<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
December 31, 1996 0-19188
APPLIED EXTRUSION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0295865
(State of Incorporation) (I.R.S. Employer
Identification No.)
3 Centennial Drive
Peabody, Massachusetts 01960
(Address of principal executive offices)
(508) 538-1500
(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 [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 10,479,753 shares of Common
Stock, $.01 par value per share, as of February 6, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIED EXTRUSION TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
DECEMBER SEPTEMBER
31, 1996 30, 1996
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,209 $ 3,266
Accounts receivable, net of allowance for doubtful accounts of $803
on December 31, 1996 and $750 on September 30, 1996 36,443 34,937
Inventory 38,268 30,582
Prepaid expenses and deferred taxes 10,550 9,407
-------- --------
Total current assets 90,470 78,192
Property, plant and equipment, net 250,560 245,546
Intangibles and deferred finance charges, net 5,555 5,860
Long-term note receivable and other assets 1,668 2,106
-------- --------
$348,253 $331,704
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable $ 15,979 $ 16,294
Accrued interest 4,931 8,978
Accrued expenses 13,338 17,009
Current portion of long-term debt 4,000
-------- --------
Total current liabilities 38,248 42,281
Long-term debt 182,500 165,500
Deferred taxes and other credits 16,347 15,588
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 1,000 shares,
no shares outstanding
Common Stock, $.01 par value:
Voting -- authorized, 14,865 shares; issued 10,706 at
December 31, 1996 and 10,529 shares at September 30, 1996 107 105
Additional paid-in capital 91,519 89,638
Retained earnings 22,501 21,444
Cumulative translation adjustments 214 277
-------- --------
114,341 111,464
Treasury stock and other, 326 shares at December 31, 1996
and 320 shares at September 30, 1996 (3,183) (3,129)
-------- --------
Total stockholders' equity 111,158 108,335
-------- --------
$348,253 $331,704
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
APPLIED EXTRUSION TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
SALES $59,445 $50,251
Cost of sales 45,969 38,906
------- -------
GROSS PROFIT 13,476 11,345
OPERATING EXPENSES:
Selling, general and administrative 5,402 4,201
Research and development 1,991 1,578
------- -------
Total operating expenses 7,393 5,779
------- -------
OPERATING PROFIT 6,083 5,566
NON-OPERATING EXPENSES:
Interest expense, net 4,321 3,228
------- -------
Total non-operating expenses 4,321 3,228
------- -------
Income before income taxes 1,762 2,338
Income tax expense 705 935
------- -------
NET INCOME $ 1,057 $ 1,403
======= =======
EARNINGS PER COMMON SHARE: $ .10 $ .13
======= =======
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING: 10,903 10,872
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED EXTRUSION TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(In thousands)
(Unaudited)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,057 $ 1,403
Adjustment to reconcile net income to net cash
used in operating activities:
Provision for doubtful accounts 57 43
Accretion of discount on investment securities (147)
Depreciation and amortization 4,256 3,378
Deferred income taxes 705 792
Changes in assets and liabilities which provided (used) cash:
Prepaid expenses and other current assets (705) (1,186)
Accounts payable and accrued expenses (8,033) (10,141)
Accounts receivable and inventory (9,249) 1,331
-------- --------
Net cash used in operating activities (11,912) (4,527)
-------- --------
INVESTING ACTIVITIES:
Purchases of investment securities (4,055)
Proceeds from maturities of investment securities 12,160
Additions to property, plant and equipment (8,965) (16,477)
-------- --------
Net cash used in investing activities (8,965) (8,372)
-------- --------
FINANCING ACTIVITIES:
Borrowings under line of credit agreement, net 21,000
Proceeds from issuance of stock, net 1,883 1,034
Purchase of treasury stock and other (1,252)
-------- --------
Net cash provided by (used in) financing activities 22,883 (218)
Effect of exchange rate changes on cash (63) (176)
-------- --------
Increase (decrease) in cash and cash equivalents, net 1,943 (13,293)
Cash and cash equivalents, beginning 3,266 20,475
-------- --------
Cash and cash equivalents, ending $ 5,209 $ 7,182
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest of $934 and $1,232, respectively $ 8,133 $ 7,639
Income taxes 2 215
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
APPLIED EXTRUSION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(In thousands, except per share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The information set forth in these statements is unaudited and may be subject
to normal year-end adjustments. The information reflects all adjustments
that, in the opinion of management, are necessary to present a fair statement
of the results of operations of Applied Extrusion Technologies, Inc. (the
"Company" or "AET") for the periods indicated. Results of operations for the
interim period ended December 31, 1996 are not necessarily indicative of the
results of operations for the full fiscal year.
Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements
should be read in conjunction with the Company's Annual Report for the year
ended September 30, 1996, filed on Form 10-K with the Securities and Exchange
Commission.
<TABLE>
2. INVENTORIES
Inventories are valued at the lower of cost or market, using the weighted
average cost method. Inventories on December 31, 1996 and September 30, 1996
consisted of the following:
<CAPTION>
DECEMBER SEPTEMBER
1996 1996
-------- ---------
<S> <C> <C>
Raw materials $12,335 $11,693
Finished goods 25,933 18,889
------- -------
Total $38,268 $30,582
======= =======
</TABLE>
3. COMMITMENTS AND FOREIGN EXCHANGE CONTRACTS
In connection with the plant expansion project scheduled to come on-stream in
1998 which is expected to increase capacity by approximately 50 million pounds
per year, or 28%, management has entered into commitments for future capital
expenditures of approximately $19,400 at December 31, 1996, and anticipates
approximately $26,100 of additional expenditures to which it has not yet
committed. The Company has entered into a foreign exchange contract, which
expires in May 1997, to hedge a firm purchase commitment denominated in German
Marks. Gain or loss on the foreign exchange contract which results from market
risk associated with changes in the market values of the underlying currency is
deferred and reported as part of the capitalized asset. At December 31, 1996,
the Company had an outstanding foreign exchange contract with a U.S. dollar
equivalent value of $1,320. This contract had no carrying value and a net
unrealized loss of $9 as of December 31, 1996. The Company does not enter into
foreign exchange contracts for trading purposes.
4
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
WITH THE THREE MONTHS ENDED DECEMBER 31, 1995
INTRODUCTION
AET is a leading developer and manufacturer of highly specialized oriented
polypropylene ("OPP") and apertured films used in consumer product labeling,
packaging, health care and other applications. AET was organized in 1986 to
acquire, own and operate certain assets in the plastics products industry. The
Company's existing apertured films business consists of these original assets
and assets from a second acquisition in 1990. In April, 1994, AET acquired the
assets of the packaging films business from Hercules, Incorporated ("1994
Acquisition"). This packaging films business represents approximately 85% of the
Company's sales.
Certain of the end-use markets for the Company's OPP films are seasonal. For
example, overall demand in the snack food, soft drink and candy markets is
generally higher in the spring and summer. As a result, sales and net income are
generally higher in the spring and summer.
For the purposes of this discussion and analysis, the periods ended December 31,
1996 and 1995 are referred to as the first quarters of 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the periods indicated, the percentages of
the Company's sales represented by certain income and expense items in its
income statement:
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1996 1995
------ ------
<S> <C> <C>
Sales.................................... 100.0% 100.0%
Cost of sales............................ 77.3 77.4
Gross profit............................. 22.7 22.6
Selling, general and administrative...... 9.1 8.4
Research and development................. 3.3 3.1
Operating profit......................... 10.2 11.1
Interest expense......................... 7.3 6.4
Net income............................... 1.8 2.8
</TABLE>
Sales for the first quarter of 1997 of $59,445 exceeded the first quarter of
1996 by $9,194, or 18%, due to a significant increase in volume of OPP films
sold. This increase in volume was the result of a positive market reaction to
new products developed over the past two years, the Company's expanded sales and
marketing effort and an increase in market demand for OPP films. This
strengthening of demand enabled the industry to sustain an across-the-board
price increase initiated by AET in the current quarter. However, this price
increase which was announced in October, did not fully offset higher cost of
resins consumed in the quarter. Growth continues in the end-use markets for the
Company's labeling and packaging products. Foreign operations accounted for
approximately 12% of sales and 12% of operating profit in the first quarter of
1997, versus 14% of sales and 11% of operating profit in the same quarter of
1996.
Gross profit increased by $2,131 to $13,476 for the first quarter of 1997 versus
the same quarter of 1996. Gross profit as a percentage of sales for the first
quarter of 1997 was 22.7%, as compared with 22.6% in the first quarter of 1996.
5
<PAGE> 7
Selling, general and administrative expenses of $5,402 increased by $1,201 over
the comparable quarter in 1996. The Company significantly increased investments
in product development, and sales and marketing, in order to develop new and
enhanced products and the infrastructure to sell the output of the more than 30%
increase in OPP films manufacturing capacity resulting from the new production
line. The twelve new products or enhancements introduced over the last year and
the 18% increase in revenue in the first quarter of 1997 are early indications
of the success of these efforts. The increased investment in research and
development expenditures of 26% and 37% over the first quarters of 1996 and
1995, respectively, were attributable to an increase in the number of scientists
and research technicians as well as pilot production facilities which were added
over the past two years. In the sales and marketing organization, approximately
20 experienced managers have been hired during the past year to further the
Company's reach into new and existing markets.
