<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 333-32041
---------------
PRECISE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1205268
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Mosside Boulevard
North Versailles, Pennsylvania 15137-2553
(Address of principal executive offices) (Zip Code)
(412) 823-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No ____
As of May 1, 1998, one share of the Company's Common Stock was
outstanding.
1
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,466,131 $ 560,059
Accounts receivable, net 14,649,849 12,944,644
Inventories 6,055,755 5,855,709
Prepaid expenses and other 378,939 589,156
Deferred income taxes 989,341 989,341
------------ -------------
Total current assets 23,540,015 20,938,909
Property, plant and equipment, net 44,685,791 44,830,561
Intangible and other assets, net 27,303,893 27,978,091
============ =============
Total assets $95,529,699 $93,747,561
============ =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 6,307,480 $ 5,882,842
Accounts payable 6,310,136 5,805,598
Accrued liabilities 4,533,118 2,568,161
Tooling deposits 1,897,426 1,552,200
------------- ------------
Total current liabilities 19,048,160 15,808,801
Long-term debt, less current maturities 86,202,089 86,868,663
Deferred income taxes 1,431,162 1,431,162
Commitments and Contingencies -- --
Stockholder's deficit:
Common stock, no par value; 1,000 shares authorized, and 1
share issued and outstanding at March 31, 1998 and
December 31, 1997, respectively. 1,000 1,000
Additional paid-in-capital 3,554,711 3,554,711
Minimum pension liability (204,172) (204,172)
Retained deficit (14,503,251) (13,712,604)
-------------- ------------
Total stockholder's deficit (11,151,712) (10,361,065)
============== ============
Total liabilities and stockholder's deficit $ 95,529,699 $93,747,561
============== ============
</TABLE>
See accompanying notes.
3
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
-----------------------------
1998 1997
---- ----
(unaudited)
Net sales $23,395,360 $26,324,663
Cost of sales 18,913,434 21,612,984
----------- -----------
Gross profit 4,481,926 4,711,679
Selling, general, and administrative 2,502,879 2,138,345
Plant closure costs 30,648 --
Amortization of intangible assets 313,680 275,251
----------- -----------
Operating income 1,634,719 2,298,083
Other expense (income):
Interest expense 2,625,498 1,848,075
Other (12,611) (3,839)
----------- -----------
(Loss) income before income taxes (978,168) 453,847
(Benefit) provision for income taxes (187,521) 304,206
----------- -----------
Net (loss) income $ (790,647) $ 149,641
=========== ===========
See accompanying notes.
4
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Operating Activities
Net (loss) income $ (790,647) $ 149,641
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 1,853,113 1,604,329
Amortization of original issue discount and financing fees 139,317 195,419
Loss on sale of fixed assets 29,712 43,364
Changes in assets and liabilities:
Accounts receivable (1,705,205) 50,940
Inventories (200,046) 486,918
Prepaid expenses and other 437,871 26,150
Accounts payable 504,538 (986,309)
Accrued liabilities 1,964,957 (1,192,410)
Tooling deposits 345,226 325,245
--------- ----------
Net cash provided by operating activities 2,578,836 703,287
Investing Activities
Capital expenditures (1,269,328) (823,812)
Proceeds from sale of fixed assets 48,920 19,000
---------- -----------
Net cash used in investing activities (1,220,408) (804,812)
Financing Activities
Borrowings on revolving line of credit 1,400,000 700,000
Payments on revolving line of credit (1,000,000) (300,000)
Repayment of long-term debt (852,356) (879,143)
Dividends paid on common and preferred stock -- (204,869)
---------- ---------
Net cash used in financing activities (452,356) (684,012)
---------- ---------
Net increase (decrease) in cash 906,072 (785,537)
Cash at beginning of period 560,059 1,310,564
========== =========
Cash at end of period $1,466,131 $ 525,027
========== =========
</TABLE>
See accompanying notes.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $398,122 $1,692,308
======== ==========
Income taxes $231,500 $ 416,276
======== ==========
Supplemental schedule of noncash investing and financing
activities:
Capital lease agreements for equipment $210,420 $ 506,176
======== ==========
</TABLE>
See accompanying notes.
6
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet at March 31, 1998, and the
consolidated statements of income and consolidated statements of cash flows
for the periods ended March 31, 1998 and 1997, have been prepared by Precise
Technology, Inc. (the "Company"), without audit. In the opinion of Management,
all adjustments necessary to present fairly the financial position, results of
operations and changes in cash flows at March 31, 1998 and for the periods
presented have been made.
