<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 June 30, 1999
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 August 13, 1999, one share of the Company's Common Stock was outstanding.
<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 11
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 15
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 434 $ 240
Accounts receivable, net 15,443 14,931
Inventories 7,624 6,510
Prepaid expenses and other 1,046 453
Deferred income taxes 806 806
-------- ---------
Total current assets 25,353 22,940
Property, plant and equipment, net 42,268 43,537
Intangible and other assets, net 25,924 26,931
-------- ---------
Total assets $ 93,545 $ 93,408
======== =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 8,546 $10,193
Accounts payable 9,608 6,607
Accrued liabilities 4,294 4,109
Tooling deposits 2,972 3,963
-------- ---------
Total current liabilities 25,420 24,872
Long-term debt, less current maturities 79,352 80,031
Deferred income taxes 998 998
Commitments and Contingencies -- --
Stockholder's deficit:
Common stock, no par value; 1,000 shares authorized,
and 1 share issued and outstanding at June 30, 1999
and December 31, 1998, respectively. 1 1
Additional paid-in-capital 3,555 3,555
Minimum pension liability (292) (292)
Retained deficit (15,489) (15,757)
-------- ---------
Total stockholder's deficit (12,225) (12,493)
-------- ---------
Total liabilities and stockholder's deficit $ 93,545 $ 93,408
======== =========
</TABLE>
See accompanying notes.
3
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PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $28,923 $24,769 $55,734 $48,164
Cost of sales 22,417 19,711 43,178 38,624
------------------ ------------------- ----------------- ------------------
Gross profit 6,506 5,058 12,556 9,540
Selling, general, and
administrative 3,194 2,623 6,285 5,126
Plant closure costs -- -- -- 31
Amortization of
intangible assets 254 313 508 627
------------------ ------------------- ------------------ ------------------
Operating income 3,058 2,122 5,763 3,756
Other expense (income):
Interest expense 2,479 2,574 4,998 5,199
Other -- (20) (1) (33)
------------------ ------------------- ------------------ ------------------
Income (loss) before
income taxes 579 (432) 766 (1,410)
Provision (benefit) for
income taxes 303 (52) 498 (240)
------------------ ------------------- ------------------ ------------------
Net income (loss) $ 276 $ (380) $ 268 $ (1,170)
================== =================== ================== ==================
</TABLE>
See accompanying notes.
4
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PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities (unaudited)
Net income (loss) $ 268 $ (1,170)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,898 3,836
Amortization of financing fees 279 280
Loss on sale of fixed assets 7 56
Changes in assets and liabilities:
Accounts receivable (512) (1,987)
Inventories (1,114) (300)
Prepaid expenses and other (634) 180
Accounts payable 3,001 2,613
Accrued liabilities 185 502
Tooling deposits (991) 1,006
------------------- --------------------
Net cash provided by operating activities 4,387 5,016
Investing Activities
Capital expenditures (1,173) (1,864)
Proceeds from sale of fixed assets 55 93
------------------- --------------------
Net cash used in investing activities (1,118) (1,771)
Financing Activities
Borrowings on revolving line of credit 14,200 7,000
Payments on revolving line of credit (15,500) (8,200)
Repayment of long-term debt (1,775) (1,715)
------------------- --------------------
Net cash used in financing activities (3,075) (2,915)
------------------- --------------------
Net increase in cash 194 330
Cash at beginning of period 240 560
------------------- --------------------
Cash at end of period $434 $890
=================== ====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $4,234 $4,862
=================== ====================
Income taxes, net of refund $ 267 $(46)
=================== ====================
Supplemental schedule of noncash investing and financing
activities:
Capital lease agreements for equipment $ 735 $1,469
=================== ====================
</TABLE>
See accompanying notes.
5
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet at June 30, 1999, and the consolidated
statements of income and consolidated statements of cash flows for the periods
ended June 30, 1999 and 1998, have been prepared by Precise Technology, Inc.
