SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MARCH 31, 2000.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File No.: 0-23474
TRIPLE S PLASTICS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1895876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7950 Moorsbridge Road, Suite 200, Portage, Michigan 49024
(Address of principal executive offices) (Zip Code)
(616)327-3417
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of June 15, 2000, there were 3,754,911 shares of the registrant's common
stock, no par value, outstanding. The aggregate market value of the common stock
held by non-affiliates of the registrant (i.e., excluding shares held by
executive officers, directors, and control persons as defined in Rule 405) on
that date was approximately $33,039,886 computed on the closing price on that
date.
Portions of the Company's definitive Proxy Statement for its 2000 Annual Meeting
of Shareholders are incorporated by reference into Part III.
Exhibit Index located at page 30
Page 1 of 33
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
Triple S Plastics, Inc. (the "Company" or "Triple S") was organized as a
Michigan corporation in 1969, when injection molding operations began in a
leased facility in Kalamazoo, Michigan. The building that currently houses the
Company's manufacturing operations in Vicksburg, Michigan, was constructed in
1974. In 1978, the Company constructed a second injection molding facility
(originally known as Victor Plastics) and also constructed its Satellite Mold
facility (now named the Tooling and Technology Centre), which is dedicated to
mold production, both in Vicksburg. In 1983, the Company built an injection
molding plant in Tucson, Arizona.
The Company completed an initial public offering of its common stock in March of
1994. Proceeds of that offering were used to finance building expansions,
purchase new equipment for those facilities, retire existing debt and fund
working capital needs.
In fiscal 1995, for the purpose of expanding its injection molding capacity,
a 64,000 square foot facility was constructed in a modern industrial park in
Battle Creek, Michigan. In October 1995, the Company began operations in a
64,000 square foot leased injection molding facility in Georgetown, Texas.
(See Item 2, Properties)
In fiscal 1998, the Company consolidated the operations of its Victor Plastics
plant into its Vicksburg facility and its Battle Creek facility. The Victor
Plastics facility is currently being held for sale. In fiscal 1998, the Company
also consolidated its mold-making facilities in Vicksburg, Michigan, and renamed
the operation Triple S Plastics, Inc. Tooling and Technology Centre. (See
Item 2, Properties)
In fiscal 1999, the Company purchased the assets of Dynacept Company, Inc.
Dynacept is a preeminent rapid prototyping and model making organization that
produces concept models, appearance models, engineering prototypes and
pre-production samples using a wide range of techniques including stereo-
lithography, conventional modeling techniques and RTV rubber molding, along
with advanced painting and decorating processes. The 11,000 square foot facility
is located in Westchester County, New York. (See Item 2, Properties)
In fiscal year 2000, the Company began operations in a 60,000 square foot leased
injection molding facility in Fort Worth, Texas. Furthermore, in fiscal
year 2000, the Company closed and sold its Tucson, Arizona facility and
transferred the machinery and equipment to its new facility in Fort Worth, Texas
and other locations in Michigan.
(b) Financial Information About Segments
The Company's operations are in one segment--the design and manufacture of
highly engineered thermoplastic components, principally for the telecommunica-
tions, consumer products and automotive markets. The Company has no
significant export sales. Product and major customer information is disclosed in
Item 1(c).
(c) Narrative Description of Business
General
Triple S manufactures complex, highly engineered thermoplastic components and
the molds to produce those components primarily for the telecommunications,
consumer products, automotive, medical/pharmaceutical and information technol-
ogies markets. During the most recent fiscal year, the Company manufactured over
2,000 different components for more than 250 customers in these markets. The
Company considers rapid prototyping, model making, mold and molded component
manufacturing and assembly to be integral parts of its business. The Company
manufactures only custom components based on customer specifications and,
therefore, is generally the exclusive source of supply for the product being
sold to the customer, although customers generally use more than one molder.
The Company's product development and production operations include rapid
prototyping, model making, design assistance, component engineering, mold
design, prototype and production mold construction, process engineering and high
quality component production. In addition, the Company provides value added
post-molding assembly and finishing operations, including ultrasonic welding,
heat staking, solvent bonding, decorative services, machining and press-side
packaging. Mold delivery lead time and component quality are generally key
factors in the award of contracts for complex components. The Company has made
significant investments in state-of-the-art CAD/CAM systems and related design
and machining equipment to accelerate its component mold design and construction
process. Each injection molding machine is equipped with a computerized process
controller to continuously monitor component quality and consistency. The
Company believes that its integrated operations, ability for short lead-time
mold delivery and product quality provide competitive advantages in the markets
in which it operates.
Certain developments in markets served by the Company have created growth
opportunities for suppliers of plastic components. Efforts to reduce weight,
enhance design flexibility and reduce costs have resulted in the substitution
of plastic for wood, glass, paper, metal and other materials in numerous
applications. In addition, Original Equipment Manufacturers (OEMs) are
continuing to outsource not only the manufacture but also the design,
engineering and assembly of plastic components to qualified suppliers. OEMs are
consolidating their purchases with larger, integrated components suppliers that
possess full-service capabilities for all functions from mold design through
post-molding assembly and finishing operations. The Company believes that its
technical expertise with respect to plastic resins and injection molding
technology, and its capacity for full service, high-quality response to the
needs of customers will enable the Company to grow as a result of these market
dynamics.
Markets and Products
The Company produces components for customers that operate principally in five
markets: telecommunications, consumer products, automotive, medical/pharma-
ceutical and information technologies.
The following table summarizes each of the Company's markets as a percentage of
total sales for the fiscal years ended March 31:
% of Sales
Market 2000 1999 1998
------ ------------- ------------ ------------
Telecommunications 62% 37% 15%
Consumer Products 12% 25% 38%
Automotive 10% 11% 15%
Medical/Pharmaceutical 8% 13% 14%
Information Technologies 5% 11% 15%
Other 3% 3% 3%
Telecommunications Market. Customers in this market manufacture products such
as cellular phones, pagers and related accessories, and require high levels of
CAD assisted design engineering, thin-wall molding, in-mold decorating and
assembly. Because of the Company's expertise in these areas and the strong
growth demonstrated by OEMs in this market, telecommunications is a target
market for growth for the Company. Sales to one customer in this market, Nokia
Mobile Phones, accounted for 59%, 34%, and 12% of total sales for fiscal 2000,
1999, and 1998, respectively.
Consumer Products Market. Customers in the consumer products market manufacture
products such as home entertainment devices, office equipment, and photographic
equipment. Products sold to customers in this market include CD speaker
housings and covers, paper binding equipment, and various other housings and
covers. The Company expects the use of plastics in this broad market to continue
to grow as new thermoplastic resins evolve, with higher strengths, better impact
and heat resistance and other physical properties that will increase the
substitution of plastics for other materials.
Automotive Market. Sales in the automotive market are made mostly to first-
tier suppliers to automobile manufacturers. Products sold to customers in this
market include outside mirror shells, interior mechanical and seating
components, headlight adjustment brackets, fluid reservoir tanks, and components
for electrical and audio systems. Automotive OEMs and first-tier suppliers are
relying on fewer vendors possessing broader capabilities. First-tier suppliers
have been increasing the outsourcing of the design and manufacture of plastic
components and are purchasing more complex subassemblies from a shrinking base
of suppliers. While this market becomes increasingly competitive, the Company
believes it has the capabilities to serve many customers in this market. The
Company's Battle Creek, Michigan facility was constructed to more effectively
serve the Company's automotive customers.
