<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 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, 2000
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: 0-17458
-------
WRP CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 73-1326131
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 PARK BOULEVARD, SUITE 1260
ITASCA, IL 60143
----------------
(Address of principal executive office)
(630) 285-9191
(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's Common Stock, par value $.01 per
share and issuer's Series A Convertible Common Stock, par value $.01 per share,
outstanding as of November 13, 2000 was 5,589,292 and 1,252,538 respectively.
<PAGE> 2
WRP CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets
September 30, 2000 (unaudited) and June 30, 2000 (audited)...........pg. 1
Consolidated Statements of Operations (unaudited) for the
Three Months Ended September 30, 2000 and 1999.......................pg. 3
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended September 30, 2000 and 1999.......................pg. 4
Notes to Interim Consolidated Financial Statements (unaudited).......pg. 5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................pg. 10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk..........pg. 15
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K....................................pg. 15
<PAGE> 3
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 142,168 $ 224,054
Accounts receivable - trade, net of allowance for doubtful
accounts of $185,000 at September 30, 2000 and
$175,000 at June 30, 2000 6,188,144 5,621,417
Inventories, net 12,430,690 10,124,411
Prepaid expenses 306,148 431,150
Due from affiliate 6,409,081 3,870,315
Deferred tax assets 775,599 953,847
Other receivables 124,026 104,831
------------ ------------
Total current assets 26,375,856 21,330,025
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land rights and land improvements 736,535 736,535
Construction in progress 119,620 75,616
Equipment, furniture and fixtures 15,426,313 15,225,249
Building improvements 2,252,714 2,237,677
Vehicles 126,510 116,704
------------ ------------
Total property, plant and equipment 18,661,692 18,391,781
Less - Accumulated depreciation and amortization (5,726,612) (5,255,541)
------------ ------------
Property, plant and equipment, net 12,935,080 13,136,240
------------ ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $590,251
at September 30, 2000 and $573,443 at June 30, 2000 1,159,749 1,176,557
Other assets 210,877 211,565
------------ ------------
Total other assets 1,370,626 1,388,122
------------ ------------
$ 40,681,562 $ 35,854,387
============ ============
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these balance sheets.
1
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WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 1,309,550 $ 1,925,628
Trade notes payable to bank 1,675,133 1,252,814
Notes payable and current portion of
long-term obligations 5,929,751 3,404,552
Due to affiliate 3,490,490 1,613,185
Accrued expenses 4,047,570 3,639,335
------------ ------------
Total current liabilities 16,452,494 11,835,514
------------ ------------
LONG-TERM DEBT 665,272 750,000
------------ ------------
DEFERRED TAX LIABILITY 636,664 608,402
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 1,919,354 1,833,955
------------ ------------
SHAREHOLDERS' EQUITY:
Series A common stock, $.01 par value; 1,252,538 shares authorized;
1,252,538 shares issued and outstanding
in 2000 12,525 12,525
Common stock, $.01 par value; 10,000,000 shares
authorized; 5,803,692 shares issued and
outstanding in 2000 58,037 58,037
Additional paid-in capital 17,942,471 17,942,471
Retained earnings 4,446,421 4,205,077
Less - Common stock in treasury, at cost, 214,400
and 177,500 shares as of September 30, 2000 and
June 30, 2000, respectively (1,451,676) (1,391,594)
------------ ------------
Total shareholders' equity 21,007,778 20,826,516
------------ ------------
$ 40,681,562 $ 35,854,387
============ ============
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these balance sheets.
