Amendment #1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1998
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number: 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.)
14320 Portage Road, Vicksburg, Michigan 49097-0905
(Address of principal executive offices) (Zip Code)
(616) 649-0545
(Registrant's telephone number, including area code)
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 _____
The registrant had 3,745,785 shares of common stock outstanding as of
December 31, 1998.
TRIPLE S PLASTICS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Financial Statements
Condensed Balance Sheets - 3
December 31, 1998 and March 31, 1998
Condensed Statements of Income - Three Months and 4
Nine Months Ended December 31, 1998 and 1997
Condensed Statements of Cash Flows - 5
Nine Months Ended December 31, 1998 and 1997
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk (not applicable)
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
TRIPLE S PLASTICS, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
Dec. 31 March 31
1998 1998
----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,408 $ 3,783
Accounts receivable, less allowance of
$1,470 and $350 for possible losses (Note 6) 8,122 13,275
Inventories (Notes 2 and 6) 5,113 3,634
Deferred income taxes 1,001 360
Other 645 202
--------- ---------
Total Current Assets 19,289 21,254
Property, Plant and Equipment (Note 3) 42,121 38,508
Less accumulated depreciation and amortization 16,158 13,483
--------- ---------
Net Property, Plant and Equipment 25,963 25,025
Other:
Cash restricted for capital expenditures (Note 3) -- 2,932
Goodwill, net of accumulated amortization of
$571 and $469 3,935 679
Miscellaneous 114 140
--------- ---------
Total Other Assets 4,049 3,751
--------- ---------
$ 49,301 $ 50,030
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,492 $ 5,182
Accrued compensation 739 1,167
Deferred mold revenue 1,192 503
Other accrued expenses (Note 6) 825 888
Current maturities of long-term debt 1,355 1,346
--------- ---------
Total Current Liabilities 8,603 9,086
Long-Term Debt, less current maturities 7,082 6,603
Deferred Income Taxes 2,360 2,360
--------- ---------
Total Liabilities 18,045 18,049
Shareholders' Equity:
Preferred stock, no par value, 1,000,000
shares authorized, none issued -- --
Common stock, no par value, 10,200,000
shares authorized, 3,745,785 and
3,741,951 shares issued and outstanding 14,462 14,444
Retained earnings 16,794 17,537
--------- ---------
Total Shareholders' Equity 31,256 31,981
--------- ---------
$ 49,301 $ 50,030
========= =========
See accompanying notes to financial statements.
TRIPLE S PLASTICS, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31 December 31
1998 1997 1998 1997
-------- -------- -------- --------
Net Sales $ 16,329 $ 15,000 $ 48,368 $ 48,516
Cost of Sales 13,850 12,436 40,033 40,296
-------- -------- -------- --------
Gross Profit 2,479 2,564 8,335 8,220
Selling, General &
Administrative Expenses 2,675 2,134 7,689 6,537
Unusual Item (Note 6) 1,440 -- 1,440 --
-------- -------- -------- --------
Total Operating Expenses 4,115 2,134 9,129 6,537
-------- -------- -------- --------
Operating Income (Loss) (1,636) 430 (794) 1,683
Interest Expense (Income):
Interest expense 157 153 479 469
Interest income (58) (75) (212) (201)
-------- -------- -------- --------
Net Interest Expense 99 78 267 268
-------- -------- -------- --------
Income (Loss) Before Income Taxes (1,735) 352 (1,061) 1,415
Income Taxes (Credit) (555) 125 (318) 495
-------- -------- -------- --------
Net Income (Loss) $ (1,180) $ 227 $ (743) $ 920
======== ======== ======== ========
Basic and Diluted Earnings
per Share $ (0.32) $ .06 $ (0.20) $ .25
======== ======== ======== ========
Shares Used in Computing
Earnings per Share:
Basic 3,746 3,741 3,744 3,739
Diluted 3,746 3,748 3,747 3,751
TRIPLE S PLASTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
December 31
1998 1997
-------- --------
Operating Activities:
Net income (loss) $ (743) $ 920
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 2,843 2,411
Unusual item 1,440 --
Changes in assets and liabilities:
Accounts receivable 4,052 116
Inventories (1,618) 640
Accounts payable and accruals (2,023) (612)
Other 168 64
------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 4,119 3,539
INVESTING ACTIVITIES:
Capital expenditures (3,293) (2,964)
Decrease in restricted cash 2,932 30
Business acquisition, net (Note 5) (909) --
------- --------
CASH USED IN INVESTING ACTIVITIES (1,270) (2,934)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of fees 18 23
Principal payments on long-term debt (2,242) (1,030)
------- --------
CASH USED IN FINANCING ACTIVITIES (2,224) (1,007)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 625 $ (402)
======= ========
TRIPLE S PLASTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Presentation of Interim Information
In the opinion of the management of Triple S Plastics, Inc. (the Company),
the accompanying unaudited condensed financial statements include all normal
adjustments considered necessary to present fairly the financial position of the
Company as of December 31, 1998 and the results of its operations for the
periods shown. Interim results are not necessarily indicative of results for a
full year.