Medical/Pharmaceutical Market. Customers in the medical/pharmaceutical market
are comprised primarily of manufacturers of durable medical equipment for use in
non-sterile, non-invasive applications. Products sold to customers in this
market include components for hospital stretchers and beds, disposable wound
irrigation instruments, tissue stabilizers, colostomy units, and glucose test
kits. The Company has targeted this market for expansion because customers tend
to require product engineering services for high volume components with close
tolerances and post-molding assembly and finishing services.
Information Technologies Market. Customers in the information technologies
market are primarily manufacturers of computers, printers, copy machines and
printer cartridges. The products supplied by the Company to these customers
include components for personal computers and peripheral equipment, printers,
and laser and bar code scanners. The decrease in sales noted above represents
the completion of several customer projects during 1999 and the relocation of
new projects overseas.
Sales and Marketing
The Company currently markets its services on a national basis through its
direct sales force of seven people and five independent manufacturers'
representative organizations.
Operations
Triple S Plastics, Inc. is a plastics engineering services company, serving the
Telecommunications, Automotive and other industries with rapid prototyping and
design models, mold design and engineering services, mold manufacturing, plastic
injection molding, and post-molding assembly and finishing operations.
At its subsidiary, Dynacept Corporation, located in Westchester County, New
York, the Company produces concept models, appearance models, engineering
prototypes and pre-production samples using a wide range of techniques including
stereolithography, conventional modeling techniques and RTV rubber molding,
along with advanced painting and decorating processes.
The Company designs, engineers and constructs molds used to produce thermo-
plastic components at its Tooling and Technology Centre in Vicksburg, Michigan.
This facility is equipped with modern design and machining equipment, including
CAD/CAM systems, translators and plotters, electrical discharge machining
equipment, CNC milling equipment and miscellaneous support equipment. The
Company's mold production capacity is generally devoted to the production of
molds to be used by the Company for the production of injection molded
components for its customers. In substantially all cases, the customer owns the
mold, but possession is retained by the Company for production. The Tooling and
Technology Centre also conducts prototype and development projects, frequently
in conjunction with resin suppliers and customers' engineers. Through the many
projects undertaken at its Tooling and Technology Centre, the Company has gained
experience with nearly all resins currently in use for injection molding. This
expertise combined with the Company's injection molding production experience
enables the Company to provide innovative solutions for its customers.
The Company has four facilities that are full service custom injection molding
plants with post-molding secondary operations. These facilities collectively
house 95 horizontal injection molding machines with capacities ranging from
55 tons to 720 tons and 1 vertical machine with capacity of 40 tons. Each
machine utilizes a computerized process controller that continuously monitors
key process parameters on a real time basis and signals the operator if any
parameter falls outside predetermined statistical limits. The injection molding
process is supported by automated systems for raw material drying, conveying and
regrinding. All of the Company's plants have received ISO 9002 certification,
an international quality standard. The Company is currently pursuing QS9000
certification of its facilities in Vicksburg, Michigan and Battle Creek,
Michigan.
Value added post-molding secondary services, including ultrasonic inserting and
welding, heat staking, solvent bonding, finishing, machining, assembly and
on-line packaging are offered to the Company's customers. These important
services support the customers' requirements for subassembled components, which
provide cost savings and manufacturing efficiencies.
Raw Materials
The principal raw materials used by the Company are thermoplastic resins. The
Company uses over 490 different resins, nearly all of which are classified as
engineering grade resins, as compared to lower priced commodity grade resins.
Resins are generally purchased for the production of existing orders. The
Company purchases its raw materials from several different sources, and these
materials are available from several suppliers.
Patents and Trademarks
The Company does not own any patents, registered trademarks or licenses,
although the Company claims certain common law trademark rights. In general, the
Company relies on its technological capabilities, manufacturing quality control
and know-how, rather than patents, in the conduct of its business.
Working Capital
The Company's primary cash requirements are for operating expenses and capital
expenditures. 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.
Backlog
At March 31, 2000 and 1999, the Company's backlog was approximately $40 million
and $15 million, respectively. This is primarily due to increased volume in the
Telecommunications market. Backlog generally does not exceed one quarter's
manufacturing capacity and the Company's customers generally do not issue
purchase orders for more than the next quarter's requirements. Management
believes that all of the existing backlog will be completed during the year
ended March 31, 2001.
Competition
The injection molding business in the Company's markets is highly competitive.
The Company focuses on complex components with close tolerances where it
competes principally on the basis of technical expertise, customer service,
product quality and rapid mold production, although price is also an important
competitive factor. There are many suppliers of plastic injection molded
components, including many that are larger than the Company with greater
financial resources.
Employees
At March 31, 2000, the Company employed 729 full time and 7 part time employees.
The Company has no employees who are represented by a labor union, and considers
its relations with its employees to be good.
Item 2. Properties
The following table sets forth information regarding the Company's rapid
prototyping, model making, mold manufacturing and plastic injection molded
component production facilities:
Location Size Function
-------- --------------- -----------------------------
Battle Creek, Michigan 64,000 sq. ft. Injection molding, post-molding
operations and office
Georgetown, Texas 64,000 sq. ft. Injection molding, post-molding
operations and office
Georgetown, Texas 20,000 sq. ft. Warehouse
Fort Worth, Texas 60,000 sq. ft. Injection molding, post-molding
operations and office
Vicksburg, Michigan 59,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Vicksburg, Michigan 32,000 sq. ft. Mold manufacturing, Tooling and
Technology Centre and office
Westchester County, New York 11,000 sq. ft. Rapid prototyping, model making
and office
Portage, Michigan 8,900 sq. ft. Office
The Company owns its facilities except for the Texas, New York and Portage,
Michigan facilities, which are leased. In addition, the Company owns a
40,000 sq. ft. facility in Vicksburg, Michigan which is currently held for sale.
The Company's current facilities are considered suitable and adequate for
current and near-term production needs.
<PAGE>
Item 3. Legal Proceedings
On March 4, 1998 Capitol Vial, Inc. filed a lawsuit against the Company alleging
that the process used by the Company to produce certain vials infringed one or
more of Capitol Vial's patents. The Company denied infringement on the grounds
of invalidity and non-infringement and asserted an antitrust counterclaim
arising from Capitol Vial's alleged fraud on the Patent Office in obtaining the
patent.
On July 9, 1999 the Company reached an agreement with Capitol Vial, Inc. that
resolved Capitol Vial's claims of patent infringement against the Company with
no settlement expense to Triple S Plastics, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter ended March 31, 2000.
Additional Item: Executive Officers of the Registrant
The following table lists the names, ages and positions of all of the Company's
executive officers. Officers are elected annually by the Board of Directors at
the first meeting of the Board following the annual meeting of shareholders.
Name Age Position
--------------------------------------------------------------------------------
A. Christian Schauer 57 Chief Executive Officer, Treasurer
Daniel B. Canavan 46 Chairman of the Board
Victor V.Valentine, Jr. 54 President
Walter J. Barkalow 52 President, Triple S Technologies, LP
Marlan R. Smith 56 Vice President Finance, Chief Financial
Officer, Secretary
William J. Stewart 56 Vice President
Barry L. Stuart 51 Vice President
Phillip W. Weaver 47 Vice President Human Resources and
Organizational Development
Michael E. Zaagman 42 Vice President Engineering and Technical
Services
Catherine A. Taylor 36 Corporate Controller
A. Christian Schauer joined the Company as CEO on May 25, 1999. For the prior
15 years, Mr. Schauer was employed by Clausing Industrial, Inc., a subsidiary of
The 600 Group plc, headquartered in the United Kingdom, as the Chairman and CEO.
