SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MARCH 31, 2001.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File No.: 0-23474
TRIPLE S PLASTICS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1895876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7950 Moorsbridge Road, Suite 200, Portage, Michigan 49024
(Address of principal executive offices) (Zip Code)
(616) 327-3417
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
(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 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. [X]
As of May 15, 2001, there were 3,814,169 shares of the registrant's common
stock, no par value, outstanding. The aggregate market value of the common stock
held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405) on
that date was approximately $8,858,235 computed on the closing price on that
date.
Portions of the Company's definitive Proxy Statement for its 2001 Annual
Meeting of Shareholders are incorporated by reference into Part III.
Exhibit Index located at page 34
Page 1 of 37
PART I
Item 1. Business
(a) General Development of Business
Triple S Plastics, Inc. (the "Company" or "Triple S") was organized as a
Michigan corporation in 1969, when injection molding operations began in a
leased facility in Kalamazoo, Michigan. The building that currently houses the
Company's manufacturing operations in Vicksburg, Michigan, was constructed in
1974. In 1978, the Company constructed a second injection molding facility
(originally known as Victor Plastics) and also constructed its Satellite Mold
facility (now named the Tooling and Technology Centre), which is dedicated to
mold production, both in Vicksburg. In 1983, the Company built an injection
molding plant in Tucson, Arizona.
The Company completed an initial public offering of its common stock in March
of 1994. Proceeds of that offering were used to finance building expansions,
purchase new equipment for those facilities, retire existing debt and fund
working capital needs.
In fiscal 1995, for the purpose of expanding its injection molding capacity, a
64,000 square foot facility was constructed in a modern industrial park in
Battle Creek, Michigan. In October 1995, the Company began operations in a
64,000 square foot leased injection molding facility in Georgetown, Texas.
In fiscal 1998, the Company consolidated the operations of its Victor Plastics
plant into its Vicksburg facility and its Battle Creek facility. In fiscal 1998,
the Company also consolidated its mold-making facilities in Vicksburg, Michigan,
and renamed the operation Triple S Plastics, Inc. Tooling and Technology Centre.
In fiscal 1999, the Company purchased the assets of Dynacept Company, Inc.
Dynacept is a preeminent rapid prototyping and model making organization that
produces concept models, appearance models, engineering prototypes and pre-
production samples using a wide range of techniques including stereolithography,
conventional modeling techniques and RTV rubber molding, along with advanced
painting and decorating processes. The 30,000 square foot facility is located
in Putnam County, New York.
In fiscal year 2000, the Company began operations in a 60,000 square foot leased
injection molding facility in Fort Worth, Texas. Furthermore, in fiscal year
2000, the Company closed and sold its Tucson, Arizona facility and transferred
the machinery and equipment to its facility in Fort Worth, Texas and other
locations in Michigan.
In fiscal year 2001, the Company began operations in a 23,000 square foot owned
injection molding facility in Manaus, Brazil. Also, the Company acquired Burco
Precision Products, Inc., a mold manufacturing business, located in Denton,
Texas to support the growing tooling needs of Triple S Technologies customers.
On July 13, 2000, the Company announced that it had entered into a merger agree-
ment with Eimo Oyj of Lahti, Finland whereby the Company was to exchange its
shares for Eimo Oyj shares. Following eight months of integration planning and
pending regulatory approval, market conditions abruptly changed, resulting in
termination of the merger agreement in March 2001. The costs related to the
merger were significant and have been fully charged against fiscal year 2001
operating results.
(b) Financial Information About Segments
The Company has one primary operating segment - the design and manufacture of
highly engineered thermoplastic components, principally for the telecommunica-
tions, automotive, consumer products and medical markets. Other operations
include mold making and rapid prototyping. The Company has no significant
export sales. Product and major customer information is disclosed in Item 1(c).
(c) Narrative Description of Business
General
Triple S manufactures complex, highly engineered thermoplastic components and
the molds to produce those components primarily for the telecommunications,
automotive, consumer products, medical and information technologies markets.
Rapid prototyping, model making, mold and molded component manufacturing and
assembly are integral parts of the business. During the most recent fiscal
year, 92% of the Company's net sales came from 15 customers, with one customer
representing 72% of net sales. The Company manufactures only custom components
based on customer specifications and, therefore, is generally the exclusive
source of supply for the particular product being sold to the customer, although
customers will generally use more than one molder for other products which they
sell to minimize single supplier dependence.
The Company's product development and production operations include rapid
prototyping, model making, design assistance, component engineering, mold
design, prototype and production mold construction, process engineering and
high quality component production. In addition, the Company provides value
added post-molding assembly and finishing operations, including ultrasonic
welding, heat staking, solvent bonding, decorative services, machining and
press-side packaging. Mold delivery lead time and component quality are
generally key factors in the award of contracts for complex components. The
Company has made significant investments in state-of-the-art CAD/CAM systems and
related design and machining equipment to accelerate its component mold design
and construction process. Each injection molding machine is equipped with a
computerized process controller to continuously monitor component quality and
consistency. The Company believes that its integrated operations, ability for
short lead-time mold delivery and product quality provide competitive advantages
in the markets in which it operates.
Ongoing developments in markets served by the Company continue to create growth
opportunities for suppliers of plastic components. Efforts to reduce weight,
enhance design flexibility and reduce costs have resulted in the substitution
of plastic for wood, glass, paper, metal and other materials in numerous
applications. Furthermore, Original Equipment Manufacturers (OEMs) are
continuing to outsource not only the manufacture of, and the design, engineering
and assembly of, plastic components to qualified suppliers. OEMs are consolida-
ting their purchases with larger, integrated components suppliers that possess
full-service capabilities for all functions from mold design through post-
molding assembly and finishing operations. The Company believes that its
technical expertise with respect to plastic resins and injection molding
technology, and its capacity for full service, high-quality response to the
needs of customers will enable the Company to grow as a result of these market
dynamics.
Markets and Products
The Company produces components for customers that operate principally in five
markets: telecommunications, automotive, consumer products, medical and
information technologies.
The following table summarizes each of the Company's markets as a percentage of
total sales for the fiscal years ended March 31:
% of Sales
-------------------------------------
Market 2001 2000 1999
------ -------- -------- --------
Telecommunications 77% 62% 37%
Automotive 6% 10% 11%
Consumer Products 5% 12% 25%
Medical/Pharmaceutical 3% 8% 13%
Information Technologies 2% 5% 11%
Other 7% 3% 3%
Telecommunications Market. Customers in this market manufacture products such
as cellular phones, pagers and related accessories, and require high levels of
CAD assisted design engineering, thin-wall molding, in-mold decorating and
assembly. Because of the Company's expertise in these areas and the strong
growth demonstrated by OEMs in this market, telecommunications is a target
market for growth for the Company. Sales to one customer in this market, Nokia
Mobile Phones, accounted for 72%, 59%, and 34% of total sales for fiscal 2001,
2000, and 1999, respectively. The loss of the Company's largest customer would
have a significant near-term negative effect on the Company's operating
performance as a whole and would necessitate significant operation adjustments
and re-deployment of assets. The likelihood of the occurrence of this risk will
be increased if the Company is unable to satisfy the global supply needs of this
customer in the relative near term.
Automotive Market. Sales in the automotive market are made mostly to first-tier
suppliers to automobile manufacturers. Products sold to customers in this
market include outside mirror shells, interior mechanical and seating com-
ponents, headlight adjustment brackets, fluid reservoir tanks, and components
for electrical and audio systems. Automotive OEMs and first-tier suppliers are
relying on fewer vendors possessing broader capabilities. First-tier suppliers
have been increasing the outsourcing of the design and manufacture of plastic
components and are purchasing more complex subassemblies from a shrinking base
of suppliers. While this market becomes increasingly competitive, the Company
believes it has the capabilities to serve many customers in this market. The
Company's Battle Creek, Michigan facility was constructed to more effectively
serve the Company's automotive customers.
Consumer Products Market. Customers in the consumer products market manufacture
products such as home entertainment devices, office equipment, and other
end-user products. Products sold to customers in this market include CD speaker
housings and covers, paper binding equipment, and various other housings and
covers. The Company expects the use of plastics in this broad market to continue
to grow as new thermoplastic resins evolve, with higher strengths, better impact
and heat resistance and other physical properties that will increase the
substitution of plastics for other materials.
Medical Market. Customers in the medical market are comprised primarily of
manufacturers of durable medical equipment for use in non-sterile, non-invasive
applications. Products sold to customers in this market include components for
hospital stretchers and beds, disposable wound irrigation instruments, tissue
stabilizers, colostomy units, and glucose test kits. The Company has targeted
this market for expansion because customers tend to require product engineering
services for high volume components with close tolerances and post-molding
assembly and finishing services.
Information Technologies Market. Customers in the information technologies
market are primarily manufacturers of computers, printers, copy machines and
printer cartridges. The products supplied by the Company to these customers
include components for personal computers and peripheral equipment, printers,
and laser and bar code scanners.
Sales and Marketing
The Company currently markets its services on a national basis through its
direct sales force of seven people and four independent manufacturers' represen-
tative organizations. A major emphasis has been placed on the development of an
aggressive, highly focused "Strategic Sales Initiative" to capture major,
long-term relationships in our targeted markets.
Operations
Triple S Plastics, Inc. is a plastics engineering services company, serving the
Telecommunications, Automotive and other industries with rapid prototyping and
design models, mold design and engineering services, mold manufacturing, plastic
injection molding, and post-molding assembly and finishing operations.
At its subsidiary, Dynacept Corporation, located in Putnam County, New York, the
Company produces concept models, appearance models, engineering prototypes and
pre-production samples using a wide range of techniques including stereo-
lithography, conventional modeling techniques and RTV rubber molding, along with
advanced painting and decorating processes.
