10-K 1 tenk2.txt 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, 2001. ( ) 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: Name of each exchange Title of each Class 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 May 15, 2001, there were 3,814,169 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 $8,858,235 computed on the closing price on that date. Portions of the Company's definitive Proxy Statement for its 2001 Annual Meeting of Shareholders are incorporated by reference into Part III. Exhibit Index located at page 34 Page 1 of 37 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. In fiscal 1998, the Company consolidated the operations of its Victor Plastics plant into its Vicksburg facility and its Battle Creek facility. 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. 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 stereolithography, conventional modeling techniques and RTV rubber molding, along with advanced painting and decorating processes. The 30,000 square foot facility is located in Putnam County, New York. 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 facility in Fort Worth, Texas and other locations in Michigan. In fiscal year 2001, the Company began operations in a 23,000 square foot owned injection molding facility in Manaus, Brazil. Also, the Company acquired Burco Precision Products, Inc., a mold manufacturing business, located in Denton, Texas to support the growing tooling needs of Triple S Technologies customers. On July 13, 2000, the Company announced that it had entered into a merger agree- ment with Eimo Oyj of Lahti, Finland whereby the Company was to exchange its shares for Eimo Oyj shares. Following eight months of integration planning and pending regulatory approval, market conditions abruptly changed, resulting in termination of the merger agreement in March 2001. The costs related to the merger were significant and have been fully charged against fiscal year 2001 operating results. (b) Financial Information About Segments The Company has one primary operating segment - the design and manufacture of highly engineered thermoplastic components, principally for the telecommunica- tions, automotive, consumer products and medical markets. Other operations include mold making and rapid prototyping. 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, automotive, consumer products, medical and information technologies markets. Rapid prototyping, model making, mold and molded component manufacturing and assembly are integral parts of the business. During the most recent fiscal year, 92% of the Company's net sales came from 15 customers, with one customer representing 72% of net sales. The Company manufactures only custom components based on customer specifications and, therefore, is generally the exclusive source of supply for the particular product being sold to the customer, although customers will generally use more than one molder for other products which they sell to minimize single supplier dependence. 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. Ongoing developments in markets served by the Company continue to create 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. Furthermore, Original Equipment Manufacturers (OEMs) are continuing to outsource not only the manufacture of, and the design, engineering and assembly of, plastic components to qualified suppliers. OEMs are consolida- ting 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, automotive, consumer products, medical 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 2001 2000 1999 ------ -------- -------- -------- Telecommunications 77% 62% 37% Automotive 6% 10% 11% Consumer Products 5% 12% 25% Medical/Pharmaceutical 3% 8% 13% Information Technologies 2% 5% 11% Other 7% 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 72%, 59%, and 34% of total sales for fiscal 2001, 2000, and 1999, respectively. The loss of the Company's largest customer would have a significant near-term negative effect on the Company's operating performance as a whole and would necessitate significant operation adjustments and re-deployment of assets. The likelihood of the occurrence of this risk will be increased if the Company is unable to satisfy the global supply needs of this customer in the relative near term. 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 com- ponents, 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. Consumer Products Market. Customers in the consumer products market manufacture products such as home entertainment devices, office equipment, and other end-user products. 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. Medical Market. Customers in the medical 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. Sales and Marketing The Company currently markets its services on a national basis through its direct sales force of seven people and four independent manufacturers' represen- tative organizations. A major emphasis has been placed on the development of an aggressive, highly focused "Strategic Sales Initiative" to capture major, long-term relationships in our targeted markets. 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 Putnam County, New York, the Company 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 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 five 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. During fiscal 2001, the facilities in Vicksburg, Michigan and Battle Creek, Michigan received QS9000 certification. 