SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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 3,751,249 shares of common stock outstanding as of
June 30, 1999.
TRIPLE S PLASTICS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
June 30, 1999 and March 31, 1999
Condensed Consolidated Statements of Income - 4
Three Months Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
Three Months Ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial 6
Statements
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 11
TRIPLE S PLASTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30 March 31
1999 1999
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,556 $ 5,594
Accounts receivable, less allowance of
$650 and $709 for possible losses 10,099 9,487
Inventories (Note 4) 4,996 4,386
Deferred income taxes 384 384
Other 1,676 1,223
----------- ------------
Total Current Assets 21,711 21,074
Property, Plant and Equipment 37,555 42,003
Less accumulated depreciation and amortization 16,232 16,293
----------- ------------
Net Property, Plant and Equipment 21,323 25,710
Other:
Assets held for sale (Note 2) 3,549 --
Goodwill, net of accumulated amortization of
$630 and $592 3,859 3,897
Miscellaneous 95 128
----------- ------------
Total Other Assets 7,503 4,025
----------- ------------
$ 50,537 $ 50,809
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,201 $ 6,649
Accrued compensation 901 921
Deferred mold revenue 971 750
Other accrued expenses (Note 6) 2,057 1,133
Current maturities of long-term debt 1,312 1,334
----------- -----------
Total Current Liabilities 11,442 10,787
Long-Term Debt, less current maturities 6,544 6,862
Deferred Income Taxes 2,207 2,207
----------- -----------
Total Liabilities 20,193 19,856
Shareholders' Equity:
Preferred stock, no par value, 1,000,000
shares authorized, none issued -- --
Common stock, no par value, 10,200,000
shares authorized, 3,751,249 and
3,747,268 shares issued and outstanding 14,480 14,468
Retained earnings 15,864 16,485
----------- -----------
Total Shareholders' Equity 30,344 30,953
----------- -----------
$ 50,537 $ 50,809
=========== ===========
See accompanying notes to condensed consolidated financial statements.
TRIPLE S PLASTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
June 30
--------------------------
1999 1998
------------ ------------
Net Sales $ 19,246 $ 15,641
Cost of Sales 15,706 12,713
------------ ------------
Gross Profit 3,540 2,928
Selling and marketing expenses 982 713
General and administrative expenses 2,157 1,588
Plant closing costs (Note 6) 1,312 --
------------ ------------
Total Operating Expenses 4,451 2,301
------------ ------------
Operating Income (Loss) (911) 627
Interest Expense (Income):
Interest expense 135 149
Interest income (70) (77)
------------ ------------
Net Interest Expense 65 72
------------ ------------
Income (Loss) Before Income Taxes (976) 555
Income Tax Expense (Benefit) (355) 195
------------ ------------
Net Income (Loss) $ (621) $ 360
============ ============
Earnings (Loss) per Share of Common Stock $ (.17) $ .10
============ ============
Shares Used in Computing Earnings per Share:
Basic 3,751 3,743
Diluted 3,751 3,759
See accompanying notes to condensed consolidated financial statements.
TRIPLE S PLASTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
June 30
--------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (621) $ 360
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 992 901
Plant closing costs 1,312 --
Changes in assets and liabilities:
Accounts receivable (612) 2,543
Inventories (610) (308)
Accounts payable and accruals (514) (804)
------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (53) 2,692
INVESTING ACTIVITIES:
Capital expenditures (657) (1,203)
Decrease in restricted cash -- 1
Business acquisition, net (Note 5) -- (909)
------------ ------------
CASH USED IN INVESTING ACTIVITIES (657) (2,111)
FINANCING ACTIVITIES:
Proceeds from issuance of common
stock, net of fees 12 5
Principal payments on long-term debt (340) (321)
------------ ------------
CASH USED IN FINANCING ACTIVITIES (328) (316)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (1,038) $ 265
============ ===========
See accompanying notes to condensed consolidated financial statements.
TRIPLE S PLASTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, Dollars in thousands)
1. Presentation of Interim Information
In the opinion of the management of Triple S Plastics, Inc. (the Company),
the accompanying unaudited condensed consolidated financial statements include
all normal adjustments considered necessary to present fairly the financial
position of the Company as of June 30, 1999 and the results of its operations
for the periods shown. Interim results are not necessarily indicative of results
for a full year.
The condensed consolidated 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. Assets for Sale
As discussed in Note 6 to the Condensed Consolidated Financial Statements,
the Company's Tucson, Arizona facility is closing and along with the former
Victor Plastics facility, is being held for sale. These facilities were written
down to their estimated fair market value and depreciation of the facilities
will be terminated at the time of closure.
3. Business
During the three months ended June 30, 1999 and 1998, a telecommunications
customer accounted for 50% and 21% of net sales, respectively.
4. Inventories
Inventories are summarized as follows:
June 30 March 31
1999 1999
----------- ------------
Raw materials and packaging $ 2,848 $ 2,582
Finished goods and work-in-process 2,148 1,804
----------- ------------
Total Inventories $ 4,996 $ 4,386
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. Plant Closing Costs
On June 18, 1999, the Company announced that it was closing its Tucson,
Arizona facility and transferring the machinery and equipment to its new
facility in Fort Worth, Texas and other locations in Michigan. The charge
recorded in the first quarter ending June 30, 1999, reflects the cost of closing
the Tucson facility and disposition of the former Victor Plastics facility.
The estimated loss on closing included the writedown of property, plant and
equipment to market value based on an independent appraisal and closedown
expenses. The pre-tax effect of this charge is shown in the Condensed
Consolidated Statements of Income as plant closing costs. The expenses for
these actions are expected to be complete by the end of the current fiscal
year.
