the Financial Accounting Standards Board ("FASB")
adopted Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. 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
and for long-lived assets and certain identifiable intangibles to be
disposed of. In accordance with SFAS No. 121, during the fiscal year
ended September 29, 1996, the Company established reserves totaling
approximately $8,900,000 related to its decision to exit the Port
Clinton, Ohio automotive operation of the Coated Fabrics Segment (Note
14). Other than the establishment of these reserves, the adoption of
SFAS No. 121 did not have a significant effect on the Company's
consolidated financial statements.
Property, Plant and Equipment Held for Sale
Property, plant and equipment held for sale is stated at the lower of
cost or fair value less cost to sell.
Amortization
Debt 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
$3,947,000 and $3,193,000 at September 28, 1997 and September 29, 1996,
respectively. Goodwill is amortized on a straight-line basis over 25
years. Goodwill is reported net of accumulated amortization of $48,000
at September 28, 1997.
Research and Development Expenses
Research and development expenditures are expensed as incurred.
Research and development expenditures were $3,674,000, $4,918,000 and
$4,689,000 for the fiscal years ended September 28, 1997, September
29, 1996 and October 1, 1995 respectively.
Employee Compensation
The cost of post-retirement benefits other than pensions are recognized
in the consolidated financial statements over an employee's term of
service with the Company.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income
taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company has recorded a deferred tax asset of approximately
$8,346,000. Realization is dependent on generating sufficient taxable
income prior to expiration of loss carryforwards available to the
Company. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be
realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Stock-Based Compensation
In October 1995 FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which is effective for fiscal years beginning after
December 15, 1995. Under SFAS No. 123, the Company may elect to
recognize stock-based compensation expense based on the fair value of
the awards or continue to account for stock-based compensation under
Accounting Principles Board ("APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and disclose in the consolidated financial
statements the effects of SFAS No. 123 as if the recognition provisions
were adopted. The Company has not adopted the recognition provisions of
SFAS No. 123.
Net Income (Loss) Per Common Share
The computations of primary and fully diluted income per common share
for the fiscal years ended September 28, 1997 and October 1, 1995 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
13) less the average number of shares held in treasury for the period
and also include the assumed conversion of the then outstanding Series
B Preferred Stock, if any, 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 were considered to be common
stock equivalents. 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. (See Note 11 for information regarding the
redemption of the Series B Preferred Stock.)
New Accounting Pronouncements
FASB has issued SFAS No. 128, Earnings Per Share, which is required to
be adopted for financial statement periods ending after December 15,
1997. SFAS No. 128 requires that the primary and fully diluted earnings
per share be replaced by "basic" and "diluted" earnings per share,
respectively. The basic calculation computes earnings per share based
only on the weighted average number of shares outstanding as compared
to primary earnings per share which included common stock equivalents.
The diluted earnings per share calculation is computed similarly to
fully diluted earnings per share. Management does not anticipate that
SFAS No. 128 will have a significant impact on earnings per share.
In February 1997, FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. SFAS No. 129 requires a company to explain the
privileges and rights of its various outstanding securities, the number
of shares issued upon conversion, exercise or satisfaction of required
conditions during the most recent annual fiscal period, liquidation
preferences of preferred stock and other matters with respect to
preferred stock. The Company has adopted SFAS No. 129 in these
consolidated financial statements.
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 established standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined
as the change in equity of a business during a period from transactions
and circumstances related to non-owner sources and includes all changes
in equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS
No. 130 is not expected to have a material effect on the Company's
consolidated financial statements.
In June 1997, FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires public
entities to report certain information about operating segments, their
products and services, the geographic areas in which they operate and
their major customers, in complete financial statements and in
condensed interim financial statements issued to shareholders. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS No. 131 is not expected to have a material effect
on the Company's consolidated financial statements.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 28, September 29,
1997 1996
------------------ ----------------
Raw materials, work in process and supplies $ 21,851 $ 21,458
Finished goods 12,677 11,712
-------- --------
Total $ 34,528 $ 33,170
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
thousands):
Estimated
Useful September 28, September 29,
Lives 1997 1996
---------------- ------------------ ------------------
Land and improvements - $ 5,442 $ 5,014
Buildings and improvements 3-40 years 21,958 16,083
Machinery, equipment and office
furnishings 3-15 years 67,122 56,770
Construction in progress - 2,941 8,484
-------- --------
97,463 86,351
Accumulated depreciation (29,149) (22,367)
-------- --------
Total $ 68,314 $ 63,984
======== ========
On July 17, 1996, the Company acquired a manufacturing facility in
South Bend, Indiana for cash of approximately $1,800,000. Renovation of
the facility was completed in Fiscal 1997. The Company moved its
adhesives and sealants division and the thermoplastic products
division's headquarters as well as certain other Company operations
from their leased facility in Mishawaka, Indiana to the South Bend
facility during the second quarter 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 adhesives and sealants
division totaling $1,658,000 as of September 29,1996. Such amounts were
classified as current and were included in other accrued expenses in
the accompanying consolidated financial statements as of September 29,
1996. No material amounts were outstanding as of September 28, 1997.
5. SALE OF ENSOLITE DIVISION
Pursuant to an asset purchase agreement, the Company sold on June 10,
1996 substantially all the assets net of certain liabilities of its
Ensolite closed-cell foam division to Rubatex Corporation ("Rubatex")
for $25,000,000 consisting of cash in the amount of $20,000,000 and a
promissory note of the parent of Rubatex 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 approximately
$664,000 in accordance with SFAS No. 106, Employer's Accounting for
Postretirement Benefits Other Than Pensions. In connection with the
Ensolite sale, Rubatex received an option to purchase certain
additional equipment housed at the Company's Mishawaka, Indiana
manufacturing facility for $250,000 which it exercised in November,
1996. The purchase price was adjusted for changes in working capital,
as defined in the asset purchase agreement, between October 1, 1995 and
June 10, 1996. The change in working capital resulted in additional
proceeds and select assets paid to the Company by Rubatex of
approximately $700,000. Such amount has been included in the pre-tax
gain on sale. The Company and Rubatex also entered into an earn-out
agreement whereby the Company could earn between $.15 and $.20 per
board foot of Ensolite products produced by Rubatex in excess of the
base volume as defined in such agreement during each of the four year
periods following the closing of the Ensolite Sale. In no event will
the total amount earned by the Company under the earn-out agreement
during the forty-eight month period following the closing of the sale
exceed $3,000,000. The Company earned approximately $353,000 net of
expenses under the earn-out agreement during Fiscal 1997.
