January 23, 2003
APPLIED EXTRUSION TECHNOLOGIES, INC. ANNOUNCES FISCAL 2002 YEAR-END RESULTS
NEW CASTLE, Del.--(BUSINESS WIRE)--Jan. 23, 2003--Applied Extrusion Technologies, Inc. (NASDAQ NMS - AETC) today announced financial results for its year ended September 30, 2002.
FULL YEAR FISCAL 2002 RESULTS
Sales for fiscal 2002 of $252,092,000 declined $27,748,000 compared with fiscal 2001. Of this decline, $20,258,000 is due to the sale of the Company's nets and nonwovens business in September 2001, and the remainder is due to a decline in oriented polypropylene (OPP) films sales. Fiscal 2002 OPP films sales declined by $7,490,000, primarily due to a 5.3 percent decrease in average selling price resulting from unfavorable industry-wide conditions, especially during the first half of the year, partially offset by a 2.6 percent increase in sales volume. During fiscal 2002 the North American OPP films industry had substantial excess capacity caused, in part, by inventory de-stocking throughout the supply chain, which began after September 11, 2001 and continued throughout 2002.
As previously announced, the Company executed selective shutdowns of its production lines during the fourth quarter of fiscal 2002. As a result, the Company recorded a charge to cost of sales of approximately $3,400,000, representing unabsorbed overhead costs resulting from the shutdown. In addition, the Company recorded a $1,492,000 charge to cost of sales for start-up costs related to a new OPP film line, which, when fully operational, is expected to be able to produce a number of unique films.
Gross profit for fiscal 2002 was $43,993,000 or 17.5 percent of sales, compared with $57,121,000 or 20.4 percent of sales, for fiscal 2001. Of the $13,128,000 decline, $5,392,000 relates to the divested nets and nonwovens business, with the remaining decrease of $7,736,000 attributable to the OPP films business. For the OPP films business alone, gross margin was 17.5 percent of sales in 2002 compared with
- 19.9 percent of sales in 2001. OPP films gross margin decreased due to a 5.3 percent decline in average selling price, temporary plant shutdown costs, and start-up costs associated with a new production line, as discussed above, all of which was offset in part by lower cost of goods sold and increased sales volume.
In September 2002, the Company announced a restructuring and reorganization aimed at significantly reducing its cost structure. The plan includes closure of the Massachusetts-based corporate office, a realignment of the Company's business units and a reorganization of key roles and responsibilities. The reorganization eliminated 50 full time positions and is expected to be completed by March 31, 2003. With these actions, the Company anticipates annualized cost savings of approximately $5,000,000, the majority of which will begin to be realized in fiscal 2003. In connection with the cost reduction program, the Company recorded a charge in the fourth quarter of fiscal 2002 of $9,002,000 comprised primarily of severance costs and lease obligations.
Operating loss for fiscal 2002 was $4,649,000, compared with operating profit of $11,600,000 in fiscal 2001. Excluding charges for the temporary plant shutdown and restructuring both of which are described above, costs associated with the restatement and the integration of the QPF acquisition which are described in the table on page 3, and the loss on sale of assets related to the nets and nonwovens business ($375,000), operating profit in fiscal 2002 was $10,445,000. Operating profit for fiscal 2001 was $19,356,000, excluding the costs related to the divested nets and nonwovens business ($5,208,000) and QPF acquisition costs ($2,548,000). The $8,911,000 decline in adjusted operating profit in fiscal 2002 versus adjusted operating profit in fiscal 2001 was driven primarily by lower average selling price which negatively impacted gross profit, and higher OPP film operating expenses due primarily to an increase in bad debt expense, and expenses related to the development of a number of new highly differentiated products.
Net loss for fiscal 2002 was $31,751,000, or $2.55 per share, of which $16,657,000 was from operations and the remainder was from restructuring, temporary plant shutdown, acquisition integration, the loss on sale of assets, and costs associated with the restatement, all of which are described above or in the table on page three. Net loss for fiscal 2001 was $26,412,000, or $2.23 per share, of which $8,392,000 was from operations, $10,264,000 was related to the deferred tax write-off, and $7,756,000 were the costs related to the divested nets and nonwovens business and QPF acquisition.
RESTATEMENT
This year the Company restated its financial statements for fiscal 1998 through 2001 and for the first three quarters of fiscal 2002. The effects of this restatement are detailed in the Form 10-K for fiscal 2002, which has been filed with the Securities and Exchange Commission and will be mailed shortly to the Company's shareholders. As shown there, the cumulative impact through June 30, 2002 from all restated items was to decrease our previously reported net assets by approximately $13,700,000. It also shows the impact on previously reported net losses in each of the restated periods for each restated item which led to this decrease. The effect of the change in accounting for the sale-leaseback transactions alone would have resulted in a cumulative decrease in our previously reported net assets of approximately $16,700,000 over these periods. The cumulative effect of the other restated items taken together (some of which offset others) would have resulted in an increase in our previously reported net assets of approximately $3,000,000. Other than the significant expenses related to the restatement process, the items underlying the restatement will not increase the amount of our obligations going forward or increase future cash needs.