Mr. Schauer has served on the Company's Board of Directors since 1990.
Daniel B. Canavan has been Chairman of the Board of the Company for more than
five years.
Victor V. Valentine, Jr, has been President of the Company for more than five
years.
Walter J. Barkalow was named President of Triple S Technologies, LP, the
Company's Texas business unit, in January 2000. Mr. Barkalow has served in
various management positions with the Company for more than five years.
Marlan R. Smith was named Vice President Finance, Chief Financial Officer and
Secretary in October 1999. Before joining the Company he served as Vice
President, Chief Financial Officer and Secretary of Ameriwood Industries
International Corporation from July 1997 until May 1998. Prior to that he
served as Treasurer (Principal Financial and Accounting Officer) of Great Dane
Holdings, Inc., beginning in January 1994, and from March 1988 until December
1996 he was Vice President and Treasurer of Checker Motors Corporation.
William J. Stewart has been Vice President of the Company for more than five
years.
Barry L. Stuart joined the Company in August 1997 and manages the Company's
Michigan business unit. Prior to joining the Company, he was an independent
consultant, and served as Director of Strategic Resources for Tecom Industries,
Inc.
Phillip W. Weaver has been Vice President Human Resources and Organizational
Development since April 1997. Mr. Weaver joined Triple S Plastics, Inc. as the
Corporate Director of Human Resources in April 1996. For the prior four years he
was employed at Atlantic Automotive components, a joint venture between Ford
Motor Company and Rockwell International, as the Director of Human Resources.
Michael E. Zaagman has been Vice President Engineering and Technical Services
since September 1999. Mr. Zaagman joined Triple S Plastics, Inc. as the
Corporate Director of Materials on April 1, 1995 and held the position of Vice
President of Operations effective January 1997. Previously he held various
positions with the Sequest Closures Division of Aptar Corporation.
Catherine A. Taylor has been Corporate Controller since August 1996. Before
joining the Company, Ms. Taylor served as Senior Financial Analyst for Tokai
Rika USA, Inc.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common stock is traded on the NASDAQ Market System under the
symbol TSSS. The following table sets forth the price quotations for the
Company's common stock in the over-the-counter market for the period indicated,
as furnished by the National Association of Securities Dealers, Inc.
Fiscal Quarter High Low Close
------ ------- ------ ------- -------
2000 4th 18 13 1/2 15 7/16
3rd 13 7/8 8 23/32 13 7/8
2nd 8 15/16 4 5/16 8 3/4
1st 5 3/8 2 3/4 4 1/4
1999 4th 5 11/16 3 1/2 3 1/2
3rd 5 1/2 3 1/8 4 1/2
2nd 6 3/4 4 1/4 4 1/2
1st 8 11/16 5 7/8 6 9/16
As of June 15, 2000, there were approximately 226 stockholders of record of
the Company's common stock. Based on the number of sets of proxy materials
mailed by the Company's transfer agent, the Company estimates there are 1,300
additional beneficial owners of the Company's common stock who hold the stock
in street name. The Company currently intends to retain earnings for future
capital requirements and growth. No cash dividends have been paid during the
past two years and management does not anticipate paying cash dividends to
holders of its common stock for the foreseeable future.
Item 6. Selected Financial Data
Fiscal Years Ended March 31
(in thousands, except per share data)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Income Statement Data:
Net sales $95,102 $67,772 $67,414 $64,608 $61,270
Gross profit 17,927 11,125 11,830 10,464 9,271
Operating income (loss) 4,759 (1,166) 2,782 2,447 1,995
Interest expense, net 296 339 325 358 408
-------- -------- -------- -------- --------
Income (loss) before
income tax expense
(benefit) 4,463 (1,505) 2,457 2,089 1,587
Income tax expense
(benefit) 1,692 (453) 860 760 549
-------- -------- -------- -------- --------
Net income (loss) $ 2,771 $(1,052) $ 1,597 $ 1,329 $ 1,038
======== ======== ======== ======== ========
Earnings (Loss) Per Share Data:
Basic $ .74 $ (.28) $ .43 $ .36 $ .28
======== ======== ======== ======== ========
Diluted $ .66 $ (.28) $ .43 $ .36 $ .28
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic 3,755 3,745 3,740 3,734 3,727
Diluted 4,213 3,745 3,752 3,738 3,727
March 31 (in thousands)
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $12,028 $10,287 $12,168 $10,683 $ 9,561
Total assets $51,486 $50,809 $50,030 $48,870 $46,150
Long-term debt, less
current maturities $ 4,618 $ 6,862 $ 6,603 $ 7,251 $ 8,747
Shareholders' equity $33,785 $30,953 $31,981 $30,353 $28,981
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company is a full-service custom injection molder providing rapid proto-
typing and design models, mold design and engineering services, mold
manufacturing, injection molding, and post-molding assembly and finishing
operations to a diverse base of customers. Its customers are primarily in
telecommunications, consumer products, automotive, medical/pharmaceutical and
information technologies markets. The Company operates in one business segment
and backlog generally does not exceed one quarter's manufacturing capacity.
The Company's fiscal year is March 31 and, unless otherwise noted, references
to fiscal 2000, 1999, and 1998 relate to the fiscal years ended March 31, 2000,
1999, and 1998.
RESULTS OF OPERATIONS
On June 18, 1999, the Company announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility to its
new facility in Fort Worth, Texas and other locations in Michigan. At the same
time, the Company also announced that it would dispose of its former Victor
Plastics facility. 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 Consolidated Statements of Income as plant closing costs. The sale
of the Tucson facility was closed in December 1999 and no additional provision
for closing costs was necessary.
The table below outlines the components of the Company's Consolidated Statements
of Income as a percentage of net sales:
Fiscal Year ended March 31 2000 1999 1998
----------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 81.1 83.6 82.5
Gross profit 18.9 16.4 17.5
Selling & marketing expenses 4.5 5.2 3.0
General & administrative expenses 8.0 10.8 10.4
Plant closing costs 1.4 -- --
Unusual item -- 2.1 --
Operating income (loss) 5.0 (1.7) 4.1
Interest expense, net .3 .5 .5
Income (loss) before income taxes 4.7 (2.2) 3.6
Income taxes 1.8 (.6) 1.2
Net income (loss) 2.9% (1.6)% 2.4%
The following table summarizes each of the Company's markets as a percentage of
total sales for fiscal years ended March 31:
% of Sales
----------------------------------
2000 1999 1998
------ ------ ------
Telecommunications 62% 37% 15%
Consumer Products 12% 25% 38%
Automotive 10% 11% 15%
Medical/Pharmaceutical 8% 13% 14%
Information Technologies 5% 11% 15%
Other 3% 3% 3%
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales for fiscal year 2000 were $95.1 million, an increase of $27.3 million,
or 40.3%, over net sales of $67.8 million for fiscal year 1999. As a percentage
of total sales, the Company's sales decreased to all the markets the Company
serves except Telecommunications, which showed strong growth, increasing to 62%.
These decreases represented the completion of several customer projects during
1999 which were not replaced with new projects. The overall increase in sales
was primarily related to volume as no significant price increases occurred
during fiscal 2000. The Company is working to increase its sales to a wide base
of customers in the Telecommunications market, as well as the Automotive market,
but there can be no assurance that such efforts will be successful.
