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 September 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 Identification No.)
Incorporation or Organization)
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 3,753,476 shares of common stock outstanding as of
September 30, 1999.
TRIPLE S PLASTICS, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
September 30, 1999 and March 31, 1999
Condensed Consolidated Statements of Income - Three 4
Months and Six Months Ended September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
Six Months Ended September 30, 1999 and 1998
Notes to Condensed Consolidated 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 11
TRIPLE S PLASTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in thousands)
September 30 March 31
1999 1999
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,732 $ 5,594
Accounts receivable, less allowance
of $300 and $709 for possible losses 11,235 9,487
Inventories (Note 4) 5,644 4,386
Deferred income taxes 384 384
Other 1,035 1,223
------------ -------------
Total Current Assets 20,030 21,074
Property, Plant and Equipment 39,001 42,003
Less accumulated depreciation
and amortization 16,391 16,293
------------ -------------
Net Property, Plant and Equipment 22,610 25,710
Other:
Assets held for sale (Note 2) 3,457 --
Goodwill, net of accumulated amort-
ization of $720 and $592 3,769 3,897
Miscellaneous 86 128
------------ -------------
Total Other Assets 7,312 4,025
------------ -------------
$ 49,952 $ 50,809
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,059 $ 6,649
Accrued compensation 1,104 921
Deferred mold revenue 1,299 750
Other accrued expenses (Note 6) 1,654 1,133
Current maturities of long-term debt 1,351 1,334
------------ -------------
Total Current Liabilities 10,467 10,787
Long-Term Debt, less current maturities 5,953 6,862
Deferred Income Taxes 2,207 2,207
------------ -------------
Total Liabilities 18,627 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, 3,753,476 and
3,747,268 shares issued and outstanding 14,488 14,468
Retained earnings 16,837 16,485
------------ -------------
Total Shareholders' Equity 31,325 30,953
------------ -------------
$ 49,952 $ 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 Six Months Ended
September 30 September 30
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net Sales $ 23,709 $ 16,398 $ 42,955 $ 32,039
Cost of Sales 19,165 13,470 34,871 26,183
---------- ---------- ---------- ----------
Gross Profit 4,544 2,928 8,084 5,856
Selling and marketing expenses 1,427 858 2,409 1,571
General and administrative expenses 1,494 1,855 3,651 3,443
Plant closing costs (Note 6) -- -- 1,312 --
---------- ---------- ---------- ----------
Total Operating Expenses 2,921 2,713 7,372 5,014
Operating Income 1,623 215 712 842
Interest Expense (Income):
Interest expense 131 173 266 322
Interest income (41) (77) (111) (154)
---------- ---------- ---------- ----------
Net Interest Expense 90 96 155 168
---------- ---------- ---------- ----------
Income Before Income Taxes 1,533 119 557 674
Income Tax Expense 560 42 205 237
---------- ---------- ---------- ----------
Net Income $ 973 $ 77 $ 352 $ 437
========== ========== ========== ==========
Basic Earnings per Share of Common Stock $ .26 $ .02 $ .09 $ .12
========== ========== ========== ==========
Diluted Earnings per Share of Common Stock $ .24 $ .02 $ .09 $ .12
========== ========== ========== ==========
Shares Used in Computing Earnings
per Share:
Basic 3,753 3,744 3,752 3,744
Diluted 4,057 3,745 3,952 3,749
See accompanying notes to condensed consolidated financial statements.
TRIPLE S PLASTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
Six Months Ended
September 30
----------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net income $ 352 $ 437
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 1,975 1,862
Changes in assets and liabilities:
Accounts receivable (1,748) 3,432
Inventories (1,258) (577)
Accounts payable and accrued expenses 424 (760)
------------ ------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (255) 4,394
INVESTING ACTIVITIES:
Capital expenditures (2,735) (2,651)
Decrease in restricted cash -- 1,084
Business acquisition (Note 5) -- (909)
------------ ------------
CASH USED IN INVESTING ACTIVITIES (2,735) (2,476)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 20 12
Principal payments on long-term debt (892) (874)
------------ ------------
CASH USED IN FINANCING ACTIVITIES (872) (862)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (3,862) $ 1,056
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 September 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 Held for Sale
As discussed in Note 6 to the Condensed Consolidated Financial Statements,
the Company's Tucson, Arizona facility is closed and along with the former
Victor Plastics facility, is 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.
3. Business
During the six months ended September 30, 1999 and 1998, a Telecommuni-
cations customer accounted for 56% and 28% of net sales, respectively.
4. Inventories
Inventories are summarized as follows:
September 30 March 31
1999 1999
-------------- --------------
Raw materials and packaging $ 3,411 $ 2,582
Finished goods and work-in-process 2,233 1,804
-------------- --------------
Total Inventories $ 5,644 $ 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 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 ended 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, as well as
closedown expenses. The pre-tax effect of this charge is shown in the
Condensed Consolidated Statements of Income as plant closing costs. All
expenses related to these actions are expected to be incurred by the end of
the current fiscal year.
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
these reports.