2
<PAGE> 5
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months
Ended September 30,
---------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 13,864,530 $ 17,068,019
COST OF GOODS SOLD 9,765,704 12,875,919
------------ ------------
GROSS PROFIT 4,098,826 4,192,100
OPERATING EXPENSES:
Selling, general and administrative 3,415,871 3,248,650
------------ ------------
INCOME FROM OPERATIONS 682,955 943,450
INTEREST EXPENSE 183,086 308,526
OTHER INCOME 34,621 14,178
------------ ------------
Income before provision for (benefit from)
income taxes and minority interest 534,490 649,102
PROVISION FOR (BENEFIT FROM) INCOME TAXES 207,747 (360,900)
------------ ------------
Net income before minority interest 326,743 1,010,002
MINORITY INTEREST IN INCOME OF SUBSIDIARY 85,399 158,940
------------ ------------
NET INCOME $ 241,344 $ 851,062
============ ============
BASIC NET INCOME PER COMMON SHARE: $ 0.04 $ 0.12
============ ============
DILUTED NET INCOME PER COMMON SHARE: $ 0.04 $ 0.12
============ ============
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
3
<PAGE> 6
WRP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND THE SIX MONTHS ENDED JUNE 30,
2000
<TABLE>
<CAPTION>
Three months Ended Six Months Ended
September 30, 2000 June 30, 2000
------------------ ----------------
(Unaudited) (Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 241,344 $ 1,420,262
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 471,071 973,685
Amortization 16,808 33,616
Deferred income taxes 206,510 (207,356)
Loss on disposal of property, plant and equipment - 6,846
Changes in operating assets and liabilities:
Accounts receivable - trade, net (566,727) 2,347,952
Inventories, net (2,306,279) 2,806,158
Prepaid expenses 125,002 131,769
Other assets (18,507) 127,896
Accounts payable - trade (616,078) 782,370
Accrued expenses 408,235 195,736
Amounts due to and from affiliate (661,461) (2,948,359)
----------- -----------
Net cash (used in) provided by operating activities (2,700,082) 5,670,575
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (269,911) (448,610)
Proceeds on sales of property, plant and equipment - 26,565
Minority interest in subsidiary 85,399 206,875
----------- -----------
Net cash used in investing activities (184,512) (215,170)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on trade notes payable to bank 422,319 (75,596)
Net borrowings (payments) on notes payable 2,440,471 (5,258,659)
Payments for treasury stock repurchases (60,082) (68,558)
----------- -----------
Net cash provided by (used in) financing activities 2,802,708 (5,402,813)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (81,886) 52,592
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 224,054 171,462
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142,168 $ 224,054
=========== ===========
</TABLE>
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
4
<PAGE> 7
WRP CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. DESCRIPTION OF BUSINESS:
WRP Corporation (together with its subsidiaries, the "Company") is a
leading marketer of medical examination and surgical gloves in the United States
through its wholly owned subsidiary, American Health Products Corporation
("AHPC") and is a manufacturer of high quality disposable latex examination
gloves through its 70% owned Indonesian subsidiary, PT WRP Buana Multicorpora
("PT Buana"). The Company sells its examination gloves primarily to the medical,
food service, dental and retail markets.
During February 2000, the Company's Board of Directors elected to
change our reporting period from a calendar year ending December 31 to a fiscal
year ending June 30, which corresponds to the year-end of the Company's majority
shareholder, WRP Asia Pacific Sdn. Bhd. The reporting period ending September
30, 2000 represents the first quarter of our fiscal year ended June 30, 2001.
2. BASIS OF PRESENTATION:
The unaudited consolidated financial statements have been prepared for
interim periods only and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
consolidated statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Transition
Report on Form 10-K for the six months ended June 30, 2000. The accompanying
consolidated financial statements have not been audited by independent
accountants in accordance with generally accepted standards, but in the opinion
of management, such consolidated financial statements include all adjustments
(consisting solely of normal recurring adjustments) necessary to fairly present
the Company's financial position, results of operations and cash flows. The
results of operations for the three month period ended September 30, 2000 may
not be indicative of the results that may be expected for the fiscal year ended
June 30, 2001.
3. PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts
of the Company, its wholly owned subsidiary, AHPC and its 70% owned subsidiary,
PT Buana. All significant intercompany transactions have been eliminated in
consolidation.
WRP Asia Pacific Sdn. Bhd., a Malaysian corporation ("WRP Asia"), owns
the Series A Common Stock of the Company and is the majority shareholder of the
Company.
4. MAJORITY SHAREHOLDER TRANSACTION:
On March 31, 1998, WRP Asia entered into the following two agreements,
which transferred majority ownership in the Company to WRP Asia:
5
<PAGE> 8
a. MBf International, Ltd. sold all of the Company's Series A
Common Stock (1,252,538 shares), which was owned by MBf
International to WRP Asia for $5.00 per share or $6,262,690;
and
b. WRP Asia purchased 2,500,000 shares of the Company's
unregistered Common Stock for $2.70 per share for a total of
$6,750,000.