The Company designs, engineers and constructs molds used to produce thermo-
plastic components at its Tooling and Technology Centre in Vicksburg, Michigan.
This facility is equipped with modern design and machining equipment, including
CAD/CAM systems, translators and plotters, electrical discharge machining
equipment, CNC milling equipment and miscellaneous support equipment. The
Company's mold production capacity is generally devoted to the production of
molds to be used by the Company for the production of injection molded
components for its customers. In substantially all cases, the customer owns the
mold, but possession is retained by the Company for production. The Tooling and
Technology Centre also conducts prototype and development projects, frequently
in conjunction with resin suppliers and customers' engineers. Through the many
projects undertaken at its Tooling and Technology Centre, the Company has gained
experience with nearly all resins currently in use for injection molding. This
expertise combined with the Company's injection molding production experience
enables the Company to provide innovative solutions for its customers.
The Company has five facilities that are full service custom injection molding
plants with post-molding secondary operations. These facilities collectively
house 95 horizontal injection molding machines with capacities ranging from
55 tons to 720 tons and 1 vertical machine with capacity of 40 tons. Each
machine utilizes a computerized process controller that continuously monitors
key process parameters on a real time basis and signals the operator if any
parameter falls outside predetermined statistical limits. The injection molding
process is supported by automated systems for raw material drying, conveying and
regrinding. All of the Company's plants have received ISO 9002 certification,
an international quality standard. During fiscal 2001, the facilities in
Vicksburg, Michigan and Battle Creek, Michigan received QS9000 certification.
Value added post-molding secondary services, including ultrasonic inserting and
welding, heat staking, solvent bonding, finishing, machining, assembly and
on-line packaging are offered to the Company's customers. These important
services support the customers' requirements for subassembled components, which
provide cost savings and manufacturing efficiencies.
Raw Materials
The principal raw materials used by the Company are thermoplastic resins. The
Company uses over 400 different resins, nearly all of which are classified as
engineering grade resins, as compared to lower priced commodity grade resins.
Resins are generally purchased for the production of existing orders. The
Company purchases its raw materials from several different sources, and these
materials are available from several suppliers.
Patents and Trademarks
The Company does not own any patents, registered trademarks or licenses,
although the Company claims certain common law trademark rights. In general,
the Company relies on its technological capabilities, manufacturing quality
control and know-how, rather than patents, in the conduct of its business.
Working Capital
The Company's primary cash requirements are for operating expenses and capital
expenditures. Historically, the Company's main sources of cash have been from
operations, bank borrowings and industrial revenue bonds. The Company has
adequate liquidity and expects this to continue into the future.
Backlog
Triple S has understandings with several of its major customers whereby the
customers discuss long-range quantities and sales expectations for periods up
to 12 months. Quantity expectations are given to Triple S and once a part is
approved for production, Triple S begins production and fully expects that it
will continue such production for the life of the product. The customer will
typically provide volume indications for the next 3 months with a purchase
order, or a call-off request, for quantities for the next 30 days. While
Triple S fully expects that its customers intend to have it provide production
for the products for which it has production indications, the customers rarely
give irrevocable commitments. Accordingly, due to the close cooperation and
collaboration with the customer, Triple S believes that there will be continuing
involvement in the production of its customer's product. It does not, however,
consider its open orders at any time to be indicative of future business
activity.
Competition
The custom injection molding industry is highly competitive. To differentiate
itself from its competitors, the Company focuses on complex components with
close tolerances where it competes principally on the basis of technical
expertise, customer service, product quality and rapid mold production, although
price is also an important competitive factor. There are many suppliers of
plastic injection molded components, including many that are larger than the
Company with greater financial resources.
Employees
At March 31, 2001, the Company employed 755 full time and 5 part time employees,
plus retained 101 temporary workers. The Company has no employees who are
represented by a labor union, and considers its relations with its employees to
be good.
Item 2. Properties
The following table sets forth information regarding the production and
administrative facilities:
Location Size Function
- -------- ------ --------
Battle Creek, Michigan 64,000 sq. ft. Injection molding, post-molding
operations and office
Georgetown, Texas 64,000 sq. ft. Injection molding, post-molding
operations and office
Georgetown, Texas 20,000 sq. ft. Warehouse
Denton, Texas 7,500 sq. ft. Mold manufacturing
Fort Worth, Texas 60,000 sq. ft. Injection molding, post-molding
operations and office
Vicksburg, Michigan 59,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Vicksburg, Michigan 32,000 sq. ft. Mold manufacturing, Tooling and
Technology Centre and office
Putnam County, New York 30,000 sq. ft. Rapid prototyping, model making
and office
Vicksburg, Michigan 40,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Manaus, Brazil 23,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Portage, Michigan 8,900 sq. ft. Office
The Company owns its facilities except for the Texas and Portage, Michigan
facilities, which are leased. The Company's current facilities are considered
suitable and adequate for current and near-term production needs.
Item 3. Legal Proceedings
A dispute has arisen regarding the legal effect of the separate termination
notices given by Triple S and Eimo Oyj in connection with the termination in
March 2001 of the planned merger of the two companies. Eimo filed an action
in federal court in Delaware in April 2001 seeking damages from Triple S,
claiming that the termination of the merger agreement by Triple S, after Eimo
itself had given notice of termination, constituted a breach of the agreement
that entitles Eimo to damages consisting of certain expenses not exceeding
$1,000,000, a termination fee of $6,400,000 and other unspecified damages.
Triple S believes that Eimo's suit is without merit and has filed a motion to
dismiss the case for failure to state a cause of action. Triple S will defend
the action vigorously and does not believe that it owes Eimo a termination fee,
expenses or other damages.
Item 4. Submission of Matters to a Vote of Security Holders
A meeting of Triple S shareholders was scheduled for March 8, 2001 at which time
the shareholders were to be asked to vote on a merger between Triple S and Eimo
Oyj of Lahti, Finland. In light of certain negative developments occurring in
the market and the possible negative ramifications on the business of Eimo and
Triple S, the meeting was adjourned to a later date with no other business being
conducted.
Additional Item: Executive Officers of the Registrant
The following table lists the names, ages and positions of all of the Company's
executive officers. Officers are elected annually by the Board of Directors at
the first meeting of the Board following the annual meeting of shareholders.
Name Age Position
- ---- ----- --------
Walter J. Barkalow 53 President, Triple S Technologies, LP
Douglas P. Bergmoser 61 Vice President Michigan Business Unit
Daniel B. Canavan 47 Chairman of the Board and Secretary
A. Christian Schauer 58 Chief Executive Officer and Chief
Financial Officer
William J. Stewart 57 Vice President
Barry L. Stuart 52 Vice President and Chief Information Officer
Catherine A. Taylor 37 Treasurer & Corporate Controller
Victor V. Valentine, Jr. 55 President
Phillip W. Weaver 48 Vice President Human Resources and
Organizational Development
Michael E. Zaagman 43 Vice President Strategic Accounts
Walter J. Barkalow was named President of Triple S Technologies, LP, the
Company's Texas business unit, in January 2000. Mr. Barkalow has served in
various management positions with the Company for more than five years.
Douglas P. Bergmoser joined the Company in January 2001 as Vice President
Michigan Business Unit. Prior to joining the Company, Mr. Bergmoser was
Operations Manager with A. Raymond Inc. from 1997 to January 2001 and for the
three years prior to that was President of Crystal Vision Plastics, Inc.
Daniel B. Canavan has been Chairman of the Board of the Company for more than
five years.
A. Christian Schauer joined the Company as CEO on May 25, 1999. For the prior
15 years, Mr. Schauer was employed by Clausing Industrial, Inc., a subsidiary
of The 600 Group plc, headquartered in the United Kingdom, as the Chairman and
CEO. Mr. Schauer has served on the Company's Board of Directors since 1990.
William J. Stewart has been Vice President of the Company for more than five
years.
Barry L. Stuart joined the Company in August 1997 and is in charge of the
Company's information systems. Prior to joining the Company, he was an
independent consultant, and served as Director of Strategic Resources for
Tecom Industries, Inc.
Catherine A. Taylor has been Corporate Controller since August 1996 and was
named Treasurer in October 2000. Before joining the Company, Ms. Taylor served
as Senior Financial Analyst for Tokai Rika USA, Inc.
Victor V. Valentine, Jr, has been President of the Company for more than five
years.
Phillip W. Weaver has been Vice President Human Resources and Organizational
Development since April 1997. Mr. Weaver joined Triple S Plastics, Inc. as the
Corporate Director of Human Resources in April 1996. For the prior four years
he was employed at Atlantic Automotive components, a joint venture between Ford
Motor Company and Rockwell International, as the Director of Human Resources.
Michael E. Zaagman is Vice President Strategic Accounts and was previously Vice
President Engineering and Technical Services from September 1999 to September
2000. Mr. Zaagman joined Triple S Plastics, Inc. as the Corporate Director of
Materials on April 1, 1995 and held the position of Vice President of Operations
effective January 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common stock is traded on the NASDAQ Market System under the
symbol TSSS. The following table sets forth the price quotations for the
Company's common stock in the over-the-counter market for the period indicated,
as furnished by the National Association of Securities Dealers, Inc.
Fiscal Quarter High Low Close
------ ------- -------- ------- ---------
2001 4th 25.5000 4.2500 4.5625
3rd 30.6250 22.1875 22.6250
2nd 32.5000 21.0000 32.0000
1st 24.2500 15.2500 24.2500
2000 4th 18.0000 13.5000 15.4375
3rd 13.8750 8.7188 13.8750
2nd 8.9375 4.3125 8.7500
1st 5.3750 2.7500 4.2500
As of May 15, 2001, there were approximately 200 stockholders of record of the
Company's common stock. Based on the number of sets of proxy materials mailed
by the Company's transfer agent, the Company estimates there are 1,200
additional beneficial owners of the Company's common stock who hold the stock
in street name. The Company currently intends to retain earnings for future
capital requirements and growth. No cash dividends have been paid during the
past two years and management does not anticipate paying cash dividends to
holders of its common stock for the foreseeable future.