Cost of sales represented 81.1% of net sales in fiscal 2000 compared to 83.6% in
1999. The lower cost of sales percentage in 2000 is primarily attributed to
molded part manufacturing cost reductions, primarily in material and labor cost,
and as a result of manufacturing efficiency improvement initiatives at the
Company. The lower cost of sales percentage is also attributed to higher
overhead absorption as a result of increased sales.
Selling and marketing expenses decreased as a percentage of net sales to 4.5% in
2000 compared to 5.2% in 1999. The decrease principally relates to decreased
compensation as a percentage of net sales.
General and administrative expenses represent 8.0% of net sales compared to
10.8% in the prior year. The decrease is primarily due to decreased compensation
and legal fees as a percentage of net sales.
The Company's effective tax rate for 2000 is 37.9% (including state and local
income taxes of 4.7%) compared to the prior year rate of (30.1)%.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal year 1999 were $67.8 million compared to net sales of
$67.4 million for fiscal year 1998. As a percentage of total sales, the
Company's sales decreased to all the markets the Company serves except
Telecommunications, which increased to 37%. The overall increase in sales was
primarily related to volume as no significant price increases occurred during
fiscal 1999.
Cost of sales represented 83.6% of net sales in fiscal 1999 compared to 82.5% in
1998. The higher cost of sales percentage in 1999 was primarily attributed to
competitive pricing on new projects, underutilized production capacity at the
Tucson facility, and increased depreciation expense as a result of investment
in new technology.
Selling and marketing expenses represented 5.2% of net sales compared to 3.0%
in the prior year. The increase principally related to increased commissions
as a result of the shift in sales from non-commissioned accounts to commissioned
accounts. Compensation also increased due to the build up of the direct sales
force. The return on our investment in the additional salespeople developed
slower than expected.
General and administrative expenses increased as a percentage of net sales to
10.8% in 1999 compared to 10.4% in 1998. The increase was primarily due to
increased legal fees as a result of the litigation described in Item 3 and the
notes to the consolidated financial statements. This increase was somewhat
offset by a decrease in compensation.
The Company's effective tax rate was (30.1%) due to the net operating loss
incurred in fiscal 1999 less non-deductible expenses compared to 35.0% in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating expenses and capital
expenditures. Historically, the Company's primary 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.
Net cash provided by operating activities was $2.2 million for fiscal 2000.
Working capital increased $1.7 million in the year to $12.0 million, primarily
resulting from the increase in accounts receivable and inventories. As a result
of, and consistent with, the higher sales level, accounts receivable increased
by $4.4 million compared to the prior fiscal year end, and represented 45 days
sales outstanding, which is 6 days higher than the end of the prior fiscal year.
Inventories increased $2.0 million compared to the prior fiscal year-end, and
represented 34 days in inventory compared to 28 days at the prior fiscal year
end, primarily due to increased inventory requirements related to the higher
sales in our Texas facilities. Net capital investments totaled $2.8 million,
$3.4 million, and $3.6 million in fiscal 2000, 1999, and 1998, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000, as amended by SFAS 137. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption of the new standard
to affect its financial statements.
OTHER MATTERS
The Company completed its Year 2000 project in the third quarter of fiscal year
2000. The Company experienced no significant Year 2000 problems with its
systems, third parties, or products. The total cost for the project, which
consisted of internal costs, did not have a material impact on the Company's
results of operations or financial position. These costs were expensed as
incurred.
This annual report contains statements which, to the extent they are not
historical facts, constitute forward-looking statements within the meaning of
the Private Securities litigation Reform Act of 1995. Such forward-looking
statements are identified by the use of forward-looking words such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or
similar words. These forward-looking statements are subject to numerous
assumptions, risks, and uncertainties, and the statements looking forward
beyond 2000 are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Actual results
could differ materially from those anticipated by the forward-looking
statements. By making forward-looking statements, the Company assumes no
obligation to update them to reflect new, changed, or unanticipated events or
circumstances.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The following financial statements are filed with this report as pages F-1
through F-14 following the signature page:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
<PAGE>
PART III
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
Information relating to executive officers is included in this report in the
last section of Part I under the caption "Executive Officers of the Registrant".
Information relating to directors appearing under the caption "Election of
Directors" in the definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held August 30, 2000, and to be filed with the Commission is
hereby incorporated herein by reference. Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934 appearing under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the 2000 Annual Meeting of Shareholders and filed with the
Commission is hereby incorporated herein by reference.
Item 11. Executive Compensation
The information contained under the caption "Executive Compensation" contained
in the definitive Proxy Statement for the 2000 Annual Meeting of Shareholders is
hereby incorporated herein by reference excluding the information under the
caption "Compensation Committee Report" and "Stock Performance Graph".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the caption "Securities Ownership of Management"
contained in the definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders is hereby incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related party transactions is
incorporated by reference to the Company's definitive Proxy Statement for the
2000 Annual Meeting of Shareholders under the caption "Election of Directors".
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) The following financial statements are filed as part of this report
as pages F-1 through F-14 following the signature page:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(b) No reports on Form 8-K were filed for the three-month period ended
March 31, 2000.
(c) See Exhibit Index located on pages 29 and 30.
(d) The following financial statement schedule is filed as part of this
report as page F-16 following the signature page:
Schedule II - Valuation and Qualifying Accounts
All other schedules required by Form 10-K Annual Report have been omitted
because they were not applicable, the required information was included in the
notes to the consolidated financial statements, or were otherwise not required
under the instructions contained in Regulation S-X.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 29, 2000 TRIPLE S PLASTICS, INC.
By _A._CHRISTIAN_SCHAUER______________
A. Christian Schauer,
Chief Executive Officer
and
By _MARLAN_R._SMITH___________________
Marlan R. Smith,
Vice President Finance, Chief Financial
Officer, and Secretary
(Principal Financial Officer)
and
By _CATHERINE_A._TAYLOR_______________
Catherine A. Taylor,
Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below on this 29th day of June 2000, by the following
persons on behalf of the Registrant and in the capacities indicated.
Each Director of the Registrant whose signature appears below, hereby appoints
Daniel B. Canavan and Marlan R. Smith, and each of them individually as his
attorney-in-fact to sign in his name and on his behalf as a Director of the
Registrant, and to file with the Commission any and all Amendments to this
report on Form 10-K to the same extent and with the same effect as if done
personally.
