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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended: October 31, 1996
----------------
Commission File Number: 34-11686
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Plastic Specialties and Technologies, Inc.
------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-3376449
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
65 Railroad Avenue, Ridgefield, New Jersey 07657
(Address of principal executive offices)
Registrant's telephone number, including area code: (201)941-6550
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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 December 13, 1996, there were 8,319,333 shares of common stock
outstanding.
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
C O N T E N T S
Page
----
Part I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of 3
October 31, 1996 and July 31, 1996
Consolidated Statements of Operations 4
for the three month periods ended
October 31, 1996 and 1995
Consolidated Statements of Cash Flows 5
for the three month periods ended
October 31, 1996 and 1995
Notes to Consolidated Financial 6-8
Statements
Item 2. Management's Discussion and Analysis 9-12
of Financial Condition and Results of
Operations
Part II OTHER INFORMATION:
Item 1 to Item 6. 13
Signatures 14
* * * * * * * * * * * *
2
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
October 31, July 31,
1996 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 1,322 $ 6,098
Accounts receivable, less allowance of $1,316 and $1,280
as of October 31, 1996 and July 31, 1996, respectively ...... 31,651 42,291
Inventories ................................................... 53,702 32,992
Prepaid expenses and other current assets ..................... 3,551 2,591
Deferred income taxes ......................................... 372 544
--------- ---------
TOTAL CURRENT ASSETS ............................................ 90,598 84,516
PROPERTY, PLANT AND EQUIPMENT, net .............................. 51,388 45,608
EXCESS OF COST OF INVESTMENT OVER NET ASSETS
ACQUIRED, net ................................................. 41,582 41,921
OTHER ASSETS, net ............................................... 5,955 5,631
NOTES AND INTEREST RECEIVABLE FROM OFFICERS ..................... 393 388
--------- ---------
TOTAL ASSETS .................................................... $ 189,916 $ 178,064
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings ......................................... $ 21,787 $ 14,138
Accounts payable .............................................. 21,744 20,432
Other current liabilities ..................................... 9,220 11,268
Accrued interest .............................................. 6,057 2,562
Current portion of long-term debt ............................. 1,325 1,360
--------- ---------
TOTAL CURRENT LIABILITIES ..................................... 60,133 49,760
--------- ---------
OTHER LONG-TERM LIABILITIES ..................................... 2,533 2,262
DEFERRED INCOME TAXES ........................................... 3,634 3,663
LONG-TERM DEBT .................................................. 127,602 127,642
--------- ---------
TOTAL LIABILITIES ............................................... 193,902 183,327
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000 share authorized;
8,319,833 shares issued and outstanding, at October 31, 1996
and July 31, 1996, respectively ............................. 83 83
Additional paid-in capital .................................... 15,758 13,132
Accumulated deficit ........................................... (15,707) (14,574)
Receivable from majority stockholder-Ozite Corporation ........ (3,853) (3,853)
Receivable from officer, including accrued interest ........... (717) (717)
Cumulative foreign currency translation adjustment ............ 450 666
--------- ---------
NET STOCKHOLDERS' DEFICIT ..................................... (3,986) (5,263)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ..................... $ 189,916 $ 178,064
========= =========
</TABLE>
See notes to consolidated financial statements
3
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------
1996 1996
---- ----
(Unaudited)
As Restated
<S> <C> <C>
Net sales ....................................................... $ 50,037 $ 53,439
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Cost and expenses:
Cost of goods sold ........................................... 39,031 42,716
Selling, general and administrative expenses ................. 7,280 5,348
Amortization of intangibles ................................... 329 378
--------- ---------
46,640 48,442
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Operating income .............................................. 3,397 4,997
--------- ---------
Other expenses (income):
Interest expense, net and amortization of deferred
financing costs ............................................. 4,297 4,341
Foreign exchange loss ......................................... 6 28
Other, net .................................................... (20) (237)
--------- ---------
4,283 4,132
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(Loss) Income from continuing operations before income taxes .... (886) 865
Provision for income taxes ...................................... 247 363
--------- ---------
(LOSS) INCOME FROM CONTINUING OPERATIONS ........................ (1,133) 502
--------- ---------
Discontinued operations:
Loss from operations .......................................... -- (206)
--------- ---------
NET (LOSS) INCOME ............................................... $ (1,133) $ 296
========= =========
(LOSS) INCOME PER COMMON SHARE:
(Loss) Income from continuing operations ...................... $ (0.14) $ 0.06
