FINANCIAL STATEMENTS - UNIROYAL OPTOELECTRONICS
Published on July 20, 2001
Exhibit 99.1
UNIROYAL OPTOELECTRONICS, LLC
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS AS OF OCTOBER 1, 2000 AND SEPTEMBER 26, 1999, FOR THE
FISCAL YEARS ENDED OCTOBER 1, 2000 AND SEPTEMBER 26, 1999, FOR THE PERIOD
FEBRUARY 20, 1998 (DATE OF FORMATION) TO SEPTEMBER 27, 1998 AND FOR THE PERIOD
FEBRUARY 20, 1998 (DATE OF FORMATION) TO OCTOBER 1, 2000 AND INDEPENDENT
AUDITORS' REPORT.
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Financial Statements as of October 1, 2000 and September 26, 1999, for the Years
Ended October 1, 2000 and September 26, 1999, for the Period February 20, 1998
(date of formation) to September 27, 1998 and for the Period February 20, 1998
(date of formation) to October 1, 2000
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Uniroyal Optoelectronics, LLC:
We have audited the accompanying balance sheets of Uniroyal Optoelectronics, LLC
(a development stage company, (the "Company") as of October 1, 2000 and
September 26, 1999, the related statements of operations and of cash flows for
the years ended October 1, 2000 and September 26, 1999, for the period February
28, 1998 (date of formation) to September 27, 1998, and for the period February
20, 1998 (date of formation) to October 1, 2000, and the related statements of
changes in members' equity for the years ended October 1, 2000 and September 26,
1999, and for the period February 20, 1998 (date of formation) to September 27,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of October 1, 2000 and
September 26, 1999, and the results of its operations and its cash flows for the
years ended October 1, 2000 and September 26, 1999, for the period February 20,
1998 (date of formation) to September 27, 1998, and for the period February 20,
1998 (date of formation) to October 1, 2000, in conformity with accounting
principles generally accepted in the United States of America.
The Company is in the development stage at October 1, 2000. As discussed in Note
1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including maintaining adequate financing to
fulfill its development activities and achieving a level of sales adequate to
support the Company's cost structure.
Deloitte and Touche LLP
Certified Public Accountants
Tampa, Florida
December 5, 2000
(June 30, 2001 as to Note 9)
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UNIROYAL OPTOELECTRONICS, LLC
(A Development Stage Company)
BALANCE SHEETS
(In thousands)
See notes to financial statements.
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UNIROYAL OPTOELECTRONICS, LLC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(In thousands)
See notes to financial statements.
F-4
UNIROYAL OPTOELECTRONICS, LLC
(A Development Stage Company)
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(In thousands)
See notes to financial statements.
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UNIROYAL OPTOELECTRONICS, LLC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(In thousands)
Supplemental Disclosures:
Interest payments (net of capitalized interest) were approximately $1,344,000
for the year ended October 1, 2000. There were no payments of interest expense
(net of capitalized interest) for the year ended September 26, 1999 or for the
period February 20, 1998 (date of formation) to September 27, 1998.
Purchases of property, plant and equipment and financing activities for the
fiscal years ended October 1, 2000 and September 26, 1999 do not include
$2,600,000 and $18,450,000, respectively, related to property acquired under
capitalized leases. There were no purchases of property, plant and equipment
under capitalized leases during the period February 20, 1998 (date of formation)
to September 27, 1998.
See notes to financial statements.
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UNIROYAL OPTOELECTRONICS, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For the Fiscal Years Ended October 1, 2000 and September 26, 1999,
for the Period February 20, 1998 (date of formation)
to September 27, 1998 and for the Period
February 20, 1998 (date of formation) to October 1, 2000
1. THE COMPANY
Uniroyal Optoelectronics, LLC (the "Company") is in the development
stage. The Company will ultimately engage in the production of wafers
for high brightness light emitting diodes (LEDs) and package-ready dies
for use in the lighting, signage and transportation industries. The
Company anticipates commercial production at its newly constructed
Tampa, Florida facility during the first half of Fiscal 2001.
On February 20, 1998, the Company was organized as a State of Delaware
limited liability corporation. The Company operates under a joint
venture agreement between Uniroyal Optoelectronics, Inc. (wholly-owned
subsidiary of Uniroyal Technology Corporation ("UTC")) (51% owner), and
Emcore Corporation ("Emcore") (49% owner).