_DANIEL_B._CANAVAN___________ _VICTOR_V._VALENTINE,JR._________
Daniel B. Canavan, Chairman Victor V. Valentine, Jr., Director
of the Board
_A._CHRISTIAN_SCHAUER________ _DAVID_L._STEWART________________
A. Christian Schauer, Director David L. Stewart, Director
_JAMES_F._HETTINGER__________ _ROBERT_D._BEDILION______________
James F. Hettinger, Director Robert D. Bedilion, Director
_EVAN_C._HARTER______________ _DONALD_W._THOMASON______________
Evan C. Harter, Director Donald W. Thomason, Director
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets as of March 31, 2000 and 1999 F-2
Consolidated Statements of Income for the years ended
March 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the years
ended March 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Report of Independent Certified Public Accountants F-14
F-1
<PAGE>
TRIPLE S PLASTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
MARCH 31 2000 1999
----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,806 $ 5,594
Accounts receivable, less allowance of
$300 and $709 for possible losses 13,929 9,487
Refundable income taxes -- 737
Inventories (Note 3) 6,344 4,386
Deferred income taxes (Note 7) 427 384
Other 656 486
---------- ----------
Total Current Assets 23,162 21,074
---------- ----------
Property, Plant and Equipment (Notes 5 and 6):
Machinery and equipment 26,989 25,271
Land and buildings 8,228 12,510
Office furniture and equipment 4,648 4,180
Leasehold improvements 617 42
---------- ----------
40,482 42,003
Less accumulated depreciation and amortization 16,726 16,293
---------- ----------
Net Property, Plant and Equipment 23,756 25,710
---------- ----------
Other:
Assets held for sale (Notes 2 and 13) 868 --
Goodwill, net of accumulated amortization
of $848 and $592 (Note 12) 3,641 3,897
Miscellaneous 59 128
---------- ----------
Total Other Assets 4,568 4,025
---------- ----------
$ 51,486 $ 50,809
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,543 $ 6,649
Accruals:
Compensation 1,570 921
Income taxes 831 --
Other 1,331 1,133
Deferred mold revenue 547 750
Current maturities of long-term debt (Note 5) 1,312 1,334
---------- ----------
Total Current Liabilities 11,134 10,787
Long-Term Debt, less current maturities (Note 5) 4,618 6,862
Deferred Income Taxes (Note 7) 1,949 2,207
---------- ----------
Total Liabilities 17,701 19,856
---------- ----------
Commitments and Contingencies (Notes 6, 8, and 15)
Shareholders' Equity (Note 10):
Preferred stock, no par value, 1,000,000
shares authorized, none issued -- --
Common stock, no par value, 10,200,000 shares
authorized, 3,759,716 and 3,747,202 shares
issued and outstanding 14,529 14,468
Retained earnings 19,256 16,485
---------- ----------
Total Shareholders' Equity 33,785 30,953
---------- ----------
$ 51,486 $ 50,809
========== ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended March 31
-------------------------------------------
2000 1999 1998
---------- ---------- ----------
Net Sales $ 95,102 $ 67,772 $ 67,414
Cost of Sales 77,175 56,647 55,584
Gross Profit 17,927 11,125 11,830
Selling and Marketing Expenses 4,235 3,521 1,994
General and Administrative Expenses 7,621 7,329 7,054
Plant Closing Costs (Note 13) 1,312 -- --
Unusual Item (Note 14) -- 1,441 --
---------- ---------- ----------
Operating Income (Loss) 4,759 (1,166) 2,782
Interest (Income) Expense:
Interest expense 489 603 603
Interest income (193) (264) (278)
---------- ---------- ----------
Net Interest Expense 296 339 325
---------- ---------- ----------
Income (Loss) Before Income Tax
Expense (Benefit) 4,463 (1,505) 2,457
Income Tax Expense (Benefit)(Note 7) 1,692 (453) 860
---------- ---------- ----------
Net Income (Loss) $ 2,771 $ (1,052) $ 1,597
========== ========== ==========
Earnings (Loss) Per Share (Note 11):
Basic $ .74 $ (.28) $ .43
========== ========== ==========
Diluted $ .66 $ (.28) $ .43
========== ========== ==========
Shares Used in Computing Earnings Per Share (Note 11):
Basic 3,755 3,745 3,740
Diluted 4,213 3,745 3,752
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Total
Common Retained Shareholders'
Stock Earnings Equity
---------- ------------ --------------
Balance, March 31, 1997 $ 14,413 $ 15,940 $ 30,353
Issuance of 5,010 shares of
common stock 31 -- 31
Net income for the year -- 1,597 1,597
---------- ------------ --------------
Balance, March 31, 1998 14,444 17,537 31,981
Issuance of 5,251 shares of
common stock 24 -- 24
Net loss for the year -- (1,052) (1,052)
---------- ------------ --------------
Balance, March 31, 1999 14,468 16,485 30,953
Issuance of 12,514 shares of
common stock 61 -- 61
Net income for the year -- 2,771 2,771
---------- ------------ --------------
Balance, March 31, 2000 $ 14,529 $ 19,256 $ 33,785
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<S> <C> <C> <C>
Years ended March 31
------------------------------------------------
2000 1999 1998
Operating Activities ------------ ------------ ------------
Net income (loss) $ 2,771 $ (1,052) $ 1,597
Adjustments to reconcile net
income (loss) to cash provided
by operating activities:
Depreciation 3,766 3,684 3,203
Amortization 293 169 74
Provision for losses on
accounts receivable 93 30 95
Deferred income taxes (301) (177) 135
Loss (gain) on sale of property,
plant and equipment 966 (12) 14
Unusual item (Note 14) -- 1,441 --
Changes in assets and liabilities,
net of amounts acquired from
business acquisition:
Receivables:
Trade (4,535) 2,528 (2,223)
Refundable income taxes 737 (930) --
Inventories (1,958) (890) 1,199
Other assets (101) (333) 127
Accounts payable and accruals (146) 931 919
Income taxes payable 831 -- 35
Deferred mold revenue (203) 277 (119)
------------ ------------ ------------
Cash Provided by Operating Activities 2,213 5,666 5,056
Investing Activities
Purchases of property, plant and
equipment, net of disposals (7,149) (3,437) (3,743)
Proceeds from sale of property,
plant and equipment 3,353 18 88
Decrease in restricted cash -- 2,932 855
Business acquisition (Notes 9 and 12) -- (909) --
Other investing activities -- -- 66
------------ ------------ ------------
Cash Used in Investing Activities (3,796) (1,396) (2,734)
Financing Activities
Proceeds from issuance of common stock 61 24 31
Principal payments on long-term debt (2,266) (2,483) (1,251)
------------ ------------ ------------
Cash Used in Financing Activities (2,205) (2,459) (1,220)
------------ ------------ ------------
Increase (Decrease) in Cash and
Cash Equivalents (3,788) 1,811 1,102
Cash and Cash Equivalents,
beginning of year 5,594 3,783 2,681
------------ ------------ ------------
Cash and Cash Equivalents, end of
year $ 1,806 $ 5,594 $ 3,783
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Triple S Plastics, Inc. is a plastics engineering services company, serving
the Telecommunications, Consumer Products, Automotive and other industries with
rapid prototyping and design models, mold design and engineering services, mold
manufacturing, plastic injection molding, and post-molding assembly and
finishing operations.
During the years ended March 31, 2000, 1999 and 1998, a Telecommunications
customer accounted for 59%, 34%, and 12% of net sales, respectively.
Acquisitions and Goodwill
The financial statements include the net assets of businesses purchased at
their fair value at the acquisition date. The excess of acquisition costs over
the fair value of net assets acquired is included in and has been allocated to
goodwill. Goodwill is amortized on a straight-line basis over lives ranging from
15 to 30 years.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary Dynacept Corporation, Inc. (see Note 12) after
elimination of all significant intercompany accounts and transactions.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for renewals
and betterments are capitalized and maintenance and repairs are expensed as
incurred. Depreciation and amortization are computed by the straight-line
method over the estimated useful lives of the assets as follows:
Buildings 40 years
Machinery and equipment 5 to 10 years
Office furniture and equipment 3 to 10 years
Leasehold improvements 10 years or the term of the lease,
if less
Income Taxes
The Company follows the liability method of accounting for income taxes and
provides deferred income taxes based on enacted income tax rates in effect on
the dates temporary differences between the financial reporting and tax bases
of assets and liabilities are expected to reverse. The effect on deferred tax
assets and liabilities of a change in income tax rates is recognized in the
period that includes the enactment date.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which consist of
cash and cash equivalents, receivables, notes payable, accounts payable and
long-term debt, approximate their fair values.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
F-6
<PAGE>
Revenue Recognition
Revenue is recognized on plastic molded products when the products are shipped
to customers. Revenue on molds is recognized when the mold is completed and
samples of molded parts produced by the tool are shipped to customers. Prior to
that time, mold revenue and direct mold costs are deferred. Losses are
recognized when reasonable estimates of the amount of loss can be made.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash on hand and held in
banks, money market funds, commercial paper and other short-term investments
with an original maturity of three months or less when purchased.