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 400 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 Triple S has understandings with several of its major customers whereby the customers discuss long-range quantities and sales expectations for periods up to 12 months. Quantity expectations are given to Triple S and once a part is approved for production, Triple S begins production and fully expects that it will continue such production for the life of the product. The customer will typically provide volume indications for the next 3 months with a purchase order, or a call-off request, for quantities for the next 30 days. While Triple S fully expects that its customers intend to have it provide production for the products for which it has production indications, the customers rarely give irrevocable commitments. Accordingly, due to the close cooperation and collaboration with the customer, Triple S believes that there will be continuing involvement in the production of its customer's product. It does not, however, consider its open orders at any time to be indicative of future business activity. Competition The custom injection molding industry is highly competitive. To differentiate itself from its competitors, 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, 2001, the Company employed 755 full time and 5 part time employees, plus retained 101 temporary workers. 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 production and administrative 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 Denton, Texas 7,500 sq. ft. Mold manufacturing 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 Putnam County, New York 30,000 sq. ft. Rapid prototyping, model making and office Vicksburg, Michigan 40,000 sq. ft. Injection molding, post-molding operations, warehouse and office Manaus, Brazil 23,000 sq. ft. Injection molding, post-molding operations, warehouse and office Portage, Michigan 8,900 sq. ft. Office The Company owns its facilities except for the Texas and Portage, Michigan facilities, which are leased. The Company's current facilities are considered suitable and adequate for current and near-term production needs. Item 3. Legal Proceedings A dispute has arisen regarding the legal effect of the separate termination notices given by Triple S and Eimo Oyj in connection with the termination in March 2001 of the planned merger of the two companies. Eimo filed an action in federal court in Delaware in April 2001 seeking damages from Triple S, claiming that the termination of the merger agreement by Triple S, after Eimo itself had given notice of termination, constituted a breach of the agreement that entitles Eimo to damages consisting of certain expenses not exceeding $1,000,000, a termination fee of $6,400,000 and other unspecified damages. Triple S believes that Eimo's suit is without merit and has filed a motion to dismiss the case for failure to state a cause of action. Triple S will defend the action vigorously and does not believe that it owes Eimo a termination fee, expenses or other damages. Item 4. Submission of Matters to a Vote of Security Holders A meeting of Triple S shareholders was scheduled for March 8, 2001 at which time the shareholders were to be asked to vote on a merger between Triple S and Eimo Oyj of Lahti, Finland. In light of certain negative developments occurring in the market and the possible negative ramifications on the business of Eimo and Triple S, the meeting was adjourned to a later date with no other business being conducted. 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 ---- ----- -------- Walter J. Barkalow 53 President, Triple S Technologies, LP Douglas P. Bergmoser 61 Vice President Michigan Business Unit Daniel B. Canavan 47 Chairman of the Board and Secretary A. Christian Schauer 58 Chief Executive Officer and Chief Financial Officer William J. Stewart 57 Vice President Barry L. Stuart 52 Vice President and Chief Information Officer Catherine A. Taylor 37 Treasurer & Corporate Controller Victor V. Valentine, Jr. 55 President Phillip W. Weaver 48 Vice President Human Resources and Organizational Development Michael E. Zaagman 43 Vice President Strategic Accounts 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. Douglas P. Bergmoser joined the Company in January 2001 as Vice President Michigan Business Unit. Prior to joining the Company, Mr. Bergmoser was Operations Manager with A. Raymond Inc. from 1997 to January 2001 and for the three years prior to that was President of Crystal Vision Plastics, Inc. Daniel B. Canavan has been Chairman of the Board of the Company for more than five years. 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. 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 is in charge of the Company's information systems. Prior to joining the Company, he was an independent consultant, and served as Director of Strategic Resources for Tecom Industries, Inc. Catherine A. Taylor has been Corporate Controller since August 1996 and was named Treasurer in October 2000. Before joining the Company, Ms. Taylor served as Senior Financial Analyst for Tokai Rika USA, Inc. Victor V. Valentine, Jr, has been President of the Company for more than five years. 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 is Vice President Strategic Accounts and was previously Vice President Engineering and Technical Services from September 1999 to September 2000. 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. 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 ------ ------- -------- ------- --------- 2001 4th 25.5000 4.2500 4.5625 3rd 30.6250 22.1875 22.6250 2nd 32.5000 21.0000 32.0000 1st 24.2500 15.2500 24.2500 2000 4th 18.0000 13.5000 15.4375 3rd 13.8750 8.7188 13.8750 2nd 8.9375 4.3125 8.7500 1st 5.3750 2.7500 4.2500 As of May 15, 2001, there were approximately 200 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 1,200 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) ------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Income Statement Data: Net sales $155,168 $ 95,102 $ 67,772 $ 67,414 $ 64,608 Gross profit 26,940 17,927 11,125 11,830 10,464 Operating income (loss) 9,353 4,759 (1,166) 2,782 2,447 Interest expense, net 596 296 339 325 358 Other expense 347 -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before income tax expense (benefit) 8,410 4,463 (1,505) 2,457 2,089 Income tax expense (benefit) 3,710 1,692 (453) 860 760 -------- -------- -------- -------- -------- Net income (loss) before minority interest 4,700 2,771 (1,052) 1,597 1,329 Minority interest in loss of subsidiary 160 -- -- -- -- -------- -------- -------- -------- -------- Net