Loss from discontinued operations ............................. -- (0.03)
--------- ---------
NET (LOSS) INCOME PER COMMON SHARE .............................. $ (0.14) $ 0.03
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING ............................. 8,319,833 8,319,833
========= =========
</TABLE>
See notes to consolidated financial statements
4
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------
1996 1995
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(Unaudited)
As Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) Income from continuing operations ....................... $ (1,133) $ 502
Adjustment for Recycling acquisition (see Note 1) ........... 857 (837)
--------- ---------
Loss from continuing operations net of acquisition adjustment . (276) (335)
Adjustment to reconcile net income (loss) to net cash (used in)
provided by operating activities from continuing operations:
Amortization .............................................. 562 325
Depreciation .............................................. 1,424 1,424
Deferred income taxes ..................................... (80) (9)
Gain on the sale of fixed assets .......................... (6) (286)
Provision for losses on accounts receivable
and other reserves ...................................... (35) (196)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ................................... 10,855 13,656
Inventories ........................................... (20,584) (12,615)
Prepaid expenses and other current assets ............. (953) (1,445)
Other assets .......................................... (350) 49
Notes and interest receivable from officers ........... (5) (90)
Increase (decrease) in liabilities:
Accounts payable, other current
liabilities and accrued interest .................... 3,260 2,489
Other long-term liabilities ........................... (176) 112
--------- ---------
Net cash (used in) provided by operating activities
from continuing operations .............................. (6,364) 3,079
--------- ---------
Loss from discontinued operations ............................... -- (206)
--------- ---------
Net cash used in operating activities from
discontinued operations: ............................. -- (206)
--------- ---------
Net cash (used in) provided by operating activities ..... (6,364) 2,873
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (1,391) (2,058)
Acquisition of Recycling operations ........................... (4,400) --
Proceeds from sale of property and equipment .................. 6 830
--------- ---------
Net cash used in investing activities ................... (5,785) (1,228)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) under revolving credit facility, net ...... 7,649 (601)
Repayment of term loans ......................................... (128) --
Repayment of capital leases ..................................... (9) --
--------- ---------
Net cash provided by (used in) financing activities ........... 7,512 (601)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... (139) (9)
--------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS .................................................... (4,776) 1,035
CASH AND CASH EQUIVALENTS, beginning of the year ................ 6,098 4,741
--------- ---------
CASH AND CASH EQUIVALENTS, end of year .......................... $ 1,322 $ 5,776
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ...................................................... $ 507 $ 739
========= =========
Income taxes .................................................. $ 233 $ --
========= =========
Non-cash financing transaction:
Capital contributed by PureTec related to Recycling
acquisition ........................................... $ 1,769 $ --
========= =========
</TABLE>
See notes to consolidated financial statements
5
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
1. ORGANIZATION
Plastic Specialties and Technologies Inc. ("PST" or the "Company") is a
manufacturer of garden hose, specialty plastic compounds and fabricated
precision plastic components for niche consumer and industrial markets. As
described below, in September 1996, PST began producing high-grade recycled
polyethylene terephthalate ("PET") for packaging and fiber application. PST
services its markets through its network of 21 operating facilities, located in
key points throughout the United States, with two locations in Europe and one in
Canada.
The Company was formed in 1984 by its senior management to acquire the
plastic specialty sector of Dart & Kraft through a leveraged buy out. PST
Holdings, Inc. ("Holdings") was incorporated in March 1987 as a wholly-owned
subsidiary of Sage Group, Inc. ("Sage") for the purpose of acquiring PST. On
August 24, 1990, Sage was merged with and into Ozite Corporation ("Ozite") with
Ozite being the surviving corporation. On October 29, 1993, Holdings was merged
with and into PST with PST surviving the merger (the "PST Merger".) Ozite merged
with PureTec Corporation ("PureTec"), formerly known as Pure Tech International,
Inc., at the close of business on July 31, 1995 (the "Merger").
As of October 31, 1996, PureTec, through its ownership of Ozite, owned
approximately 83% of the outstanding common stock of PST. The Company's
corporate officers are also officers of Ozite, PureTec and Pure Tech Plastics.
The expenses incurred at the general corporate office which are not directly
attributable to one entity are allocated to the Company and other affiliates.
In September, 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
assets of PureTech Plastics, Inc. and subsidiaries ("PTP") for $4,400. The
$1,769 difference between PTP's carrying value of such assets and the
consideration paid was treated as a contribution of capital to PST by PureTec.