Item 6. Selected Financial Data
Fiscal Years Ended March 31
(in thousands, except per share data)
-------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Income Statement Data:
Net sales $155,168 $ 95,102 $ 67,772 $ 67,414 $ 64,608
Gross profit 26,940 17,927 11,125 11,830 10,464
Operating income (loss) 9,353 4,759 (1,166) 2,782 2,447
Interest expense, net 596 296 339 325 358
Other expense 347 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before income
tax expense (benefit) 8,410 4,463 (1,505) 2,457 2,089
Income tax expense (benefit) 3,710 1,692 (453) 860 760
-------- -------- -------- -------- --------
Net income (loss) before
minority interest 4,700 2,771 (1,052) 1,597 1,329
Minority interest in loss of
subsidiary 160 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 4,860 $ 2,771 $ (1,052) $ 1,597 $ 1,329
======== ======== ======== ======== ========
Earnings (Loss) Per Share Data:
Basic $ 1.29 $ .74 $ (.28) $ .43 $ .36
======== ======== ======== ======== ========
Diluted $ 1.08 $ .66 $ (.28) $ .43 $ .36
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic 3,779 3,755 3,745 3,740 3,734
Diluted 4,490 4,213 3,745 3,752 3,738
March 31 (in thousands)
---------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $ 13,281 $ 12,028 $ 10,287 $ 12,168 $ 10,683
Total assets $ 67,255 $ 51,486 $ 50,809 $ 50,030 $ 48,870
Long-term debt, less
current maturities $ 7,706 $ 4,618 $ 6,862 $ 6,603 $ 7,251
Shareholders' equity $ 39,155 $ 33,785 $ 30,953 $ 31,981 $ 30,353
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in thousands)
The Company is a full-service custom injection molder providing rapid
prototyping and design models, mold design and engineering services, mold
manufacturing, injection molding, and post-molding assembly and finishing
operations to a diverse base of customers. Its customers are primarily in
telecommunications, consumer products, automotive, medical/pharmaceutical and
information technologies markets. The Company operates in one business segment.
The Company's fiscal year is March 31 and, unless otherwise noted, references to
fiscal 2001, 2000, and 1999 relate to the fiscal years ended March 31, 2001,
2000, and 1999.
RESULTS OF OPERATIONS
On March 1, 2001 the Company announced that, based on information provided to it
by its principal customer, management expected significantly weaker sales to
this customer than originally anticipated for its fiscal years ending
March 31, 2002 and 2003, and that the overall effect of these weaker sales
would significantly and adversely affect the growth of revenues in fiscal years
2002 and 2003. Furthermore, based on more recent information received from its
principal customer, Triple S now expects that the overall effect of its weaker
sales will significantly and adversely affect the anticipated growth of revenues
in fiscal 2002 and will result in a significant reduction of the profits antici-
pated in fiscal 2002. Management also currently believes that the weaker sales
will result in a significant reduction of its anticipated revenue and profits in
fiscal 2003. The Company also announced it will be reviewing its manufacturing
capacity needs at its two Texas molding locations as a result of its expected
decrease in production.
On April 30, 2001, the Company announced that, following a review of production
capacity needs at its two Texas molding facilities, it was transferring most
production from its Ft. Worth plant to its Georgetown plant. The Company is
planning to maintain a full-capability presence at the Ft. Worth facility and
will return that plant to increased production levels as the results from new
sales initiatives warrant. The production transfer is expected to be completed
by July 1, 2001. Accordingly, in the fourth quarter of fiscal 2001, Triple S
recorded a pre-tax charge of $279 of additional depreciation and other costs
associated with the Ft. Worth realignment. In addition, expenses related to
the terminated merger with Eimo Oyj of $2,808 and an impairment charge of $900
related to goodwill of Burco, as a result of changes in the business environment
noted above, were recorded in fiscal 2001. These pre-tax charges are classified
in General and Administrative Expenses in the Consolidated Statements of Income
in fiscal 2001.
On June 18, 1999, the Company announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility to its
new facility in Fort Worth, Texas and other locations in Michigan. The charge
recorded in the first quarter ended June 30, 1999, reflects the cost of closing
the Tucson facility and impairment charges related to the planned disposition of
the Victor Plastics facility. The loss on closing and impairment charge included
the write down of property, plant and equipment to market value of $1,151 and
closedown expenses of $161. The adjustment to market value included a provision
of $675 for the Tucson facility, Tucson machinery and equipment of $326 and the
Victor Plastics facility of $150. Closedown expenses consisted of an inventory
provision of $84 and severance payments of $77 related to the termination of all
100 employees at the Tucson facility. The market value of the property, plant,
and equipment was the amount at which the assets could be sold in a current
transaction between willing parties, other than in a forced or liquidation sale.
This pre-tax charge is classified in General and Administrative Expenses in the
Consolidated Statements of Income in fiscal 2000. The sale of the Tucson
facility was final and all other costs were incurred as of December 1999. No
additional provision for closing costs was necessary.
Near the end of the third quarter of fiscal year 1999, two of the Company's
customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code
and a third customer indicated that it was having extreme financial difficulty
obtaining needed additional financing to pay amounts owed to the Company.
Accordingly, in the third quarter of fiscal 1999, Triple S recorded a pre-tax
provision of $1,441 for losses on accounts receivable of $1,221, inventories on
hand for these customers of $200, and legal costs of $20. This pre-tax charge is
classified in General and Administrative Expenses in the Consolidated Statements
of Income in fiscal 1999.
The table below outlines the components of the Company's Consolidated Statements
of Income as a percentage of net sales:
Fiscal Year ended March 31 2001 2000 1999
- ------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.6 81.1 83.6
Gross profit 17.4 18.9 16.4
Selling & marketing expenses 1.8 4.5 5.2
General & administrative expenses 9.6 9.4 12.9
Operating income (loss) 6.0 5.0 (1.7)
Interest expense, net .4 .3 .5
Other expense .2 -- --
Income (loss) before income tax
expense (benefit) 5.4 4.7 (2.2)
Income tax expense (benefit) 2.4 1.8 (.6)
Net income (loss) before minority
interest 3.0 2.9 (1.6)
Minority interest in net loss of
subsidiary .1 -- --
Net income (loss) 3.1% 2.9% (1.6)%
The following table summarizes each of the Company's markets as a percentage of
total sales for fiscal years ended March 31:
% of Sales
------------------------
Market 2001 2000 1999
----------------------------------------------------------
Telecommunications 77% 62% 37%
Automotive 6% 10% 11%
Consumer Products 5% 12% 25%
Medical/Pharmaceutical 3% 8% 13%
Information Technologies 2% 5% 11%
Other 7% 3% 3%
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales for fiscal year 2001 were $155,168, an increase of $60,066 or 63.2%
over net sales of $95,102 for fiscal year 2000. As in the prior year, the
Company's sales to all markets, except Telecommunications, showed percentage
decreases. Such decreases are the result of exceptionally strong growth in the
Telecommunications market, which comprised 77% of total net sales as compared to
62% in the previous fiscal year. Price increases during the year were moderate
and customers continue to exhibit strong resistance in accepting price
increases. The Company is continuing to accelerate its efforts at growing
business with customers outside the Telecommunications market.
Cost of sales represented 82.6% of net sales in fiscal 2001, compared to 81.1%
in fiscal 2000. This slightly higher cost of sales percentage in 2001 is
primarily attributed to material cost increases, which were not carried through
to selling price increases, and start-up expenses in Brazil. The Company
continues its efforts to maximize factory utilization and better balance its
overhead structure.
Selling and marketing expenses decreased as a percentage of net sales to 1.8% in
fiscal 2001 compared with 4.5% in fiscal 2000. The decrease is primarily
attributable to a change in distribution arrangements in the Telecommunications
market from outside representative organizations to direct sales representation.
General and administrative expenses represented 9.6% of net sales in fiscal 2001
compared to 9.4% in fiscal 2000. Note 14 to the consolidated financial state-
ments explains the detail of several exceptional or unusual, one-time charges
classified in general and administrative expenses in fiscal years 2001 and 2000.
Such amounts need to be considered when looking at normal recurring general and
administrative expenses. Excluding one-time charges, general and administrative
expenses in fiscal 2001 were 7.0% as compared to 8.0% in fiscal 2000. The
decrease in percentage is primarily due to overall control of expenses and the
fact that several general and administrative expenses are fixed and do not vary
with increasing sales activity.
The Company's effective tax rate for 2001 was 44.1% (including state and local
income taxes of 1.3%) compared to a rate of 37.9% in fiscal year 2000. The
effective income tax rate for fiscal 2001 was adversely impacted by foreign
subsidiary losses for which no income tax benefit was received and other non-
deductible expenses for income tax purposes.
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales for fiscal year 2000 were $95,102, an increase of $27,330, or 40.3%,
over net sales of $67,772 for fiscal year 1999. As a percentage of total sales,
the Company's sales decreased to all the markets the Company serves except
Telecommunications, which showed strong growth, increasing to 62%. These
decreases represented the completion of several customer projects during 1999
which were not replaced with new projects. The overall increase in sales was
primarily related to volume as no significant price increases occurred during
fiscal 2000.