(the "Company"), without audit. In the opinion of Management, all normal and
recurring adjustments necessary to present fairly the financial position,
results of operations and changes in cash flows at June 30, 1999 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, 1998, which contains
a summary of the Company's accounting principles and other information.
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 June 30, 1999, are not
necessarily indicative of the operating results to be expected for the full
year.
2. Inventories
The major components of inventories were as follows:
June 30, December 31,
1999 1998
------------------ ------------------
(unaudited)
Finished products $1,633 $1,309
Raw materials 2,131 2,085
Tooling and dies 3,860 3,116
------------------ ------------------
Total $7,624 $6,510
================== ==================
6
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PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
3. Commitments and Contingencies
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.
4. Long -Term Debt
On June 13, 1997, the Company entered into a $30 million Credit
Agreement with a financial institution, which expires in 2002. The Credit
Agreement contains certain covenants which require the Company to maintain
leverage ratios, fixed charge and interest coverage ratios and minimum net
worth. The Credit Agreement further limits capital expenditures, declaration of
dividends and other restricted payments, and additional indebtedness. The Credit
Agreement also restricts the sale, encumbrance or transferring of the Company's
assets or capital stock. As of June 30, 1999, the financial institution has
agreed to a limited waiver of certain requirements of the Credit Agreement. Such
waiver terminates on August 20, 1999. Management is currently in negotiations
with the financial institution to amend the Credit Agreement.
5. Segment Information
The Company has two reportable segments: injection molding and mold
making. The Company's injection molding segment produces highly engineered,
close tolerance, precision plastic products. The Company's mold making segment
has extensive tool and die manufacturing capabilities.
The Company evaluates performance and allocates resources based on
gross margin. As a result, the Company does not allocate certain general and
administrative expenses to its operating segments, including depreciation,
amortization and interest expense.
The Company's reportable segments are business units that offer
different products and services. The reportable segments are each managed
separately because they manufacture and distribute distinct products or services
with different production processes.
7
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PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
5. Segment Information - (continued)
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------
---------------
Unallocated
Injection Mold Corporate Total
Molding Making Expenses Consolidated
-------------- -------------- --------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $44,727 $ 11,007 $ -- $55,734
Segment gross margin 11,881 675 -- 12,556
Depreciation and amortization expense 2,675 526 697 3,898
Interest expense -- -- 4,998 4,998
Segment assets 47,757 10,567 35,221 93,545
Net capital expenditures 1,208 533 167 1,908
<CAPTION>
Six Months Ended June 30, 1998
---------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Expenses Consolidated
-------------- -------------- --------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $40,476 $ 7,688 $ -- $48,164
Segment gross margin 8,908 632 -- 9,540
Depreciation and amortization expense 2,559 508 769 3,836
Interest expense -- -- 5,199 5,199
Segment assets 50,801 11,500 32,952 95,253
Net capital expenditures 2,609 255 469 3,333
</TABLE>
8
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
6. Financial Information for Subsidiary Guarantors
Prior to July 1, 1999, the Company's payment obligations under the
11-1/8% Senior Subordinated Notes due 2007 (the "Notes") were 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 represented
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 had 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. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions.
In late June and early July 1999, the Company caused each of the
Guarantors to engage in a series of mergers (the "Mergers"), with the Company as
the ultimate sole surviving corporation of the Mergers. Upon consummation of all
the Mergers, each of the Guarantors' separate corporate existence ceased.