The Company is subject to the risks and difficulties experienced by any
new business such as obtaining adequate capital or financing, limited
operating history, competition and lack of distribution channels. The
Company's operations to date have been conducted primarily for the
purpose of financial planning, raising capital, acquiring property,
plant, equipment and other operating assets, recruiting and training
personnel, developing markets and starting up production. The Company's
success is dependent upon its ability to maintain adequate financing to
fulfill its development activities and to achieve a level of sales
adequate to support the Company's cost structure. Financial support
from one or both owners will continue as necessary to meet the
financial obligations of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR END
The Company's fiscal year ends on the Sunday following the last Friday
in September. The dates on which the fiscal year ended for the fiscal
years since inception were October 1, 2000 ("Fiscal 2000"), September
26, 1999 ("Fiscal 1999") and September 27, 1998 ("Fiscal 1998").
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less.
FINANCIAL INSTRUMENTS
The carrying value of all current assets and liabilities approximates
the fair value because of their short-term nature. The fair values of
the Company's capital lease obligations approximate their carrying
value due to interest rates which are comparable to current market
rates.
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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 standard costs (which approximate actual costs) for
raw materials and supplies.
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 assets at the inception of the lease. Depreciation is
computed under the straight-line method based on the cost and estimated
useful lives of the related assets including assets held under capital
leases. Interest costs applicable to the construction of the Tampa,
Florida facility have been capitalized to the cost of the related
assets. Interest capitalized during Fiscal 2000 and Fiscal 1999
approximated $287,000 and $791,000, respectively.
START-UP COSTS
The Company follows the American Institute of Certified Public
Accountant Statement of Position 98-5, REPORTING COSTS OF START-UP
ACTIVITIES. This statement requires that the cost of start-up
activities and organizational costs be expensed as incurred.
INCOME TAXES
The limited liability corporation is considered a partnership for
Federal and State income tax purposes. Accordingly, the equity owners
account for their pro rata share of the Company's income, deductions
and credits in their separate tax returns. As a result, income tax
expenses, assets and liabilities are not recognized in the financial
statements of the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
(that is, gains and losses) depends upon the intended use of the
derivative and resulting designation. In July 1999, FASB issued SFAS
No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
DEFERRAL OF THE EFFECTIVE DATE OF SFAS NO. 133, which postponed the
effective date of SFAS No. 133 for one year. SFAS No. 133 will now be
effective for the Company beginning in Fiscal 2001. In June 2000, FASB
issued SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES, an amendment to SFAS No. 133. The Company
currently does not anticipate there will be a material impact on the
results of operations or financial position upon adoption of SFAS No.
133 as amended by SFAS No. 138.
3. INVENTORIES
Inventories consist of raw materials and supplies at October 1, 2000
and September 26, 1999 at a value of $2,028,000 and $448,000,
respectively. There was no inventory at September 27, 1998.
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4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
5. OBLIGATIONS UNDER CAPITAL LEASES
During both Fiscal 2000 and Fiscal 1999, the Company entered into
non-cancelable capital lease agreements for certain leasehold
improvements, machinery and equipment. Future minimum capital lease
obligations during subsequent fiscal years ending in September are as
follows (in thousands):
Fiscal Year
-----------
2001 $ 5,141
2002 5,428
2003 5,428
2004 4,125
2005 220
-----------
Total minimum lease payments 20,342
Less imputed interest at 8.5% - 9.6% (3,213)
-----------
Present value of minimum capital lease payments 17,129
Current portion 3,807
-----------
Long-term obligations under capital leases $ 13,322
===========
Interest incurred (including capitalized interest) totaled
approximately $1,580,000, $791,000 and $11,000 for Fiscal 2000, Fiscal
1999 and Fiscal 1998, respectively.
UTC has guaranteed all of the above capital lease obligations.
The Company's property held under capitalized leases included in
property, plant and equipment (Note 4) consisted of the following (in
thousands):
October 1, September 26,
2000 1999
---------- -------------
Leasehold improvements $ 5,429 $ 5,426
Machinery, equipment and office
furnishings 18,249 5,066
Construction in progress - 9,755
---------- ----------
23,678 20,247
Less accumulated amortization (2,117) (181)
---------- ----------
Total $ 21,561 $ 20,066
========== ==========
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6. MEMBERS' EQUITY
The members of the Company include Uniroyal Optoelectronics, Inc. and
Emcore Corporation. Initial capital contributions to the Company
included $510,000 from Uniroyal Optoelectronics, Inc. and $490,000 from
Emcore and were made in July 1998. In Fiscal 1999, Emcore made
additional capital contributions to the Company of $5,500,000. During
Fiscal 2000, Uniroyal Optoelectronics, Inc. contributed $17,828,000 in
cash while Emcore contributed an additional $11,628,000 in cash. As of
year end, accumulated capital contributions totaled $18,338,000, or
51%, for Uniroyal Optoelectronics, Inc. and $17,618,000, or 49%, for
Emcore.