Cost of sales represented 81.1% of net sales in fiscal 2000 compared to 83.6% in
1999. The lower cost of sales percentage in 2000 was primarily attributed to
molded part manufacturing cost reductions, primarily in material and labor cost,
and as a result of manufacturing efficiency improvement initiatives at the
Company. The lower cost of sales percentage was also attributed to higher
overhead absorption as a result of increased sales.
Selling and marketing expenses decreased as a percentage of net sales to 4.5% in
2000 compared to 5.2% in 1999. The decrease principally related to decreased
compensation as a percentage of net sales.
General and administrative expenses represented 9.4% of net sales compared to
12.9% in the prior year. The decrease was primarily due to decreased compensa-
tion and legal fees as a percentage of net sales.
The Company's effective tax rate for 2000 was 37.9% (including state and local
income taxes of 4.7%) compared to the prior year rate of (30.1)%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating expenses and capital
expenditures. Historically, the Company's primary sources of cash have been from
operations, bank borrowings and industrial revenue bonds. The Company has
adequate liquidity and expects this to continue into the future.
Net cash provided by operating activities was $7,022 for fiscal 2001. Working
capital increased by $1,253 in the year to $13,281, primarily resulting from the
increase in accounts receivable and inventories. As a result of, and consistent
with the higher sales level, accounts receivable increased by $5,728 compared
with the prior fiscal year-end, and represented 52 days sales outstanding, which
is seven days higher than the end of the prior fiscal year. The increase in days
sales outstanding is due to the increased sales level in the last month of the
fiscal year and the timing of collections of current accounts receivable
balances from a major customer. Inventories increased $1,591 compared to the
prior fiscal year and represented 25 days in inventory compared with 34 days at
the prior fiscal year-end. Inventories continue under good control and adequate
provision has been made for all known obsolete and non-saleable items. Purchases
of property, plant and equipment totaled $11,132 for fiscal 2001and consisted
of equipment purchases at various locations to provide increased production
capacity to support sales growth and the purchase of land and buildings in New
York and Brazil.
The Company had $998 in cash and cash equivalents at March 31, 2001. The Company
also had outstanding borrowings totaling $10,280 at that date. Current
maturities of long-term debt are $1,992 at March 31, 2001 with repayment due
the following four fiscal years as follows: 2003 - $3,241; 2004 - $312;
2005 - $344; and 2006 - $361. The Company has $9,418 available under an
unsecured line of credit with a bank, net of current borrowings under the
agreement of $582. The Company anticipates investing, over the next two to three
years, $3,000 in capital acquisitions for the Brazil operation. The Company
believes that its available sources of cash, its cash and cash equivalents on
hand, as well as anticipated cash flows from operations, will be sufficient to
fund future operating and capital requirements and required debt repayments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, as amended by SFAS 137. The Company uses derivative financial
instruments to manage the economic impact of fluctuations in interest rates.
The Company enters into interest rate swaps to manage these economic risks.
SFAS No. 133 did not have a significant effect on the consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101).
SAB 101, as amended, summarizes and clarifies certain existing accounting
principles for the recognition and classification of revenues in the financial
statements. SAB 101 did not have a significant effect on the consolidated
financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of
Accounting Principles Board (APB) Opinion No. 25. FIN 44 clarifies the follow-
ing: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a non-
compensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business combination. FIN 44 was
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not
have a material impact on the consolidated financial statements.
OTHER MATTERS
The information attached to this filing as Exhibit 99.1, Triple S
Plastics, Inc. Safe Harbor Statement for Forward-Looking
Statements, is hereby incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
As a result of its variable rate line of credit, the Company is exposed to the
risk of rising interest rates. The $10,000 line of credit had an interest rate
ranging from 7.5% to 9.0% for the twelve months ended March 31, 2001.
For periods subsequent to September 30, 2000, the Company's Georgetown
Industrial Development Corporation Revenue Bond provides for interest at a
variable rate of 77% of the issuing bank's prime rate. The bonds had an interest
rate ranging from 6.2% to 6.9% for the year ended March 31, 2001.
In addition, the Company's Putnam County Industrial Revenue Bond provides for
interest at a rate equal to the issuing bank's tax-exempt note rate. The bonds
had an interest rate ranging from 3.75% to 5.1% for the year ended
March 31, 2001. With respect to these bonds, the Company has entered into an
interest rate swap agreement essentially to fix the interest rate. The notional
amount of the swap agreement amounted to $4,500. The Company does not use
derivative financial instruments for trading purposes.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed with this report as pages F-1
through F-16 following the signature page:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
PART III
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
Information relating to executive officers is included in this report in the
last section of Part I under the caption "Executive Officers of the Registrant".
Information relating to directors appearing under the caption "Election of
Directors" in the definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders to be held June 29, 2001, and to be filed with the Commission is
hereby incorporated herein by reference. Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934 appearing under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the 2001 Annual Meeting of Shareholders and filed with the
Commission is hereby incorporated herein by reference.
Item 11. Executive Compensation
The information contained under the caption "Executive Compensation" contained
in the definitive Proxy Statement for the 2001 Annual Meeting of Shareholders
is hereby incorporated herein by reference excluding the information under the
caption "Compensation Committee Report" and "Stock Performance Graph".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the caption "Securities Ownership of Management"
contained in the definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders is hereby incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related party transactions is
hereby incorporated herein by reference to the Company's definitive Proxy
Statement for the 2001 Annual Meeting of Shareholders under the caption
"Election of Directors".
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) The following financial statements are filed as part of this report as
pages F-1 through F-16 following the signature page:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(b) Three reports were filed on Form 8-K during the three-month period ended
March 31, 2001 and one was filed subsequent to March 31, 2001.
- Form 8K, filed pursuant to Section 13 or 15(d), dated February 3, 2001.
- Form 8K, filed pursuant to Section 13 or 15(d), dated March 1, 2001.
- Form 8K, filed pursuant to Section 13 or 15(d), dated March 12, 2001.
- Form 8K, filed pursuant to Section 13 or 15(d), dated April 30, 2001.
(c) See Exhibit Index located on pages 33 through 35.
(d) The following financial statement schedule is filed as part of this
report as page F-18 following the signature page:
Schedule II - Valuation and Qualifying Accounts
All other schedules required by Form 10-K Annual Report have been omitted
because they were not applicable, the required information was included in the
notes to the consolidated financial statements, or were otherwise not required
under the instructions contained in Regulation S-X.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: May 15, 2001 TRIPLE S PLASTICS, INC.
By _/s/_A._Christian_Schauer__________
A. Christian Schauer, Chief Executive Officer
and Chief Financial Officer
and
By _/s/_Catherine_A._Taylor___________
Catherine A. Taylor, Treasurer and Corporate
Controller (Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below on this 15th day of May 2001, by the following
persons on behalf of the Registrant and in the capacities indicated.
Each Director of the Registrant whose signature appears below, hereby appoints
Daniel B. Canavan and A. Christian Schauer, and each of them individually as his
attorney-in-fact to sign in his name and on his behalf as a Director of the
Registrant, and to file with the Commission any and all Amendments to this
report on Form 10-K to the same extent and with the same effect as if done
personally.
_/s/_Daniel_B._Canavan_______ _/s/_Victor_V._Valentine,_Jr._______
Daniel B. Canavan Victor V. Valentine, Jr.
Chairman of the Board Director
_/s/_A._Christian_Schauer____ _/s/_David_L._Stewart_______________
A. Christian Schauer David L. Stewart
Director Director
_/s/_James_F._Hettinger______ _/s/_Robert_D._Bedilion_____________
James F. Hettinger Robert D. Bedilion
_/s/_Evan_C._Harter__________ _/s/_Donald_W._Thomason_____________
Evan C. Harter Donald W. Thomason
Director Director
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets as of March 31, 2001 and 2000 F-2
Consolidated Statements of Income for the years ended
March 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 2001, 2000 and 1999 F-5
Notes to Consolidated Financial Statements F-6
Report of Independent Certified Public Accountants F-17
F-1
TRIPLE S PLASTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
MARCH 31 2001 2000
- -----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 998 $ 1,806
Accounts receivable, less allowance of $250
and $300 for possible losses 19,657 13,929
Refundable income taxes 665 --
Inventories (Note 3) 7,935 6,344
Deferred income taxes (Note 7) 674 427
Other 1,475 656
-------- --------
Total Current Assets 31,404 23,162
-------- --------
Property, Plant and Equipment (Notes 2, 5 and 6):
Land and buildings 14,119 8,228
Leasehold improvements 1,064 617
Machinery and equipment 31,346 26,989
Office furniture and equipment 5,507 4,648
-------- --------
52,036 40,482
Less accumulated depreciation and amortization 20,737 16,726
-------- --------
Net Property, Plant and Equipment 31,299 23,756
Other:
Goodwill, net of accumulated amortization of
$2,153 and $848 (Notes 12 and 14) 3,737 3,641
Miscellaneous (Notes 2, 8 and 14) 815 927
-------- --------
Total Other Assets 4,552 4,568
-------- --------
$ 67,255 $ 51,486
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 4) $ 582 --
Accounts payable 9,699 $ 5,543
Accrued compensation 2,304 1,570
Income taxes -- 831
Other current liabilities 3,546 1,878
Current maturities of long-term debt (Note 5) 1,992 1,312
-------- --------
Total Current Liabilities 18,123 11,134
Long-Term Debt, less current maturities (Note 5) 7,706 4,618
Other Liabilities (Note 8 and 15) 392 --
Deferred Income Taxes (Note 7) 1,879 1,949
-------- --------
Total Liabilities 28,100 17,701
-------- --------
Commitments and Contingencies (Notes 6, 8, and 16)
Shareholders' Equity (Note 10):
Preferred stock, no par value, 1,000,000
shares authorized, none issued -- --
Common stock, no par value, 10,200,000
shares authorized, 3,814,169 and
3,759,716 shares issued and outstanding 15,143 14,529
Retained earnings 24,116 19,256
Accumulated other comprehensive loss (Note 15) (104) --
-------- --------
Total Shareholders' Equity 39,155 33,785
-------- --------
$ 67,255 $ 51,486
======== ========
See accompanying notes to consolidated financial statements.