The accompanying condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial statements prepared
in accordance with generally accepted accounting principles. It is suggested
that these consolidated financial statements be read in conjunction with the
Company's annual report on Form 10-K for the year ended December 31, 1997
which contains a summary of the Company's accounting principles and other
information.
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS No. 130 had no impact
on the Company's net income or shareholders' equity. SFAS No. 130 requires the
adjustment to the minimum pension liability, which prior to adoption was
reported separately in shareholders' equity, to be included in other
comprehensive income. The Company had no comprehensive income for the periods
ended March 31, 1998 and 1997, respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the operating results to be expected for the full
year.
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation. These reclassifications had no
effect on net income or comprehensive income.
2. Inventories
The major components of inventories were as follows:
March 31, December 31,
1998 1997
--------- ------------
(unaudited)
Finished products $1,533,768 $1,679,131
Raw materials 2,407,730 2,349,130
Tooling and dies 2,114,257 1,827,448
========== ==========
Total $6,055,755 $5,855,709
========== ==========
7
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3. Long-Term Debt
On June 13, 1997, the Company issued $75,000,000 of 11-1/8% Senior
Subordinated Notes due 2007 (the "Notes"). The Company used the net proceeds
from the issuance of the Notes and approximately $8,200,000 of borrowings
under its New Credit Agreement ("NCA") to extinguish certain existing
indebtedness, redeem its redeemable preferred stock, repurchase certain shares
of its common stock, make a distribution to its Parent, and pay fees and
expenses related to these refinancing transactions.
The Notes are subordinate in right of payment to all existing and
future senior indebtedness of the Company and are guaranteed on a senior
subordinated basis by all of the Company's subsidiaries.
On June 13, 1997, the Company entered into a $30,000,000 NCA with a
financial institution. Borrowings under the NCA may be used to fund the
Company's working capital requirements, finance certain permitted acquisitions
and general corporate requirements of the Company and pay fees and expenses
related to the foregoing.
4. Commitments and Contingencies
(a) Litigation
The Company is involved from time to time in lawsuits that arise in
the normal course of business. The Company actively and vigorously defends all
lawsuits. Management believes that there are no pending lawsuits that will
have a material affect on the Company's financial position.
(b) Collective Bargaining Agreement
Approximately 5% of the Company's employees are covered under a
collective bargaining agreement, which expired on February 2, 1998. The
Company is currently in negotiations with the collective bargaining unit,
however, no assurances can be given as to the effect the negotiations will
have on the Company's results of operations. The Company believes that its
relationship with its employees is generally good.
5. Financial Information for Subsidiary Guarantors
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis (collectively, the
"Subsidiary Guarantees") by Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Precise TMP, Inc., Precise Polestar, Inc., and
Massie Tool, Mold and Die, Inc. each a direct or indirect wholly-owned
subsidiary of the Company and each a "Guarantor." These subsidiaries represent
substantially all of the operations of the Company conducted in the United
States. In accordance with previous positions taken by the Securities and
Exchange Commission, the following summarized financial information
illustrates the composition of the combined Guarantors. Separate complete
financial statements of the respective Guarantors are not presented because
management has determined that they would not provide additional material
information that would be useful in assessing the financial composition of the
Guarantors. No single Guarantor has any significant legal restrictions on the
ability of investors or creditors to obtain access to its assets in the event
of a default on its Subsidiary Guarantees other than its subordination to
senior indebtedness described above in Note 3. The principal elimination
entries eliminate investments in subsidiaries and intercompany balances and
transactions.