RECONCILIATION OF EXPECTED TO ACTUAL FY 2002 RESULTS
The fiscal 2002 net loss of $31,751,000 is significantly more than the loss of $17,500,000 we foresaw in September. A reconciliation of the $14,251,000 variance is as follows:
Change in sale-leaseback deferred gain period (non-cash) $4,300,000
Deferred tax write-off (non-cash) 2,500,000
Line start-up costs, including interest previously
capitalized 2,600,000
Restatement costs 1,400,000
QPF acquisition integration costs, previously charged to
purchase accounting reserve 1,100,000
Loss on sale of inventory, assets and other costs 2,351,000
------------
Total variance $14,251,000
============
FOURTH QUARTER 2002 RESULTS
Sales for the fourth quarter of fiscal 2002 were $64,770,000. Compared with sales for the fourth quarter of 2001 of $71,713,000, sales decreased $6,943,000, of which $4,486,000 was due to the sale of the nets and nonwovens business. The remaining decline of $2,457,000 is due to a decrease in OPP film average selling price primarily as a result of the sale of excess and obsolete inventory in the fourth quarter, offset in part by higher sales volume in the fourth quarter of fiscal 2002.
Gross profit for the fourth quarter of fiscal 2002 was $6,552,0000. Excluding $3,367,000 of plant shutdown costs discussed above, gross profit was $9,919,000, compared with $16,556,000 for the fourth quarter of fiscal 2001. Of the $6,637,000 decline in adjusted gross profit, $1,267,000 related to the sale of the nets and nonwovens business and $5,370,000 related to the OPP films business. Of the $5,370,000 decline in OPP film gross profit, $2,457,000 related to the decline in sales discussed above, and the remainder related to a 16.2 percent increase in raw material costs in the fourth quarter of fiscal 2002 compared with the same period in fiscal 2001, offset in part by lower manufacturing costs.
Operating loss for the fourth quarter of fiscal 2002 was $15,071,000, compared with operating profit of $344,000 in fiscal 2001. Excluding charges for the temporary plant shutdown, restructuring, restatement expenses, and the loss on sale of assets, all of which have been disclosed or are referenced in the table above, operating loss in the fourth quarter of fiscal 2002 was $927,000.
Operating profit for the fourth quarter of fiscal 2001, excluding costs related to the divested nets and nonwoven business of $6,633,000, was $6,977,000. Of the $7,904,000 decline in adjusted operating profit from the fourth quarter of fiscal 2001 to the fourth quarter of fiscal 2002, $5,370,000 is due to the decline in OPP films gross profit discussed above, and the remaining $2,534,000 is due to higher operating expenses. OPP film operating expenses increased due to expenses related to the restatement process, an increase in bad debt expense, and expenses related to the development of a number of new highly differentiated products.
Net loss for the fourth quarter of fiscal 2002 was $22,590,000, or $1.80 per share, of which $8,446,000 was from operations, and the remainder was from restructuring, temporary plant shutdown, loss on sale of assets, and costs associated with the restatement, all of which are discussed below. Net loss for the fourth quarter of fiscal 2001 was $20,329,000, or $1.80 per share, of which $13,686,000 was attributable to the deferred tax write-off and $6,633,000 was related to the divested nets and nonwoven business. Therefore, adjusted net loss from operations was $10,000 in fiscal 2001. The change in adjusted net income from fiscal 2001 to fiscal 2002 of $8,436,000 was driven by all of the factors discussed above and a $532,000 increase in interest expense.
BALANCE SHEET, CASH FLOW AND LIQUIDITY
On September 30, 2002 the Company had approximately $17,500,000 of cash and cash equivalents and no borrowings under its revolving credit facility. Net debt (total debt less cash) on September 30, 2002 was approximately $260,000,000, representing 82 percent of total capitalization. For the twelve months ended September 30, 2002, the Company generated EBITDA of approximately $31,200,000, resulting in an interest coverage ratio of approximately 1.0.
On January 21, 2003, the Company entered into an amended and restated, $50,000,000 three-year, revolving credit agreement. This agreement gives the Company the ability to borrow based on specified percentages of eligible accounts receivable and inventories. The maximum borrowing availability under this facility is currently $19,000,000. The Company expects the borrowing availability to increase to $50,000,000, subject to syndication and certain reserves, once the banks have completed their diligence review of the Company's assets.