7. Commitments and Contingencies
On March 4, 1998 Capitol Vial, Inc. filed a lawsuit against the Company
alleging that the process used by the Company to produce certain vials infringed
one or more of Capitol Vial's patents. The Company denied infringement on the
grounds of invalidity and non-infringement and asserted an antitrust
counterclaim arising from Capitol Vial's alleged fraud on the Patent Office in
obtaining the patent.
On July 9, 1999 the Company reached an agreement with Capitol Vial, Inc.
that will resolve Capitol Vial's claims of patent infringement against the
Company with no settlement expense to Triple S Plastics, Inc.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars 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
On June 18, 1999, the Company announced that it was closing its Tucson,
Arizona facility and transferring the machinery and equipment to its new
facility in Fort Worth, Texas and other locations in Michigan. The impact of
these actions are discussed in Note 6 to the Condensed Consolidated Financial
Statements.
The following table sets forth, for the three months ended June 30, 1999
and 1998, certain items from the Company's Condensed Consolidated Statements
of Income expressed as a percentage of net sales, as well as the percentage
change in those items.
Three months ended
June 30
----------------------
1999 1998 % Change
---------- ---------- ----------
Net Sales 100.0% 100.0% 23.0%
Cost of Sales 81.6 81.3 23.5
---------- ----------
Gross Profit 18.4 18.7 20.9
Selling & Marketing Expenses 5.1 4.6 37.7
General & Administrative Expenses 11.2 10.1 35.8
Unusual Item 6.8 -- --
---------- ----------
Operating Expenses 23.1 14.7 93.4
Operating Income (Loss) (4.7) 4.0
Interest Expense, net 0.4 0.5 (9.7)
---------- ----------
Income (Loss) Before Income Taxes (5.1) 3.5
Income Tax Expense (Benefit) (1.9) 1.2
---------- ----------
Net Income (Loss) (3.2)% 2.3%
========== ==========
Net Sales
Net sales for the first quarter ended June 30, 1999 increased 23.0%
compared to the first quarter of the prior year. The increase in net sales for
the first quarter reflects continued strength in the Company's shipments to the
Telecommunications market. Sales to customers in the Medical, Information
Technologies, and Consumer Products markets showed a combined decrease,
principally due to the loss of the McCulloch account in late December, 1998.
Sales to the Automotive market were up slightly when compared to the prior year.
The overall increase in sales is principally related to volume as no significant
price increases occurred during the first three months of fiscal 2000. The
Company's ten largest customers accounted for approximately 75% of the Company's
net sales for the first three months of fiscal 2000 and 71% in fiscal 1999.
Cost of Sales
Cost of sales as a percentage of sales increased slightly to 81.6% in the
first quarter of fiscal 2000 compared to 81.3% for the first quarter last year.
The higher cost of sales percentage in fiscal 2000 is primarily attributed to
competitive pricing on new projects and underutilized production capacity at the
Tucson facility which was somewhat offset by a decrease in labor costs,
maintenance, and utilities.
Selling and Marketing Expenses
Selling and marketing expenses increased $269 compared to the first quarter
of the prior year and represented 5.1% of net sales compared to 4.6% in the
prior year first quarter. The increase principally relates to increased
commissions as a result of the shift in sales from non-commissioned accounts to
commissioned accounts.
General and Administrative Expenses
General and administrative expenses increased 35.8% in the first quarter
of fiscal 2000 compared to the first quarter of the prior year and represented
11.2% and 10.1% of sales for fiscal 2000 and 1999, respectively. This increase
was principally due to increased legal fees as a result of the litigation
described in Note 7 to the condensed consolidated financial statements. Also
impacting this increase is increased compensation and the addition of Dynacept
Corporation expenses for a full quarter in the current fiscal year.
Income Taxes
The Company's effective tax rate is (36.4%) due to the net operating loss
incurred in the first quarter of fiscal 2000 compared to 35.1% in the prior year
first quarter.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses and
capital expenditures. Capital expenditures related to the facility expansions
in Texas and New York are estimated to be $7.0 million. 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.
Due to the net loss in the first quarter of fiscal 2000, and the increase
in accounts receivable and inventories, the Company used $53 of cash from
operations.
Accounts receivable increased by $612 at June 30, 1999 compared to the
prior fiscal year end, and represented 44 days sales outstanding compared to
39 days at the end of the prior fiscal year. Inventories increased by $610
at June 30, 1999 compared to the prior fiscal year end, and represented 31 days
in inventory compared to 28 days at the end of the prior fiscal year. The
increase is primarily due to increased inventory requirements related to the
higher sales in our Texas facility in addition to having more tooling projects
in process at June 30, 1999 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
In the first quarter of fiscal 2000, 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 has substantially completed the process of
identifying, evaluating and implementing changes to computer programs and
equipment necessary to address the Year 2000 issue. This issue involves the
ability of computer systems and equipment that have time-sensitive programs to
properly recognize the Year 2000. The inability to do so could result in major
failures or miscalculations. These plans provide for systems to be Year 2000
compliant by the end of 1999. Costs to date consisting of internal costs, which
are not incremental in nature, have not been tracked by the Company. Future
costs to be incurred to complete Y2K compliance and testing procedures,
primarily internal costs related to direct Company personnel, are not expected
to 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 this
issue 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) A report was filed on Form 8-K during this filing
period.
- Form 8-K, filed pursuant to Item 5, dated June 18, 1999.
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: August 12, 1999 _ALBERT C. SCHAUER__________________________
Albert C. Schauer
Acting Chief Financial Officer
Date: August 12, 1999 _CATHERINE A. TAYLOR________________________
Catherine A. Taylor
Corporate Controller
(Chief Accounting Officer)