As a result of the acquisition, PST constitutes approximately 80% of PureTec's
operations and product lines. The acquisition has been accounted for at
historical cost in a manner similar to the pooling-of-interests method of
accounting as it is a transaction between entities under common control.
Accordingly, the operating results of the recycling operations are included in
the Statement of Operations as if the transaction had occurred on August 1,
1995, the date the Company and the recycling operations came under common
control. The Balance Sheet and Statement of Cash Flows have not been restated
for the assets acquired as they did not have a material effect thereon. The
Statement of Operations for the three months ended October 31, 1995 has been
restated for the effects of the discontinuance of the Ozite Manufacturing
Division which occurred on December 21, 1995 as disclosed in Form 10-Q for the
Quarter ended January 31, 1996 and in the Form 10-K for the year ended July 31,
1996.
Accordingly, operating results for 1995 have been restated to reflect the
above recycling acquisition and the discontinuance of Ozite Manufacturing as
follows:
Net sales as originally reported $44,872
Add Sales of recycling 11,164
Less sales of Ozite (2,597)
------
Net sales as reported herein $53,439
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Loss from operations as originally reported $ (541)
Add recycling operating results 837
Add Ozite Loss (206)
---
Income from continuing operations as
reported herein $ 502
-------
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2. INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of PST as of October 31, 1996, the
consolidated statements of operations for the three month periods ended October
31, 1996 and 1995 and the consolidated statements and July 31, 1996 of cash
flows for the three months ended October 31, 1996 and 1995 are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows have been included.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The attached financial statements
should be read in connection with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended July 31, 1996.
3
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3. INVENTORIES
Inventories consist of the following:
October 31, July 31,
1996 1996
(Unaudited)
Raw materials & supplies $16,979 $13,626
Recycled material 967 1,815
Work-in-process 1,849 1,549
Finished goods 33,907 16,002
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$53,702 $32,992
======= =======
4. INVESTMENTS IN AFFILIATES AND CERTAIN RELATED PARTY TRANSACTIONS
a. Dividends
In connection with the Merger (see Note 1), on July 31, 1995 PST declared
a dividend of the 772,000 Artra Common Shares and 3,675 shares of BCA preferred
stock to all stockholders of record as of July 31, 1995. Based on this
declaration, 638,444 shares of Artra common stock and 3,039.23 shares of BCA
preferred stock have been transferred to Ozite. The Company is in the process of
transferring 133,556 shares of Artra common stock and 635.77 shares of BCA
preferred stock to the minority stockholders.
b. Investments
The Company acquired from Bagcraft Corporation of America ("Bagcraft") a
$5,000 subordinated note bearing interest at a rate of 13-1/2% per annum and
50,000 shares of 13-1/2% cumulative redeemable preferred stock with a
liquidation preference of $5,000 in Bagcraft for $10,000 in 1987. Bagcraft is a
wholly-owned subsidiary of BCA Holdings, Inc. ("BCA") and BCA is wholly-owned
subsidiary of Artra Group, Inc. ("Artra") an affiliated company. In March 1993,
the Company received 675 shares of BCA Preferred Stock having a liquidation
preference equal to the amount of interest due for the period from December 1,
1991 to November 30, 1992 ($675 in the aggregate) in lieu of receipt of payment
of interest from Bagcraft for such period. (See a above)
In December 1993, PST received from Bagcraft 3,000 shares of BCA preferred
stock as payment in full for unpaid interest due from Bagcraft (see a above).
PST held 772,000 shares of common stock of Artra (the "Artra Common
Shares"), which was accounted for on the equity method (see a above).
c. Transactions with Directors and Officers
PST is due $1,089 from Ozite relating to a tax sharing agreement. The
Company has fully reserved for this receivable from Ozite due to Ozite's current
inability to settle this obligation.
The notes and interest receivable from officers are due on demand and bear
interest at rates generally ranging from 75% of the prime rate to the prime rate
of interest. The notes receivable relate primarily to the purchase of common and
preferred stock of the predecessor of Ozite by several officers, unreimbursed
moving expenses and a personal loan.