income (loss) $ 4,860 $ 2,771 $ (1,052) $ 1,597 $ 1,329 ======== ======== ======== ======== ======== Earnings (Loss) Per Share Data: Basic $ 1.29 $ .74 $ (.28) $ .43 $ .36 ======== ======== ======== ======== ======== Diluted $ 1.08 $ .66 $ (.28) $ .43 $ .36 ======== ======== ======== ======== ======== Weighted average shares outstanding: Basic 3,779 3,755 3,745 3,740 3,734 Diluted 4,490 4,213 3,745 3,752 3,738 March 31 (in thousands) --------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Balance Sheet Data: Working capital $ 13,281 $ 12,028 $ 10,287 $ 12,168 $ 10,683 Total assets $ 67,255 $ 51,486 $ 50,809 $ 50,030 $ 48,870 Long-term debt, less current maturities $ 7,706 $ 4,618 $ 6,862 $ 6,603 $ 7,251 Shareholders' equity $ 39,155 $ 33,785 $ 30,953 $ 31,981 $ 30,353 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands) The Company is a full-service custom injection molder providing rapid prototyping 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. The Company's fiscal year is March 31 and, unless otherwise noted, references to fiscal 2001, 2000, and 1999 relate to the fiscal years ended March 31, 2001, 2000, and 1999. RESULTS OF OPERATIONS On March 1, 2001 the Company announced that, based on information provided to it by its principal customer, management expected significantly weaker sales to this customer than originally anticipated for its fiscal years ending March 31, 2002 and 2003, and that the overall effect of these weaker sales would significantly and adversely affect the growth of revenues in fiscal years 2002 and 2003. Furthermore, based on more recent information received from its principal customer, Triple S now expects that the overall effect of its weaker sales will significantly and adversely affect the anticipated growth of revenues in fiscal 2002 and will result in a significant reduction of the profits antici- pated in fiscal 2002. Management also currently believes that the weaker sales will result in a significant reduction of its anticipated revenue and profits in fiscal 2003. The Company also announced it will be reviewing its manufacturing capacity needs at its two Texas molding locations as a result of its expected decrease in production. On April 30, 2001, the Company announced that, following a review of production capacity needs at its two Texas molding facilities, it was transferring most production from its Ft. Worth plant to its Georgetown plant. The Company is planning to maintain a full-capability presence at the Ft. Worth facility and will return that plant to increased production levels as the results from new sales initiatives warrant. The production transfer is expected to be completed by July 1, 2001. Accordingly, in the fourth quarter of fiscal 2001, Triple S recorded a pre-tax charge of $279 of additional depreciation and other costs associated with the Ft. Worth realignment. In addition, expenses related to the terminated merger with Eimo Oyj of $2,808 and an impairment charge of $900 related to goodwill of Burco, as a result of changes in the business environment noted above, were recorded in fiscal 2001. These pre-tax charges are classified in General and Administrative Expenses in the Consolidated Statements of Income in fiscal 2001. 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 impairment charges related to the planned disposition of the Victor Plastics facility. The loss on closing and impairment charge included the write down of property, plant and equipment to market value of $1,151 and closedown expenses of $161. The adjustment to market value included a provision of $675 for the Tucson facility, Tucson machinery and equipment of $326 and the Victor Plastics facility of $150. Closedown expenses consisted of an inventory provision of $84 and severance payments of $77 related to the termination of all 100 employees at the Tucson facility. The market value of the property, plant, and equipment was the amount at which the assets could be sold in a current transaction between willing parties, other than in a forced or liquidation sale. This pre-tax charge is classified in General and Administrative Expenses in the Consolidated Statements of Income in fiscal 2000. The sale of the Tucson facility was final and all other costs were incurred as of December 1999. No additional provision for closing costs was necessary. 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, Triple S recorded a pre-tax provision of $1,441 for losses on accounts receivable of $1,221, inventories on hand for these customers of $200, and legal costs of $20. This pre-tax charge is classified in General and Administrative Expenses in the Consolidated Statements of Income in fiscal 1999. 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 2001 2000 1999 ------------------------------------------------------------------------------ Net sales 100.0% 100.0% 100.0% Cost of sales 82.6 81.1 83.6 Gross profit 17.4 18.9 16.4 Selling & marketing expenses 1.8 4.5 5.2 General & administrative expenses 9.6 9.4 12.9 Operating income (loss) 6.0 5.0 (1.7) Interest expense, net .4 .3 .5 Other expense .2 -- -- Income (loss) before income tax expense (benefit) 5.4 4.7 (2.2) Income tax expense (benefit) 2.4 1.8 (.6) Net income (loss) before minority interest 3.0 2.9 (1.6) Minority interest in net loss of subsidiary .1 -- -- Net income (loss) 3.1% 2.9% (1.6)% The following table summarizes each of the Company's markets as a percentage of total sales for fiscal years ended March 31: % of Sales ------------------------ Market 2001 2000 1999 ---------------------------------------------------------- Telecommunications 77% 62% 37% Automotive 6% 10% 11% Consumer Products 5% 12% 25% Medical/Pharmaceutical 3% 8% 13% Information Technologies 2% 5% 11% Other 7% 3% 3% FISCAL 2001 COMPARED TO FISCAL 2000 Net sales for fiscal year 2001 were $155,168, an increase of $60,066 or 63.2% over net sales of $95,102 for fiscal year 2000. As in the prior year, the Company's sales to all markets, except Telecommunications, showed percentage decreases. Such