8
<PAGE>
Summarized Combined Financial Information
For the three months ended March 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets $ 6,408,376 $55,952,703 $(38,821,064) $23,540,015
Non-current assets 84,363,206 56,458,384 (68,831,906) 71,989,684
Current liabilities 32,494,035 25,375,189 (38,821,064) 19,048,160
Non-current liabilities 80,708,924 6,924,327 -- 87,633,251
Net sales 3,551,175 19,995,951 (111,766) 23,395,360
Gross profit 646,164 3,835,762 -- 4,481,926
Net (loss) income (1,935,286) 1,144,639 -- (790,647)
</TABLE>
Summarized Combined Financial Information
For the three months ended March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets $ 6,260,618 $44,673,097 $(25,406,727) $25,526,988
Non-current assets 81,212,513 59,307,821 (68,831,906) 71,688,428
Current liabilities 26,580,730 19,714,304 (25,406,727) 20,888,307
Non-current liabilities 58,788,089 2,391,381 -- 61,179,470
Net sales 5,450,169 21,075,893 (201,399) 26,324,663
Gross profit 1,224,603 3,487,076 -- 4,711,679
Net (loss) income (2,824,727) 2,974,368 -- 149,641
</TABLE>
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's operating data for the three months ended March 31, 1998
and 1997 are set forth below as percentages of net sales:
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
Net sales 100.0% 100.0%
Cost of sales 80.8 82.1
----- -----
Gross profit 19.2 17.9
Selling, general and administrative 10.7 8.2
Plant closure costs 0.1 0.0
Amortization of intangible assets 1.4 1.0
----- -----
Operating income 7.0 8.7
Other expense (income):
Interest expense 11.2 7.0
Other 0.0 0.0
----- -----
(Loss) income before income taxes (4.2) 1.7
(Benefit) provision for income taxes (0.8) 1.1
===== =====
Net (loss) income (3.4)% 0.6%
===== =====
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
Net sales. The Company's net sales decreased to $23.4 million for the
three months ended March 31, 1998, a decrease of $2.9 million, or 11.1%, over
the comparable period in the prior year. The decrease in net sales which was
attributable to: (i) the loss of a customer to a competitor with a closer
"ship-to" point, (ii) lower than anticipated volume requirements of certain
customers' end product lines due to product line maturity, and (iii) customer
insourcing, was partially offset by increased sales to one of the Company's
largest customers due to a new product launch.
Gross Profit. The Company's gross profit decreased to $4.5 million
for the three months ended March 31, 1998, a decrease of $0.2 million, or 4.9%,
from the comparable period in the prior year. The decrease in gross profit is
primarily due to the 11.1% decrease in net sales. Gross profit margin
increased to 19.2% for the three months ended March 31, 1998 from 17.9% in the
comparable period in the prior year. The increase in gross profit margin was
due to lower raw material costs from aggressive purchasing tactics, increased
emphasis on employee utilization, and change in product mix.
Selling, general and administrative. Selling, general and
administrative expenses increased to $2.5 million for the three months ended
March 31, 1998, an increase of $0.4 million, or 17%, over the comparable
period in the prior year. The increase in selling, general and administrative
expenses was primarily due to: (I) costs associated with the implementation of
a new Enterprise Resource Planning system, (ii) costs for a new brochure and
other forms of advertising, and (iii) lower insurance expense in the first
quarter 1997 due to a favorable worker's compensation insurance adjustment.
Amortization. The Company's amortization of intangible assets
increased to $314,000 for the three months ended March 31, 1998 from $275,000
in the comparable period in the prior year. This increase resulted primarily
from a purchase accounting adjustment to reduce the amortization expense on
the goodwill balance in the first quarter 1997 of approximately $40,000.
10
<PAGE>
Operating income. Operating income decreased to $1.6 million for the
three months ended March 31, 1998, a decrease of $0.7 million, or 28.9%, over
the comparable period in the prior year. Operating income as a percentage of
net sales decreased to 7.0% for the three months ended March 31, 1998 from
8.7% in the comparable period in the prior year primarily due to higher
selling, general and administrative expenses and lower sales volume.
Interest expense. Interest expense increased to $2.6 million for the
three months ended March 31, 1997 from $1.8 million in the comparable period
in the prior year representing an increase of 42.1%. This increase is
primarily a result of interest due on an increased level of indebtedness
outstanding as a result of the change in the Company's capital structure which
included the June 13, 1997 issuance of 11-1/8% Senior Subordinated Notes due
2007 (the "Notes").
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the three months ended March 31, 1998
and 1997 primarily due to nondeductible goodwill amortization.
Liquidity and Capital Resources
The Company generated cash flows from operations totaling $2.6
million and $0.7 million in the three months ended March 31, 1998 and 1997,
respectively. The increase in cash flows from operations is primarily
attributable to the timing of interest payments on the Notes partially offset
by increased accounts receivables, inventories and lower net income.
The Company's cash flows used in investing activities totaled $1.2
million and $0.8 million, excluding capital lease agreements for equipment
totaling $0.2 million and $0.5 million, in the three months ended March 31,
1998 and 1997, respectively. During the first three months of 1998, the
Company expended approximately $0.2 million in cash capital expenditures
primarily for its new Enterprise Resource Planning system, $0.5 million in
cash capital expenditures on plant refurbishment and $0.3 million in cash
capital expenditures on machinery and ancillary equipment for a new project
for one of the Company's larger customers.