5. INCOME TAXES
In January 1993 and 1994, the Company's Belgian subsidiary received income
tax assessments aggregating approximately $2,348 (75,247,000 Belgian Francs) for
the disallowance of certain foreign tax credits and investment losses claimed
for the years
4
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ended July 31, 1990 and 1991. Additionally, in January 1995, the subsidiary
received an income tax assessment of approximately $1,001 (32,083,000 Belgian
francs) for the year ended July 31, 1992. Although the future outcome of these
matters are uncertain, PST believes that its tax position was appropriate and
that the assessments are with merit. Therefore, PST has appealed and has not
paid or accrued for the assessments. Based on the advice of legal counsel in
Belgium, PST believes that the assessment appeals will be accepted by the tax
authorities in Belgium, although there can be no assurance whether or when such
appeals will be accepted.
6. COMMITMENTS AND CONTINGENCIES
On February 18, 1993, Ware Chemical Co. ("Ware Chemical"), a former PST
subsidiary (now dormant), was served with a third party complaint in the matter
of United States v. Davis. In Davis, the United States has alleged that certain
private entities are liable, pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), for cleanup costs that have
been incurred, and will be incurred in the future, with respect to the
remediation of the Davis Landfill site in Rhode Island.
Ware Chemical was owned by Dart Industries (now Kraft, Inc.) during the
time in question (1975-1977), and Kraft has agreed to assume all liability.
The Company's Belgian subsidiary has received an income tax assessment and
may be subject to similar assessments in the future (See Note 5). Additionally,
the Company is party to certain other litigations and environmental proceedings
in the ordinary course of business, none of which it believes are likely to have
a material adverse effect on its financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth the percentages of net sales of the Company
represented by the components of income and expense for the three month periods
ended October 31, 1996 and 1995:
1996 1995
---- ----
Net sales ....................................... 100% 100%
Cost of goods sold .............................. (78.0) (79.9)
----- -----
Gross profit .................................... 22.0 20.1
Selling, general and administrative expenses .... (14.5) (10.0)
Amortization of intangibles ..................... (0.7) (0.7)
----- -----
Operating income ................................ 6.8 9.4
Interest expense, net and amortization of
deferred financing costs ...................... (8.6) (8.1)
Foreign exchange loss ........................... (0.0) (0.1)
Other, net ...................................... 0.0 0.4
----- -----
Income (loss) from continuing operations
before income taxes .................. (1.8) 1.6
Provision for income taxes ...................... (0.5) (0.7)
----- -----
(Loss) Income from continuing operations ........ (2.3) 0.9
----- -----
Discontinued operations ......................... -- (0.3)
----- -----
Net (loss) Income . ............................. (2.3)% 0.6%
===== =====
Three months ended October 31, 1996 vs. Three months ended October 31, 1995:
Net sales for the three months ended October 31, 1996 ("fiscal 1997") were
$50,037, an decrease of $3,402, or 6.3% compared to the three months ended
October 31, 1995 ("fiscal 1996"). The decrease was the result of lower sale
prices for PET from the Company's plastic recycling operation and a decline in
garden hose sales volume, partially offset by the decrease in sales were
increased sales volume in dip tubing, gaskets, medical tubing and PVC compound
and certain price increases. The decline in hose
5
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sales volume is directly attributable to a late hose selling season in fiscal
1995 which carried over to August 1995. Garden hose sales for fiscal 1996,
although much higher, did not carry over to fiscal 1997.
Gross profit for the three months ended October 31, 1996 was $11,006, an
increase of $283 (2.6%) compared to a gross profit of $10,723, for the three
months ended October 31, 1995. Gross profit as a percentage of sales increased
from 20.1% to 22.0% for the same period. The increase is principally
attributable to lower raw material costs for most segments and improved
manufacturing efficiencies. Gross profit was adversely affected by a sharp
decline in PET prices and lower sales volume.
Selling, general and administrative expenses for the three months ended
October 31, 1996 were $7,280, a $1,932 (36.1%) increase compared to the three
months ended October 31, 1995. As a percentage of net sales, these expenses
increased to 14.5% from 10.0% for the same period. The increase is attributable
to (i) the Company evaluated and reduced certain previously accrued expenses,
including management compensation in the first quarter of fiscal 1996 (ii) an
increase in warehousing costs.
Operating income for the three months ended October 31, 1996 and 1995 were
$3,397 and $4,997, respectively. The $1,600 decrease is primarily attributable
to the sharp decline in PET prices and substantially higher selling, general and
administrative expenses.
Interest expense including amortization of deferred financing costs for
the three month periods ended October 31, 1996 and 1995 were $4,297 and $4,341
respectively. This $44 or 1.0% decrease is primarily attributable to lower
average short term borrowing.