In conjunction with the Ensolite Sale, the Company entered into a toll
manufacturing agreement with Rubatex. The Company produced Ensolite
products for the benefit of Rubatex at its Mishawaka, Indiana
manufacturing facility through March 17, 1997. The Company was
reimbursed by Rubatex for the variable costs incurred in the production
of Ensolite products and was paid a fixed amount for manufacturing
period costs based on actual costs incurred by the Company during
Fiscal 1995 and adjusted for inflation. In addition the Company
provided certain support services to Rubatex and was reimbursed by
Rubatex for the costs of certain of such services.
6. BUSINESS ACQUISITIONS
On March 31, 1997 the Company acquired 100% of the common stock of C.
Gunther Company, a manufacturer of mirror mastic adhesive, for
$1,650,000 in cash and 100,000 shares of common stock of the Company.
The purchase price was adjusted for changes in working capital between
January 31, 1997 and March 31, 1997, as defined in the purchase
agreement. This resulted in an increase in the purchase price of
$86,500 which was paid in cash. C. Gunther Company was subsequently
merged into the Company in September of 1997.
On August 29, 1997 the Company acquired the Lucite(R) Super Abrasion
Resistant ("S-A-R") acrylic coating business of the Lucite(R) Acrylic
Division of ICI Acrylics, Inc. for $3,000,000, consisting of $2,000,000
in cash and an unsecured promissory note for $1,000,000 bearing an
interest rate of 8% (Note 9). The purchase price was adjusted for
inventory changes and the pro-ration of prepaid expenses as defined in
the purchase agreement. This resulted in an increase in the purchase
price of $122,000 which was paid in cash.
On September 5, 1997 the Company acquired substantially all of the
assets of the Townsend Plastics Division of Townsend Industries, Inc.,
a manufacturer of acrylic rods and tubes, for $4,485,000 in cash and
300,000 shares of common stock of the Company. In connection with this
purchase, the Company amended its financing agreement with The CIT
Group/Business Credit, Inc. to include a term note of $1,500,000 (Note
9).
The above business combinations were accounted for by the purchase
method in accordance with APB Opinion No. 16. The results of operations
of the above named businesses are included in the consolidated
financial statements from their respective purchase dates in Fiscal
1997.
The Company acquired the following assets and liabilities (net of cash
received) in the above transactions (in thousands):
Accounts receivable $ 845
Inventory 960
Property, plant and equipment 2,555
Goodwill 7,398
Note payable (1,000)
Other liabilities (1,284)
--------
Net value of purchased assets 9,474
Value of common stock issued (1,488)
--------
Cash paid for acquisitions $ 7,986
========
The acquired goodwill will be amortized over the estimated useful life
of the assets of 25 years.
The acquisitions were completed during the latter part of the fiscal
year. Management has made its best estimate of the purchase price at
this time; however, certain estimates may change during the course of
Fiscal 1998.
The pro forma effect of these acquisitions on the Company's net sales,
income before extraordinary item, net income and earnings per share,
had the acquisitions occurred on September 30, 1996, is not considered
material.
7. OTHER ASSETS
Other assets consisted of the following (in thousands):
September 28, September 29,
1997 1996
----------------- -----------------
Patents and trademarks $ 5,220 $ 5,322
Debt issuance costs 3,675 4,110
Other 1,958 2,563
-------- --------
Total $ 10,853 $ 11,995
======== ========
Patents and trademarks are reported net of accumulated amortization of
$2,492,000 and $2,142,000 at September 28, 1997 and September 29, 1996,
respectively. During the fiscal year ended September 28, 1997 the
Company wrote off $13,000 of debt issuance costs in connection with the
$250,000 acquisition of face value of the Company's Senior Secured
Notes. 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
9). Debt issuance costs are shown net of accumulated amortization of
$1,933,000 and $1,502,000 at September 28, 1997 and September 29, 1996,
respectively.
8. OTHER LIABILITIES
Other liabilities consisted of the following (in thousands):
September 28, September 29,
1997 1996
------------------ -----------------
Accrued retirement benefits $ 13,420 $ 13,217
Taxes, other than income 1,335 1,900
-------- --------
Total $ 14,755 $ 15,117
======== ========
9. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 28, September 29,
1997 1996
------------------ ---------------
11.75% Senior Secured Notes, principal due June 1, 2003,
interest due semi-annually on December 1 and June 1 $ 72,253 $ 72,503
Revolving credit agreement 15,169 -
Secured term loan 1,500 -
Unsecured promissory note 1,000 -
Unamortized debt discount (1,012) (1,130)
-------- --------
88,910 71,373
Other obligations 737 1,402
-------- --------
89,647 72,775
Less current portion (1,277) (659)
-------- --------
Long-term debt $ 88,370 $ 72,116
======== ========
Debt amounts become due during subsequent fiscal years ending in
September as follows (in thousands):
1998 $ 1,277
1999 995
2000 955
2001 15,179
2002 -
Subsequent years 72,253
Less unamortized debt discount (1,012)
--------
Total debt $ 89,647
========
On June 7, 1993, 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 rate
of interest on 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 11.75%.
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 28, 1997 and September 29, 1996.
During the fiscal year ended September 28, 1997 the Company acquired
$250,000 of face value of the Senior Secured Notes through open market
purchases, the effect of which was not material to the consolidated
financial statements. 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 of approximately $363,000 (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). The Company did not acquire any such notes during the
fiscal year ended September 29, 1996.
On June 5, 1996, the Company entered into a revolving credit agreement
with The CIT Group/Business Credit Inc. ("CIT"), 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 28, 1997. At September 28, 1997 the Company
had approximately $7,237,000 available under the revolving credit
agreement. The Company had $15,169,000 of outstanding borrowings under
this agreement at September 28, 1997. The Company had no outstanding
borrowings under this agreement at September 29, 1996.