Long-Lived Assets
The Company evaluates long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss would be recognized when
estimated undiscounted future cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount.
Stock Based Compensation
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 allows companies
to continue to measure compensation cost for stock-based employee compensation
plans using the intrinsic value method of accounting as prescribed in
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. The Company has elected to continue
its APB Opinion No. 25 accounting treatment for stock-based compensation, and
has adopted the provisions of SFAS No. 123 requiring disclosure of the pro forma
effect on net earnings and earnings per share as if compensation cost had been
recognized based upon the estimated fair value at the date of grant for options
awarded.
Earnings Per Share
The Company has adopted SFAS No. 128, Earnings Per Share, which establishes
standards for computing and presenting earnings per share (EPS) for entities
with publicly-held common stock or potential common stock. SFAS 128 simplifies
the standards for computing EPS and makes them comparable to international EPS
standards. The statement requires dual presentation of "basic" and "diluted"
EPS which replace primary and fully diluted EPS, respectively, required under
previous guidance.
Segment Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 established standards for the
way in which publicly-held companies report financial and descriptive
information about their operating segments in financial statements for both
interim and annual periods, and requires additional disclosures with respect
to products and services, geographic areas of operation and major customers.
The Company operates as a single operating segment. The adoption of
SFAS No. 131 had no impact on the Company's consolidated results of operations,
cash flows or financial position.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000, as amended
by SFAS 137. Historically, the Company has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard to affect its financial
statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
F-7
<PAGE>
2. Assets Held for Sale
As discussed in Note 13 to the Consolidated Financial Statements, the Company's
Tucson, Arizona facility was sold in December 1999 and 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. Inventories
Inventories are summarized as follows (in thousands):
March 31
---------------------------------------
2000 1999
------------------ ------------------
Raw materials and packaging $ 3,658 $ 2,582
Finished goods and work-in-process 2,686 1,804
------------------ ------------------
Total Inventories $ 6,344 $ 4,386
================== ==================
4. Line of Credit
The Company has entered into a $10 million unsecured line-of-credit agreement
with a bank, due on demand, with interest on the unpaid principal balance at a
variable rate based on certain financial ratios. There were no borrowings under
this agreement at March 31, 2000 or 1999, or during the years then ended.
5. Long-Term Debt
Long-term debt consists of (in thousands):
March 31
--------------------------------------
2000 1999
---------------- ----------------
Note payable to Dynacept Company
(now known as MLM Liquidation Corp.) $ 2,730 $ 2,730
Michigan Strategic Fund Limited
Obligation Revenue Bonds (1989
and 1990 series) 1,560 2,005
Georgetown Industrial Development
Corporation Revenue Bond 1,042 1,766
Mortgage note (notes in 1999)
payable to bank 598 1,660
Other -- 35
---------------- ----------------
Long-term debt 5,930 8,196
Current maturities of long-term debt 1,312 1,334
---------------- ----------------
Long-term debt, less current maturities $ 4,618 $ 6,862
================ ================
The note payable to Dynacept Company provides for monthly installments of
interest only, at a rate of 5%, with the entire principal balance due and
payable in full on March 31, 2003. The note is secured by a letter of credit
with the bank.
The Michigan Strategic Fund Limited Obligation Revenue bonds (1989 and 1990
series) provide for semi-annual interest payments with rates that vary from 7.3%
to 7.65% and annual principal payments through September 2001. The bonds are
collateralized by a letter of credit with the bank.
The Georgetown Industrial Development Corporation Revenue Bond provides for
monthly principal payments ranging from $63,000 to $80,000 plus interest through
November 2002. Interest is fixed at 6.56% through September 2000, and then
becomes variable at 77% of the bank's base lending rate.
The mortgage note payable to the bank, provides for a monthly payment of $8,540
monthly, including interest at 7.95% through February 2008.
The above debt, except the note payable to Dynacept Company, is secured by
property and equipment. In connection with the overall bank financing agreement,
the Company must comply with certain financial and non-financial restrictive
F-8
<PAGE>
covenants. The restrictive covenants include limitations on the amount of
required working capital, the ratio of debt to tangible net worth and the
minimum amount of tangible net worth.
Maturities of long-term debt for the four fiscal years succeeding 2001 are:
2002 - $1,407,000; 2003 - $66,000; 2004 - $2,802,000; and 2005 - $78,000.
6. Leases and Commitments
The Company leases certain transportation equipment and manufacturing facilities
under operating leases expiring at various dates through 2005. Management
expects that in the normal course of business, leases will be renewed or
replaced by other leases. Minimum lease payments required under operating leases
for future years are as follows: 2001 - $1,235,000; 2002 - $945,000;
2003 - $728,000; 2004 - $387,000; 2005 - $113,000.
Total lease expense for facilities and equipment amounted to $1,066,000 in
2000; $706,000 in 1999; and $407,000 in 1998.
7. Income Taxes
Income tax expense (benefit) consisted of the following (in thousands):
Years Ended March 31
----------------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal $ 1,781 $ (276) $ 675
State and local 212 -- 50
-------- -------- --------
1,993 (276) 725
Deferred (301) (177) 135
-------- -------- --------
Total income tax expense (benefit) $ 1,692 $ (453) $ 860
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities at
fiscal year ends were as follows (in thousands):
March 31
---------------------------------
2000 1999
---------- ----------
Deferred tax assets
Accrued compensation and benefits $ 72 $ 105
Accounts receivable reserves 143 282
Inventory valuation and related
reserves 227 148
Accrued expenses related to
plant closing 51 --
Other 58 16
---------- ----------
551 551
---------- ----------
Deferred tax liabilities
Accounts receivable valuation (111) (167)
Accumulated depreciation and
amortization (1,949) (2,207)
Other (13) --
---------- ----------
(2,073) (2,374)
---------- ----------
Net deferred tax liability $ (1,522) $ (1,823)
========== ==========
F-9
<PAGE>
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
Years Ended March 31
-------------------------------------------
2000 1999 1998
---------- ---------- ----------
Statutory federal income tax rate 34.0% (34.0%) 34.0%
State and local income
taxes, net of federal income
tax effect 4.7 -- 2.0
Other (.8) 3.9 (1.0)
---------- ---------- ----------
Effective income tax rate 37.9% (30.1%) 35.0%
========== ========== ==========
8. Employee Benefit Plan
The Company maintains a defined contribution plan (401K) covering substantially
all employees. Under the Plan, employees' contributions are made on a tax
deferred basis and are partially matched by the Company. Total expense under
the Plan was $168,000, $131,000, and $128,000 for 2000, 1999 and 1998,
respectively.