At September 30, 2000, WRP Asia had a 54.8% ownership interest in the
Company. WRP Asia is one of the world's leading manufacturers of high quality
disposable gloves primarily for use by healthcare professionals in the acute
care, alternative care and foodservice markets, and for critical environments in
the electronics industries, scientific laboratories, pharmaceutical industries
and other related industries. AHPC purchases a majority of its powder-free latex
exam gloves from WRP Asia.
5. COMMON STOCK:
The terms of the Series A Common Stock owned by WRP Asia are
substantially the same as the Company's Common Stock except:
a. Each share of Series A Common Stock is convertible into one
share of the Company's Common Stock, $.01 par value. The
Company has reserved 1,252,538 share of Common Stock for
issuance upon conversion of the Series A Common Stock.
b. Series A Common Stock entitles WRP Asia to elect all Class A
directors, who represent a majority of the Company's Board
of Directors and to vote with the holders of Common Stock as
a single class with respect to all other matters subject to
a vote of the shareholders.
In March 2000, the Company announced that the Board of Directors had
authorized a program to repurchase up to 10% of the Company's public Common
Stock. These purchases may be made in the open market and in block transactions
over a two-year period. The program is subject to market conditions and its
impact on share price as well as other investment options that the Company may
consider to enhance shareholder value. During the three months ended September
30, 2000, the Company purchased 36,900 shares of our Common Stock under this
program.
6. FOREIGN CURRENCY TRANSACTIONS:
Gains and losses from foreign currency exchange transactions are
included in net income in the period in which they occur. During the quarters
ended September 30, 2000 and 1999, the foreign exchange losses included in the
determination of net income were $10,924 and $34,082, respectively.
6
<PAGE> 9
7. ASIAN ECONOMIC EVENTS:
In the past, the Asian Pacific region experienced an economic situation
that was characterized by reduced activity, illiquidity in certain sectors,
volatile foreign currency exchange, interest rates and stock markets. Due to the
Company's ownership interest in PT Buana, an Indonesian factory and due to the
Company's purchase of product from the Asian Pacific region, the Company can be
affected by economic conditions in the region. The financial statements do not
include any adjustment that might result from these uncertainties and any
related effects will be reported in the financial statements as they become
knows and estimable.
8. NET INCOME PER SHARE:
The Company follows Statement of Financial Accounting Standards No.
128, "Earnings Per Share (EPS)" ("SFAS 128"), which requires dual presentation
of basic and diluted earnings per share for all periods presented. Basic EPS
amounts are based on the weighted-average number of shares of common stock
outstanding during each period while diluted EPS amounts are based on the
weighted-average number of shares of common stock outstanding during the period
and the effect of dilutive stock options and warrants. The weighted-average
number of common shares and common share equivalents outstanding for the three
months ended September 30 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Basic weighted-average number of
common shares outstanding 6,870,708 6,926,230
Dilutive effect of common share
equivalents 612 34,024
---------- -----------
Diluted weighted-average number
of common shares outstanding 6,871,320 6,960,254
========== ===========
</TABLE>
At September 30, 2000, there were 6,841,830 shares of the Company's
Common Stock and Series A Common Stock outstanding.
As approved by the Board of Directors, all outstanding stock options at
February 29, 2000 to current employees, officers and directors were repriced
effective February 29, 2000 to $2.07, the closing price on that date. All of the
stock options which were repriced, totaling 483,600 options, originally
contained exercise prices which were significantly higher than the market price.
9. ACCOUNTING FOR INCOME TAXES:
The Company records income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). SFAS 109 utilizes the
liability method and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax basis of
assets and liabilities given the provisions of enacted tax
7
<PAGE> 10
laws. Deferred income tax provisions and benefits are based on the changes in
the deferred tax asset or tax liability from period to period.
The Company had net operating loss carryforwards ("NOL's") at September
30, 2000 of approximately $1.2 million which were available to reduce U.S.
federal taxable income in future periods and will begin expiring in 2004. In
accordance with federal tax regulations, usage of the NOL's are subject to
limitations in future years as a direct result of certain ownership changes that
have occurred. The Company's Indonesian subsidiary has generated book and tax
profits and as a result, the Company has recorded income tax expense during the
quarter ended September 30, 2000. For the three months ended September 30, 2000
and 1999, the Company recorded a provision for (benefit from) income taxes of
$207,747 and ($360,900), respectively.