The income tax provision for the three months ended October 31, 1996 is
comprised of a foreign tax provision of $ 547 partially offset by a federal
income tax benefit of $ 300, which is based on expected results for the full
year. The income tax provision for the three months ended October 31, 1995 was
comprised of a foreign income tax provision of $563 partially offset by a
domestic federal income tax benefit of $200.
The Company had a loss from continuing operations for the three month
period ended October 31, 1996 of $ 1,133 and income from continuing operations
$502 for the three month period ended October 31, 1995.
The Company sold its Ozite manufacturing division in March of 1996. The
$206 loss recorded by this operation for the three months ended October 31, 1995
is reflected as discontinued operations for the period.
As mentioned above, included in the results of operations is the effect of
the acquisition of the newly acquired recycling operations. For the
three months ended October 31, 1996 and October 31, 1995, the results from the
recycling operations were as follows:
Sales for the periods were $5,248 and $11,164, respectively and represents
a $5,916 decline. Gross profit (loss) was ($629) the three months ended October
31, 1996 and $1,559 for the three months ended October 31, 1995. The decrease in
sales and gross profit (loss) was directly attributable to a sharp decline in
PET prices. Selling general and administrative expenses decreased $465 to $210
for the first quarter of fiscal 1997 as compared to the same period in fiscal
1996 as the Company took steps to control costs while prices fell. Operating
income (loss) was ($819) and $884 for the first quarters of fiscal 1997 and
1996, respectively.
Financial Position, Liquidity and Capital Resources
General
The Company's primary capital requirements are for working capital
(principally inventory and accounts receivable) and to a lesser extent, capital
expenditures. The Company's sources of liquidity and capital resources
historically have been net cash provided by operating activities, funds
available from banks or other institutional lenders and public offerings of debt
securities. The Company believes that, based on current levels of operations and
anticipated growth, its cash flow from operations (together with other available
sources of liquidity, including borrowings under the Revolving Credit Facility)
will be adequate over the next several years to fund working capital
requirements, to permit anticipated capital expenditures, and to make required
payments of principal and interest on its debt.
The market for the Company's garden hose is seasonal, with sales peaking
in the spring and summer seasons. The Company started fiscal 1996 with high
levels of accounts receivable and inventory. With increased sales volume in
garden hose during fiscal year 1996, the general growth the Company's other
markets, and lower raw material costs, the Company concluded fiscal 1996 with
lower levels of inventory. Henceforth, the initial buildup of inventory for
fiscal 1997 and the collection of receivables resulted in the
6
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Company's net accounts receivable decreasing ($10,640) from $42,291 at July 31,
1996 to $31,651 at October 31, 1996 and net inventory increasing ($20,710) from
$32,992 at July 31, 1996 to $53,702 at October 31, 1996.
Cash and cash equivalents decreased $4,776 for the three months ended
October 31, 1996, compared to a $1,035 increase for the three months ended
October 31, 1995. The changes for these periods were attributable to the factors
discussed below.
For the three months ended October 31, 1996, net cash used in operating
activities was $6,364. The Company funded operating activities, repaid $137 of
its outstanding debt, disbursed $1,391 on capital improvements and $4,400 for
the plastic recycling acquisition by borrowing an additional $7,649 under
its Revolving Credit Facility.
For the three months ended October 31, 1995, net cash provided by
operating activities was $2,873. The Company used the $2,873 in cash generated
from operating activities, along with $830 proceeds form the sale of equipment
to reduce its borrowing under its Revolving Credit Facility by $601 and fund
$2,058 in capital expenditures.
Working capital was $30,465 as of October 31, 1996 a decrease of $4,291 as
compared to July 31, 1996. This decrease was primarily the result of lower
accounts receivable balance ($31,651 compared to $42,291) and higher short
term borrowing and accrued interest partially offset by higher inventory
($53,702 - $32,992).
The Company's businesses are relatively stable and mature and do not
generally require significant ongoing additions to plant and equipment. Capital
expenditures for the three month period ended October 31, 1996 and 1995 were
$6,895 and $2,058 respectively. The Company acquired certain assets of PureTec's
recycling business, for $4,400 during the first quarter of fiscal 1997,
effectively transferring this business to PST.
Short-Term Borrowings
On December 30, 1992, PST entered into a $50,000 Senior Loan Agreement
(the "Agreement") with a commercial lending company ("CLC"). Proceeds of
borrowings under the Agreement were used to repay the borrowings outstanding
under a prior loan and security agreement with a bank. On November 8, 1993 in
connection with the issuance of $125,000 principal amount of senior secured
notes and the use of the proceeds thereof, the Agreement was amended and
restated to, among other things, provide for revolving credit advances of up to
$40,000 through July 31, 1997 and letters of credit of up to $1,000.