9. Supplemental Disclosures of Cash Flow Information
(in thousands) Years Ended March 31
------------------------------------------
2000 1999 1998
-------- -------- --------
Operating Activities:
Interest paid, net of amount
capitalized $ 500 $ 614 $ 604
Interest received $ 193 $ 264 $ 278
Income taxes paid, net of
refunds received $ 124 $ 654 $ 689
Non-cash Investing and Financing Activities:
Capital expenditures included in
accounts payable $ -- $ 688 $ --
Issuance of note payable related
to acquisition $ -- $2,730 $ --
10. Capital Stock
The Company maintains a stock option plan for key employees and has reserved
920,000 shares of common stock for such plan. The options must be exercised
within ten years from the date of grant and the exercise price must equal the
fair market value of the Company's stock at the date of the grant. The options
generally vest from two to five years from the date of grant.
In July 1996, the Company established an Outside Director Stock Option Plan and
has reserved 300,000 shares of common stock for such plan. The options must be
exercised within three-and-a half to ten years from the date of grant and the
exercise price must equal the fair market value of the Company's stock at the
date of the grant. The options become vested six months to three years after
the grant date.
A summary of stock option activity (which includes both plans) is as follows:
Weighted
Option Price Average Price
Shares Per Share Per Share
------------ ------------------ -----------------
Options outstanding at
March 31, 1997 100,700 $5.00 - $12.50 $8.57
Granted 261,000 $6.25 - $8.50 $6.98
Canceled (23,500) $6.13 - $12.50 $10.20
------------ ------------------ -----------------
Options outstanding at
March 31, 1998 338,200 $5.00 - $12.50 $7.23
Granted 49,000 $4.63 - $6.56 $6.28
Canceled (35,000) $6.25 - $12.50 $6.80
------------ ------------------ -----------------
Options outstanding at
March 31, 1999 352,200 $4.63 - $12.50 $7.14
Granted 660,000 $3.13 - $10.50 $3.93
Canceled (45,000) $4.88 - $12.50 $6.94
Exercised (5,500) $6.13 - $7.25 $6.33
------------ ------------------ -----------------
Options outstanding at
March 31, 2000 961,700 $3.13 - $12.50 $4.95
============ ================== =================
F-10
<PAGE>
There were 252,800 and 395,800 shares available for future grant under the plans
at March 31, 2000 and 1999, respectively. The following table summarizes
significant ranges of outstanding and exercisable options at March 31, 2000:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Ranges of Life in Exercise Exercise
Exercise Prices Shares Years Price Shares Price
--------------------------------------------------------------------------------------------------
$3.01 to $4.00 470,000 9.1 $3.13 470,000 $3.13
$4.01 to $5.00 155,000 7.4 $4.88 11,333 $4.92
$5.01 to $6.00 1,000 6.3 $5.75 1,000 $5.75
$6.01 to $7.00 178,700 6.5 $6.39 41,032 $6.30
$7.01 to $8.00 77,000 7.1 $7.25 77,000 $7.25
$8.01 to $9.00 55,000 2.5 $8.56 26,664 $8.50
over $9.00 25,000 4.0 $12.10 20,000 $12.50
For all plans, options of 647,029, 137,032, and 58,450 shares were exercisable
at March 31, 2000, 1999, and 1998 with a weighted average exercise price of
$4.45, $7.83, and $8.91, respectively.
The weighted average fair value per share of employee stock based compensation
issued during fiscal 2000, 1999 and 1998 was $1.86, $3.24 and $3.90,
respectively. The fair value was estimated using the Black-Scholes model with
the following weighted average assumptions:
2000 1999 1998
---------- ---------- ----------
Expected life (in years) 4.5 6.9 10
Interest rate 5.29% 5.59% 6.12%
Volatility 54.0% 37.9% 34.0%
Dividend yield -- -- --
Employee stock based compensation costs would have reduced pre-tax income by
$997,000, $292,000, and $277,000 in 2000, 1999 and 1998, respectively, if the
fair values of such compensation had been recognized as compensation expense on
a straight-line basis over the vesting periods of the grants.
Net earnings and net earnings per share would not be materially different if the
Company accounted for its outside director stock options under the fair value
method as provided for under SFAS No. 123, Accounting for Stock-Based
Compensation.
As permitted by SFAS No. 123, the Company has elected to continue following the
guidance of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been
recognized for the Company's option plans. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options, consistent with the method of SFAS No. 123, the Company's net earnings
and net earnings per share would approximate the following pro forma amounts
(in thousands except per share amounts):
Years Ended March 31
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
Net Earnings (Loss):
As reported $ 2,771 $(1,052) $ 1,597
Pro forma $ 2,113 $(1,242) $ 1,417
Basic Earnings per Share:
As reported $ .74 $ (.28) $ .43
Pro forma $ .56 $ (.33) $ .38
Diluted Earnings per Share:
As reported $ .66 $ (.28) $ .43
Pro forma $ .50 $ (.33) $ .38
F-11
<PAGE>
The Company maintains an Employee Stock Purchase Plan and reserved 100,000
shares of Common Stock for such plan. Under the plan, any eligible employee
may purchase stock at a price equal to 85% of the fair market value as of the
last day of the option period.
11. Earnings Per Share
Earnings per share has been computed in accordance with the provisions of
SFAS No. 128. The following table sets forth the computation of basic and
diluted earnings per share (in thousands except per share amounts):
Years Ended March 31
----------------------------------
2000 1999 1998
-------- -------- --------
Net income (loss) $ 2,771 $(1,052) $ 1,597
Weighted average shares outstanding for
basic earnings per share 3,755 3,745 3,740
Effect of dilutive stock options 458 -- 12
Adjusted weighted average shares
outstanding for diluted earnings
per share 4,213 3,745 3,752
Basic earnings per share $ .74 $ (.28) $ .43
Diluted earnings per share $ .66 $ (.28) $ .43
Options to purchase 25,000, 386,200 and 345,200 shares of common stock in fiscal
years 2000, 1999 and 1998, respectively, were not included in the computation of
diluted earnings per share because the option exercise price was greater than
the average market price of the stock. Diluted earnings per share for the year
ended March 31, 1999 is based only on the weighted average number of common
shares outstanding as the inclusion of 3,000 common share equivalents would
have been anti-dilutive.
12. Acquisition of Dynacept Company, Inc.
On June 1, 1998, Triple S Plastics, Inc. purchased, for cash of $909,000 and
long-term debt of $2.7 million 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. The results of
Dynacept have been included in the Company's consolidated financial statements
from June 1, 1998. Goodwill, amounting to $3.3 million, is being amortized on a
straight line basis over 15 years.
13. Plant Closing Costs
On June 18, 1999, the Company announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility 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
Consolidated Statements of Income as plant closing costs. The sale of the Tucson
facility was final in December 1999 and no additional provision for closing
costs was necessary.
14. Unusual Item
Near the end of the third quarter of fiscal year 1999, two of the Company's
customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code
and a third customer indicated that it was having extreme financial difficulty
obtaining needed additional financing to pay amounts owed to the Company.
Accordingly, in the third quarter of fiscal 1999 the Company recorded a pre-tax
charge of $1.4 million ($935 after tax, or $.25 per basic and diluted share)
relating to an increase in its allowance for doubtful accounts, inventory
reserves and accrued liabilities to provide for anticipated losses and legal
costs concerning accounts receivable balances and inventory on hand for these
customers. This pre-tax charge is shown in the Consolidated Statements of
Income as an unusual item.