On September 5, 1997, in connection with the purchase of Townsend
Plastics (Note 6), the Company amended the financing agreement with CIT
to include a term note of $1,500,000 ("Term Note"). The Term Note is
payable in twelve equal quarterly installments beginning December 31,
1997. Interest on the Term Note is payable monthly at prime plus .25%
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.
In connection with the purchase of the Lucite(R) S-A-R business on
August 29, 1997 (Note 6), the Company issued an unsecured promissory
note in the principal amount of $1,000,000 payable to ICI Acrylics,
Inc. The principal amount of the note, together with interest at the
rate of 8% per annum, is payable in three installments on the first,
second and third anniversary date of the note.
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 $737,000
and $1,402,000 as of September 28, 1997 and September 29, 1996,
respectively (Note 13).
10. INCOME TAXES
The effective tax rate differs from the statutory federal income tax
rate for the following reasons (in thousands):
Fiscal Years Ended
---------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
---------------- ----------------- ----------------
Income tax calculated at the statutory
rate applied to income (loss) before
income tax and extraordinary item $ 408 $ (7,657) $ (163)
Increase (decrease) resulting from:
Exclusion of extraordinary gain
on the extinguishment of debt - - 310
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets 155 145 145
State income tax 354 (593) -
Other (86) ( 16) (171)
-------- -------- --------
Income tax expense (benefit) $ 831 $ (8,121) $ 121
======== ======== ========
Income tax expense (benefit) consisted of the following components (in
thousands):
Fiscal Years Ended
---------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------------ ------------------ ----------------
Current
Federal $ - $ 119 $ -
State 284 532 242
-------- -------- --------
Total $ 284 $ 651 $ 242
======== ======== ========
Net deferred tax (benefit) expense
Federal $ 477 $ (7,647) $ (106)
State 70 (1,125) (15)
-------- -------- --------
Total $ 547 $ (8,772) $ (121)
======== ======== ========
Total
Federal $ 477 $ (7,528) $ (106)
State 354 (593) 227
-------- -------- --------
Total $ 831 $ (8,121) $ 121
======== ======== ========
The total income tax expense of $121,000 for the fiscal year ended
October 1, 1995 includes an expense in the amount of $310,000
applicable to the extraordinary item (Note 9).
The components of the deferred tax assets and liabilities consisted of
the following (in thousands):
September 28, 1997
-----------------------------------------------------------
Assets Liabilities Total
---------------- ------------------ -----------------
Current
Accrued expenses deductible in future
period $ 6,944 $ - $ 6,944
======== ======== ========
Non-Current
Acquired tax loss carryforward benefits $ 7,872 $ - $ 7,872
Net operating loss carryforward 4,553 - 4,553
Book basis in excess of tax basis of
assets - (8,123) (8,123)
Long-term accrual of expenses
deductible in future periods 4,972 - 4,972
Valuation allowance (7,872) - (7,872)
-------- -------- --------
Total $ 9,525 $ (8,123) $ 1,402
======== ======== ========
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
======== ======== ========
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 net operating loss carryforward for tax
purposes is approximately $1,600,000 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.
11. STOCKHOLDERS' EQUITY
The Company's certificate of incorporation provides that the authorized
capital stock of the Company consists of 35,000,000 shares of common
stock and 1,000 shares of preferred stock, each having a par value of
$0.01 per share. At September 28, 1997, approximately 13,373,000 shares
of common stock had been issued. Approximately 334,000 shares of common
stock are reserved for issuance pending resolution of disputed claims
in the bankruptcy proceedings (Note 13).
The holder of the Series B Preferred Stock was entitled to vote as a
separate class of shareholders for the purpose of electing certain
directors to the Board of Directors of the Company. A holder of Series
B Preferred Stock had no preemptive or preferential rights to purchase
or subscribe to any additional shares of capital stock except for the
conversion rights described below.
The Company had the right to redeem all or any portion of the Series B
Preferred Stock at any time following 30 days' notice to the holder of
such Preferred Stock by (a) paying $150,000 per share for each share of
Series B Preferred Stock that the Company, in its sole discretion,
elected to redeem; and (b) issuing all common stock dividends then
accrued but unpaid on the Preferred Stock to be redeemed. The Company
had the right, but no obligation, to redeem, at its option, any or all
whole or fractional shares of Preferred Stock. In the event of a
liquidation of the Company, the holder of the Preferred Stock would be
entitled to receive, following all distributions to creditors of the
Company required under Delaware law, a liquidation payment of $150,000
per share plus all accrued but unpaid dividends prior to any
distributions to common stockholders.
On December 16, 1996 the Company redeemed 15 shares of Series B
Preferred Stock for $2,250,000. On February 4, 1997 the Company
redeemed the remaining 20 shares of Series B Preferred Stock for
$3,000,000.
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.
From September 1, 1992, the holder of shares of Series B Preferred
Stock was entitled to receive an annual dividend equal to 8% of the
redemption price for outstanding shares of Series B Preferred Stock, as
applicable, payable only in shares of common stock which number of
shares is based on the average of the last reported bid prices for the
30 calendar days preceding the declaration date. The Company declared
such dividends, on a quarterly basis through February 1997.
During the fiscal years ended September 28, 1997, September 29, 1996
and October 1, 1995, the Company declared stock dividends of $220,000,
$420,000 and $420,000, respectively, resulting in the issuance of
73,448, 115,657 and 125,588 shares of common stock, respectively, at an
average price per common share of $3.00, $3.63 and $3.34, respectively.
The $220,000 and $420,000 of dividends declared during the fiscal years
ended September 28, 1997 and September 29, 1996 were charged to
additional paid-in capital. Of the $420,000 of dividends declared
during the fiscal year ended October 1, 1995, $72,000 was charged to
retained earnings and the remaining $348,000 was charged to additional
paid-in capital.
