<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.
March 31, 1997 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: 10,488,402 shares of Common
Stock, $.01 par value per share, as of May 2, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIED EXTRUSION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
MARCH SEPTEMBER
31, 1997 30, 1996
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,896 $ 3,266
Accounts receivable, net of allowance for doubtful accounts of $862
on March 31, 1997 and $784 on September 30, 1996 40,655 34,937
Inventory 36,894 30,582
Prepaid expenses and deferred taxes 7,664 9,407
-------- --------
Total current assets 92,109 78,192
Property, plant and equipment, net 260,989 245,546
Intangibles and deferred finance charges, net 5,250 5,860
Long-term note receivable and other assets 2,389 2,106
-------- --------
$360,737 $331,704
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Accounts payable $ 17,564 $ 16,294
Accrued interest 9,328 8,978
Accrued expenses 13,165 17,009
Current portion of long-term debt 4,000
-------- --------
Total current liabilities 44,057 42,281
Long-term debt 185,500 165,500
Deferred taxes and other credits 17,836 15,588
Commitments
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value:
Authorized, 14,865 shares; issued, 10,744 at March 31, 1997
and 10,529 shares at September 30, 1996 107 105
Additional paid-in capital 91,850 89,638
Retained earnings 24,251 21,444
Cumulative translation adjustments 265 277
-------- --------
116,473 111,464
Treasury stock and other, 320 shares at March 31, 1997
and September 30, 1996, respectively (3,129) (3,129)
-------- --------
Total stockholders' equity 113,344 108,335
-------- --------
$360,737 $331,704
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
APPLIED EXTRUSION TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES $68,492 $62,565
Cost of sales 53,215 50,087
------- -------
GROSS PROFIT 15,277 12,478
OPERATING EXPENSES:
Selling, general and administrative 5,966 4,745
Research and development 2,132 1,918
------- -------
Total operating expenses 8,098 6,663
------- -------
OPERATING PROFIT 7,179 5,815
NON-OPERATING EXPENSES:
Interest expense, net 4,264 3,308
------- -------
INCOME BEFORE INCOME TAXES 2,915 2,507
Income tax expense 1,165 1,003
------- -------
NET INCOME $ 1,750 $ 1,504
======= =======
EARNINGS PER COMMON SHARE $ .15 $ .14
======= =======
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 11,384 11,012
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
APPLIED EXTRUSION TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENTS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
SALES $127,937 $112,816
Cost of sales 99,184 88,993
-------- --------
GROSS PROFIT 28,753 23,823
OPERATING EXPENSES:
Selling, general and administrative 11,368 8,946
Research and development 4,123 3,496
-------- --------
Total operating expenses 15,491 12,442
-------- --------
OPERATING PROFIT 13,262 11,381
NON-OPERATING EXPENSES:
Interest expense, net 8,585 6,536
-------- --------
INCOME BEFORE INCOME TAXES 4,677 4,845
Income tax expense 1,870 1,938
-------- --------
NET INCOME $ 2,807 $ 2,907
======== ========
EARNINGS PER COMMON SHARE $ .25 $ .27
======== ========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 11,144 10,942
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
APPLIED EXTRUSION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,807 $ 2,907
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Provision for doubtful accounts 144 82
Depreciation and amortization 8,629 6,766
Deferred income taxes 2,248 693
Changes in assets and liabilities which provided (used) cash:
Prepaid expenses and other current assets 1,460 (4,744)
Accounts payable and accrued expenses (2,226) (6,011)
Accounts receivable and inventory (12,174) (1,166)
-------- --------
Net cash provided by (used in) operating activities 888 (1,473)
INVESTING ACTIVITIES:
Purchases of investment securities (4,055)
Proceeds from maturities of investment securities 16,099
Additions to property, plant and equipment (23,462) (25,498)
-------- --------
Net cash used in investing activities (23,462) (13,454)
FINANCING ACTIVITIES:
Borrowings under credit agreement 26,000 8,000
Repayments under credit agreement (2,000)
Purchase of treasury stock and other (1,561)
Proceeds from issuance of stock 2,216 2,603
-------- --------
Net cash provided by financing activities 26,216 9,042
Effect of exchange rate changes on cash (12) (206)
-------- --------
Increase (decrease) in cash and cash equivalents, net 3,630 (6,091)
Cash and cash equivalents, beginning 3,266 20,475
-------- --------
Cash and cash equivalents, ending $ 6,896 $ 14,384
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest of $2,134 and $5,106, respectively $ 7,712 $ 6,384
Income taxes $ 2 $ 2,141
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
APPLIED EXTRUSION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(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 March 31, 1997 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 with the Securities and Exchange Commission
on Form 10-K.