Summarized Combined Financial Information
For the Six Months Ended June 30, 1999
(In thousands and unaudited)
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
Current assets $ 8,120 $58,475 $(41,242) $25,353
Non-current assets 83,302 53,721 (68,831) 68,192
Current liabilities 52,077 14,585 (41,242) 25,420
Non-current liabilities 73,064 7,286 -- 80,350
Net sales 11,475 44,490 (231) 55,734
Gross profit 2,310 10,246 -- 12,556
Net (loss) income (4,225) 4,493 -- 268
9
<PAGE>
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(Unaudited)
6. Financial Information for Subsidiary Guarantors - (continued)
Summarized Combined Financial Information
For the Six Months Ended June 30, 1998
(In thousands and unaudited)
Guarantor Consolidated
Parent Subsidiaries Eliminations Total
Current assets $ 5,378 $61,139 $(43,175) $23,342
Non-current assets 84,199 56,544 (68,832) 71,911
Current liabilities 35,109 28,496 (43,175) 20,430
Non-current liabilities 78,862 7,493 -- 86,355
Net sales 7,161 41,286 (283) 48,164
Gross profit 1,282 8,258 -- 9,540
Net (loss) income (3,899) 2,729 -- (1,170)
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's operating data for the three and six months ended June 30, 1999
and 1998 are set forth below as percentages of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.5 79.6 77.5 80.2
------------ ------------ ------------ -------------
Gross profit 22.5 20.4 22.5 19.8
Selling, general and administrative 11.0 10.5 11.3 10.6
Plant closure costs 0.0 0.0 0.0 0.1
Amortization of intangible assets 0.9 1.3 0.9 1.3
------------ ------------ ------------ -------------
Operating income 10.6 8.6 10.3 7.8
Other expense (income):
Interest expense 8.6 10.4 9.0 10.8
Other 0.0 (0.1) 0.0 (0.1)
------------ ------------ ------------ -------------
Income (loss) before income taxes 2.0 (1.7) 1.3 (2.9)
Provision (benefit) for income taxes 1.0 (0.2) 0.8 (0.5)
------------ ------------ ------------ -------------
Net income (loss) 1.0% (1.5)% 0.5% (2.4)%
============ ============ ============ =============
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 compared to Three Months Ended June 30, 1998
Net sales. The Company's net sales increased to $28.9 million for the
three months ended June 30, 1999, an increase of $4.1 million, or 16.8%, from
the comparable period in the prior year. The increase in net sales was
attributable to increased injection molding sales and mold making sales.
Injection molding sales for the three months ended June 30, 1999
increased $1.9 million, or 9.1%, to $22.4 million due to (i) a full quarter of
production in 1999 of a significant new program which was in the start-up phase
in 1998, (ii) an increase in demand from certain programs and (iii) the addition
of other new programs in 1999. This increase was partially offset by decreased
volumes to certain customers who have either insourced, selected another molder
with a closer "ship-to" point or are experiencing product maturity.
Mold making sales for the three months ended June 30, 1999 increased
$2.2 million, or 54.2%, to $6.5 million. The increase is primarily due to new
mold making programs that the Company believes will ultimately result in new
sales for the injection molding segment and increased mold sales related to the
management of mold making programs from outside vendors.
Gross Profit. The Company's gross profit increased to $6.5 million for
the three months ended June 30, 1999, an increase of $1.4 million, or 28.6%,
from the comparable period in the prior year. The increase in gross profit is
primarily due to the higher injection molding and mold making sales. Gross
profit margin increased to 22.5% for the three months ended June 30, 1999 from
20.4% in the comparable period in the prior year.
Injection molding's gross profit for the three months ended June 30,
1999 increased $1.3 million, or 28.4%, to $6.0 million. Gross profit margin
increased to 26.5% for the three months ended June 30, 1999 from 22.5% in the
comparable period in the prior year. This increase is due to (i) increased
sales, (ii)
11
<PAGE>
increased employee utilization, (iii) a favorable product mix and (iv) decreased
raw material content from aggressive purchasing tactics and a favorable scrap
rate.
Mold making's gross profit for the three months ended June 30, 1999
increased $0.2 million, or 38.8%, to $0.5 million. Although, gross profit margin
decreased to 8.4% for the three months ended June 30, 1999 from 9.3% in the
comparable period in the prior year. This increase in gross profit is primarily
due to the increase in mold sales.
Selling, general and administrative. Selling, general and
administrative expenses increased to $3.2 million for the three months ended
June 30, 1999, an increase of $0.6 million, or 21.8%, over the comparable period
in the prior year. The increase in selling, general and administrative expenses
was primarily due to increased salaries, wages and fringe benefits due to annual
merit increases and increased professional fees and travel costs relating to
acquisition-related activities.