On December 18, 1996, the Board designated a new series of preferred
stock of the Company termed Series C Junior Participating Preferred
Stock, $.01 par value ("Series C Preferred") and reserved 450 shares of
the Series C Preferred for issuance. At the same time, the Board
declared a dividend of a right to acquire 1/100,000 of a share of
Series C Preferred to the holder of each share of common stock (the
"Rights") under a Shareholder Rights Plan. The Rights will trade with
the common stock and be detachable from the common stock and
exercisable only in the event of an acquisition of or grant of the
right to acquire 15% or more of the common stock by one party or common
group or a tender offer to acquire 15% or more of the common stock.
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 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
28,1997 no warrants had been exercised.
Stock Compensation Plans
At September 28, 1997, the Company has four stock-based compensation
plans, which are described below. The Company applies APB Opinion No.
25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for these plans.
Had compensation cost been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
FASB Statement No. 123, the Company's net income (loss) and earnings
per share would have been reduced to the pro forma amounts indicated
below (in thousands, except earnings per share information):
Fiscal 1997 Fiscal 1996
Net income (loss) - As reported $ 379 $ (14,401)
Pro forma $ 308 $ (14,434)
Earnings per share - As reported $ 0.03 $ (1.09)
Pro forma $ 0.02 $ (1.10)
The Company has reserved 1,363,636 shares of common stock to be issued
and sold pursuant to the 1992 Stock Option Plan that was adopted by the
Company on September 27, 1992. Generally, of the options under this
plan granted, 60% vested on May 1, 1994 and the remainder vested on
November 1, 1995. Vesting provisions for any additional options will be
determined by the Board of Directors of the Company at the time of the
grant of such options. The stock options are exercisable over a period
determined by the Board of Directors or its Compensation Committee, but
no longer than ten years after the date granted.
During the fiscal year ended September 26, 1993, the Company adopted
the 1992 Non-Qualified Stock Option Plan available for non-officer
directors. This plan provides that directors who are not officers of
the Company are entitled to forego up to 100% of their annual retainer
in exchange for options to purchase the Company's common stock at an
option price of 50% of the market price of the underlying common stock
at the date of grant. The options are exercisable for a period of 10
years starting with the date of the grant of each option.
During the fiscal year ended October 2, 1994, the Company adopted the
1994 Stock Option Plan available for certain key employees of the
Company. The Company has reserved approximately 812,000 shares of
common stock to be issued under this plan, provided that the aggregate
number of options that may be granted under the 1994 Stock Option Plan
and all other stock option plans of the Company for employees may not
at any time exceed in the aggregate 15% of the then currently
authorized common stock outstanding, on a fully diluted basis. Stock
options granted under this plan are exercisable until not later than
January 1, 2004.
During the fiscal year ended September 29, 1996, the Company adopted
the 1995 Non-Qualified Stock Option Plan available for directors. Each
director is granted an option to purchase 10,000 shares of the
Company's common stock in the case of the initial grant and 5,000
shares for any subsequent grant. The initial grant occurred upon the
adoption of this plan or, in the case of new directors, 30 days after
becoming an eligible director of the Company. Options granted under
this plan have a term of three years and may be exercised nine months
after the date of the grant. This plan terminates on February 14, 2006.
No director who is not an officer of the Company may receive options to
purchase more than an aggregate of 10,000 shares of Common Stock in any
calendar year under all of the Company's Stock Option Plans.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal years 1996 and
1997, respectively: expected volatility of 45.89% and dividend yield of
0% for both years, risk-free interest rates of 5.656% and 6.042% and
expected life of 10 years except for the 1995 Plan options which have
an expected life of 3 years.
The following table summarizes all stock option transactions for the
Fiscal years ended September 28, 1997 and September 29, 1996:
Fiscal 1997 Fiscal 1996
-------------------------------- -------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
--------------------------------- -------------------------------
Outstanding at Beginning of Year 1,707,973 $3.45 1,650,561 $3.45
Grants 296,570 $2.89 93,000 $3.39
Exercised - - (6,862) $2.94
Forfeited (109,293) $3.48 (28,726) $3.60
--------- ---------
Outstanding at End of Year 1,895,250 $3.36 1,707,973 $3.45
========= =========
Exercisable at End of Year 1,603,676 1,484,502
========= =========
Weighted-average fair value of
options granted during the year $ 1.75 $ 0.99
The following table summarizes information about stock options at
September 28, 1997:
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------------
Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Prices 9/28/97 Contractual Life Price 9/28/97 Price
-------------- ---------------- ---------------- -------------- ----------------
$2.625 - $3.125 670,772 6.8 Years $2.80 387,198 $2.76
$3.250 - $4.000 742,452 5.9 Years $3.37 738,452 $3.36
$4.125 - $4.500 482,026 6.0 Years $4.13 478,026 $4.13
--------- ---------
1,895,250 6.3 Years $3.36 1,603,676 $3.44
========= =========
Employee Stock Ownership Plan
The Company has established the Uniroyal Technology Corporation
Employee Stock Ownership Plan (the "ESOP"). The ESOP is a stock bonus
plan intended to encourage eligible employees to save for their
retirement and to increase their proprietary interest in the Company by
accumulating the Company's common stock. Employees eligible for the
initial distribution generally were all employees employed by the
Company on or after January 1, 1993, excluding executive officers of
the Company.
The Company made an initial contribution to the ESOP of 425,000 shares
of common stock. Future contributions by the Company are discretionary.
The initial contribution has been allocated to eligible employees of
the Company ratably based upon the respective compensation levels of
the eligible employees. Shares allocated to each participant account
under the ESOP will 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 28, 1997, September 29, 1996 and October 1, 1995. The Company
did not have any ESOP expense during the fiscal years ended September
28, 1997, September 29, 1996 and October 1, 1995.
12. EMPLOYEE COMPENSATION
Post-retirement Health Care and Life Insurance Benefits
Certain retired employees are currently provided with specified health
care and life insurance benefits. Generally, the plan provides for
reimbursement of approved medical and prescription drug costs not fully
covered by Medicare. The plan also provides for certain deductibles and
co-payments. The life insurance benefits provide for amounts based upon
the retirees' compensation at the time of their retirement. Eligibility
requirements for such benefits vary by division, but generally provide
that benefits are available to employees who retire after a certain age
with specified years of service or a combined total of age and years of
service. The Company has the right to modify or terminate certain of
these benefits. The Company's policy is to pay the actual expenses
incurred by the retirees; the Company does not intend to fund any
amounts in excess of those obligations. The Company is also obligated
to provide benefits to certain salaried retirees of Uniroyal Plastics
Company, Inc. ("UPC") which is currently in liquidation proceedings
under Chapter 7 of the U.S. Bankruptcy Code and is an affiliate of the
Predecessor Companies (defined in Note 13) or Uniroyal, Inc.