decreases are the result of exceptionally strong growth in the Telecommunications market, which comprised 77% of total net sales as compared to 62% in the previous fiscal year. Price increases during the year were moderate and customers continue to exhibit strong resistance in accepting price increases. The Company is continuing to accelerate its efforts at growing business with customers outside the Telecommunications market. Cost of sales represented 82.6% of net sales in fiscal 2001, compared to 81.1% in fiscal 2000. This slightly higher cost of sales percentage in 2001 is primarily attributed to material cost increases, which were not carried through to selling price increases, and start-up expenses in Brazil. The Company continues its efforts to maximize factory utilization and better balance its overhead structure. Selling and marketing expenses decreased as a percentage of net sales to 1.8% in fiscal 2001 compared with 4.5% in fiscal 2000. The decrease is primarily attributable to a change in distribution arrangements in the Telecommunications market from outside representative organizations to direct sales representation. General and administrative expenses represented 9.6% of net sales in fiscal 2001 compared to 9.4% in fiscal 2000. Note 14 to the consolidated financial state- ments explains the detail of several exceptional or unusual, one-time charges classified in general and administrative expenses in fiscal years 2001 and 2000. Such amounts need to be considered when looking at normal recurring general and administrative expenses. Excluding one-time charges, general and administrative expenses in fiscal 2001 were 7.0% as compared to 8.0% in fiscal 2000. The decrease in percentage is primarily due to overall control of expenses and the fact that several general and administrative expenses are fixed and do not vary with increasing sales activity. The Company's effective tax rate for 2001 was 44.1% (including state and local income taxes of 1.3%) compared to a rate of 37.9% in fiscal year 2000. The effective income tax rate for fiscal 2001 was adversely impacted by foreign subsidiary losses for which no income tax benefit was received and other non- deductible expenses for income tax purposes. FISCAL 2000 COMPARED TO FISCAL 1999 Net sales for fiscal year 2000 were $95,102, an increase of $27,330, or 40.3%, over net sales of $67,772 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. 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 was 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 was 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 related to decreased compensation as a percentage of net sales. General and administrative expenses represented 9.4% of net sales compared to 12.9% in the prior year. The decrease was primarily due to decreased compensa- tion and legal fees as a percentage of net sales. The Company's effective tax rate for 2000 was 37.9% (including state and local income taxes of 4.7%) compared to the prior year rate of (30.1)%. 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 $7,022 for fiscal 2001. Working capital increased by $1,253 in the year to $13,281, 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 $5,728 compared with the prior fiscal year-end, and represented 52 days sales outstanding, which is seven days higher than the end of the prior fiscal year. The increase in days sales outstanding is due to the increased sales level in the last month of the fiscal year and the timing of collections of current accounts receivable balances from a major customer. Inventories increased $1,591 compared to the prior fiscal year and represented 25 days in inventory compared with 34 days at the prior fiscal year-end. Inventories continue under good control and adequate provision has been made for all known obsolete and non-saleable items. Purchases of property, plant and equipment totaled $11,132 for fiscal 2001and consisted of equipment purchases at various locations to provide increased production capacity to support sales growth and the purchase of land and buildings in New York and Brazil. The Company had $998 in cash and cash equivalents at March 31, 2001. The Company also had outstanding borrowings totaling $10,280 at that date. Current maturities of long-term debt are $1,992 at March 31, 2001 with repayment due the following four fiscal years as follows: 2003 - $3,241; 2004 - $312; 2005 - $344; and 2006 - $361. The Company has $9,418 available under an unsecured line of credit with a bank, net of current borrowings under the agreement of $582. The Company anticipates investing, over the next two to three years, $3,000 in capital acquisitions for the Brazil operation. The Company believes that its available sources of cash, its cash and cash equivalents on hand, as well as anticipated cash flows from operations, will be sufficient to fund future operating and capital requirements and required debt repayments. 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. The Company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates. The Company enters into interest rate swaps to manage these economic risks. SFAS No. 133 did not have a significant effect on the consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101, as amended, summarizes and clarifies certain existing accounting principles for the recognition and classification of revenues in the financial statements. SAB 101 did not have a significant effect on the consolidated financial statements. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of Accounting Principles Board (APB) Opinion No. 25. FIN 44 clarifies the follow- ing: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non- compensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not have a material impact on the consolidated financial statements. OTHER MATTERS The information attached to this filing as Exhibit 99.1, Triple S Plastics, Inc. Safe Harbor Statement for Forward-Looking Statements, is hereby incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures About Market Risk As a result of its variable rate line of credit, the Company is exposed to the risk of rising interest rates. The $10,000 line of credit had an interest rate ranging from 7.5% to 9.0% for the twelve months ended March 31, 2001. For periods subsequent to September 30, 2000, the Company's Georgetown Industrial Development Corporation Revenue Bond provides for interest at a variable rate of 77% of the issuing bank's prime rate. The bonds had an interest rate ranging from 6.2% to 6.9% for the year ended March 31, 2001. In addition, the Company's Putnam County Industrial Revenue Bond provides for interest at a rate equal to the issuing bank's tax-exempt note rate. The bonds had an interest rate ranging from 3.75% to 5.1% for the year ended March 31, 2001. With respect to these bonds, the Company has entered into an interest rate swap agreement essentially to fix the interest rate. The notional amount of the swap agreement amounted to $4,500. The Company does not use derivative financial instruments for trading purposes. Item 8. Financial Statements and Supplementary Data The following financial statements are filed with this report as pages F-1 through F-16 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 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 2001 Annual Meeting of Shareholders to be held June 29, 2001, 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 2001 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 2001 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 2001 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 hereby incorporated herein by reference to the Company's definitive Proxy Statement for the 2001 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-16 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) Three reports were filed on Form 8-K during the three-month period ended March 31, 2001 and one was filed subsequent to March 31, 2001. - Form 8K, filed pursuant to Section 13 or 15(d), dated February 3, 2001. - Form 8K, filed pursuant to Section 13 or 15(d), dated March 1, 2001. - Form 8K, filed pursuant to Section 13 or 15(d), dated March 12, 2001. - Form 8K, filed pursuant to Section 13 or 15(d), dated April 30, 2001. (c) See Exhibit Index located on pages 33 through 35. (d) The following financial statement schedule is filed as part of this report as page F-18 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. 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: May 15, 2001 TRIPLE S PLASTICS, INC. By _/s/_A._Christian_Schauer__________ A. Christian Schauer, Chief Executive Officer and Chief Financial Officer and By _/s/_Catherine_A._Taylor___________ Catherine A. Taylor, Treasurer and 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 15th day of May 2001, 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 A. Christian Schauer, 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. _/s/_Daniel_B._Canavan_______ _/s/_Victor_V._Valentine,_Jr._______ Daniel B. Canavan Victor V. Valentine, Jr. Chairman of the Board Director _/s/_A._Christian_Schauer____ _/s/_David_L._Stewart_______________ A. Christian Schauer David L. Stewart Director Director _/s/_James_F._Hettinger______ _/s/_Robert_D._Bedilion_____________ James F. Hettinger Robert D. Bedilion _/s/_Evan_C._Harter__________ _/s/_Donald_W._Thomason_____________ Evan C. Harter Donald W. Thomason Director Director INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Consolidated Balance Sheets as of March 31, 2001 and 2000 F-2 Consolidated Statements of Income for the years ended March 31, 2001, 2000 and 1999 F-3 Consolidated Statements of Shareholders' Equity for the years ended March 31, 2001, 2000 and 1999 F-4 Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999 F-5 Notes to Consolidated Financial Statements F-6 Report of Independent Certified Public Accountants F-17 F-1 TRIPLE S PLASTICS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) MARCH 31 2001 2000 ----------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 998 $ 1,806 Accounts receivable, less allowance of $250 and $300 for possible losses 19,657 13,929 Refundable income taxes 665 -- Inventories (Note 3) 7,935 6,344 Deferred income taxes (Note 7) 674 427 Other 1,475 656 -------- -------- Total Current Assets 31,404 23,162 -------- -------- Property, Plant and Equipment (Notes 2, 5 and 6): Land and buildings 14,119 8,228 Leasehold improvements 1,064 617 Machinery and equipment 31,346 26,989 Office furniture and equipment 5,507 4,648 -------- -------- 52,036 40,482 Less accumulated depreciation and amortization 20,737 16,726 -------- -------- Net Property, Plant and Equipment 31,299 23,756 Other: Goodwill, net of accumulated amortization of $2,153 and $848 (Notes 12 and 14) 3,737 3,641 Miscellaneous (Notes 2, 8 and 14) 815 927 -------- -------- Total Other Assets 4,552 4,568 -------- -------- $ 67,255 $ 51,486 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable (Note 4) $ 582 -- Accounts payable 9,699 $ 5,543 Accrued compensation 2,304 1,570 Income taxes -- 831 Other current liabilities 3,546 1,878 Current maturities of long-term debt (Note 5) 1,992 1,312 -------- -------- Total Current Liabilities 18,123 11,134 Long-Term Debt, less current maturities (Note 5) 7,706 4,618 Other Liabilities (Note 8 and 15) 392 -- Deferred Income Taxes (Note 7) 1,879 1,949 -------- -------- Total Liabilities 28,100 17,701 -------- -------- Commitments and Contingencies (Notes 6, 8, and 16) 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, 3,814,169 and 3,759,716 shares issued and outstanding 15,143 14,529 Retained earnings 24,116 19,256 Accumulated other comprehensive loss (Note 15) (104) -- -------- -------- Total Shareholders' Equity 39,155 33,785 -------- -------- $ 67,255 $ 51,486 ======== ======== See accompanying notes to consolidated financial statements. F-2 TRIPLE S PLASTICS, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Years ended March 31 ------------------------------ 2001 2000 1999 -------- -------- -------- Net Sales $155,168 $ 95,102 $ 67,772 Cost of Sales 128,228 77,175 56,647 -------- -------- -------- Gross Profit 26,940 17,927 11,125 Selling and Marketing Expenses 2,798 4,235 3,521 General and Administrative Expenses (Note 14) 14,789 8,933 8,770 -------- -------- -------- Operating Income (Loss) 9,353 4,759 (1,166) -------- -------- -------- Other Expense: Interest expense, net 596 296 339 Other expense 347 -- -- -------- -------- -------- Total Other Expense 943 296 339 -------- -------- -------- Income (Loss) Before Income Tax Expense (Benefit) 8,410 4,463 (1,505) Income Tax Expense (Benefit) (Note 7) 3,710 1,692 (453) -------- -------- -------- Net Income (Loss) Before Minority Interest 4,700 2,771 (1,052) Minority Interest in Net Loss of Subsidiary 160 -- -- -------- -------- -------- Net Income (Loss) $ 4,860 $ 2,771 $ (1,052) ======== ======== ======== Earnings (Loss) Per Share (Note 11): Basic $ 1.29 $ .74 $ (.28) ======== ======== ======== Diluted $ 1.08 $ .66 $ (.28) ======== ======== ======== Shares Used in Computing Earnings Per Share (Note 11): Basic 3,779 3,755 3,745 Diluted 4,490 4,213 3,745 See accompanying notes to consolidated financial statements. F-3

F-4 TRIPLE S PLASTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Years ended March 31 ------------------------------ 2001 2000 1999 -------- -------- -------- Operating Activities Net income (loss) $ 4,860 $ 2,771 $ (1,052) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation 4,566 3,766 3,684 Amortization and impairment charge in 2001 1,348 293 169 Provision for losses on accounts receivable -- 93 1,071 Deferred income taxes (317) (301) (177) Loss (gain) on sale of property, plant and equipment 298 966 (12) Minority interest in loss of subsidiary (160) -- -- Changes in assets and liabilities, net of amounts scquired from business acquisition: Receivables: Trade (5,643) (4,535) 2,708 Refundable income taxes (665) 737 (930) Inventories (1,581) (1,958) (690) Other assets (641) (101) (333) Accounts payable and accruals 5,788 (349) 1,228 Income taxes payable (831) 831 -- ------- ------- ------- Cash Provided by Operating Activities 7,022 2,213 5,666 Investing Activities Purchases of property, plant and equipment (11,132) (7,149) (3,437) Proceeds from sale of property, plant and equipment 17 3,353 18 Decrease in restricted cash -- -- 2,932 Business acquisition (Notes 9 and 12) (1,310) -- (909) ------- ------- ------- Cash Used in Investing Activities (12,425) (3,796) (1,396) Financing Activities Proceeds from issuance of common stock 614 61 24 Net borrowings under note payable 582 -- -- Principal payments on long-term debt (1,761) (2,266) (2,483) Proceeds from issuance of long-term debt 5,160 -- -- Other financing activities 16 -- -- ------- ------- ------- Cash Provided By (Used in) Financing Activities 4,611 (2,205) (2,459) ------- ------- ------- Increase (Decrease) in Cash and Cash Equivalents (792) (3,788) 1,811 Effect of Exchange Rate Changes on Cash and Cash Equivalents (16) -- -- Cash and Cash Equivalents, beginning of year 1,806 5,594 3,783 ------- ------- ------- Cash and Cash Equivalents, end of year $ 998 $ 1,806 $ 5,594 ======= ======= ======= See accompanying notes to consolidated financial statements. F-5 TRIPLE S PLASTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 1. Summary of Significant Accounting Policies Business Triple S Plastics, Inc. (the Company) is a plastics engineering services company, serving the telecommunications, automotive, consumer products, medical 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, 2001, 2000 and 1999, a telecommunications customer accounted for 72%, 59%, and 34% 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 3 to 30 years. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and joint venture over which it has financial or management control. All material intercompany accounts and transactions have been eliminated. 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 value of cash and cash equivalents, receivables, and accounts payable approximate fair value based upon the liquidity and short-term nature of the items. The carrying value of notes payable and long-term debt approxi- mates the fair value based upon short-term and long-term borrowings at approximate market interest rates. The fair value of the interest rate swap is discussed in Note 15. Shipping and Handling Costs Amounts billed to customers for shipping and handling are recorded as revenue. Shipping and handling costs incurred by the Company are included in cost of sales. 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 finan- cial statements. Actual results could differ from those estimates. F-6 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. Molds are constructed to customer specifications. When mold construction is complete, samples are produced and are measured against customer-required tolerances. Samples are shipped when the required tolerances are met. 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. Foreign Currency Translation The financial statements of the Company's international affiliate is translated into U.S. dollars using current exchange rates for the balance sheets and average exchange rates for statements of income and cash flows. Unrealized translation adjustments are included in accumulated other comprehensive loss in shareholders' equity. Transaction gains and losses, such as those resulting from the settlement of foreign currency receivables or payables, are included in current net income. Cash and Cash Equivalents Cash and cash equivalents consist of 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. Interest Rate Swap Agreements The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate borrowings. Interest rate swap agreements are contracts to exchange floating rates for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts. The notional amounts of interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on interest rate agreements is recognized as an adjustment to interest expense. The counterparty to the Company's interest rate swap agreements is a commercial bank with which the Company has other financial relationships. While the Company is exposed to credit loss in the event of nonperformance by the counterparty, the Company does not anticipate nonperformance by the other party, and no material loss would be expected from such nonperformance. The Company does not enter into interest rate swap agreements, or other derivative financial instruments, for trading purposes. The Company has formally documented the relationship between the interest rate swap and the long-term borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking the derivative that has been designated as a cash flow hedge to the specific liability on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. If the Company determines that the derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company will discontinue hedge accounting prospectively. 