10. CONTINGENCIES:
Over the last several years, several product liability lawsuits have
been filed against suppliers and manufacturers of latex gloves alleging, among
other things, adverse allergic reactions. The Company is one of numerous
defendants that have been named in such lawsuits. During the three months ending
September 30, 2000, the Company became an active party in three additional
product liability lawsuits and was dismissed from one lawsuit. At September 30,
2000, the Company was involved in a total of 63 lawsuits, either as a named
defendant, third party or an indemnifier. None of these lawsuits name the
Company as the sole defendant in these claims.
AHPC possesses product liability insurance coverage which covers the
defense costs and certain damage awards associated with the product liability
claims against AHPC and the indemnity of AHPC's customers to the limits of its
policy. The Company believes that all legal claims are adequately provided for
and if not provided for, are without merit or involve such amounts that would
not materially or adversely affect the Company. However, there is no assurance
that AHPC's insurance will be sufficient to meet all damages for which the
Company may be held liable. For example, in a jury trial, even where actual
damages are somewhat limited, or where causation of liability is questionable,
the jury may choose to award a substantial verdict to the plaintiff. Likewise,
there is no assurance that the outcome of these suits will not adversely affect
our operations or financial condition. The Company will vigorously contest any
latex claim initiated against it, but will enter into a settlement agreement,
where, after careful consideration, our management determines that our best
interests will be served by settling the matter.
11. COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income", requires companies to report all changes in
equity during a period, except those resulting from investment by owners and
distributors to owners, in a financial statement for the period in which they
are recognized. Comprehensive income for the three months ended September 30,
2000 and 1999 was equal to net income and there were no accumulated other
comprehensive income items during the quarters ended September 30, 2000 or 1999.
8
<PAGE> 11
12. SEGMENT REPORTING:
The Company has two business segments: manufacturing and distribution.
These segments are managed as separate strategic business units due to the
distinct nature of their operations and customer bases. The manufacturing
segment, which represents the operations of PT Buana, manufactures latex gloves
and sells them primarily to AHPC and WRP Asia. All operations of the
manufacturing segment are located in Indonesia. The distribution segment
involves the procurement and sale of gloves purchased from the manufacturing
segment and other glove vendors and then sold to national and regional
healthcare, food service, retail and other distributors. The operations of the
distribution segment are located entirely within the U.S.
The Company evaluates segment performance based on income before
provision for (benefit from) income taxes and minority interest ("Pre-tax
income"). Transactions between operating segments are made at prevailing market
rates.
The following tables provide financial data for the three months ended
September 30, 2000 and 1999 for these segments:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from external customers $3,163,730 $10,700,800 $ - $13,864,530
Revenues from other operating
segments 842,630 - (842,630) -
Pre-tax income 492,411 42,079 - 534,490
Total assets 16,680,586 24,000,976 - 40,681,562
<CAPTION>
SEPTEMBER 30, 1999 MANUFACTURING DISTRIBUTION ELIMINATIONS CONSOLIDATED
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from external customers $2,515,101 $14,552,918 $ - $17,068,019
Revenues from other operating
segments 360,000 - (360,000) -
Pre-tax income 11,200 637,902 - 649,102
Total assets 16,740,666 25,138,295 - 41,878,961
</TABLE>
13. BANK COVENANT VIOLATION:
AHPC was in violation of one of its financial covenant ratios at
September 30, 2000. AHPC's fixed charge coverage ratio did not exceed the
covenant as required by the credit company which provides AHPC with a $15
million line of credit and letter of credit facility. The credit company has
agreed to waive this covenant violation deficiency through December 31, 2000.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
The Company's wholly owned subsidiary, American Health Products
Corporation ("AHPC"), is engaged in the marketing and distribution of high
quality, disposable, medical examination and surgical gloves in the United
States and has been in the glove business since its incorporation in January
1989.
The Company's 70% owned subsidiary, PT WRP Buana Multicorpora ("PT
Buana"), is an Indonesian glove manufacturing plant, which commenced operations
in April 1996. PT Buana manufactures high quality, disposable latex exam gloves.