The condensed financial statements have been prepared in accordance with
the instructions to Form 10-Q and therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
2. Business
During the nine months ended December 31, 1998 and 1997, a
telecommunications customer accounted for 30% and 16% of net sales,
respectively, and a consumer products customer accounted for 6% and 15% of net
sales, respectively. This consumer products customer has filed for protection
under Chapter 11 of the U.S. Bankruptcy Code (see Note 6).
3. Inventories
($000s)
Inventories are summarized as follows: December 31 March 31
1998 1998
--------------------------
Raw materials and packaging $ 2,552 $ 2,039
Finished goods and work-in-process 2,561 1,595
----------- -----------
Total Inventories $ 5,113 $ 3,634
=========== ===========
4. Cash Restricted for Capital Expenditures
This amount represented the remaining proceeds from a $5 million
Industrial Revenue Bond and was available for investment in machinery and
equipment for the Company's Texas facility through October 1, 1998. The
remaining balance at October 1, 1998 was used to reduce the outstanding debt.
5. Acquisition of Dynacept Company, Inc.
On June 1, 1998, Triple S Plastics, Inc. purchased, for cash and long-term
debt, the assets of Dynacept Company, Inc. (Dynacept). Dynacept is a preeminent
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.
6. Unusual Item
Near the end of the third quarter, 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 the Company recorded a pre-tax charge of
$1.4 million ($935 after tax, or $.25 per basic and fully diluted share)
relating to an increase in its allowance for doubtful accounts, inventory
reserves and accrued liabilities to provide for anticipated losses and legal
costs concerning accounts receivable balances and inventory on hand for these
customers. This pre-tax charge is shown in the Condensed Statements of Income
as an unusual item.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(in thousands)
Certain matters discussed in this Form 10-Q constitute forward-looking
statements which are necessarily subject to certain risks and uncertainties,
and they may change in a material way based upon various market, industry and
other important factors. From time to time, the Company identifies factors in
its Form 10-K filed with the Securities and Exchange commission and its other
interim reports that may influence future results, and the Company recommends
that investors consult those reports. The Company cautions investors that actual
results may differ materially from the forward-looking statements contained in
this Form 10-Q.
Overview
The Company designs and builds molds and manufactures complex, highly
engineered thermoplastic molded components based on customers' specifications
and orders. Its customers are primarily in the telecommunications,
medical/pharmaceutical, information technologies, consumer products, and
automotive markets. The Company considers both the manufacture of molded
products and mold sales to be an integral part of its business. The Company's
fiscal year end is March 31.