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 is 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 (see also Note 14). 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. F-7 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 No. 128 sim- plifies the standards for computing EPS and makes them comparable to inter- national 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 infor- mation 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's primary operations are in one segment - the design and manufacture of highly engineered thermoplastic components. Other operations include mold making and rapid prototyping. The Company has aggregated its operating segments into a single reportable segment as prescribed by SFAS No. 131. Revenue from external customers for each type of product and service is not reported separately as it is not considered practicable to do so. 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. The Company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates. The Company enters into interest rate swaps to manage these economic risks. SFAS No. 133 did not have a significant effect on the consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101, as amended, summarizes and clarifies certain existing accounting principles for the recognition and classification of revenues in the financial statements. SAB did not have a significant effect on the consolidated financial statements. In March 2000, the FASB issued FASB Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of Accounting Principles Board (APB) Opinion No. 25. FIN 44 clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non- compensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN 44 did not have a material impact on the consolidated finan- cial statements. Reclassifications Certain prior year amounts have been reclassified to conform to the 2001 presentation. 2. Asset Held for Sale As discussed in Note 14, the Company's Tucson, Arizona facility was sold in December 1999 and, at that time, the Victor Plastics facility was 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. In September 2000, management decided to reactivate the Victor Plastics facility. The asset has been reclassified from "asset held for sale" to "property, plant and equipment", and depreciation of the asset has been resumed. F-8 3. Inventories Inventories are summarized as follows: March 31 ---------------------- 2001 2000 -------- -------- Raw materials and packaging $ 5,070 $ 3,658 Finished goods and work-in-process 2,865 2,686 -------- -------- Total Inventories $ 7,935 $ 6,344 ======== ======== 4. Line of Credit The Company has a $10,000 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 (effectively 7.5% at March 31, 2001). There was $582 outstanding under this agreement at March 31, 2001. There were no borrowings under this agreement at March 31, 2000. 5. Long-Term Debt Long-term debt consisted of: March 31 ---------------------- 2001 2000 -------- -------- Putnam County Industrial Revenue Bond $ 4,500 -- 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) 1,080 1,560 Note payable to Manaus Refrigerantes Ltda. 576 -- Mortgage note payable to bank 542 598 Georgetown Industrial Development Corporation Revenue Bond 270 1,042 -------- -------- Long-term debt 9,698 5,930 Current maturities of long-term debt 1,992 1,312 -------- -------- Long-term debt, less current maturities $ 7,706 $ 4,618 ======== ======== The Putnam County Industrial Development Bond provides for annual principal payments ranging from $220 to $395 plus interest through January 2016. In addition, the bonds require the establishment of a separate bank account funded at levels indicated in the various bond agreements. These funds were equal to or in excess of required balances as of March 31, 2001. The bonds provide for interest at a variable rate equal to the issuing bank's tax-exempt rate. In connection with the bonds, the Company entered into an interest rate swap agreement in January 2001, expiring in December 2008, essentially to fix the interest rate at 4.51%. At March 31, 2001, the interest rate in effect on these bonds was 3.75% and the notional amount of the swap agreement amounted to $4,500. The bonds are collateralized by a letter of credit with a bank. 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 a 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 a bank. The note payable to Manaus Refrigerantes Ltda. provides for monthly principal payments ranging from $12 to $43 plus interest through August 2002. Interest is fixed at 6%. The note is unsecured. F-9 The mortgage note payable to the bank, provides for monthly payments of $8.5, including interest at 7.95% through February 2008. The Georgetown Industrial Development Corporation Revenue Bond provides for monthly principal payments ranging from $63 to $80 plus interest through August 2001. The bonds provide for interest at 77% of the bank's prime rate, effectively 6.16% at March 31, 2001. The above debt, except the notes payable to Dynacept Company and Manaus Refrigerantes Ltda., 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 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 2002 are: 2003 - $3,241; 2004 - $312; 2005 - $344; and 2006 - $361. 