Amortization. The Company's amortization of intangible assets decreased
to $254,000 for the three months ended June 30, 1999 from $313,000 in the
comparable period in the prior year. This decrease resulted primarily from the
expiration of non-compete agreements during July of 1998.
Operating income. Operating income increased to $3.1 million for the
three months ended June 30, 1999, an increase of $0.9 million, or 44.1%, over
the comparable period in the prior year. Operating income as a percentage of net
sales increased to 10.6% for the three months ended June 30, 1999 from 8.6% in
the comparable period in the prior year primarily due to higher gross margin
which was partially offset by higher selling, general and administrative
expenses.
Interest expense. Interest expense decreased to $2.5 million for the
three months ended June 30, 1999 from $2.6 million in the comparable period in
the prior year representing a decrease of 3.7%. This decrease is primarily the
result of a lower level of indebtedness outstanding during the more recent
quarter.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the three months ended June 30, 1999 and
1998 primarily due to nondeductible goodwill amortization.
Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998
Net sales. The Company's net sales increased to $55.7 million for the
six months ended June 30, 1999, an increase of $7.6 million, or 15.7%, from the
comparable period in the prior year. The increase in net sales was attributable
to increased injection molding sales and mold making sales.
Injection molding sales for the six months ended June 30, 1999
increased $4.3 million, or 10.8%, to $44.7 million due to (i) a full period of
production in 1999 of a significant new program which was in the start-up phase
in 1998, and the addition of other new programs in 1999. This increase was
partially offset by decreased volumes to certain customers who have either
insourced or have selected another molder with a closer "ship-to" point.
Mold making sales for the six months ended June 30, 1999 increased $3.3
million, or 41.5%, to $11.0 million. The increase is primarily due to new mold
making programs that the Company believes will ultimately result in new sales
for the injection molding segment and increased mold sales related to the
management of mold making programs from outside vendors.
Gross Profit. The Company's gross profit increased to $12.6 million for
the six months ended June 30, 1999, an increase of $3.0 million, or 31.6%, from
the comparable period in the prior year. Gross profit margin increased to 22.5%
for the six months ended June 30, 1999 from 19.8% in the comparable period in
the prior year. The increase in gross profit and gross profit margin was
primarily due to the increased injection molding and mold making sales.
12
<PAGE>
Injection molding's gross profit for the six months ended June 30, 1999
increased $3.0 million, or 33.4%, to $11.9 million. Gross profit margin
increased to 26.5% for the six months ended June 30, 1999 from 22.0% in the
comparable period in the prior year. These increases are due to (i) increased
sales, (ii) increased employee utilization, (iii) a favorable product mix and
(iv) decreased raw material content from aggressive purchasing tactics and a
favorable scrap rate.
Mold making's gross profit for the six months ended June 30, 1999
increased $42,000, or 6.6%, to $0.7 million. Gross profit margin decreased to
6.0% for the six months ended June 30, 1999 from 8.0% in the comparable period
in the prior year. The increase in sales contributed to the higher gross profit
although these sales earned lower margins which contributed to the decrease in
gross profit margin.
Selling, general and administrative. Selling, general and
administrative expenses increased to $6.3 million for the six months ended June
30, 1999, an increase of $1.2 million, or 22.6% over the comparable period in
the prior year. The increase in selling, general and administrative expenses was
primarily due to higher salaries, wages and fringe benefits due to annual merit
increases and increased professional fees and travel costs relating to
acquisition-related activities.
Amortization. The Company's amortization of intangible assets decreased
to $508,000 for the six months ended June 30, 1999, from $627,000 in the
comparable period in the prior year. This decrease resulted primarily from the
expiration of non-compete agreements during July 1998.
Operating income. Operating income increased to $5.8 million for the
six months ended June 30, 1999, an increase of $2.0 million, or 53.4%, from the
comparable period in the prior year. The increase in operating income is due to
higher gross margin partially offset by higher selling, general and
administrative expenses.