Results of Operations
Near the end of the third quarter of fiscal 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 the Company recorded a pre-tax charge of
$1.4 million ($935 after tax, or $.25 per basic and fully diluted share)
relating to an increase in its allowance for doubtful accounts, inventory
reserves and accrued liabilities to provide for anticipated losses and legal
costs concerning accounts receivable balances and inventory on hand for these
customers. This pre-tax charge is shown in the Condensed Statements of Income
as an unusual item. Company management is actively involved in trying to recover
these amounts owed. The two customers that filed for bankruptcy protection are
serviced by the Company's facility in Tucson, Arizona. Also, one of these
customers accounted for approximately 6% and 15% of the Company's net sales for
the nine month periods ended December 31, 1998, and December 31, 1997,
respectively. Given the uncertainty as to future sales volumes to these
customers, as well as other factors impacting the operations of the Company's
Tucson facility, the Company intends to evaluate, in the fourth quarter, several
alternatives for the Company's operational structure at that location.
Subsequent to its year-end, the Company recognized that results of
operations for the third quarter of its fiscal year required restatement.
Accordingly, the Company recorded adjustments in the third quarter related to
the timing of the recognition of revenue, the timing of the recognition of
certain expenses and accrued liabilities, and the valuation of inventories.
The effect of these adjustments was an increase in the net loss for the quarter
of $142, or $.04 per basic and fully diluted share.
The following table sets forth, for the three months and nine months ended
December 31, 1998 and 1997, certain items from the Company's Condensed
Statements of Income expressed as a percentage of net sales, as well as the
percentage change in those items.
Three months ended Nine months ended % Change
December 31 December 31 3rd Nine
1998 1997 1998 1997 Qtr Mos.
------ ------ ------ ------ ----- ------
Net Sales 100.0% 100.0% 100.0% 100.0% 8.9% (0.3)%
Cost of Sales 84.8 82.9 82.8 83.1 11.4 (0.7)
------ ------ ------ ------
Gross Profit 15.2 17.1 17.2 16.9 (3.3) 1.4
Selling, Gen. & Admin. Exp. 16.4 14.2 15.9 13.5 25.4 17.6
Unusual Item 8.8 -- 3.0 -- -- --
------ ------ ------ ------
Operating Expenses 25.2 14.2 18.9 13.5 92.8 39.7
Operating Income (10.0) 2.9 (1.6) 3.4 -- --
Interest Expense, net 0.6 0.6 0.6 0.5 26.9 (0.4)
------ ------ ------ ------
Income Before Income Taxes (10.6) 2.3 (2.2) 2.9 -- --
Income Taxes (3.4) 0.8 (0.7) 1.0 -- --
------ ------ ------ ------
Net Income (7.2)% 1.5% (1.5)% 1.9% -- --
====== ====== ====== ======
Net Sales
Net sales for the third quarter ended December 31, 1998 increased 9%
compared to the third quarter of the prior year. In the third quarter, sales
to customers in the Telecommunications market increased by over 200% while sales
to customers in the Consumer Products, Medical, Information Technologies and
Automotive markets all decreased. The increase in Telecommunications is
principally driven by one customer which now comprises 30% of the Company's
sales.
Net sales for the first nine months of fiscal 1999 were essentially flat
with sales in the same period last year. For the first nine months of the year,
sales to customers in the Telecommunications market comprised the largest
percentage of sales at 35%, finally surpassing the Consumer Products market,
which represented 30% of sales. Medical market sales comprise 15% and
Information Technologies and Automotive are at 10% of total sales each. The
overall increase in sales is principally related to volume as no significant
price increases occurred during the first nine months of fiscal 1999. The
Company's twenty largest customers, including at least one in each of the
primary business markets served, accounted for approximately 85% of the
Company's net sales for the first nine months of fiscal 1999 and 80% in 1998.
Cost of Sales
Cost of sales as a percentage of sales increased to 84.8% in the third
quarter of fiscal 1999 compared to 82.9% for the third quarter last year. The
higher cost of sales percentage in fiscal 1999 is principally attributed to a
higher material cost on a large Telecommunications market program compared to
the program running last year, which has expired. However, for the first nine
months of fiscal 1999, the cost of sales percentage decreased to 82.8% compared
to 83.1% for the comparable period last year. The lower cost of sales percentage
in fiscal 1999 is principally attributed to molded part manufacturing cost
reductions as a result of manufacturing efficiency improvement initiatives at
the Company.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 25.4% in the third
quarter of fiscal 1999 compared to the third quarter of the prior year. For the
first nine months of fiscal 1999, these expenses increased 17.6% and represented
15.9% and 13.5% of sales for fiscal 1999 and 1998, respectively, This increase
was principally due to increased compensation relating to the Company's
increased investment in its sales force, increased professional fees, and the
addition of Dynacept Corporation expenses in the current fiscal year.