2. INVENTORIES
<TABLE>
Inventories are valued at the lower of cost or market, using the weighted
average cost method. Inventories on March 31, 1997 and September 30, 1996
consisted of the following:
<CAPTION>
MARCH SEPTEMBER
1997 1996
---- ----
<S> <C> <C>
Raw materials $11,166 $11,693
Finished goods 25,728 18,889
------- -------
Total $36,894 $30,582
======= =======
</TABLE>
3. COMMITMENTS AND FOREIGN EXCHANGE CONTRACTS
In connection with the major plant expansion project which is scheduled to
come on-stream in 1998 and is expected to significantly increase the
Company's manufacturing capacity, management had entered into commitments
for future capital expenditures of approximately $10,157 at March 31, 1997,
and anticipates approximately $23,000 of additional expenditures to which
it has not yet committed. The Company has entered into foreign exchange
contracts, the last of which expires in February 1998, to hedge certain
firm purchase commitments denominated in Japanese Yen, German Marks and
Pounds Sterling. Gains and losses on these contracts which result from
market risk associated with changes in the market values of the underlying
currencies are deferred and reported as part of the capitalized asset. At
March 31, 1997, the Company had outstanding foreign exchange contracts with
U.S. dollar equivalent values of $10,157. These contracts had no carrying
value and a net unrealized loss of $459 as of March 31, 1997. The Company
does not enter into foreign exchange contracts for trading purposes.
4. NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
will be effective during the fourth quarter of 1997. SFAS No. 128 will
require the Company to restate all previously reported earnings per share
information to conform with the new pronouncement's requirements. The
Company will adopt SFAS No. 128 in the fourth quarter of 1997. Had SFAS No.
128 been effective for the quarters ended March 31, 1997 and 1996, reported
earnings per share on a pro-forma basis would have been as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
--------- ---------
<S> <C> <C>
Primary $ .17 $ .15
Fully diluted .16 .14
</TABLE>
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 1997 AND MARCH 31, 1996
INTRODUCTION
AET is a leading developer and manufacturer of highly specialized oriented
polypropylene ("OPP") and apertured films used in consumer product labeling,
flexible packaging, health care and other applications. AET was organized in
1986 to acquire, own and operate certain assets in the plastics products
industry. Through its technological innovations, AET is a leader in the North
American OPP and apertured films markets.
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, typically leading to higher
revenues during these seasons.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which will
be effective during the fourth quarter of 1997. SFAS No. 128, which relates to
a new method to calculate earnings per share, will require the Company to
restate all previously reported earnings per share information to conform with
the new pronouncement's requirements.
For the purposes of this discussion and analysis, the three and six month
periods ended March 31, 1997 and 1996 are referred to as the second quarter and
six months 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 SIX MONTHS ENDED
------------------ ----------------
MARCH 31 MARCH 31
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 77.7 80.1 77.5 78.9
Gross profit........................... 22.3 19.9 22.5 21.1
Selling, general and administrative.... 8.7 7.6 8.9 7.9
Research and development............... 3.1 3.1 3.2 3.1
Operating profit....................... 10.5 9.3 10.4 10.1
Interest expense....................... 6.2 5.3 6.7 5.8
Net income............................. 2.6 2.4 2.2 2.6
</TABLE>
Sales for the second quarter of 1997 of $68,492 exceeded the second quarter of
1996 by $5,927, or 9.5%. This increase was due primarily to a higher volume of
OPP films sold during the 1997 quarter compared to the same quarter of 1996,
offset in part by slightly lower average selling prices. For the six months
ended March 31, 1997, the Company reported sales of $127,937 which represents a
13% increase over the six months ended March 31, 1996. This sales revenue growth
was due to a higher volume of products sold, which was facilitated by new
capacity brought on-stream during fiscal 1996, investments in new product
development and an expanded sales and marketing organization. For the six months
ended March 31, 1997 foreign sales and foreign operating profit were 11% and
12%, respectively, of total sales and operating profit. For the six months ended
March 31, 1996, foreign sales were 11% of total sales and foreign operating
profit was 10% of total operating profit.