F-12
<PAGE>
15. Commitments and Contingencies
On March 4, 1998 Capitol Vial, Inc. filed a lawsuit against the Company
alleging that the process used by the Company to produce certain vials
infringed one or more of Capitol Vial's patents. The Company denied infringement
on the grounds of invalidity and non-infringement and asserted an antitrust
counterclaim arising from Capitol Vial's alleged fraud on the Patent Office in
obtaining the patent.
On July 9, 1999 the company reached an agreement with Capitol Vial, Inc. that
resolved Capitol Vial's claims of patent infringement against the Company with
no settlement expense to Triple S Plastics, Inc.
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Triple S Plastics, Inc.
Vicksburg, Michigan
We have audited the accompanying consolidated balance sheets of Triple S
Plastics, Inc. as of March 31, 2000 and 1999 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Triple S
Plastics, Inc. at March 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended
March 31, 2000 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Kalamazoo, Michigan
May 4, 2000
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
The Board of Directors
Triple S Plastics, Inc.
Vicksburg, Michigan
The audits referred to in our report dated May 4, 2000 relating to the
consolidated financial statements of Triple S Plastics, Inc. which is contained
in Item 8 of this Form 10-K, included the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Kalamazoo, Michigan
May 4, 2000
F-15
<PAGE>
</TABLE>
<TABLE>
TRIPLE S PLASTICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<S> <C> <C> <C> <C> <C>
Additions
Balance at charged to Charged Balance
beginning costs and against Other at end of
Description of period expenses reserves changes period
----------- ------------ ------------ ---------- --------- -----------
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts
receivable:
Year ended March 31, 2000 $709,000 $93,000 $502,000 -- $300,000
Year ended March 31, 1999 $350,000 $1,071,000 $712,000 -- $709,000
Year ended March 31, 1998 $255,000 $95,000 -- -- $350,000
Reserve for inventory obsolescence:
Year ended March 31, 2000 $110,000 $140,000 -- -- $250,000
Year ended March 31, 1999 $493,340 -- $383,340 -- $110,000
Year ended March 31, 1998 $425,000 $ 68,340 -- -- $493,340
</TABLE>
F-16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
----------- ----------- ----
3(a) Registrant's Second Amended and Restated
Articles of Incorporation were filed as
Exhibit 3(a) to a Registration Statement on Form
S-1 (No. 33-74866) and the same is incorporated
herein by reference.
3(b) Registrant's Bylaws were filed as Exhibit 3(b)
to a Registration Statement on Form S-1 (No. 33-
74866) and the same is incorporated herein by
reference.
4 A specimen Form of Stock Certificate was filed
as Exhibit 4 to a Registration Statement on
Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
10(a)(1) A Business Loan Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992, and as amended December 21, 1993,
with respect to Registrant's Line of Credit,
Secured Term Loan Availability, Secured End
Mortgage, Real Estate Mortgage for Subsidiary, and
Secured Term Loan to subsidiary were filed as
Exhibit 10(a)(1) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
10(a)(2) A Loan Agreement between Registrant and Michigan
Strategic Fund dated May 1, 1989 was filed as
Exhibit 10(a)(2) to a Registration Statement on
Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
10(a)(3) A Loan Agreement between Registrant and Michigan
Strategic Fund dated September 1, 1990 was filed
as Exhibit 10(a)(3) to a Registration Statement
on Form S-1 (No. 33-74866) and the same is
incorporated herein by reference.
10(a)(4) A Bond Purchase Agreement among Registrant,
Michigan Strategic Fund and Roney & Company,
dated September 24, 1990 was filed as Exhibit
10(a)(4) to a Registration Statement on Form S-1
(No. 33-74866) and the same is incorporated
herein by reference.
10(a)(5) A Reimbursement Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992 backing the 1989 Michigan
Strategic Fund Limited Obligation Revenue Bonds
was filed as Exhibit 10(a)(5) to a Registration
Statement on Form S-1 (No. 33-74866) and the
same is incorporated herein by reference.
10(a)(6) A Reimbursement Agreement between Registrant and
National City Bank of Michigan/Illinois dated
November 1, 1992 backing the 1990 Michigan
Strategic Fund Limited Obligation Revenue Bonds
was filed as Exhibit 10(a)(6) to a Registration
Statement on Form S-1 (No. 33-74866) and the
same is incorporated herein by reference.
10(b) A Loan Guarantee Agreement and related Security
Agreement between Subsidiary and National City
Bank of Michigan/Illinois dated November 1, 1992
was filed as Exhibit 10(b) to a Registration
Statement on Form S-1 (No. 33-74866) and the
same is incorporated herein by reference.
*10(d)(1) The Triple S Plastics, Inc. Employee Stock
Option Plan was filed as Exhibit 10(d)(1) to a
Registration Statement on Form S-1
(No. 33-74866) and the same is incorporated
herein by reference.
*10(d)(2) A Form of Nonqualified Stock Option Agreement
was filed as Exhibit 10(d)(2) to a Registration
Statement on Form S-1 (No. 33-74866) and the
same is incorporated herein by reference.
*10(d)(3) A Form of Qualified Stock Option Agreement was
filed as Exhibit 10(d)(3) to a Registration
Statement on Form S-1 (No. 33-74866) and the
same is incorporated herein by reference.
*10(d)(4) An Outside Directors Stock Option Plan dated
July 25, 1996 was filed as Exhibit 99 to a
Registration Statement on Form S-8
(No. 333-20365) and the same is incorporated
herein by reference.
10(e) A Form of Indemnity Agreement between Registrant
and each of its directors was filed as
Exhibit 10(e) to Registration Statement on
Form S-1 (No. 33-74866) and the same is
incorporated by reference.
10(f) Lease between Triple S Plastics, Inc. and
Westinghouse Road Joint Venture regarding the
manufacturing and office building for the
Georgetown, Texas manufacturing facility, which
was filed as Exhibit 10(f) to the Company's
report on Form 10-K for the year ended
March 31, 1999.
10(g) Lease between Dynacept Corporation, Inc.,
subsidiary of Triple S Plastics, Inc., and
Dynacept Company, Inc., now known as MLM
Liquidation Corp., regarding the manufacturing
and office building for the Dynacept
Corporation, Inc. facility, which was filed as
Exhibit 10(g) to the Company's report on Form
10-K for the year ended March 31, 1999.
10(h) Lease between Triple S Plastics, Inc. and
Alliance Commerce Center No. 4, Ltd. regarding
the manufacturing and office building for the
Fort Worth, Texas manufacturing facility.
10(i) Lease between Triple S Plastics, Inc. and
Westinghouse Road Joint Venture regarding
warehouse space for the Georgetown, Texas
manufacturing facility.
10(j) A line of credit agreement between Registrant
and National City Bank of Michigan/Illinois
dated March 22, 2000.
*10(k) Employment agreement - Albert Christian Schauer,
which was filed as Exhibit 10 to the Company's
report on Form 10-Q for the quarter ended
September 30, 1999.
21 List of Subsidiaries
23 Consent of Experts and Counsel
27 Financial Data Schedule
*Indicates a compensatory arrangement
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Dynacept Corporation, Inc., a New York Corporation
Triple S Technologies Limited Partnership, a Michigan Corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Triple S Plastics, Inc.
Vicksburg, Michigan
We hereby consent to the incorporation by reference in the Company's
Registration Statements (No. 33-83214, No. 33-83212, No. 333-20365 and
No. 333-20451) of our reports dated May 4, 2000, relating to the consolidated
financial statements and schedule of Triple S Plastics, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended March 31, 2000.
BDO Seidman, LLP
Kalamazoo, Michigan
May 4, 2000