Income Taxes
The Company's effective income tax rate is (30.0)% for the first nine months
of fiscal 1999 due to losses incurred.
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.
In the first nine months of fiscal 1999, the Company generated $4.1 million
of cash from operations. Cash from operations was used to acquire capital
equipment of $1.8 million for the Company's Texas facility using proceeds from
an Industrial Revenue Bond which has now expired. In addition, $1.5 million of
capital equipment was purchased for the Company's other facilities. Cash from
operations was also used to acquire the assets of Dynacept Company and to pay
debt.
Accounts receivable decreased by $5.2 million at December 31, 1998 compared
to the prior fiscal year end, and represents 47 days sales outstanding compared
to 61 days at the end of the prior fiscal year, a decrease of 14 days. However,
the $1.1 million increase in the related allowance for doubtful accounts caused
6 days of this decrease. The balance of the improvement in days sales
outstanding reflects the Company's improved collection efforts. Inventories
increased by $1.5 million at December 31, 1998 compared to the prior fiscal
year end, and represented 36 days in inventory compared to 26 days at the end
of the prior fiscal year. Approximately half of this increase relates to having
more tool manufacturing projects in process at December 31, 1998 compared to the
prior fiscal year-end.
The Company has a $5.0 million unsecured line of credit agreement with a
bank which has not been drawn on this fiscal year. Management believes that
this source of cash, along with internally generated cash, will be adequate to
fund future operating and capital requirements.
Other Matters
The Company's program to address the Year 2000 date recognition problem
continued to make progress toward its goal to ensure the millennium event does
not have a material adverse effect on its business operations. The Company is
currently in the implementation phase of testing its software and is in the
process of entering selected transactions into the new system to test the date
parameter. The results of this testing to date have been favorable. Projects to
ensure this compliance are currently underway and are anticipated to be
completed by the end of 1999. Based on information currently available from the
work performed, management does not expect that amounts to be expensed for Year
2000 activities will have a material impact on the Company's results of
operations or financial position.
During fiscal year 1999, the Company developed a plan to determine the
Year 2000 compliance status of its key suppliers and customers. The plan
involves soliciting information from suppliers and customers through use of
surveys, and follow-up discussions and testing where needed. The Company has
sent out surveys to all of its key suppliers and certain key customers and
received back a majority of these surveys. While the Company cannot guarantee
Year 2000 compliance by its key suppliers and customers, and in many cases will
be relying on statements from outside vendors without independent verification,
preliminary surveys indicate that key suppliers and customers are aware of the
issues and are working on a solution to achieve compliance before the Year 2000.
The Company is also in the process of developing a contingency plan to deal with
those key suppliers and customers who may not be Year 2000 compliant prior to
the Year 2000. If certain key suppliers or customers were not Year 2000
compliant and the Company did not have a contingency plan in place related to
those key suppliers or customers because the Company was unaware of the
noncompliance, the Company's results of operations and financial condition could
be significantly and negatively impacted. However, at this time the Company is
not aware, based on information received from these customers and suppliers, of
any key suppliers or customers who will not be Year 2000 compliant by the
Year 2000.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports were filed on Form 8-K during this quarter.
SIGNATURES
Pursuant to the requirements 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.
TRIPLE S PLASTICS, INC.
(Registrant)
Date: May 25, 1999 _DANIEL B. CANAVAN___________________
Daniel B. Canavan
Acting Chief Financial Officer
Date: May 25, 1999 _CATHERINE A. TAYLOR_________________
Catherine A. Taylor
Corporate Controller (Chief Accounting
Officer)