During February 2000, the Board of Directors elected to change our
reporting period from a calendar year ending December 31, to a fiscal year
ending June 30, which corresponds to the year-end of our majority shareholder,
WRP Asia. As a result, this Form 10-Q represents the first quarter of our fiscal
year ended June 30, 2001.
In April 2000 the Company announced the launch of a surgical glove
line, the ProFeel brand, through a newly created surgical product division, EPIC
Surgical. These new surgical products have synergy with our present customer
base and allow our sales force to increase their call point and create new
growth opportunities in a related and significant market sector. The ProFeel(R)
surgical glove line utilizes an advanced technology that provides outstanding
tactile
---------------------
(1) Forward looking statements in the Notes to the Company's financial
statements and in this Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, including statements regarding new products
and markets, gross margins, selling, general and administrative expenses,
liquidity and cash needs and the Company's plans and strategies, are all based
on current expectations and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ from those
described in the forward looking statements. The Company cautions investors that
its business is subject to significant risks and uncertainties. See the risk
factors as disclosed in the Company's Transition Report on Form 10-K for the six
month period ending June 30, 2000 under the heading "Risks Affecting Forward
Looking Statements and Stock Prices."
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<PAGE> 13
sensitivity which maximizes functionality in the surgical suite. The surgical
glove sales are expected to commence in the second quarter of our fiscal year
ended June 30, 2001.
In July 2000, the Company announced its partnership with Owens & Minor,
Inc. ("O&M") through an enhanced logistics agreement as well as an e-commerce
strategic alliance, called eMedExpress. In November 2000, the Company's
telesales department commenced with the telesales selling of O&M's eMedExpress
product line to the medical non-acute care market. Included in the varied
eMedExpress product line is our newly created glove line, the eSsential(TM)
brand, which will be sold along with the many other eMedExpress products.
The Company is continuing to evaluate and investigate new products to
compliment the Company's glove product line; the Company plans to commence
selling dry wipe towels in the foodservice market in the second quarter of our
fiscal year ended June 30, 2001. The Company also has plans to develop and
introduce other new products in the near future which provide infection control
protection and safety.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999:
The Company's net sales are derived from the sale of finished product,
net of allowable rebates, discounts and returns. Net sales include glove sales
from AHPC's glove product line and exam glove sales from PT Buana, exclusive of
its sales to AHPC. Net sales totaled $13,864,530 and $17,068,019 for the three
months ended September 30, 2000 and 1999, respectively. This represents an 18.8%
decline in glove sales for the quarter compared to the year earlier period.
Sales were down quarter over quarter by $3.2 million due to the
elimination of sales of Novation NovaPlus brand products. In January 2000, the
Company announced that the group purchasing organization, Novation, would not
renew its AHPC glove supply agreement, which expired on April 30, 2000. The
elimination of NovaPlus branded product sales was partially offset by the
retention and conversion of approximately 30% of Novation business to our
branded products and an increase in the AmeriNet group purchasing organization
product sales, which were launched in the third quarter of 1999. AmeriNet sales
totaled approximately $1.2 million during the three months ended September 30,
2000 compared to approximately $100,000 in the year earlier period. Further
offsetting the elimination of NovaPlus product sales was an increase in the
foodservice division and PT Buana sales of $850,000 and $1.13 million,
respectively. PT Buana operated at full capacity during this quarter and all of
its production was sold in the period.
The gross profit percentage increased from 24.6% in the quarter ended
September 30, 1999 to 29.6% in the same period of 2000. This increase in gross
profit margin is attributed to an increase in foodservice glove sales, which
carry a higher profit margin, and reductions in glove purchase prices, offset by
reduced sell prices. The Company currently expects its gross margins to continue
to be affected by changes in product mix, competition, the price of latex and
other factors.
11
<PAGE> 14
Selling, general and administrative ("SG&A") expenses increased by 5.1%
from $3,248,650 for the three months ended September 30, 1999 to $3,415,871 for
the three months ended September 30, 2000. As a percentage of net sales, SG&A
expenses increased from 19.0% for the three months ended September 30, 1999 to
24.6% for the three months ended September 30, 2000. This increase of $167,221
in SG&A expenses is attributable to an increase in selling compensation costs of
$232,200 associated with the Company's hiring of surgical sales and marketing
staff for its surgical glove launch, as well as additional telesales staff in
connection with the e-commerce and eMedExpress commencement in November 2000.