F-2
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Net Sales $155,168 $ 95,102 $ 67,772
Cost of Sales 128,228 77,175 56,647
-------- -------- --------
Gross Profit 26,940 17,927 11,125
Selling and Marketing Expenses 2,798 4,235 3,521
General and Administrative Expenses (Note 14) 14,789 8,933 8,770
-------- -------- --------
Operating Income (Loss) 9,353 4,759 (1,166)
-------- -------- --------
Other Expense:
Interest expense, net 596 296 339
Other expense 347 -- --
-------- -------- --------
Total Other Expense 943 296 339
-------- -------- --------
Income (Loss) Before Income Tax Expense (Benefit) 8,410 4,463 (1,505)
Income Tax Expense (Benefit) (Note 7) 3,710 1,692 (453)
-------- -------- --------
Net Income (Loss) Before Minority Interest 4,700 2,771 (1,052)
Minority Interest in Net Loss of Subsidiary 160 -- --
-------- -------- --------
Net Income (Loss) $ 4,860 $ 2,771 $ (1,052)
======== ======== ========
Earnings (Loss) Per Share (Note 11):
Basic $ 1.29 $ .74 $ (.28)
======== ======== ========
Diluted $ 1.08 $ .66 $ (.28)
======== ======== ========
Shares Used in Computing Earnings Per Share (Note 11):
Basic 3,779 3,755 3,745
Diluted 4,490 4,213 3,745
See accompanying notes to consolidated financial statements.
F-3
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Accumulated Other
Comprehensive Loss
----------------------
Fair
Market
Foreign Value of Total
Common Retained Currency Interest Shareholders'
Stock Earnings Translation Rate Swap Equity
------- -------- ----------- --------- -------------
Balance, March 31, 1998 $14,444 $17,537 -- -- $ 31,981
Issuance of 5,251 shares of common stock 24 -- -- -- 24
Net loss for the year -- (1,052) -- -- (1,052)
------- -------- ----------- --------- -------------
Balance, March 31, 1999 14,468 16,485 -- -- 30,953
Issuance of 12,514 shares of common stock 61 -- -- -- 61
Net income for the year -- 2,771 -- -- 2,771
------- -------- ----------- --------- -------------
Balance, March 31, 2000 14,529 19,256 -- -- 33,785
Issuance of 54,453 shares of common stock,
including $418 income tax benefit 614 -- -- -- 614
Other comprehensive loss (Note 15) -- -- $ (16) $ (88) (104)
Net income for the year -- 4,860 -- -- 4,860
------- -------- ----------- --------- -------------
Balance, March 31, 2001 $15,143 $ 24,116 $ (16) $ (88) $ 39,155
======= ======== =========== ========= =============
See accompanying notes to consolidated financial statements.
F-4
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Operating Activities
Net income (loss) $ 4,860 $ 2,771 $ (1,052)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation 4,566 3,766 3,684
Amortization and impairment charge in 2001 1,348 293 169
Provision for losses on accounts receivable -- 93 1,071
Deferred income taxes (317) (301) (177)
Loss (gain) on sale of property, plant
and equipment 298 966 (12)
Minority interest in loss of subsidiary (160) -- --
Changes in assets and liabilities, net of
amounts scquired from business acquisition:
Receivables:
Trade (5,643) (4,535) 2,708
Refundable income taxes (665) 737 (930)
Inventories (1,581) (1,958) (690)
Other assets (641) (101) (333)
Accounts payable and accruals 5,788 (349) 1,228
Income taxes payable (831) 831 --
------- ------- -------
Cash Provided by Operating Activities 7,022 2,213 5,666
Investing Activities
Purchases of property, plant and equipment (11,132) (7,149) (3,437)
Proceeds from sale of property, plant and
equipment 17 3,353 18
Decrease in restricted cash -- -- 2,932
Business acquisition (Notes 9 and 12) (1,310) -- (909)
------- ------- -------
Cash Used in Investing Activities (12,425) (3,796) (1,396)
Financing Activities
Proceeds from issuance of common stock 614 61 24
Net borrowings under note payable 582 -- --
Principal payments on long-term debt (1,761) (2,266) (2,483)
Proceeds from issuance of long-term debt 5,160 -- --
Other financing activities 16 -- --
------- ------- -------
Cash Provided By (Used in) Financing Activities 4,611 (2,205) (2,459)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents (792) (3,788) 1,811
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (16) -- --
Cash and Cash Equivalents, beginning of year 1,806 5,594 3,783
------- ------- -------
Cash and Cash Equivalents, end of year $ 998 $ 1,806 $ 5,594
======= ======= =======
See accompanying notes to consolidated financial statements.
F-5
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Business
Triple S Plastics, Inc. (the Company) is a plastics engineering services
company, serving the telecommunications, automotive, consumer products, medical
and other industries with rapid prototyping and design models, mold design and
engineering services, mold manufacturing, plastic injection molding, and post-
molding assembly and finishing operations.
During the years ended March 31, 2001, 2000 and 1999, a telecommunications
customer accounted for 72%, 59%, and 34% of net sales, respectively.
Acquisitions and Goodwill
The financial statements include the net assets of businesses purchased at
their fair value at the acquisition date. The excess of acquisition costs over
the fair value of net assets acquired is included in and has been allocated to
goodwill. Goodwill is amortized on a straight-line basis over lives ranging
from 3 to 30 years.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries and joint venture over which it has financial or
management control. All material intercompany accounts and transactions have
been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for renewals
and betterments are capitalized and maintenance and repairs are expensed as
incurred. Depreciation and amortization are computed by the straight-line method
over the estimated useful lives of the assets as follows:
Buildings 40 years
Machinery and equipment 5 to 10 years
Office furniture and equipment 3 to 10 years
Leasehold improvements 10 years or the term of the lease,
if less
Income Taxes
The Company follows the liability method of accounting for income taxes and
provides deferred income taxes based on enacted income tax rates in effect on
the dates temporary differences between the financial reporting and tax bases
of assets and liabilities are expected to reverse. The effect on deferred tax
assets and liabilities of a change in income tax rates is recognized in the
period that includes the enactment date.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, receivables, and accounts
payable approximate fair value based upon the liquidity and short-term nature
of the items. The carrying value of notes payable and long-term debt approxi-
mates the fair value based upon short-term and long-term borrowings at
approximate market interest rates. The fair value of the interest rate swap is
discussed in Note 15.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are recorded as revenue.
Shipping and handling costs incurred by the Company are included in cost of
sales.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the finan-
cial statements. Actual results could differ from those estimates.
F-6
Revenue Recognition
Revenue is recognized on plastic molded products when the products are shipped
to customers. Revenue on molds is recognized when the mold is completed and
samples of molded parts produced by the tool are shipped to customers. Molds
are constructed to customer specifications. When mold construction is complete,
samples are produced and are measured against customer-required tolerances.
Samples are shipped when the required tolerances are met. Prior to that time,
mold revenue and direct mold costs are deferred. Losses are recognized when
reasonable estimates of the amount of loss can be made.
Foreign Currency Translation
The financial statements of the Company's international affiliate is translated
into U.S. dollars using current exchange rates for the balance sheets and
average exchange rates for statements of income and cash flows. Unrealized
translation adjustments are included in accumulated other comprehensive loss
in shareholders' equity. Transaction gains and losses, such as those resulting
from the settlement of foreign currency receivables or payables, are included
in current net income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and held in banks, money
market funds, commercial paper and other short-term investments with an original
maturity of three months or less when purchased.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate borrowings. Interest rate swap
agreements are contracts to exchange floating rates for fixed rate interest
payments over the life of the agreements without the exchange of the underlying
notional amounts. The notional amounts of interest rate swap agreements are used
to measure interest to be paid or received and do not represent the amount of
exposure to credit loss. The differential paid or received on interest rate
agreements is recognized as an adjustment to interest expense.
The counterparty to the Company's interest rate swap agreements is a commercial
bank with which the Company has other financial relationships. While the Company
is exposed to credit loss in the event of nonperformance by the counterparty,
the Company does not anticipate nonperformance by the other party, and no
material loss would be expected from such nonperformance.
The Company does not enter into interest rate swap agreements, or other
derivative financial instruments, for trading purposes.
The Company has formally documented the relationship between the interest rate
swap and the long-term borrowings, as well as its risk management objective and
strategy for undertaking the hedge transaction. This process includes linking
the derivative that has been designated as a cash flow hedge to the specific
liability on the balance sheet. The Company also formally assesses, both at the
hedge's inception and on an ongoing basis, whether the derivative used in the
hedging transaction is highly effective in offsetting changes in the cash flows
of the hedged item. If the Company determines that the derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge, the
Company will discontinue hedge accounting prospectively.
Long-Lived Assets
The Company evaluates long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss is recognized when
estimated undiscounted future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount (see
also Note 14).
Stock Based Compensation
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 allows companies
to continue to measure compensation cost for stock-based employee compensation
plans using the intrinsic value method of accounting as prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. The Company has elected to continue its APB
Opinion No. 25 accounting treatment for stock-based compensation, and has
adopted the provisions of SFAS No. 123 requiring disclosure of the pro forma
effect on net earnings and earnings per share as if compensation cost had been
recognized based upon the estimated fair value at the date of grant for options
awarded.