Gross profit of $15,277 for the second fiscal quarter of 1997 and $28,753 for
the six months ended March 31, 1997 increased by $2,799 and $4,930,
respectively, over the comparable 1996 periods. Gross profit as a percentage of
sales was 22.3% and 22.5% for the three and six months ended March 31, 1997,
respectively, versus 19.9% and 21.1% for the same periods of 1996. The increases
were primarily the result of the increased volume referred to above as well as
an improved mix of products due to investments made in new product development
offset in part by higher manufacturing costs during the second fiscal quarter of
1997. The Company's primary production facility in Terre Haute, Indiana
experienced higher maintenance costs and machine down time due to equipment
problems and manufacturing issues. These higher costs resulted from mechanical
slitting issues and lower outputs due to the development process of
manufacturing certain new films. The mechanical problems have been resolved in
the current quarter, but higher beginning inventory and product costs will
impact the financial results in the third quarter.
6
<PAGE> 8
Selling, general and administrative expenses of $8,098 and $15,491 for the three
and six months ended March 31, 1997, respectively, were $1,435 and $3,049 higher
than the comparable 1996 levels. The higher expense levels are attributable to
an enhanced product development effort and an expanded sales organization. The
investments in research and development and sales and marketing are integral
parts of the Company's strategy to support the 60% increase in capacity which
the Company is bringing on-stream over a two year period. Such expenses are
expected to increase only nominally to support the second phase of this
expansion in 1998.
Net interest expense increased $956 and $2,049 for the quarter and six months
ended March 31, 1997, respectively, over the same periods of 1996 due to reduced
levels of capitalized interest on construction projects in 1997 as well as
higher outstanding debt balances primarily related to borrowings in connection
with the capacity expansion projects.
Income taxes of $1,165 and $1,870 for the second quarter and six months of
fiscal 1997, respectively, were higher than 1996, due to higher pre-tax
earnings. Income tax as a percent of before-tax income remained constant for the
quarter and six months ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In conjunction with the April 7, 1994 acquisition of substantially all the
assets of the packaging films group of Hercules, Inc., 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 March 31, 1997, the Company had
$30,000 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.
The Company generated $3,630 of cash and equivalents during the first six months
of fiscal 1997. Operating activities provided $888 of cash, which was the result
of $13,828 provided by net income before depreciation, amortization and other
non-cash items offset by a $12,940 net decrease in working capital
accounts. The net decrease in working capital was primarily the result of
planned increases in inventories, an increase in accounts receivable due to
proportionately higher sales in the six months of fiscal 1997 versus the
comparable 1996 period, offset by modest decreases in accounts payable and
accrued expenses. Interest paid during the six months of 1997, which includes
the payment of semi-annual bond interest, amounted to $9,846. Borrowings under
the Company's Credit Agreement, discussed above, were primarily utilized to
find capital expenditures of $23,462.
7
<PAGE> 9
INFLATION
Management reviews the prices charged for its products on a regular basis. When
market conditions allow, adjustments are made to reflect changes in demand or
product costs due to fluctuations in the cost of materials and labor and
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 those related to 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.
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
May 7, 1997
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,896
<SECURITIES> 0
<RECEIVABLES> 41,517
<ALLOWANCES> 862
<INVENTORY> 36,894
<CURRENT-ASSETS> 7,664
<PP&E> 306,381
<DEPRECIATION> 45,392
<TOTAL-ASSETS> 360,737
<CURRENT-LIABILITIES> 44,057
<BONDS> 185,500
0
0
<COMMON> 107
<OTHER-SE> 113,237
<TOTAL-LIABILITY-AND-EQUITY> 360,737
<SALES> 127,937
<TOTAL-REVENUES> 127,937
<CGS> 99,184
<TOTAL-COSTS> 99,184
<OTHER-EXPENSES> 15,347
<LOSS-PROVISION> 144
<INTEREST-EXPENSE> 8,585
<INCOME-PRETAX> 4,677
<INCOME-TAX> 1,870
<INCOME-CONTINUING> 2,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,807
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
