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Business Observer Thursday, Jun. 4, 2009 12 years ago

Risky Businesses

A costly gamble to grow sales via the auto industry hasn't panned out yet for a $35-million Gulf Coast manufacturer. But the company, no stranger to big risks, isn't giving up.
by: Mark Gordon Managing Editor

A costly gamble to grow sales via the auto industry hasn't panned out yet for a $35-million Gulf Coast manufacturer. But the company, no stranger to big risks, isn't giving up.

George Sanchez, sitting in his Sarasota office one day in early 2007, recalls feeling a bit excited when he heard a tidbit of news normally thought of as negative: Sandusky Athol, a leading niche player in manufacturing upholstery and fabrics for the auto industry, was filing for bankruptcy.

Nothing against the people of Sandusky, but to Sanchez, that company's troubles presented an opportunity for his firm, Uniroyal Engineered Products. Sarasota-based Uniroyal, which manufactures a patented artificial leather fabric for recliners and a variety of other products, had been seeking a way into the auto business for years.

“Automotive is huge,” says Sanchez, a Uniroyal executive and partial owner. “That can triple your sales overnight.”

And Sandusky was the perfect opportunity to aid such lofty goals. So Sanchez, armed with the company's positive cash flow, led Uniroyal on a Sandusky-induced binge.

By the summer 2007, Uniroyal, with $38 million in 2007 revenues, bought $1.2 million of equipment at a Sandusky auction. It also hired some of the company's former employees, including a top chemist.

Uniroyal spent another $3.5 million retrofitting its Wisconsin factory so it could ready itself for the auto industry.

The plan worked, too — save for the pesky recession that began mucking thinks up last year.

In a prime example of the world's worst timing, Uniroyal signed a major GM supplier to a provisional contract for $26 million in September 2008. The deal would have pushed Uniroyal well into $50 million annual revenue territory.

But literally days after that deal, the bottom began to fall out of the national auto industry. Within weeks, Sanchez says, the supplier had completely bailed on the deal.

Despite that knockdown, Uniroyal has soldiered on.

The company's annual revenues dropped 8%, to $35 million in 2008, and Sanchez projects the percentage drop in 2009 revenues will be at least as big. Still, Sanchez says, “We're not sitting here waiting for the auto industry.”

For starters, the company has invested in two new products. It also has completed a wide-scale cost-cutting program, which included slashing its employee base from 225 to 150 and cutting half of a factory shift in the 220,000-square-foot factory in Wisconsin where it makes of all its product lines.

Sanchez says the company also has repaid much of its debt and was slightly profitable last year.

The main issue now, not surprisingly, is finding actual paying customers. Says Dan Bornemann, Uniroyal's sales and marketing vice president: “The challenge is that everyone is pulling back.”

A big gamble
Big risks, surviving challenges and bankruptcies are nothing new to Uniroyal. A predecessor to the current version of Uniroyal initially filed for bankruptcy in 1991, when the business was connected to the larger, nationally known Uniroyal tire brand.

That bankruptcy was tied to pension liabilities, according to Sanchez.

The company resurfaced in Sarasota in 1992 as Uniroyal Technology, a publicly traded company run by Howard R. Curd, a Sarasota businessman and entrepreneur. That company grew by riding the success of Naugahyde, the patented coated fabric used in dozens of products, from recliners to dental chairs to the seats of John Deere tractors.

The first five years were slow going, however. It didn't post of a profitable year until 1997, the company reported in its public filings. That year, it produced a net income of $379,000, or three cents a share.

But growth was coming much faster by 1999, when it reported net income of $47 million, or $1.87 a share. About 65% of that could be traced to its Naugahyde products line.

Then, in summer 2001, the company took a big gamble. It decided to put Naugahyde in the background so it could move into a sexier line of business: Light-emitting diodes. The energy-efficient, high-brightness LEDs were to be used in everything from taillights to traffic signals and company executives were convinced the line would be a hot seller.

Indeed, executives were so confident in LEDs that Uniroyal opened a manufacturing facility for the products in a $65 million, 77,000-sqaure-foot facility in Tampa. It hired 165 people to staff the plant. The company even discontinued most of its coated fabric product lines, essentially dropping everything but the Naugahyde name.

The decision was a failure. The market proved to be too competitive, which cut into sales margins drastically. And the post-9/11 stock market drop put the company in a deeper bind, as its shares dropped from more than $7 to 10 cents a share within a few months.

The answer was the company's second bankruptcy, which it filed in August 2002. A group of Sarasota investors, including Curd and his son, Howard F. Curd, ultimately bought what was left of the company.
The elder Curd, who lives in Sarasota, declined to comment on the company's second bankruptcy period, referring all calls to Sanchez.

Bar stools and handbags
The new, significantly leaner version of Uniroyal went back to its Naugahyde product line by late 2003 — just in time to ride the wave in consumer and corporate spending that was part of the thriving nationwide economy. The company's revenues grew about 30% per year from 2003 to 2005, Sanchez says.

The housing boom was especially good to Uniroyal: As more people bought homes, more companies needed the Naugahyde products for home furnishings such as sofas, bar stools and recliners.

Naugahyde, first patented by U.S. Rubber for use in handbag manufacturing, was invented in 1914 and is considered to be the first rubber-based artificial leather ever made. It was called Naugahyde because the material looked like a hide and it was made in Naugatuck, Conn.

Now, Uniroyal is getting ready to market its new Naugahyde-based products. The first one is a fabric for many of its product lines that is free of Phthalate. Phthalate is a substance added to plastic to increase flexibility and durability that some studies have shown to have a harmful health effect on children. It made the news a few years ago after California, and later the federal government, passed laws requiring retailers to sell toys with a non-Phthalate material.

Sanchez led a Uniroyal delegation in debuting its Phthalate-free product lines at the Hospitality Design Expo and Conference in Las Vegas earlier this month. Says Sanchez: “We feel that will be a big hit for us.”

The second new product Uniroyal is set to begin selling later this year is its graffiti-proof material. It will allow ink or magic marker blotches to come off one of its products by using just soap and water, a big advancement in the upholstery market.

Sanchez says he has little regrets about the timing of the company's effort to grab a piece of the auto parts industry. For starters, the investment in Sandusky Athol's equipment and employees, although high, wasn't nearly as high as if Uniroyal had outright bought the business — an option it had considered, he says.

Sanchez also says the move allowed the company to improve its manufacturing process for its other lines, an overdue overhaul. Finally, Sanchez says he's confident that the American car industry will eventually make a comeback.

“And when it does come back, it will take Uniroyal to another level,” says Sanchez. “We will have the best of both worlds.”

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