("Uniroyal") (not affiliated with the Company) who are class members
under a federal district court order. The Company and Uniroyal agreed
to share on a 35%-65% basis, respectively, the costs of providing
medical, prescription drug and life insurance benefits to these
retirees. The Company is further obligated to make payments to a
Voluntary Employee Benefits Association ("VEBA") established to provide
benefits to certain retirees of the Predecessor Companies and UPC.
The Company adopted SFAS No. 106 as of September 27, 1992, which
requires that the cost of the foregoing benefits be recognized in the
Company's consolidated financial statements over an employee's service
period with the Company. The Company determined that the accumulated
post-retirement benefit obligation ("Transition Obligation") of these
plans upon adoption of SFAS No. 106 was $28,085,000. The Company
elected to defer the recognition of the Transition Obligation and
amortize it over the greater of the average remaining service period or
life expectancy period of the participants, which is expected to be
approximately 16 years. In connection with the Ensolite Sale (Note 5)
the Company recognized approximately $4,500,000 of the Transition
Obligation relating to this employee group as reduction to the gain on
the sale. In connection with the sale of the automotive division of the
Coated Fabrics Segment (Note 14), the Company recognized approximately
$3,600,000 in Fiscal 1996 of the Transition Obligation and other
expenses relating to this employee group.
The following table summarizes the accumulated post-retirement and
benefit obligation included in the Company's balance sheets (in
thousands):
September 28, September 29,
1997 1996
------------------ ------------------
Accumulated post-retirement benefit obligation:
Retirees $ 25,925 $ 25,919
Fully eligible active plan participants 5,939 4,836
Other active plan participants 2,357 2,904
Unrecognized prior service cost 276 290
Unamortized transition obligation (12,250) (16,613)
Unrecognized net loss (7,562) (6,859)
-------- --------
Accrued post-retirement benefit obligation $ 14,685 $ 10,477
======== ========
The net periodic post-retirement benefit cost contains the following
components (in thousands):
Fiscal Years Ended
--------------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------------- ------------------ -----------------
Service cost $ 67 $ 205 $ 196
Interest cost on projected benefit
obligation 2,315 2,366 2,202
Amortization of unrecognized transition
obligation 1,134 1,651 1,755
Other - net 191 362 140
-------- -------- --------
Net periodic post-retirement benefit
cost $ 3,707 $ 4,584 $ 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 approximate 6.1% annual rate of increase in
the cost of covered health care benefits was assumed for years one
through two, approximately 5.9% for years three through five and
approximately 4.9% thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For
example, increasing the health care trend rate by one percentage point
in each year would increase the accumulated post-retirement benefit
obligation as of September 28, 1997 by $2,263,000 and the net periodic
post-retirement benefit cost by $179,000.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation for the fiscal years ended September
28, 1997 and September 29, 1996 was 7.0% and 7.75%, respectively. The
weighted average discount rate used in determining the net periodic
post-retirement benefit cost for the fiscal years ended September 28,
1997, September 29, 1996 and October 1, 1995 was 7.75%, 7.0% and 7.0%,
respectively.
Other Benefit Plans
The Royalite, UEP and UAS divisions provide additional retirement
benefits to substantially all of their employees and the Polycast
Division provides such benefits to certain of its employees through two
defined contribution savings plans. The plans provide for employee
contributions and employer matching contributions to employee savings.
Employer contributions are generally either 2% of salaried and certain
non-union hourly participants' gross earnings or rates per hour ranging
generally from $.05 to $.51 based on years of service. The expenses
pertaining to these plans amounted to approximately $649,000, $699,000
and $670,000 for the fiscal years ended in 1997, 1996 and 1995,
respectively.
In addition, the Company provides a savings plan under Section 401(k)
of the Internal Revenue Code. The savings plan covers all eligible
salaried and non-union wage employees of the Company. The savings plan
allows all eligible employees to defer up to 15% of their income on a
pre-tax basis through contributions to the savings plan. For every
dollar an employee contributes, the Company may contribute an amount
equal to 25% of each participant's before-tax obligation up to 6% of
the participant's compensation. Such employer contribution may be made
in cash or in Company common stock. The expenses pertaining to this
savings plan were approximately $141,000, $228,000 and $174,000 for the
fiscal years ended 1997, 1996 and 1995. 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 1997 and 1995.
13. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
On September 27, 1992 the company acquired the businesses of certain
direct and indirect subsidiaries of The Jesup Group, Inc. ("Jesup") for
$54,400,000 of the Company's common and preferred stocks. These
subsidiaries (collectively, the "Predecessor Companies") are the
current operating divisions of the Company. The Predecessor Companies
previously filed petitions with the United States Bankruptcy Court for
the Northern District of Indiana, South Bend Division (the "Bankruptcy
Court") seeking protection from their creditors under Chapter 11 of the
United States Bankruptcy Code. On August 20, 1992 the Bankruptcy Court
approved the Third Amended Plan of Reorganization under Chapter 11 of
the Bankruptcy Code for Polycast Technology Corporation and its
Affiliated Debtors (the "Plan"). The Plan was substantially consummated
at the close of business on September 27, 1992 (the "Effective Date").
As a result of the bankruptcy and the consummation of the Plan at
September 27 1992, the Company recorded certain adjustments to present
its consolidated financial statements at September 27, 1992 in
conformity with Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), of
the American Institute of Certified Public Accountants. Under the
provisions of SOP 90-7, the Company was required to adopt fresh start
reporting as of September 27, 1992 because (i) the reorganization value
of the Company (approximate fair value on the Effective Date) was less
than the total of all post-petition liabilities and pre-petition
allowed claims and (ii) holders of the voting shares of the Predecessor
Companies before the Effective Date received less than 50 percent (50%)
of the voting shares of the Company.