The Company's cash flows used in financing activities totaled
$452,000 and $684,000 for the three months ended March 31, 1998 and 1997,
respectively. During the three months ended March 31, 1998, regularly
scheduled principal payments on the Company's capital lease obligations
contributed to the cash used in financing activities. During the three months
ended March 31, 1997, regularly scheduled principal payments on the Company's
capital lease obligations and dividends paid on common and preferred stock
contributed to the cash used in financing activities.
Management believes that the Company's cash flow from operations,
together with borrowings under the NCA, of which $21.1 million was available
at March 31, 1998, provides it with sufficient liquidity necessary to fund
capital improvements, service indebtedness and meet working capital
requirements for the Company's existing operations.
Year 2000
The Company's management has begun a program to prepare the Company's
computer systems and related applications for the year 2000. The Company
believes that a majority of its year 2000 issues will be addressed by the
installation of an Enterprise Resource Planning system software package by
BaaN. The BaaN system, which is year 2000 compliant and will be used for the
Company's primary business application at its headquarters and manufacturing
facilities, currently is being installed. The total cost of the BaaN project
currently is estimated at $2.0 million with the majority of this cost to be
capitalized and charged to expense over the estimated useful life of the BaaN
software and related hardware. The Company has developed a comprehensive plan
to assist all departments and manufacturing facilities in working towards
compliance with year 2000 issues for all other systems beyond those being
addressed by the BaaN
11
<PAGE>
system. Estimated incremental costs to address other year 2000 issues for the
remainder of calendar year 1998 and calendar year 1999 are approximately
$250,000.
Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 131,
Disclosure about Segments of an Enterprise and Related Information, which
changes the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about reportable segments in interim
financial reports issued to shareholders. In accordance with SFAS No. 131, the
Company will be required to make expanded disclosures relating to its products
and markets. The standard will be effective for the Company for the year ended
December 31, 1998 and for interim periods in the year ended December 31, 1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
implementation of SFAS No. 132 is not expected to have a significant impact on
the Company's financial statements. The standard will be effective for the
Company for the year ended December 31, 1998.
Cautionary Statement on Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that any forward-looking statements, including statements regarding the
intent, belief, or current expectations of the Company or its management, are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to (I)
reliance on key customers and supply contracts, (ii) volatility of customer
demand, (iii) exposure to fluctuations in resin cost and supply and (iv) other
risks detailed from time to time in the Company's Securities and Exchange
Commission filings. The Company does not intend to update these
forward-looking statements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
PRECISE TECHNOLOGY, INC.
(Registrant)
Date May 15, 1998 /s/ John R. Weeks
----------------- --------------------------------
John R. Weeks
President and Chief Executive Officer
Date May 15, 1998 /s/ Gregory R. Conley
----------------- ----------------------------------
Gregory R. Conley
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (1) THE
CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS OF PRECISE TECHNOLOGY,
INC. AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED AND (2) THE
CONSOLIDATED FINANCIAL STATEMENTS OF PRECISE TECHNOLOGY, INC. AS OF DECEMBER
31, 1997 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 1,466 560
<SECURITIES> 0 0
<RECEIVABLES> 14,735 13,030
<ALLOWANCES> 85 85
<INVENTORY> 6,056 5,856
<CURRENT-ASSETS> 23,540 20,939
<PP&E> 58,354 57,025
<DEPRECIATION> 13,668 12,195
<TOTAL-ASSETS> 95,530 93,748
<CURRENT-LIABILITIES> 19,048 15,809
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (11,152) (10,362)
<TOTAL-LIABILITY-AND-EQUITY> 95,530 93,748
<SALES> 23,395 100,737
<TOTAL-REVENUES> 23,395 100,737
<CGS> 18,913 82,732
<TOTAL-COSTS> 4,482 93,005
<OTHER-EXPENSES> (13) 874
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,625 8,771
<INCOME-PRETAX> (978) (1,912)
<INCOME-TAX> (187) 228
<INCOME-CONTINUING> (791) (2,140)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (4,841)
<CHANGES> 0 0
<NET-INCOME> (791) (6,981)
<EPS-PRIMARY> 0.0 0.0
<EPS-DILUTED> 0.0 0.0
</TABLE>