The Company expects that its SG&A expenses may increase as a percentage of net
sales in subsequent quarters as the business transitions to overcome the loss of
the Novation contract and seeks to implement several strategic business plans in
new product initiatives and e-commerce strategies.
Income from operations decreased by 27.6% from $943,450 for the three
months ended September 30, 1999 to $682,955 for the three months ended September
30, 2000. Operating margins decreased from 5.5% in the 1999 period to 4.9% in
the 2000 period. The Company's EBITDA was $1,205,455 for the first quarter of
2000 compared to $1,458,130 in the comparable 1999 quarter. These reductions in
operating margin and EBITDA reflect the reduction in sales and an increase in
SG&A expenses, offset by an improved gross profit percentage.
Interest expense declined during the three months ended September 30,
2000 to $183,086 compared to $308,526 in the same quarter of 1999. This 40.7%
decrease is attributable to paydowns on our line of credit in the first half of
2000 as inventory levels were reduced due to the significant reductions in
NovaPlus inventories. We anticipate that interest expense in future periods will
increase, as the Company has increased its inventory levels and line of credit
debt during the quarter ended September 30, 2000.
The Company recorded a foreign currency exchange loss of $10,924 in the
quarter ended September 30, 2000 versus a foreign exchange loss of $34,083 in
the comparable period in 1999, from its Indonesian subsidiary, PT Buana. As
currency exchange rates fluctuate and depending upon the mix of assets and
liabilities in PT Buana's books in Indonesian rupiah, an exchange gain or loss
will be incurred. These foreign currency exchange losses are reported as a
component of the SG&A expense category in the consolidated statements of
operations. PT Buana continues to be exposed to foreign currency exchange rate
fluctuations and may incur exchange losses or gains in the future.
Indonesia continues to be exposed to economic instability, which is
characterized by fluctuations in its foreign currency exchange rate, interest
rates, stock market and inflation rate. Improvement of the Indonesian economic
situation is progressing due to the measures that are being taken by the
government of Indonesia. It is not possible to determine if the economic
recovery will continue. The financial statements do not include any adjustment
that might result from these uncertainties and any related effects will be
reported in the financial statements as they become known and estimable.
The provision for (benefit from) income taxes for the three months
ended September 30, 2000 and 1999 was $207,747 and ($360,900), respectively.
This change in income taxes is attributed to a reduction of taxable income
generated in the U.S. during the three months ended
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September 30, 2000 compared to the same period in 1999 and due to PT Buana
recording a $518,600 tax benefit in the prior year quarter caused by a
significant weakening of the Indonesian rupiah against the U.S. dollar during
that period. The Company's U.S. operations generated net operating loss
carryforwards ("NOL's") in prior years of which approximately $1,200,000 is
remaining at September 30, 2000. Historical NOL's have been used to offset the
net income generated in the U.S.
The minority interest in income of subsidiary represents the non-owned
30% profit from PT Buana. The minority interest in income of PT Buana was
$85,399 during the quarter ended September 30, 2000 compared to $158,940 during
the same period in 1999.
For the three months ended September 30, 2000, net income for the
Company was $241,344, compared to net income of $851,062 in the same period of
1999. Diluted earnings per share for the three months ended September 30, 2000
and 1999 was $0.04 and $0.12, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents at September 30, 2000 was $142,168, a
decrease of $81,886 from $224,054 at June 30, 2000. The Company experienced a
decrease in cash flows during the three months ended September 30, 2000
primarily from cash used in operating and investing activities, offset by cash
provided from financing activities.
The Company's operations utilized cash of $2,700,082 during the quarter
primarily as a result of an increase in inventories of $2,306,279. Net
inventories at September 30, 2000 increased by 22.8% to $12,430,690 from
$10,124,411 at June 30, 2000. This inventory increase is due to the addition of
several new product lines including surgical glove products.
Net trade accounts receivable at September 30, 2000 increased by 10.1%
to $6,188,144 from $5,621,417 at June 30, 2000. This increase of $566,727 is
primarily due to an increase in the foodservice division sales which carry
longer payment terms.
During the quarter ended September 30, 2000, cash was provided to the
Company from financing activities in the amount of $2,802,708. The Company
increased net borrowings on notes payable by $2,440,471 which includes
additional line of credit borrowings of $2,592,613 primarily used to finance
increased inventory purchases and levels.