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 is discussed in Note 6 to the Condensed Consolidated Financial
Statements.
The following table sets forth, for the three and six month periods ended
September 30, 1999 and 1998, certain items from the Company's Condensed
Consolidated Statements of Income expressed as a percentage of net sales.
Three Months Ended Six Months Ended
September 30 September 30
-------------------- ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 80.8 82.1 81.2 81.7
-------- -------- -------- --------
Gross Profit 19.2 17.9 18.8 18.3
Selling & Marketing Expenses 6.0 5.3 5.6 4.9
General & Administrative Exp. 6.3 11.3 8.5 10.8
Unusual Item -- -- 3.0 --
-------- -------- -------- --------
Operating Expenses 12.3 16.6 17.1 15.7
Operating Income 6.9 1.3 1.7 2.6
Interest Expense, net 0.4 0.6 0.4 0.5
-------- -------- -------- --------
Income Before Income Taxes 6.5 0.7 1.3 2.1
Income Tax Expense 2.4 0.2 0.5 0.7
-------- -------- -------- --------
Net Income 4.1% 0.5% 0.8% 1.4%
======== ======== ======== ========
Net Sales
Net sales for the second quarter ended September 30, 1999 increased 44.6%
compared to the second quarter of the prior year. This increase in net sales
reflected strength in the Company's shipments to the Telecommunications market.
Sales to customers in the Automotive market showed a moderate increase. Sales
to customers in the Medical and Information Technologies markets showed a
combined decrease and sales to the Consumer Products market were down due to
the exit from the Tucson facility customer base.
Net sales for the first six months of fiscal 2000 were up 34.1% compared to
the same period last year. For the first half of the year, sales to customers
in the Telecommunications market comprised 58% of net sales, with sales to the
Consumer Products market at 14%, and the balance (28%) to the Medical,
Automotive and Information Technologies markets.
The overall increase in sales is principally related to volume as no
significant price increases occurred during the first six months of fiscal
2000. The Company's ten largest customers accounted for approximately 77% of
the Company's net sales for the first six months of fiscal 2000 and 64% in
fiscal 1999. Net sales to the Telecommunications market for the three and six
months ended September 30, 1999 were primarily to one customer, which is
expected to continue into the foreseeable future.
Cost of Sales
Cost of sales as a percentage of sales decreased to 80.8% in the second
quarter of fiscal 2000 compared to 82.1% for the second quarter last year. The
lower cost of sales percentage in fiscal 2000 is primarily attributed to molded
part manufacturing cost reductions, primarily in material and labor cost, as a
result of manufacturing efficiency improvement initiatives at the Company. For
the first six months of fiscal 2000, the cost of sales percentage decreased to
81.2% compared to 81.7% for the comparable period last year.
Selling and Marketing Expenses
Selling and marketing expenses increased $569 compared to the second
quarter of the prior year and represented 6.0% of net sales compared to 5.3%
in the prior year second quarter. For the first six months of fiscal 2000,
these expenses increased 53.3% and represented 5.6% and 4.9% of net sales for
fiscal 2000 and 1999, respectively. The increase principally relates to
increased commissions as a result of a one-time expense incurred to settle a
commission contract in addition to the shift in sales from non-commissioned
accounts to commissioned accounts.
General and Administrative Expenses
General and administrative expenses decreased 19.5% in the second quarter
of fiscal 2000 compared to the second quarter of the prior year and represented
6.3% and 11.3% of sales for fiscal 2000 and 1999, respectively. This decrease
was principally due to decreased legal fees. For the first six months of fiscal
2000, these expenses increased $208 and represented 8.5% and 10.8% of net sales
for fiscal 2000 and 1999, respectively. This increase is primarily due to
increased compensation and professional fees.
Income Taxes
The Company's effective tax rate of 36.8% for the first six months of
fiscal 2000 increased when compared to the prior year rate of 35.2%. This
increase is primarily due to the addition of the State of New York in the
effective rate.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses and
capital expenditures. Capital expenditures related to the facility expansion
in Texas are estimated to be $3.5 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.
Cash used from operations of $255 for the first six months of fiscal year
2000 consisted primarily of an increase in accounts receivable and inventories.
As a result of the higher sales level, accounts receivable increased by
$1.7 million at September 30, 1999 compared to the prior fiscal year end, and
represented 39 days sales outstanding which is comparable to the days at the
end of the prior fiscal year. Inventories increased by $1.3 million at
September 30, 1999 compared to the prior fiscal year end, and represented
29 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 September 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 second 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 and continues to
test 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 continues to review and refine its 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 10 - Employment Agreement - Albert Christian Schauer
(b) Exhibit 27 - Financial Data Schedule
(c) A report was filed on Form 8-K during this filing period.
- Form 8-K, filed pursuant to Item 5, dated July 9, 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: November 5, 1999 _/s/ MARLAN R. SMITH__________________
Marlan R. Smith
Chief Financial Officer
Date: November 5, 1999 _/s/ CATHERINE A. TAYLOR______________
Catherine A. Taylor
Corporate Controller
(Chief Accounting Officer)