Interest expense. Interest expense decreased to $5.0 million for the
six months ended June 30, 1999, from $5.2 million in the comparable period in
the prior year representing a decrease of 3.8%. This decrease is primarily the
result of a lower level of indebtedness outstanding during the recent period.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the six months ended June 30, 1999 and
1998 primarily due to nondeductible goodwill amortization.
Liquidity and Capital Resources
The Company generated cash flows from operations totaling $4.4 million
and $5.0 million in the six months ended June 30, 1999 and 1998, respectively.
The decrease in cash flows from operations is primarily attributable to an
increase in tool and die inventory, prepaid expenses and a decrease in tooling
deposits which were partially offset by an increase in accounts payable and a
decrease in accounts receivable.
The Company's cash flows used in investing activities totaled $1.1
million and $1.8 million, excluding capital lease agreements for equipment
totaling $0.7 million and $1.5 million, in the six months ended June 30, 1999,
and 1998, respectively. During the first six months of 1999, the Company
expended approximately $0.4 million in cash capital expenditures on plant
refurbishment and approximately $0.8 million for machinery and ancillary
equipment. The Company estimates its remaining capital expenditures for 1999 to
be $4.5 million in cash and $3.0 million in capital leases. During the first six
months of 1998, the Company expended approximately $0.4 million in cash capital
expenditures primarily for its new Enterprise Resource Planning system, $0.4
million in cash capital expenditures on plant refurbishment and $0.5 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 $3.1
million and $2.9 million for the six months ended June 30, 1999 and 1998,
respectively. During the six months ended June 30, 1999 and
13
<PAGE>
1998, regularly scheduled principal payments on the Company's capital lease
obligations and payments on the revolving line of credit under the Credit
Agreement contributed to the cash used in financing activities.
Management believes that the Company's cash flow from operations,
together with borrowings under its Credit Agreement, of which $24.3 million was
available at June 30, 1999, provides it with sufficient liquidity necessary to
fund capital improvements, service indebtedness and meet working capital
requirements for the Company's existing operations. However, the Company is
highly leveraged and, as a result, funds available for working capital, capital
expenditures, and other purposes may be limited or unavailable in the event the
Company does not generate cash flow at or above expected levels, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, borrowings under the Credit Agreement
are only available if the Company is in compliance with the covenants and
borrowing conditions contained in the agreement.
Year 2000 Disclosure
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of time-sensitive information by the Company's
computerized information systems. The year 2000 issue ("Y2K") is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar business activities.
State of Readiness. In 1997, the Company began a program to assess the
impact of the Y2K issue on the software and hardware used in the Company's
operations and has identified various areas to focus its Y2K compliance efforts.
They include business computer systems, manufacturing and warehousing systems,
end-user computing, technical infrastructure, and supplier and service provider
systems. The program's phases include assessment and planning, remediation,
testing and implementation.
The Company's management has developed a program to prepare the
Company's computer systems and related applications for the Y2K. The Company
believes that a majority of its Y2K issues will be addressed by the installation
of an Enterprise Resource Planning ("ERP") system software package by Baan. The
ERP system, which is Y2K compliant and will be used for the Company's primary
business application at its headquarters and manufacturing facilities, currently
is being installed. All of the Company's facilities are expected to be using the
ERP system by October 1999. The Company has developed a comprehensive plan to
assist all departments and manufacturing facilities in working towards
compliance with Y2K issues for all other systems beyond those being addressed by
the ERP system. The Company expects to have identified and performed procedures
to make compliant those other systems beyond the ERP system by the fourth
quarter of 1999. If the Company's systems or the systems of other companies on
whose services the Company depends or with whom the Company's systems interface
are not Y2K compliant, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
Y2K Costs. Total costs for the Company's Y2K compliance efforts are
currently estimated to be approximately $3.0 to $3.5 million. The majority of
these costs relate to the ERP system installations and upgrades of which a
portion have been, and will be capitalized and depreciated over the estimated
useful life of the associated software and hardware. The remaining costs have
been, and will be, charged directly to expense. Amounts capitalized for the
years ended December 31, 1998 and 1997 were approximately $0.5 million and $1.0
million, respectively. Amounts expensed for the years ended December 31, 1998,
and 1997 were approximately $0.5 million and $0.2 million, respectively. During
the six months ended June 30, 1999 approximately $0.2 million was charged to
expense and approximately $50,000 was capitalized.