6. Leases and Commitments The Company leases certain manufacturing facilities and transportation equipment under operating leases expiring at various dates through 2006. 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: 2002 - $1,003; 2003 - $785; 2004 - $444; 2005 - $127; 2006 - $9. Total lease expense for facilities and equipment amounted to $1,420 in 2001; $1,066 in 2000; and $706 in 1999. 7. Income Taxes Income tax expense (benefit) consisted of the following: Years Ended March 31 ------------------------------ 2001 2000 1999 -------- -------- -------- Current: Federal $ 3,881 $ 1,781 $ (276) State and local 146 212 -- -------- -------- -------- 4,027 1,993 (276) Deferred (317) (301) (177) -------- -------- -------- Total income tax expense (benefit) $ 3,710 $ 1,692 $ (453) ======== ======== ======== 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 were as follows: March 31 -------------------- 2001 2000 -------- -------- Deferred tax assets Accrued compensation and benefits $ 445 $ 72 Inventory valuation and related reserves 314 227 Deferred revenue 123 -- Accounts receivable reserves 85 143 Accrued expenses related to plant closing -- 51 Other 41 58 -------- -------- 1,008 551 -------- -------- Deferred tax liabilities Accumulated depreciation and amortization (2,113) (1,949) Accounts receivable valuation (56) (111) Other (44) (13) -------- -------- (2,213) (2,073) -------- -------- Net deferred tax liability $(1,205) $(1,522) ======== ======== F- 10 A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate was as follows: Years Ended March 31 -------------------------------- 2001 2000 1999 -------- -------- -------- Statutory federal income tax rate 34.0% 34.0% (34.0%) Non-deductible goodwill 4.1 -- -- Foreign subsidiary losses for which no income tax benefit was received 2.6 -- -- State and local income taxes, net of federal income tax effect 1.3 4.7 -- Other 2.1 (.8) 3.9 -------- -------- -------- Effective income tax rate 44.1% 37.9% (30.1%) ======== ======== ======== 8. Employee Benefit Plans 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 $128, $168, and $131 for 2001, 2000 and 1999, respectively. The Company has a deferred compensation plan that enables certain employees of the Company to defer receipt of a portion of their compensation. The Company funds the deferred compensation liabilities by making contributions to rabbi trusts. Contributions consist of investments in money market and mutual funds. During the fourth quarter of fiscal 2001, the Company adopted Emerging Issues Task Force (EITF) Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and Invested. The adoption of this accounting standard resulted in an increase in other assets and an increase in other liabilities of approximately $304. The following information pertains to trading securities included in the Deferred Compensation Plan at March 31, 2001: Fair Value - Equity securities $ 304 Cost - Equity securities $ 484 Gross Unrealized Losses (Included in Earnings) - Equity securities $ 180 9. Supplemental Disclosures of Cash Flow Information Years Ended March 31 ------------------------------ 2001 2000 1999 -------- -------- -------- Operating Activities: Interest paid, net of amount capitalized $ 665 $ 500 $ 614 Interest received $ 68 $ 193 $ 264 Income taxes paid, net of refunds received $ 5,108 $ 124 $ 654 Non-cash Investing and Financing Activities: Capital expenditures included in accounts payable $ -- $ -- $ 688 Long-term debt and notes payable related to acquisition $ 369 $ -- $ 2,730 Equipment addition related to acquisition $ 274 $ -- $ -- F-11 10. Common 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 may 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. The Company also maintains an Outside Director Stock Option Plan and has reserved 300,000 shares of common stock for such plan. The options may 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.

F-19 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. An amendment to the Business Loan Agreement dated March 22, 2000 was filed as Exhibit 10(j) to the Company's report on Form 10-K for the year ended March 31, 2000. 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 Triple S Plastics, Inc. and Alliance Commerce Center No. 4, Ltd. regarding the manufacturing and office building for the Fort Worth, Texas manu- facturing facility, which was filed as Exhibit 10(h) to the Company's report on Form 10-K for the year ended March 31, 2000. 10(h) Lease between Triple S Plastics, Inc. and Westinghouse Road Joint Venture regarding warehouse space for the Georgetown, Texas manufacturing facility, which was filed as Exhibit 10(i) to the Company's report on Form 10-K for the year ended March 31, 2000. *10(i) 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. 10(j)(1) A Lease Agreement between Registrant and County of Putnam Industrial Development Agency dated December 1, 2000. 10(j)(2) A Bond Purchase Agreement among Registrant, County of Putnam Industrial Development Agency and NatCity Investments, Inc., dated December 28, 2000. 10(j)(3) A Reimbursement Agreement between Registrant and National City Bank of Michigan/Illinois dated December 1, 2000 backing the County of Putnam Industrial Revenue Bonds. 10(k) Lease between Triple S Plastics, Inc. and Manaus Refrigerantes Ltda. regarding the manufacturing and office building for the Manaus, Brazil facility. 21 List of Subsidiaries 23 Consent of Experts and Counsel 99.1 Safe Harbor Statement for Forward-Looking Statements *Indicates a compensatory arrangement EXHIBIT 21 LIST OF SUBSIDIARIES Dynacept Corporation, Inc., a Michigan Corporation Triple S Technologies Limited Partnership, a Michigan Limited Partnership Burco Precision Products, Inc., a Texas Corporation Triple S Cosmosplast da Amazonia, Ltda., a foreign subsidiary located in Manaus, Brazil 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 3, 2001, 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, 2001. BDO Seidman, LLP Kalamazoo, Michigan May 3, 2001

TRIPLE S PLASTICS INC 10-K