Notwithstanding the confirmation and effectiveness of the Predecessor
Companies' Plan, the Bankruptcy Court continues to have jurisdiction
to, among other things, resolve disputed pre-petition claims and to
resolve other matters that may arise in connection with or relate to
the Predecessor Companies' Plan. The Company has resolved, through
negotiation or through dismissal by the Bankruptcy Court, approximately
$38,000,000 in disputed claims. Approximately 9,666,000 shares have
been issued to the holders of unsecured claims against the Predecessor
Companies in settlement of the allowed unsecured claims against the
estates of the Predecessor Companies and to the Company's ESOP. The
Company retained approximately 86,000 shares of common stock which are
included in treasury stock. The remaining approximate 334,000 shares of
the original 10,000,000 shares allocated for the disposition of
bankruptcy claims are being held pending resolution of certain
miscellaneous claims.
Litigation
Approximately 130 hourly employees at the Company's acrylic sheet
manufacturing facility in Stamford, Connecticut are represented by
Teamsters Local 191, which is affiliated with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America (the "Teamsters"). The Teamsters declared a strike on July
11,1994 and called off the strike December 10,1994. The Company and
Teamsters settled their dispute in June 1996. The Company agreed to
settle the claim of the striking employees for back pay following the
receipt of release of claims from such employees. The Company settled
its obligation to the employees in August 1996 with a payment of
approximately $808,000, inclusive of employment taxes of $58,000.
The Company is also engaged in litigation arising from the ordinary
course of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or leased facilities. The Company's
policy is to accrue environmental and cleanup-related costs of a
non-capital nature when it is probable both that a liability has been
incurred and that the amount can be reasonably estimated.
The Company may become subject to claims relating to certain
environmental matters. The operations of the Predecessor Companies and
certain of their affiliates produced waste materials that, prior to
1980, were disposed of at some 36 known unregulated sites throughout
the United States. After 1980, waste disposal was limited to sites
permitted under federal and state environmental laws and regulations.
If any of the disposal sites (unregulated or regulated) are found to be
releasing hazardous substances into the environment, under current
federal and state environmental laws, the appropriate company might be
subject to liability for cleanup and containment costs.
Prior to the effective date of the Predecessor Companies' Plan, several
sites were identified where there were potential liabilities for the
cost of environmental cleanup. In most instances, this potential
liability resulted from the alleged arrangement for the off-site
disposal of hazardous substances by Uniroyal, Inc.
Pursuant to a settlement agreement with the United States Environmental
Protection Agency ("EPA"), the United States Department of the Interior
and the States of Wisconsin and Indiana (the "EPA Settlement
Agreement"), entered into in connection with the Plan, the Predecessor
Companies compromised and settled (in exchange for common stock of the
Company) substantially all of the pre-petition liabilities of the
Predecessor Companies and the Company relating to disposal activities
under Sections 106 and 107 of the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), Section 3008 of the Resource
Conservation and Recovery Act ("RCRA") and similar state laws for
cleanup of the remaining unsettled 20 designated sites not owned by any
of the Predecessor Companies (the "Known Sites") and for natural
resource damages at 15 of the 20 Known Sites. Pursuant to the EPA
Settlement Agreement, the Predecessor Companies and the Company
received from the United States and the States of Indiana and Wisconsin
a covenant not to sue for response costs and, with the exception of
five Known Sites, natural resource damages at each of the Known Sites.
In addition, pursuant to Section 113(f)(2) of CERCLA, and as provided
under the EPA Settlement Agreement, the Predecessor Companies and the
Company will be protected against contribution claims filed by private
parties for any Known Site for matters covered by the EPA Settlement
Agreement. The EPA Settlement Agreement established a mechanism for the
Company to resolve its liability for any other sites, except for those
owned by the Company (the "Additional Sites"), arising from
pre-petition disposal activity. The Company also agreed to share with
such parties the proceeds of claims relating to the known sites made
against certain insurers of the Predecessor Companies and their
affiliates.
In the event that the United States, or the State of Wisconsin or the
State of Indiana asserts a claim against any of the Predecessor
Companies or the Company for response costs associated with
pre-petition disposal activities at any Additional Site, the
governmental party will be entitled to pursue its claim in the ordinary
course, and the Company and the Predecessor Companies will be entitled
to assert all of their defenses. However, if and when the Company or
any of the Predecessor Companies is held liable, and if the liability
is determined to arise from pre-petition disposal activities, the
Company or such Predecessor Company may pay the claims in discounted
"plan dollars" (i.e., the value of the consideration that the party
asserting such claim would have received if the liability were treated
as a general unsecured claim under the Plan). Such payment may be made
in cash or securities, or a combination thereof, at the Company's or
such Predecessor Company's option. The Company is not aware of any such
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. As of September 28, 1997, the Company
had incurred approximately $235,000 of related remediation costs.
The Company's acquisition of assets of Townsend Plastics in September
1997 (Note 6) included the building in which the business operates in
Pleasant Hill, Iowa. The seller retained the underlying real property,
which is leased to the Company for a term of ten years. The Company
also has an option to acquire such real property until September 30,
2007. The real property is subject to a RCRA Facility
Investigation/Corrective Measures Study with Interim Measurers ordered
by the EPA pursuant to RCRA. Two former lessees of the property are
performing corrective measures on the real property to remediate soil
and ground water contamination. The Company does not anticipate that
such corrective measures will interfere with the Company's use of the
property. The Company does not anticipate any liability to the Company
in connection with such contamination or corrective measures as long as
the Company remains a lessee of the property.
Based on information available as of September 28, 1997, the Company
believes that the costs of known environmental matters either have been
adequately provided for or are unlikely to have a material adverse
effect on the Company's operations, cash flows or financial position.
Leases
The Company is a party to non-cancelable lease agreements involving
equipment. The leases extend for varying periods up to 5 years and
generally provide for the payment of taxes, insurance and maintenance
by the lessee. Generally these leases have options to purchase at
varying dates.