Net interest expense for the first quarter of 1997 of $4,321 was $1,093 higher
than the first quarter of 1996 due to reduced levels of capitalized interest in
1997 as well as higher outstanding debt balances which was primarily related to
borrowings in connection with the capacity expansion projects.
Income taxes of $705 for the first quarter of 1997 were lower than 1996, due to
lower pre-tax earnings. Income tax as a percent of before-tax income remained
constant for the first quarter of fiscal 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
In conjunction with the 1994 Acquisition, the Company entered into a Credit
Agreement with a group of lenders to provide the Company with senior bank
financing in an amount up to $81,660. The Credit Agreement provided for a
$25,000 Term Loan Facility, a $50,000 Revolving Credit Facility, and a $6,660
standby letter of credit in support of the Company's currently outstanding
industrial revenue bond, each of which has a final maturity in 1999 and is
secured by all of the assets of the Company. In December 1994, the Company
amended the Credit Agreement to permit the Company to pay down any amounts
borrowed under the Term Loan facility and later reborrow such amounts up to the
maximum availability. This Revolving Term Loan Facility provides for reductions
in the maximum borrowing equal to $1,000 per quarter for 19 consecutive
quarters, and a final reduction of $6,000. At December 31, 1996, the Company had
outstanding Revolving Term Loan and Revolving Credit Facility borrowings of
$30,000 and has $35,000 available under its Revolving Credit Facility.
In addition to the Credit Agreement, the Company issued $150,000 in Senior Notes
to finance the acquisition. The Senior Notes, which bear interest at 11.5%
payable semiannually, do not require periodic principal payments and mature, in
full, in 2002.
Operating activities in the first quarter of 1997 used $11,912 in cash, which
was the result of a $17,987 net increase in working capital offset in part by
$6,075 of net income before depreciation and amortization and other non-cash
expenditures. The net working capital increase was primarily the result of
decreases in accounts payable and accrued expenses as well as the
aforementioned increase in inventory. Accounts payable and accrued expenses
decreased primarily due to the Company's annual contributions to employee
benefit plans. Cash and equivalents and borrowings from the Company's Credit
Agreement, discussed above, were utilized for the above purposes and to fund
capital expenditures of $8,965.
6
<PAGE> 8
INFLATION
Management reviews the prices charged for its products on a regular basis. When
market conditions allow, adjustments are made to reflect changes in product
costs due to fluctuations in the cost of materials and labor as well as
inflation. Raw materials make up a significant portion of the Company's costs
and have historically fluctuated. There can be no assurance, however, that
future market conditions will support a direct correlation between raw material
cost fluctuations and finished product films pricing.
Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements that involve risks and uncertainties,
including the timely development and acceptance of new products, fluctuations in
raw materials prices, the loss of one or more significant customers, the impact
of competitive products and pricing, the timely completion of capital projects,
the success of the Company's efforts to expand into new markets and other risks
detailed in the Company's prospectuses dated August 16, 1995 and May 20, 1994,
its Annual Report on Form 10-K for the year ended September 30, 1996 and from
time to time in the Company's other reports filed with the Securities and
Exchange Commission.
PART II - OTHER INFORMATION
None.
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.
APPLIED EXTRUSION TECHNOLOGIES, INC.
(Registrant)
By: /s/ Anthony J. Allott
----------------------------------
Vice President and
Chief Financial Officer
February 7, 1997
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,209
<SECURITIES> 0
<RECEIVABLES> 37,246
<ALLOWANCES> 803
<INVENTORY> 38,268
<CURRENT-ASSETS> 90,470
<PP&E> 291,971
<DEPRECIATION> 41,411
<TOTAL-ASSETS> 348,253
<CURRENT-LIABILITIES> 38,248
<BONDS> 182,500
0
0
<COMMON> 107
<OTHER-SE> 111,051
<TOTAL-LIABILITY-AND-EQUITY> 348,253
<SALES> 59,445
<TOTAL-REVENUES> 59,445
<CGS> 45,969
<TOTAL-COSTS> 45,969
<OTHER-EXPENSES> 7,336
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 4,321
<INCOME-PRETAX> 1,762
<INCOME-TAX> 705
<INCOME-CONTINUING> 1,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,057
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