Y2K Risks. The reasonable worst-case scenario for the Company with
respect to the Y2K problem is the failure of a key system or supplier system
that causes shipments of the Company's products to customers to be temporarily
interrupted. This could result in the Company not being able to produce one or
more product lines for a period of time, which in turn could lead to lost sales
and profits for the Company
14
<PAGE>
and its customers. The Company is in the process of conducting a Y2K assessment
survey for all of its suppliers and customers. Favorable risk assessments for
Y2K compliance have been received by a number of the Company's suppliers and
customers.
Contingency Plans. As a part of the Company's Y2K strategy, contingency
plans have been developed and any systems requiring remediation have one or more
contingency plans. The Company's staff, independent accountants and the Board of
Directors are updated on a regular basis as to the Y2K status. In addition,
supplier site audits, where appropriate, are to be performed in 1999. There can
be no assurances, however, that these contingency plans will be effective to
eliminate all Y2K risks.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The implementation of
SFAS No. 133 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, 2001.
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, uncertainties, and other
factors, some of which are beyond the Company's control, and that actual results
may differ materially from those in forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to: (i) general
economic conditions in the markets in which the Company operates, (ii) reliance
on key customers and supply contracts, (iii) volatility of customer demand (iv)
exposure to fluctuations in resin cost and supply, (v) customer outsourcing
decisions, (vi) reliance on key manufacturing facilities, (vii) the impact of
significant competition from companies of varying sizes including divisions or
subsidiaries of larger companies, (viii) risks associated with Y2K issues and
(ix) 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
The Company's primary interest rate risk relates to its long-term debt
obligations. At June 30, 1999, the Company had total long-term obligations,
including the current portion of those obligations, of approximately $87.9
million. Of that amount $82.2 million was in fixed rate obligations and $5.7
million was in variable rate obligations. Assuming a 10% increase in interest
rates on the Company's variable rate obligations (i.e., an increase from the
June 30, 1999 weighted average interest rate of 7.96% to a weighted average
interest rate of 8.76%), interest expense for the six months ended June 30, 1999
would be approximately $20,000 higher based on the June 30, 1999 outstanding
balance of variable rate obligations. The Company has no interest rate swap or
exchange agreements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
15
<PAGE>
(i) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
16
<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 August 16, 1999 /s/ John R. Weeks
--------------- -----------------
John R. Weeks
President and Chief Executive Officer
Date August 16, 1999 /s/ Gregory R. Conley
--------------- ---------------------
Gregory R. Conley
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
17
<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 JUNE 30, 1999 AND FOR THE SIX MONTHS THEN ENDED AND (2) THE CONSOLIDATED
FINANCIAL STATEMENTS OF PRECISE TECHNOLOGY, INC. AS OF DECEMBER 31, 1998 AND FOR
THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 434 240
<SECURITIES> 0 0
<RECEIVABLES> 15,585 15,097
<ALLOWANCES> 142 166
<INVENTORY> 7,624 6,510
<CURRENT-ASSETS> 25,353 22,940
<PP&E> 64,141 62,080
<DEPRECIATION> 21,873 18,543
<TOTAL-ASSETS> 93,545 93,408
<CURRENT-LIABILITIES> 25,420 24,872
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (12,225) (12,494)
<TOTAL-LIABILITY-AND-EQUITY> 93,545 93,408
<SALES> 55,734 98,025
<TOTAL-REVENUES> 55,734 98,025
<CGS> 43,178 77,459
<TOTAL-COSTS> 49,971 89,382
<OTHER-EXPENSES> (1) (51)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,998 10,311
<INCOME-PRETAX> 766 (1,617)
<INCOME-TAX> 498 427
<INCOME-CONTINUING> 268 (2,044)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 268 (2,044)
<EPS-BASIC> 0.0 0.0
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