The Company's property held under capitalized leases, included in
property, plant and equipment (Note 4) consists of the following (in
thousands):
September 28, September 29,
1997 1996
----------------- ----------------
Machinery, equipment and office furnishing $ 2,397 $ 1,445
Construction in progress - 969
Less accumulated amortization (568) (308)
-------- --------
$ 1,829 $ 2,106
======== ========
The approximate minimum future lease obligations on long-term
non-cancelable capital lease obligations included in long-term debt
(Note 9) during subsequent fiscal years ending in September are as
follows (in thousands):
Fiscal Year
1998 $ 491
1999 182
2000 128
2001 10
--------
811
Less imputed interest 74
--------
Total $ 737
========
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
1998 $ 886
1999 492
2000 444
2001 80
2002 41
Subsequent years 21
--------
Total $ 1,964
========
Rent expense was approximately $1,264,000, $1,592,000 and $1,643,000
for the years ended September 28, 1997, September 29, 1996 and October
1, 1995 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 28, 1997 and September 29, 1996 participant deferrals which
are included in accrued liabilities were $334,000 and $173,000
respectively. The expense during the fiscal year ended September 28,
1997, September 29, 1996 and October 1, 1995 was $161,000, $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 28, 1997 and September 29, 1996, of which
$531,000 and $356,000, respectively, has been capitalized to reflect
the cash surrender value of these contracts net of loan balances.
As of September 28, 1997, the Company had employment contracts with
four officers of the Company, providing for total annual payments of
approximately $1,453,000 plus bonuses through September 1, 1998.
14. AGREEMENT TO SELL CERTAIN ASSETS OF THE AUTOMOTIVE DIVISION OF THE
COATED FABRICS SEGMENT
During the fourth quarter of Fiscal 1996 Management of the Company
concluded that, based not only on its decision to sell, but also on
discussions with interested buyers, a sale of the automotive operation
of the Coated Fabrics Segment was probable. Further, on December 11,
1996, the Board of Directors approved the closure of the Port Clinton,
Ohio operation ("Port Clinton") of the Coated Fabrics Segment during
the fiscal year ending September 28, 1997 in the event a sale did not
occur. Port Clinton incurred operating losses of approximately
$7,640,000 and $5,540,000 during the fiscal years ended September 29,
1996 and October 1, 1995.
In accordance with SFAS No. 121, the Company recorded a write-down of
long-lived assets of the facility totaling approximately $8,900,000
during the fiscal year ended September 29, 1996. The carrying value of
the long-lived assets to be disposed of was $9,346,000 as of September
28, 1997 and $10,832,000 as of September 29, 1996.
In connection with the probable sale of the automotive operation of the
Coated Fabrics Segment in Fiscal 1996, Management believed that a
curtailment would result from the associated expected reduction in the
plan participants. In accordance with SFAS No. 106, the Company
recognized approximately $3,600,000 of a curtailment loss in connection
with the probable sale of the Coated Fabrics Segment's automotive
operation during the fiscal year ended September 29, 1996.
On May 15, 1997 the Company agreed to sell certain assets of the
automotive division of the Coated Fabrics Segment located at the
Company's Stoughton, Wisconsin, facility ("Stoughton") to Textileather
Corporation, a subsidiary of Canadian General-Tower, Limited ("CGT")
for $6,657,500. The Company received $4,657,500 in cash and a holdback
of $2,000,000 to be paid pursuant to the terms of a supply agreement
and to bear interest at the rate of 9% per annum. Under the terms of
the supply agreement, the Company has agreed to continue to manufacture
and supply Stoughton automotive products to its customers until
Textileather Corporation can transfer production of the Stoughton
automotive products to its own facility. The $2,000,000 plus accrued
interest is payable in stages and contingent upon the successful
transfer of certain automotive programs to Textileather Corporation.
The first installment was due September 30, 1997. The Company requested
payment and was denied payment by CGT. On October 10, 1997, the Company
filed suit against CGT and Textileather Corporation in the Dane County,
Wisconsin Circuit Court. The Company is seeking damages for non-payment
of the holdback and declaratory and injunctive relief. On October 30,
1997, the defendants filed their answer, basically denying the claims.
Discovery has begun in this matter. Due to its contingent nature and
associated litigation, the Company has not recorded the $2,000,000
holdback receivable as of September 28, 1997. The Company can also earn
up to an additional $1,198,000 under this agreement upon realization of
certain sales (as outlined in the agreement) by Textileather
Corporation during Fiscal 1998.
On October 17, 1997 the Company further agreed to sell certain assets
at Port Clinton to CGT for $5,325,000 plus the value of purchased
inventories and plus or minus adjustments contingent upon the transfer
of certain automotive programs to CGT as defined in the agreement.
Under the agreement with CGT the Company should receive $4,270,000 in
June of 1998 upon obtaining certain customer approvals and resulting
transfer to CGT of purchased assets that relate to the Company's door
panel programs. The Company should receive $1,055,000 in December of
1998 upon obtaining certain customer approvals and resulting transfer
to CGT of purchased assets that relate to the Company's instrument
panel programs.
Management believes that the write-down to long-lived assets, the
curtailment loss and other reserves recorded relating to this agreement
for sale remain appropriate at September 28, 1997, the net effect of
which resulted in no significant gain or loss during the fiscal year
ended September 28, 1997. Other than the potential contingent payments
that the Company may receive, Management believes that the Company will
not have any further significant gain or loss upon the ultimate
completion of the sale.
15. RELATED PARTY TRANSACTIONS
The Company has an agreement with an investment banking firm that
employs a relative of one of the Company's executive officers. The
agreement retains the investment banking firm to provide financial
advisory services to the Company for the period January 1, 1997 through
December 31, 2000. The Company incurred expenses related to this
agreement of approximately $274,000 during the fiscal year ended
September 28, 1997 and $258,000 related to a similar agreement during
the fiscal year ended September 29, 1996. In addition, see Note 16
regarding a related party transaction that occurred subsequent to
September 28, 1997.