During the three months ended September 30, 2000, the Company used cash
in investing activities of $184,512. The Company spent $269,911 for capital
expenditures during the quarter primarily at PT Buana, the Indonesian
manufacturing plant, for capital improvements.
On December 1, 1998, AHPC obtained a domestic three-year credit
facility from GE Capital, a large commercial credit company. This asset based
lending loan and security agreement included a $10,000,000 revolving line of
credit with a $7,000,000 letter of credit subfacility. On March 31, 1999, AHPC
amended its loan and security agreement by increasing the maximum credit loan
limit from $10,000,000 to $15,000,000. As part of the amendment, the
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letter of credit subfacility was increased from $7,000,000 to $11,000,000. The
line of credit borrowings carry an interest rate of commercial paper plus 2.75%
(9.25% at September 30, 2000). At September 30, 2000, AHPC had outstanding
$5,329,751 on the revolving line of credit and $1,675,133 of letter of credit
liabilities under the credit facility.
In October 1994, pursuant to two debenture and warrant purchase
agreements between the Company and two trusts affiliated with a director of the
Company, the Company issued, and each trust purchased, a convertible
subordinated debenture in the amount of $1,000,000, payable in seven years with
interest at 1.5% over the prime rate. Each debenture is convertible into Common
Stock of the Company at a conversion price of $25.00 per share. In addition,
each trust received a warrant exercisable over five years to purchase 3,750
shares of Common Stock of the Company at an exercise price of $22.20 per share.
At September 30, 2000, the total outstanding debt associated with these
debentures was $1,250,000. During the quarter ended September 30, 2000, the
Company repaid $100,000 against this debt. The Company anticipates repayments of
$600,000 within the next twelve months and has classified this amount as current
debt at September 30, 2000.
The Company currently expects to have cash needs during the remainder
of 2000 and beyond, in addition to funding the growth of the existing glove
business and new surgical glove business. These cash needs may arise in
connection with various events such as for: (i) the expansion into new products
such as dry wipe towels; (ii) the expansion into the alternate care markets
through an e-commerce telesales platform; (iii) paying off debt obligations,
particularly the remaining long-term debt; (iv) the hiring of additional
telesales, surgical and marketing staff; (v) the hiring of additional support
staff; (vi) funding the promotion of our branded products; (vii) purchasing our
Common Stock in connection with our stock repurchase program; and (viii)
possible acquisitions. The Company believes that its cash and cash to be
generated from future operations plus its credit facility will be sufficient to
fund the Company's ongoing operations.
DISCLOSURE
The Company normally carries out a quarterly earnings conference call
discussion with analysts, shareholders and other interested parties in
conjunction with the release of the 10Q. The public can access this call and the
details of such upcoming calls, which are published in a press release several
days prior to the call. In the future, details will also be available on our
website: www.wrpusa.com.
YEAR 2000
Based on operations since January 1, 2000, the Company does not expect
any significant impact to the Company's ongoing business operations as a result
of the Year 2000 issue. However, Year 2000 compliance has many elements and
potential consequences, some of which may not be foreseeable or may be realized
in future periods. Consequently, there can be no assurance that unforeseen
circumstances may not arise or that the Company will not in the future identify
equipment or systems which are not Year 2000 compliant. The Company is currently
not aware of any significant Year 2000 or similar problem that may have arisen
with our key customers, suppliers or other significant third parties.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market value of investments. The
Company has not entered into interest rate caps or collars or other hedging
instruments.
Exposure to changes in interest rates is limited to borrowings under
revolving credit and debt agreements, which have variable interest rates tied to
the prime and commercial paper rates. The Company estimates that the fair value
of each debt instrument approximated its market value at September 30, 2000.
The Company is subject to fluctuations in the value of the Indonesian
rupiah vis-a-vis the U.S. dollar. The investment in the Indonesian subsidiary is
remeasured into the U.S. dollar and the book value of the assets and liabilities
of this operation at September 30, 2000 approximated its fair value.
PART II - OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
quarter covered by this Form 10-Q.
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.
WRP Corporation
(Registrant)
Date: November 13, 2000 By: /s/ Kenneth Ling
----------------
Name: Kenneth Ling
Title: Chief Financial Officer
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