On February 14, 1995, PST further amended the Agreement with the CLC to,
among other things, increase the maximum revolving credit advances to $50,000
(the "Restated Agreement"). The other terms and covenants contained in the
Restated Agreement are substantially the same as those contained in the original
agreement except that outstanding revolving credit advances shall not exceed
$8,000 for 30 consecutive days during the period from July 1 to September 30 of
each year, and annual domestic capital expenditures are limited to $6,600 per
year (exclusive of up to $1,000 of approved business acquisitions). Prospective
interest rate relief (ranging from 0.25% to 0.50%) is possible if the Company
meets certain defined fixed coverage ratios.
The Restated Agreement contains covenants, the most restrictive of which
are maintenance of certain financial ratios, prohibition of the incurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. Borrowings under the
Restated Agreement are secured by substantially all the domestic current assets
of PST. In addition, the CLC has a security interest in PST's intangible assets,
and this security interest ranks pari passu with the security interest of the
Senior Secured Notes (see below) in PST's intangible assets. Revolving credit
advances under the Agreement are based on eligible receivables and inventory.
On July 31, 1995, PST further amended its $50,000 Agreement with the CLC
to, among other things, adjust certain ratios and to waive the provision that
outstanding revolving credit advances shall not exceed $8,000 for the 30
consecutive days during the period from July 1 to September 30 for each year.
Debt Offering and Redemption
On November 8, 1993, PST issued $125,000 principal amount of 11-1/4%
Senior Secured Notes due in 2003. The Senior Secured Notes are senior secured
obligations of PST, ranking pari passu in right of payment with all existing and
future senior indebtedness of PST and senior to all subordinated indebtedness of
PST, if any. The Senior Secured Notes are secured by substantially all real
property, machinery, equipment, general intangibles and other intellectual
property now owned or hereafter acquired by PST and by a pledge of all
outstanding capital stock of Plastic Specialties and Technologies Investments,
Inc., a wholly-owned subsidiary of PST. The indenture for the Senior Secured
Notes contains covenants which restrict, among other matters, the
7
<PAGE>
ability of PST and its subsidiaries to incur additional indebtedness, pay
dividends,(except as defined in the indenture) redeem capital stock, prepay
subordinated indebtedness, create liens, dispose of certain assets, engage in
sale and merger transactions, make contributions, loans or advances and enter
into transactions with affiliates.
Capital Expenditure Commitments
As discussed above, the Company's businesses are relatively mature and as
a result do not require significant ongoing additions to plant and equipment.
The Company generally finances its ongoing capital expenditure requirements from
its cash flow provided from operations and borrowings under its Revolving Credit
Facility.
Construction has commenced on a new plant in Northern Ireland for the
Company's Unichem division. For purposes of this new business venture, a new
subsidiary has been formed, Colorite Europe Limited (a United Kingdom company).
The anticipated total capital costs for the Company in connection with this new
Unichem plant are approximately $3 million. The Company has received commitments
for certain grants, subsidies and other inducements from government authorities
in Northern Ireland. The Company plans to finance a large part of its capital
costs of this new plant by using cash reserves (and possibly some additional
borrowing from a commercial bank) at Action Belgium N.V.
Inflation
Generally, the Company's operations have benefited from relatively stable
or declining prices for raw materials. In fiscal 1997 the Company benefited
domestically from declining raw material costs except for the significant
decline in the PET prices in the current quarter related to supply and demand
factors. Foreign operations saw raw mateial costs continue to rise until they
stablizied during the second quarter of 1996. Raw material costs have generally
stablizied at this time. In the event significant inflationary trends were to
resume, management believes that the Company will generally be able to offset
the effects thereof through continuing improvements in operating efficiencies
and increasing prices, to the extent permitted by competitive factors. However,
there can be no assurance that all such cost increases can be passed through to
customers.
Part II: OTHER INFORMATION
Item 1. Legal Proceedings: No reportable events
8
<PAGE>
Item 2. Changes in Securities: None
Item 3. Default upon Senior Securities: None
Item 4. Submission of Matters to a Vote
of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K: None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
Registrant
Date: December 20, 1996 By: /s/ Thomas V. Gilboy
----------------- --------------------------------
Thomas V. Gilboy
Chief Financial Officer
11
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