NASDAQ LISTING
As a result of the Company filing its 2002 Form 10-K prior to the January 23, 2003 deadline specified in the previously-announced delisting notification from the Nasdaq Listings Qualifications Department received on January 15, 2003, the Company will not be delisted and the fifth letter "E" will be removed from its normal trading symbol "AETC".
COMPANY COMMENTS
"Fiscal 2002 was a very disappointing year for the Company, as weak demand and excess industry capacity resulted in lower average selling prices, decreased margins and substantial losses," commented Amin J. Khoury, Chairman and Chief Executive Officer. "More disappointing is the fact that we have incurred net losses of over $58,000,000 in the past two years. In addition, we have significantly reduced our liquidity through heavy spending on capital equipment. Clearly, this performance is unacceptable. While we believe that market conditions will improve, we can no longer rely on tightening capacity utilization and improved market conditions to return the Company to profitability and generate acceptable returns for our investors."
"Today we are at a critical juncture as we break from the past and establish the Company on a new course," continued Mr. Khoury. "Specifically, we need to effect a turnaround in profitability and have an intense focus on performance in the short term, and dramatically increase profitability and return on investment in the long term. As the Company's Chairman and now CEO, I accept this challenge, and, with the recent restructuring, our entire organization is dedicated to achieving these objectives."
"In 2003, regardless of market supply demand dynamics, our resolve is to deliver positive free cash flow, which will require a very substantial improvement in EBITDA over fiscal 2002, careful control of capital expenditures, and continuous re-evaluation of our cost structure," continued Mr. Khoury. "We believe that our financial results for the first quarter of 2003, which ended on December 31, 2002, will reflect our progress towards this goal, with significant increases in both revenue and EBITDA compared with last year," concluded Mr. Khoury.
CONFERENCE CALL
The Company will hold a conference call at 4:00 PM Eastern Time today to discuss the results. To listen live via the Internet, visit the Investor Relations section of AET's website at http://www.aetfilms.com. To access the conference call by phone, dial 1-877-777-1971 and reference access code "AET Call". A taped replay of the conference call will also be available from approximately 11:00 PM Eastern Time today until midnight on January 29, 2003. To listen to the replay, dial 1-800-475-6701 from within the U.S. or 320-365-3844 from outside the U.S. and enter access code 670853.
Applied Extrusion Technologies, Inc. is a leading North American developer and manufacturer of specialized oriented polypropylene (OPP) films used primarily in consumer products labeling and flexible packaging applications.
Except for the historical information contained herein, the matters discussed in this report are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, including those risks related to the ability to implement a price increase and related volume losses, the timely development and acceptance of new products, fluctuations in raw materials and other production costs, the ability to satisfy our debt service requirements, the loss of one or more significant customers, the impact of competitive products and pricing, the timely completion of capital projects, the success of the Company's efforts to access capital markets on satisfactory terms, and to acquire, integrate, and operate new businesses and expand into new markets, as well as other risks detailed in Exhibit 99.1 of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002 and from time to time in the Company's other reports filed with the Securities and Exchange Commission.
APPLIED EXTRUSION TECHNOLOGIES, INC.
Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
-----------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
--------- --------- --------- ---------
As Restated As Restated
----------- -----------
Sales $ 64,770 $ 71,713 $252,092 $279,840
Cost of sales 58,218 55,157 208,099 222,719
--------- --------- --------- ---------
Gross profit 6,552 16,556 43,993 57,121
Operating expenses:
Selling,
general and
administrative 10,870 7,497 32,085 28,639
Research and
development 1,751 1,661 6,605 6,419
Restructuring 9,002 - 9,002 -
Loss on sale of
assets - 7,054 - 7,054
Share incentive
plan - - - 861
QPF acquisition
costs - - 950 2,548
--------- --------- --------- ----------
21,623 16,212 48,642 45,521
Operating profit (loss) (15,071) 344 (4,649) 11,600
Non operating expenses:
Interest
expense, net 7,519 6,987 29,147 27,748
--------- --------- --------- ---------
Loss before income taxes (22,590) (6,643) (33,796) (16,148)
Income tax expense
(benefit) - 13,686 (2,045) 10,264
--------- --------- --------- ---------
Net loss $(22,590) $(20,329) $(31,751) $(26,412)
========= ========= ========= =========
Loss per common share $ (1.80) $ (1.80) $ (2.55) $ (2.23)
========= ========= ========= =========
Average common shares
outstanding 12,523 11,263 12,465 11,854
========= ========= ========= =========
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For more information contact:
Joan Stone, Applied Extrusion Technologies, Inc.
Phone: 302-326-5648
SOURCE: Applied Extrusion Technologies, Inc.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Applied Extrusion Technologies' business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.
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