Earnings and losses are allocated to the members in amounts equivalent
to their ownership percentages.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases equipment 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
-----------
2001 $ 382
2002 391
2003 401
2004 395
2005 393
Subsequent years 1,174
------------
Total $ 3,136
============
Rent expense was approximately $399,000, $370,000 and $56,000 for
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively.
8. RELATED PARTY TRANSACTIONS
UTC
The Company is party to an administrative agreement with UTC, in which
UTC will provide management, legal, accounting, tax, information
systems, treasury, human resource, risk management, environmental and
all other support services that may be necessary for the operations of
the Company. The management fee to the Company is calculated as the
greater of $25,000 per month or 3.5% of monthly net sales. Fees under
this agreement approximated $300,000, $300,000 and $50,000 for Fiscal
2000, Fiscal 1999 and Fiscal 1998, respectively.
The Company's employees participate in health and welfare benefit plans
administered by UTC. Costs for these plans are charged to the Company
based upon various methods including actual cost per employee,
headcount allocations and ratios of compensation expense. Expenses
included in the statements of operations were approximately $284,000,
$51,000 and $5,000 for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
respectively.
UTC administers all of the insurance programs for the Company. Costs of
these programs are allocated to the Company based on various factors
including percentage of assets, employee base and sales and historical
loss experience. Included in the statements of operations for Fiscal
2000 and Fiscal 1999 were approximately $96,000 and $31,000,
respectively, of such costs. No insurance charges were allocated to the
Company in Fiscal 1998.
UTC provides a savings plan under Section 401(k) of the Internal
Revenue Code. The savings plan allows all eligible employees to defer
up to 15% of their income on a pre-tax basis through contributions to
the
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savings plan. For every dollar an employee contributes, UTC may
contribute an amount equal to 25% of each participant's before-tax
obligation up to 6% of the participant's compensation. Such employee
compensation may be made in cash or in UTC common stock. The expenses
allocated to the Company by UTC pertaining to this savings plan were
approximately $635,000, $11,000 and $1,000 for Fiscal 2000, Fiscal 1999
and Fiscal 1998, respectively.
Included in due from affiliate as of October 1, 2000 is a capital
contribution of approximately $1,849,000 made in cash by UTC on October
3, 2000. This amount is partially offset by charges from UTC relating
to benefit plans, property insurance programs and UTC administration
fees.
Included in due to affiliate as of September 26, 1999, are amounts due
UTC for items paid on behalf of the Company of approximately $963,000,
amounts due UTC for the UTC administrative agreement of approximately
$300,000, and charges from UTC relating to the benefit plans, property
insurance programs and savings plans totaling approximately $82,000.
EMCORE
Under a supply agreement dated July 31, 1998, Emcore will provide
product for the Company as required until the Company's facility in
Tampa, Florida is ready for commercial production. During Fiscal 2000,
approximately $1,600,000 of the Company's net sales were for products
supplied by Emcore at a cost of approximately $1,600,000. During Fiscal
1999, approximately $479,000 of the Company's net sales were for
products supplied by Emcore at an approximate cost of $428,000. There
were no sales in Fiscal 1998.
During Fiscal 2000, the Company purchased approximately $1,444,000 of
inventory from Emcore for use in testing and completing the Company's
manufacturing processes. Corresponding purchases totaled approximately
$125,000 for Fiscal 1999. Also during Fiscal 2000, the Company spent
approximately $4,612,000 for MOCVD epitaxy reactors and approximately
$289,000 for machine parts and supplies purchased from Emcore. There
were no such expenditures during Fiscal 1999 or Fiscal 1998.
During Fiscal 2000, Emcore provided technical and administrative
services to the Company at a cost of approximately $207,000. Similar
services provided in Fiscal 1999 totaled approximately $311,000. There
were no such services provided by Emcore in Fiscal 1998.
At October 1, 2000, approximately $110,000 of net payables to Emcore is
included in accounts payable in connection with Emcore inventory
provided to the Company. This corresponding amount at September 26,
1999 was approximately $110,000.
9. SUBSEQUENT EVENTS
Effective December 20, 2000, Uniroyal Optoelectronics, Inc., the
majority owner of the Company, changed its name to Uniroyal Compound
Semiconductors, Inc. ("UCS").
UCS and Emcore have begun negotiations for a buyout by UCS of Emcore's
minority interest in the Company. Capital contributions solely funded
by UCS have increased its percentage interest in the Company and the
Company's profits and losses and correspondingly decreased Emcore's
percentage interest as of June 30, 2001. UCS has informed the Company
that UCS intends to continue funding the Company and Emcore has
reserved the right to make capital contributions to the Company in the
future.
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