F-7
Earnings Per Share
The Company has adopted SFAS No. 128, Earnings Per Share, which establishes
standards for computing and presenting earnings per share (EPS) for entities
with publicly-held common stock or potential common stock. SFAS No. 128 sim-
plifies the standards for computing EPS and makes them comparable to inter-
national EPS standards. The statement requires dual presentation of "basic"
and "diluted" EPS which replace primary and fully diluted EPS, respectively,
required under previous guidance.
Segment Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 established standards for the
way in which publicly-held companies report financial and descriptive infor-
mation about their operating segments in financial statements for both interim
and annual periods, and requires additional disclosures with respect to products
and services, geographic areas of operation and major customers. The Company's
primary operations are in one segment - the design and manufacture of highly
engineered thermoplastic components. Other operations include mold making and
rapid prototyping. The Company has aggregated its operating segments into a
single reportable segment as prescribed by SFAS No. 131. Revenue from external
customers for each type of product and service is not reported separately as it
is not considered practicable to do so.
Recent 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, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000, as amended by
SFAS 137. The Company uses derivative financial instruments to manage the
economic impact of fluctuations in interest rates. The Company enters into
interest rate swaps to manage these economic risks. SFAS No. 133 did not have
a significant effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101).
SAB 101, as amended, summarizes and clarifies certain existing accounting
principles for the recognition and classification of revenues in the financial
statements. SAB did not have a significant effect on the consolidated
financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of
Accounting Principles Board (APB) Opinion No. 25. FIN 44 clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a non-
compensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business combination. FIN 44 was
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on the consolidated finan-
cial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
2. Asset Held for Sale
As discussed in Note 14, the Company's Tucson, Arizona facility was sold in
December 1999 and, at that time, the Victor Plastics facility was being held
for sale. These facilities were written down to their estimated fair market
value in the first quarter ended June 30, 1999, and depreciation of the
facilities was terminated at the time of closure. In September 2000, management
decided to reactivate the Victor Plastics facility. The asset has been
reclassified from "asset held for sale" to "property, plant and equipment",
and depreciation of the asset has been resumed.
F-8
3. Inventories
Inventories are summarized as follows:
March 31
----------------------
2001 2000
-------- --------
Raw materials and packaging $ 5,070 $ 3,658
Finished goods and work-in-process 2,865 2,686
-------- --------
Total Inventories $ 7,935 $ 6,344
======== ========
4. Line of Credit
The Company has a $10,000 unsecured line-of-credit agreement with a bank, due
on demand, with interest on the unpaid principal balance at a variable rate
based on certain financial ratios (effectively 7.5% at March 31, 2001). There
was $582 outstanding under this agreement at March 31, 2001. There were no
borrowings under this agreement at March 31, 2000.
5. Long-Term Debt
Long-term debt consisted of:
March 31
----------------------
2001 2000
-------- --------
Putnam County Industrial Revenue Bond $ 4,500 --
Note payable to Dynacept Company (now known as
MLM Liquidation Corp.) 2,730 $ 2,730
Michigan Strategic Fund Limited Obligation
Revenue Bonds (1989 and 1990 series) 1,080 1,560
Note payable to Manaus Refrigerantes Ltda. 576 --
Mortgage note payable to bank 542 598
Georgetown Industrial Development Corporation
Revenue Bond 270 1,042
-------- --------
Long-term debt 9,698 5,930
Current maturities of long-term debt 1,992 1,312
-------- --------
Long-term debt, less current maturities $ 7,706 $ 4,618
======== ========
The Putnam County Industrial Development Bond provides for annual principal
payments ranging from $220 to $395 plus interest through January 2016. In
addition, the bonds require the establishment of a separate bank account funded
at levels indicated in the various bond agreements. These funds were equal to
or in excess of required balances as of March 31, 2001. The bonds provide for
interest at a variable rate equal to the issuing bank's tax-exempt rate. In
connection with the bonds, the Company entered into an interest rate swap
agreement in January 2001, expiring in December 2008, essentially to fix the
interest rate at 4.51%. At March 31, 2001, the interest rate in effect on these
bonds was 3.75% and the notional amount of the swap agreement amounted to
$4,500. The bonds are collateralized by a letter of credit with a bank.
The note payable to Dynacept Company provides for monthly installments of
interest only, at a rate of 5%, with the entire principal balance due and
payable in full on March 31, 2003. The note is secured by a letter of credit
with a bank.
The Michigan Strategic Fund Limited Obligation Revenue Bonds (1989 and 1990
series) provide for semi-annual interest payments with rates that vary from
7.3% to 7.65% and annual principal payments through September 2001. The bonds
are collateralized by a letter of credit with a bank.
The note payable to Manaus Refrigerantes Ltda. provides for monthly principal
payments ranging from $12 to $43 plus interest through August 2002. Interest
is fixed at 6%. The note is unsecured.
F-9
The mortgage note payable to the bank, provides for monthly payments of $8.5,
including interest at 7.95% through February 2008.
The Georgetown Industrial Development Corporation Revenue Bond provides for
monthly principal payments ranging from $63 to $80 plus interest through August
2001. The bonds provide for interest at 77% of the bank's prime rate,
effectively 6.16% at March 31, 2001.
The above debt, except the notes payable to Dynacept Company and Manaus
Refrigerantes Ltda., is secured by property and equipment. In connection with
the overall bank financing agreement, the Company must comply with certain
financial and non-financial restrictive covenants. The restrictive covenants
include limitations on the amount of required working capital, the ratio of debt
to tangible net worth and the minimum amount of tangible net worth.
Maturities of long-term debt for the four fiscal years succeeding 2002 are:
2003 - $3,241; 2004 - $312; 2005 - $344; and 2006 - $361.
6. Leases and Commitments
The Company leases certain manufacturing facilities and transportation equipment
under operating leases expiring at various dates through 2006. Management
expects that in the normal course of business, leases will be renewed or
replaced by other leases. Minimum lease payments required under operating
leases for future years are as follows: 2002 - $1,003; 2003 - $785; 2004 - $444;
2005 - $127; 2006 - $9.
Total lease expense for facilities and equipment amounted to $1,420 in 2001;
$1,066 in 2000; and $706 in 1999.
7. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Current:
Federal $ 3,881 $ 1,781 $ (276)
State and local 146 212 --
-------- -------- --------
4,027 1,993 (276)
Deferred (317) (301) (177)
-------- -------- --------
Total income tax expense (benefit) $ 3,710 $ 1,692 $ (453)
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities were
as follows:
March 31
--------------------
2001 2000
-------- --------
Deferred tax assets
Accrued compensation and benefits $ 445 $ 72
Inventory valuation and related reserves 314 227
Deferred revenue 123 --
Accounts receivable reserves 85 143
Accrued expenses related to plant closing -- 51
Other 41 58
-------- --------
1,008 551
-------- --------
Deferred tax liabilities
Accumulated depreciation and amortization (2,113) (1,949)
Accounts receivable valuation (56) (111)
Other (44) (13)
-------- --------
(2,213) (2,073)
-------- --------
Net deferred tax liability $(1,205) $(1,522)
======== ========
F- 10
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate was as follows:
Years Ended March 31
--------------------------------
2001 2000 1999
-------- -------- --------
Statutory federal income tax rate 34.0% 34.0% (34.0%)
Non-deductible goodwill 4.1 -- --
Foreign subsidiary losses for which
no income tax benefit was received 2.6 -- --
State and local income taxes, net of
federal income tax effect 1.3 4.7 --
Other 2.1 (.8) 3.9
-------- -------- --------
Effective income tax rate 44.1% 37.9% (30.1%)
======== ======== ========
8. Employee Benefit Plans
The Company maintains a defined contribution plan (401K) covering substantially
all employees. Under the Plan, employees' contributions are made on a tax
deferred basis and are partially matched by the Company. Total expense under
the Plan was $128, $168, and $131 for 2001, 2000 and 1999, respectively.
The Company has a deferred compensation plan that enables certain employees of
the Company to defer receipt of a portion of their compensation. The Company
funds the deferred compensation liabilities by making contributions to rabbi
trusts. Contributions consist of investments in money market and mutual funds.
During the fourth quarter of fiscal 2001, the Company adopted Emerging Issues
Task Force (EITF) Issue No. 97-14, Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested. The
adoption of this accounting standard resulted in an increase in other assets
and an increase in other liabilities of approximately $304.
The following information pertains to trading securities included in the
Deferred Compensation Plan at March 31, 2001:
Fair Value -
Equity securities $ 304
Cost -
Equity securities $ 484
Gross Unrealized Losses
(Included in Earnings) -
Equity securities $ 180
9. Supplemental Disclosures of Cash Flow Information
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Operating Activities:
Interest paid, net of amount capitalized $ 665 $ 500 $ 614
Interest received $ 68 $ 193 $ 264
Income taxes paid, net of refunds received $ 5,108 $ 124 $ 654
Non-cash Investing and Financing Activities:
Capital expenditures included in accounts
payable $ -- $ -- $ 688
Long-term debt and notes payable related to
acquisition $ 369 $ -- $ 2,730
Equipment addition related to acquisition $ 274 $ -- $ --
F-11
10. Common Stock
The Company maintains a stock option plan for key employees and has reserved
920,000 shares of common stock for such plan. The options may be exercised
within ten years from the date of grant and the exercise price must equal the
fair market value of the Company's stock at the date of the grant. The options
generally vest from two to five years from the date of grant.
The Company also maintains an Outside Director Stock Option Plan and has
reserved 300,000 shares of common stock for such plan. The options may be
exercised within three-and-a half to ten years from the date of grant and the
exercise price must equal the fair market value of the Company's stock at the
date of the grant. The options become vested six months to three years after
the grant date.