16. SUBSEQUENT EVENT
Through a technology license dated September 29, 1997, the Company has
acquired from Emcore Corporation ("Emcore") certain technology for the
manufacture of epitaxial wafers used in high brightness light emitting
diodes (LEDs) for lamps and display devices for license fees
aggregating up to approximately $5 million during Fiscal 1998. A wholly
owned subsidiary of the Company plans to enter into a joint venture
agreement with Emcore, whereby a joint venture, to be managed by the
subsidiary of the Company, will purchase machines from Emcore and will
sell and eventually manufacture epitaxial wafers, lamps and display
devices. Thomas J. Russell, the Chairman of the Board of Directors of
Emcore, is a director and major stockholder of the Company, and Howard
R. Curd, the Chairman of the Board of Directors and Chief Executive
Officer of the Company, is a director of Emcore.
17. 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 28, 1997, September 29, 1996 and October 1, 1995.
Segment data for the fiscal years ended September 28, 1997, September
29, 1996 and October 1, 1995 are as follows (in millions):
Fiscal Years Ended
--------------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
--------------- ------------------ ---------------
Net sales:
High performance plastics $ 118.8 $ 115.1 $ 112.2
Coated fabrics 68.8 58.7 56.1
Specialty adhesives 20.9 35.5 46.7
-------- -------- --------
Total $ 208.5 $ 209.3 $ 215.0
======== ======== ========
Operating income (loss):
High performance plastics $ 10.5 $ 7.0 $ 13.0
Coated fabrics 2.1 (19.0) (4.9)
Specialty adhesives (0.3) 0.1 2.1
Unallocated (1.7) (0.8) (0.7)
-------- -------- --------
Total $ 10.6 $ (12.7) $ 9.5
======== ======== ========
Identifiable assets:
High performance plastics $ 92.0 $ 80.9 $ 80.1
Coated fabrics 43.7 46.4 51.0
Specialty adhesives 15.0 9.3 24.9
Corporate 30.8 34.2 24.5
======== ======== ========
Total $ 181.5 $ 170.8 $ 180.5
======== ======== ========
Depreciation and amortization:
High performance plastics $ 4.9 $ 4.4 $ 4.0
Coated fabrics 1.9 3.7 3.6
Specialty adhesives 0.9 1.6 1.9
Unallocated 1.4 0.9 0.8
======== ======== ========
Total $ 9.1 $ 10.6 $ 10.3
======== ======== ========
Capital expenditures:
High performance plastics $ 3.0 $ 3.9 $ 4.5
Coated fabrics 1.2 2.4 1.3
Specialty adhesives 7.3 1.8 0.8
Corporate 0.8 2.0 2.2
-------- -------- --------
Total $ 12.3 $ 10.1 $ 8.8
======== ======== ========
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniroyal Technology Corporation
Sarasota, Florida
We have audited the consolidated balance sheets of Uniroyal Technology
Corporation and subsidiary (the "Company") as of September 28, 1997 and
September 29, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended September 28,
1997, September 29, 1996, and October 1, 1995 and have issued our report thereon
dated December 12, 1997 (included in this Form 10-K). Our audits also included
the accompanying consolidated financial statement schedule listed in Item 14 of
this Form 10-K. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
December 12, 1997
SCHEDULE II
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED (CREDITED) CHARGED
BEGINNING OF TO COSTS AND TO OTHER BALANCE AT
PERIOD EXPENSES ACCTS. DEDUCTION END OF PERIOD
DESCRIPTION
(a) (b)
Year ended September 28, 1997
Estimated reserve for
doubtful accounts $ 369 $ - $ 53 $ (165) $ 257
======== ======== ======== ======== ========
Year ended September 29, 1996
Estimated reserve for
doubtful accounts $ 437 $ (6) $ 27 $ (89) $ 369
======== ======== ======== ======== ========
Year ended October 1, 1995
Estimated reserve for
doubtful accounts $ 629 $ (217) $ 114 $ (89) $ 437
======== ======== ======== ======== ========
(a) Amount represents recovery of amounts previously written-off.
(b) Amount includes write-off of uncollectible accounts.
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 19, 1997 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/ Robert L. Soran /S/ Curtis L. Mack
- ------------------------------- --------------------------------------
Robert L. Soran, Director, President Curtis L. Mack, Director
and Chief Operating Officer Date: December 19, 1997
Date: December 19, 1997
/S/ George J. Zulanas /S/ Roland H. Meyer
- ----------------------- -------------------------------------
George J. Zulanas, Jr., Executive Roland H. Meyer, Director
Vice President and Chief Date: December 19, 1997
Financial Officer
Date: December 19, 1997
/S/ Howard R. Curd /S/ John A. Porter
- ----------------------- -------------------------------------
Howard R. Curd, Director, Chairman John A. Porter, Director
of the Board and Chief Date: December 19, 1997
Executive Officer
Date: December 19, 1997
/S/ Peter C. B. Bynoe /S/ Thomas J. Russell
- ----------------------- ---------------------------------------
Peter C. B. Bynoe, Director Thomas J. Russell, Director
Date: December 19, 1997 Date: December 19, 1997
/S/ Richard D. Kimbel
- -----------------------
Richard D. Kimbel, Director
Date: December 19, 1997
POWER OF ATTORNEY
Each person whose signature to this report appears below hereby appoints Howard
R. Curd, Robert L. Soran and Oliver J. Janney, and each individually, any one of
whom may act without the joinder of the others, as his agent and
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all amendments to this report, which amendments make such
changes and additions to this report as such agent and attorney-in-fact may deem
necessary and appropriate.
/S/ Howard R. Curd /S/ Peter C. B. Bynoe
- ------------------------- ---------------------------------
Howard R. Curd, Director, Chairman Peter C.B. Bynoe, Director
of the Board and Chief Date: December 19, 1997
Executive Officer
Date: December 19, 1997
/S/ Robert L. Soran /S/ Richard D. Kimbel
- ------------------------- ---------------------------------
Robert L. Soran, Director, President Richard D. Kimbel, Director
and Chief Operating Officer Date: December 19, 1997
Date: December 19, 1997
/S/ Curtis L. Mack
---------------------------------
Curtis L. Mack, Director
Date: December 19, 1997
/S/ Roland H. Meyer
---------------------------------
Roland H. Meyer, Director
Date: December 19, 1997
/S/ John A. Porter
---------------------------------
John A. Porter, Director
Date: December 19, 1997
/S/ Thomas J. Russell
---------------------------------
Thomas J. Russell, Director
Date: December 19, 1997