A summary of stock option activity (which includes both plans) is as follows:
Weighted
Option Price Average Price
Shares Per Share Per Share
---------- ---------------- -----------------
Options outstanding at March 31, 1998 338,200 $5.00 - $12.50 $7.23
Granted 49,000 $4.63 - $6.56 $6.28
Canceled (35,000) $6.25 - $12.50 $6.80
----------
Options outstanding at March 31, 1999 352,200 $4.63 - $12.50 $7.14
Granted 660,000 $3.13 - $10.50 $3.93
Canceled (45,000) $4.88 - $12.50 $6.94
Exercised (5,500) $6.13 - $7.25 $6.33
----------
Options outstanding at March 31, 2000 961,700 $3.13 - $12.50 $4.95
Granted 50,000 $17.63 $17.63
Canceled -- -- --
Exercised (68,500) $4.88 - $12.50 $8.47
----------
Options outstanding at March 31, 2001 943,200 $3.13 - $17.63 $5.31
==========
There were 202,800 and 252,800 shares available for future grant under the plans
at March 31, 2001 and 2000, respectively. The following table summarizes sig-
nificant ranges of outstanding and exercisable options at March 31, 2001:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Ranges of Life in Exercise Exercise
Exercise Prices Shares Years Price Shares Price
- ------------------------------------------------------- -----------------------
$3.01 to $4.00 470,000 8.0 $3.13 470,000 $3.13
$4.01 to $5.00 154,000 6.3 $4.88 75,499 $4.88
$5.01 to $6.00 1,000 5.3 $5.75 1,000 $5.75
$6.01 to $7.00 170,200 5.6 $6.39 101,368 $6.37
$7.01 to $8.00 77,000 6.1 $7.25 77,000 $7.25
$8.01 to $9.00 -- -- -- -- --
over $9.00 71,000 2.7 $15.97 17,666 $12.31
For all plans, options of 742,533, 647,029, and 137,032 shares were exercisable
at March 31, 2001, 2000, and 1999 with a weighted average exercise price of
$4.40, $4.45, and $7.83, respectively.
F-12
The weighted average fair value per share of stock based compensation issued
during fiscal 2001, 2000 and 1999 was $3.31, $1.86 and $3.24 respectively.
The fair value was estimated using the Black-Scholes model with the following
weighted average assumptions:
2001 2000 1999
-------- -------- --------
Expected life (in years) 2.7 4.5 6.9
Interest rate 6.05% 5.29% 5.59%
Volatility 56.3% 54.0% 37.9%
Dividend yield -- -- --
Stock based compensation costs would have reduced pre-tax income by $445,000,
$997,000, and $292,000 in 2001, 2000 and 1999, respectively, if the fair values
of such compensation had been recognized as compensation expense on a straight-
line basis over the vesting periods of the grants.
As permitted by SFAS No. 123, the Company has elected to continue following the
guidance of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been recog-
nized for the Company's option plans. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options, consistent
with the method of SFAS No. 123, the Company's net earnings and net earnings per
share would approximate the following pro forma amounts:
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Net Earnings (Loss):
As reported $ 4,860 $ 2,771 $(1,052)
Pro forma $ 4,566 $ 2,113 $(1,242)
Basic Earnings (Loss) per Share:
As reported $ 1.29 $ .74 $ (.28)
Pro forma $ 1.21 $ .56 $ (.33)
Diluted Earnings (Loss) per Share:
As reported $ 1.08 $ .66 $ (.28)
Pro forma $ 1.02 $ .50 $ (.33)
The Company maintains an Employee Stock Purchase Plan and reserved 100,000
shares of Common Stock for such plan. Under the plan, any eligible employee may
purchase stock at a price equal to 85% of the fair market value as of the last
day of the option period.
11. Earnings Per Share
Earnings per share has been computed in accordance with the provisions of SFAS
No. 128. The following table sets forth the computation of basic and diluted
earnings per share:
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Net income (loss) $ 4,860 $ 2,771 $(1,052)
======== ======== ========
Weighted average shares oustanding for
basic earnings per share 3,779 3,755 3,745
Effect of dilutive stock options 711 458 --
-------- -------- --------
Adjusted weighted average shares
outstanding for diluted earnings
per share 4,490 4,213 3,745
======== ======== ========
Basic earnings per share $ 1.29 $ .74 $ (.28)
Diluted earnings per share $ 1.08 $ .66 $ (.28)
Options to purchase 25,000 and 386,200 shares of common stock in fiscal years
2000 and 1999, respectively, were not included in the computation of diluted
earnings per share because the option exercise price was greater than the
average market price of the stock. In fiscal year 2001, all options were
included in the computation of diluted earnings per share because the option
exercise price was less than the average market price of the stock. Diluted
earnings per share for the year ended March 31, 1999 is based only on the
weighted average number of common shares outstanding as the inclusion of 3,000
common share equivalents would have been anti-dilutive.
F-13
12. Business Acquisitions
On June 1, 1998, Triple S Plastics, Inc. purchased, for cash of $909 and long-
term debt of $2,730, the assets of Dynacept Company, Inc. (Dynacept). Dynacept
is a rapid prototyping and model making organization that produces concept
models, engineering prototypes, and pre-production samples. The transaction has
been accounted for using the purchase method. The results of Dynacept have been
included in the Company's consolidated financial statements from June 1, 1998.
Goodwill, amounting to $3,300, is being amortized on a straight line basis over
8 years.
On June 16, 2000, Triple S Plastics, Inc. purchased, for cash of $1,310,
assumption of long-term debt of $309 and a note payable of $60, the outstanding
stock of Burco Precision Products, Inc. (Burco), a precision mold-building
business located in Denton, Texas. The transaction has been accounted for using
the purchase method. Burco's results have been included in the Company's
consolidated financial statements from the date of acquisition. Remaining
goodwill of $430, after the impairment charge discussed in Note 14, is being
amortized on a straight-line basis over 3 years.
13. Formation of Joint Venture
On August 30, 2000 the Company announced the formation of a new business in
Manaus, Brazil. The business, Triple S Cosmosplast da Amazonia, Ltda., was
formed in collaboration with Cosmosplast Industria e Comercio de Plasticos
Ltds., a Brazilian plastics company serving the electronics and other selected
consumer goods industries. The Company owns a 70% interest in the new business
and Cosmosplast Industria owns 30%. In establishing this business, and to
acquire certain real estate, the Company issued long-term debt consisting of
a note payable described in Note 5.
14. General and Administrative Expenses
On April 30, 2001, the Company announced that, following a review of production
capacity needs at its two Texas facilities, it was transferring most production
from its Ft. Worth plant to its Georgetown plant. The Company is planning to
maintain a full-capability presence at the Ft. Worth facility and will return
that plant to production levels as the results from new sales initiatives
warrant. The production transfer is expected to be completed by July 1, 2001.
Accordingly, in the fourth quarter of fiscal 2001 Triple S recorded a pre-tax
charge of $279 of additional depreciation and other costs associated with the
Ft. Worth realignment. In addition, expenses related to the terminated merger
with Eimo Oyj of $2,808 as discussed in Note 16, and an impairment charge of
$900 related to Burco goodwill, as a result of changes in the business
environment noted above, were recorded in fiscal 2001. These pre-tax charges
are classified in General and Administrative Expenses in the Consolidated
Statements of Income in fiscal 2001.
On June 18, 1999, the Company announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility to its
new facility in Fort Worth, Texas and other locations in Michigan. The charge
recorded in the first quarter ended June 30, 1999, reflects the cost of closing
the Tucson facility and impairment charges related to the planned disposition of
the Victor Plastics facility. The loss on closing and impairment charge included
the write down of property, plant and equipment to market value of $1,151 and
closedown expenses of $161. The adjustment to market value included a
provision of $675 for the Tucson facility, Tucson machinery and equipment of
$326 and the Victor Plastics facility of $150. Closedown expenses consisted of
an inventory provision of $84 and severance payments of $77 related to the
termination of all 100 employees at the Tucson facility. The market value of
the property, plant, and equipment was the amount at which the assets could
be sold in a current transaction between willing parties, other than in a
forced or liquidation sale. This pre-tax charge is classified in General and
Administrative Expenses in the Consolidated Statements of Income in fiscal 2000.
The sale of the Tucson facility was final and all other costs were incurred as
of December 1999. No additional provision for closing costs was necessary.
Near the end of the third quarter of fiscal year 1999, two of the Company's
customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code
and a third customer indicated that it was having extreme financial difficulty
obtaining needed additional financing to pay amounts owed to the Company.
Accordingly, in the third quarter of fiscal 1999 Triple S recorded a pre-tax
provision of $1,441 for losses on accounts receivable of $1,221, inventories
on hand for these customers of $200, and legal costs of $20. This pre-tax charge
is classified in General and Administrative Expenses in the Consolidated
Statements of Income in fiscal 1999.
F-14
The above charges, classified in General and Administrative Expenses, are
summarized as follows:
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Merger costs $ 2,808 -- --
Impairment charge 900 -- --
Ft. Worth realignment 279 -- --
Tucson plant closing costs -- $ 1,312 --
Provision for losses -- -- $ 1,441
-------- -------- --------
Total pre-tax charge in General
and Administrative Expenses $ 3,987 $ 1,312 $ 1,441
======== ======== ========
15. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of all changes in shareholders' equity
during the period other than from transactions with shareholders. Comprehensive
income (loss) consists of the following:
Years Ended March 31
------------------------------
2001 2000 1999
-------- -------- --------
Net income (loss) $ 4,860 $ 2,771 $(1,052)
Other comprehensive loss --
Derivative adjustment (88) -- --
Foreign currency translation
adjustments (16) -- --
-------- -------- --------
Comprehensive income (loss) $ 4,756 $ 2,771 $(1,052)
The above derivative adjustment of $(88), included in other liabilities at
March 31, 2001, consisted of a change in the fair value of the derivative of
$(143), tax effect of $45, and a reclassification adjustment to expense of $10.
16. Commitments and Contingencies
On April 30, 2001, subsequent to year-end, the Company announced that a dispute
had arisen regarding the legal effect of the separate termination notices given
by Triple S and Eimo Oyj in connection with the termination in March of the
planned merger of the two companies. Eimo filed an action in federal court in
Delaware seeking damages from Triple S, claiming that the termination of the
merger agreement by Triple S, after Eimo itself had given notice of termination,
constituted a breach of the agreement that entitles Eimo to damages consisting
of certain expenses not exceeding $1,000, a termination fee of $6,400 and other
unspecified damages. Triple S believes that Eimo's suit is without merit and
has filed a motion to dismiss the case for failure to state a cause of action.
Triple S will defend the action vigorously and does not believe that it owes
Eimo a termination fee, expenses or other damages.
F-15
17. Quarterly Information (Unaudited)
First Second Third Fourth
Fiscal 2001 Quarter Quarter Quarter Quarter
- -------------------------------- --------- --------- --------- ---------
Net sales $ 32,138 $ 39,713 $ 46,613 $ 36,704
Gross profit $ 6,611 $ 8,294 $ 7,790 $ 4,245
Net income (loss) $ 2,211 $ 2,711 $ 1,289 $ (1,351)
Basic earnings (loss) per share $ .59 $ .72 $ .34 $ (.36)
Diluted earnings (loss) per share $ .50 $ .59 $ .28 $ (.36)
First Second Third Fourth
Fiscal 2000 Quarter Quarter Quarter Quarter
- -------------------------------- --------- --------- --------- ---------
Net sales $ 19,246 $ 23,709 $ 27,964 $ 24,183
Gross profit $ 3,540 $ 4,544 $ 5,288 $ 4,555
Net income (loss) $ (621) $ 973 $ 1,289 $ 1,130
Basic earnings (loss) per share $ (.17) $ .26 $ .34 $ .31
Diluted earnings (loss) per share $ (.17) $ .24 $ .30 $ .26
F-16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Triple S Plastics, Inc.
Vicksburg, Michigan
We have audited the accompanying consolidated balance sheets of Triple S
Plastics, Inc. as of March 31, 2001 and 2000 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 2001. 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 reason-
able basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Triple S
Plastics, Inc. at March 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America.
BDO Seidman, LLP
Kalamazoo, Michigan
May 3, 2001
F-17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
The Board of Directors
Triple S Plastics, Inc.
Vicksburg, Michigan
The audits referred to in our report dated May 3, 2001 relating to the
consolidated financial statements of Triple S Plastics, Inc. which is contained
in Item 8 of this Form 10-K, included the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Kalamazoo, Michigan
May 3, 2001
F-18
TRIPLE S PLASTICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at charged to Charged Balance
beginning costs and against Other at end of
Description of period expenses reserves changes period
- ---------------------------- ------------ ------------ ---------- --------- -----------
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts receivable:
Year ended March 31, 2001 $300,000 -- $ 50,000 -- $250,000
Year ended March 31, 2000 $709,000 $ 93,000 $502,000 -- $300,000
Year ended March 31, 1999 $350,000 $1,071,000 $712,000 -- $709,000
Reserve for inventory obsolescence:
Year ended March 31, 2001 $250,000 $ 46,000 -- -- $296,000
Year ended March 31, 2000 $110,000 $ 140,000 -- -- $250,000
Year ended March 31, 1999 $493,340 -- $383,340 -- $110,000
F-19
EXHIBIT INDEX
Exhibit No. Description Page
- -------------- ---------------------------------------------------- ----
3(a) Registrant's Second Amended and Restated Articles
of Incorporation were filed as Exhibit 3(a) to a
Registration Statement on Form S-1 (No. 33-74866)
and the same is incorporated herein by reference.
3(b) Registrant's Bylaws were filed as Exhibit 3(b) to a
Registration Statement on Form S-1 (No. 33-74866)
and the same is incorporated herein by reference.
4 A specimen Form of Stock Certificate was filed as
Exhibit 4 to a Registration Statement on Form S-1
(No. 33-74866) and the same is incorporated herein
by reference.
10(a)(1) A Business Loan Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992, and as amended December 21, 1993,
with respect to Registrant's Line of Credit, Secured
Term Loan Availability, Secured End Mortgage, Real
Estate Mortgage for Subsidiary, and Secured Term Loan
to subsidiary were filed as Exhibit 10(a)(1) to a
Registration Statement on Form S-1 (No. 33-74866)
and the same is incorporated herein by reference. An
amendment to the Business Loan Agreement dated
March 22, 2000 was filed as Exhibit 10(j) to the
Company's report on Form 10-K for the year ended
March 31, 2000.
10(a)(2) A Loan Agreement between Registrant and Michigan
Strategic Fund dated May 1, 1989 was filed as
Exhibit 10(a)(2) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is incorporated
herein by reference.
10(a)(3) A Loan Agreement between Registrant and Michigan
Strategic Fund dated September 1, 1990 was filed as
Exhibit 10(a)(3) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is incorporated
herein by reference.
10(a)(4) A Bond Purchase Agreement among Registrant, Michigan
Strategic Fund and Roney & Company, dated
September 24, 1990 was filed as Exhibit 10(a)(4) to a
Registration Statement on Form S-1 (No. 33-74866) and
the same is incorporated herein by reference.
10(a)(5) A Reimbursement Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992 backing the 1989 Michigan Strategic
Fund Limited Obligation Revenue Bonds was filed as
Exhibit 10(a)(5) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is incorporated
herein by reference.
10(a)(6) A Reimbursement Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992 backing the 1990 Michigan Strategic
Fund Limited Obligation Revenue Bonds was filed as
Exhibit 10(a)(6) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is incorporated
herein by reference.
10(b) A Loan Guarantee Agreement and related Security
Agreement between Subsidiary and National City
Bank of Michigan/Illinois dated November 1, 1992 was
filed as Exhibit 10(b) to a Registration Statement
on Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
*10(d)(1) The Triple S Plastics, Inc. Employee Stock Option
Plan was filed as Exhibit 10(d)(1) to a Registration
Statement on Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
*10(d)(2) A Form of Nonqualified Stock Option Agreement was
filed as Exhibit 10(d)(2) to a Registration Statement
on Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
*10(d)(3) A Form of Qualified Stock Option Agreement was
filed as Exhibit 10(d)(3) to a Registration
Statement on Form S-1 (No. 33-74866) and the same
is incorporated herein by reference.
*10(d)(4) An Outside Directors Stock Option Plan dated
July 25, 1996 was filed as Exhibit 99 to a
Registration Statement on Form S-8 (No. 333-20365)
and the same is incorporated herein by reference.
10(e) A Form of Indemnity Agreement between Registrant
and each of its directors was filed as Exhibit 10(e)
to Registration Statement on Form S-1 (No. 33-74866)
and the same is incorporated by reference.
10(f) Lease between Triple S Plastics, Inc. and Westinghouse
Road Joint Venture regarding the manufacturing and
office building for the Georgetown, Texas manufacturing
facility, which was filed as Exhibit 10(f) to the
Company's report on Form 10-K for the year ended
March 31, 1999.
10(g) Lease between Triple S Plastics, Inc. and Alliance
Commerce Center No. 4, Ltd. regarding the manufacturing
and office building for the Fort Worth, Texas manu-
facturing facility, which was filed as Exhibit 10(h)
to the Company's report on Form 10-K for the year
ended March 31, 2000.
10(h) Lease between Triple S Plastics, Inc. and Westinghouse
Road Joint Venture regarding warehouse space for the
Georgetown, Texas manufacturing facility, which was
filed as Exhibit 10(i) to the Company's report on
Form 10-K for the year ended March 31, 2000.
*10(i) Employment agreement - Albert Christian Schauer, which
was filed as Exhibit 10 to the Company's report on
Form 10-Q for the quarter ended September 30, 1999.
10(j)(1) A Lease Agreement between Registrant and County of
Putnam Industrial Development Agency dated
December 1, 2000.
10(j)(2) A Bond Purchase Agreement among Registrant, County of
Putnam Industrial Development Agency and NatCity
Investments, Inc., dated December 28, 2000.
10(j)(3) A Reimbursement Agreement between Registrant and
National City Bank of Michigan/Illinois dated
December 1, 2000 backing the County of Putnam
Industrial Revenue Bonds.
10(k) Lease between Triple S Plastics, Inc. and Manaus
Refrigerantes Ltda. regarding the manufacturing
and office building for the Manaus, Brazil
facility.
21 List of Subsidiaries
23 Consent of Experts and Counsel
99.1 Safe Harbor Statement for Forward-Looking Statements
*Indicates a compensatory arrangement
EXHIBIT 21
LIST OF SUBSIDIARIES
Dynacept Corporation, Inc., a Michigan Corporation
Triple S Technologies Limited Partnership, a Michigan Limited Partnership
Burco Precision Products, Inc., a Texas Corporation
Triple S Cosmosplast da Amazonia, Ltda., a foreign subsidiary located in
Manaus, Brazil
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Triple S Plastics, Inc.
Vicksburg, Michigan
We hereby consent to the incorporation by reference in the Company's
Registration Statements (No. 33-83214, No. 33-83212, No. 333-20365 and
No. 333-20451) of our reports dated May 3, 2001, relating to the consolidated
financial statements and schedule of Triple S Plastics, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended March 31, 2001.
BDO Seidman, LLP
Kalamazoo, Michigan
May 3, 2001