<PAGE>
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: January 31, 1996
Commission File Number: 34-11686
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2515864
- ------------------------------- -------------
(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
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 March 21, 1996, there were 8,319,833 shares of common stock
outstanding of which 1,441,500 of such shares were held by unaffiliated persons.
The Company is not aware of the market value of the unaffiliated shares.
<PAGE>
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 3-4
January 31, 1996 and July 31, 1995
Consolidated Statements of Operations 5-6
for the three and six month periods ended
January 31, 1996 and 1995
Consolidated Statements of Cash Flows 7-8
for the six month periods ended
January 31, 1996 and 1995
Notes to Consolidated Financial 9-11
Statements
Item 2. Management's Discussion and Analysis 12-15
of Financial Condition and Results of
Operations
Part II OTHER INFORMATION:
Item 1 to Item 6. 16
Signatures 17
* * * * * * * * * * * *
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
January 31, July 31,
1996 1995
----------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 763 $ 4,741
Accounts receivable, less allowance of
$2,392 and $2,550, respectively 36,176 40,561
Inventories 56,024 41,026
Prepaid expenses and other current assets 6,320 2,139
--------- ---------
TOTAL CURRENT ASSETS 99,283 88,467
EXCESS COST OF INVESTMENT OVER NET ASSETS
ACQUIRED 42,604 43,286
PROPERTY, PLANT AND EQUIPMENT, net 43,917 44,795
OTHER ASSETS, net 4,886 5,370
NOTES AND INTEREST RECEIVABLE FROM OFFICERS 381 374
--------- ---------
TOTAL ASSETS $ 191,071 $ 182,292
========= =========
(Continued)
3
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Continued)
January 31, July 31,
1996 1995
----------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings $ 43,740 $ 26,494
Accounts payable 19,004 19,673
Other current liabilities 9,405 12,842
Accrued interest 2,717 2,620
Current portion of long-term debt 1,275 1,271
---------- ----------
TOTAL CURRENT LIABILITIES 76,141 62,900
OTHER LONG-TERM LIABILITIES 1,336 1,195
DEFERRED INCOME TAXES 1,136 1,200
LONG-TERM DEBT 125,121 125,741
---------- ----------
TOTAL LIABILITIES 203,734 191,036
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000 shares
authorized; 8,319,833 shares issued and
outstanding at January 31, 1996 and
July 31, 1995 83 83
Additional paid-in capital 12,107 12,107
Accumulated deficit (20,385) (17,048)
Due from majority stockholder (3,853) (3,853)
Receivable from officer,
including accrued interest (717) (717)
Minimum pension liability (250) (250)
Cumulative foreign currency translation
adjustment 352 934
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (12,663) (8,744)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 191,071 $ 182,292
========== ==========
(Concluded)
See notes to consolidated financial statements
4
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Ended
January 31,
-------------------
1996 1995
---- ----
(Unaudited)
Net sales $ 52,069 $ 48,528
----------- -----------
Cost and expenses:
Cost of goods sold 39,870 37,171
Selling, general and administrative 8,111 7,640
----------- -----------
47,981 44,811
----------- -----------
Operating income 4,088 3,717
----------- -----------
Other expense:
Interest expense, net and amortization of
deferred financing costs (4,868) (4,410)
Foreign exchange loss (38) (15)
Other, net (59) (45)
----------- -----------
(4,965) (4,470)
----------- -----------
Loss before income taxes and discontinued
operations (877) (753)
Income tax benefit (provision) 299 (28)
----------- -----------
Loss before discontinued operations (578) (781)
Discontinued operations:
Loss on sale of Ozite Manufacturing 1,445 --
Loss from discontinued operations 773 327
----------- -----------
2,218 327
NET LOSS $ (2,796) $ (1,108)
=========== ===========
NET LOSS PER COMMON SHARE:
Loss before discontinued operations (.07) (.09)
Discontinued operations (.27) (.04)
----------- -----------
NET LOSS PER COMMON SHARE: $ (.34) $ (.13)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,319,833 8,319,833
=========== ===========
See notes to consolidated financial statements
5
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Six Months Ended
January 31,
----------------
1996 1995
---- ----
(Unaudited)
Net sales $ 94,344 $ 83,179
------------- -------------
Cost and expenses:
Cost of goods sold 72,981 62,864
Selling, general and administrative 13,162 14,175
------------- -------------
86,143 77,039
------------- -------------
Operating income 8,201 6,140
------------- -------------
Other (expense) income:
Interest expense, net and amortization of
deferred financing costs (9,134) (8,202)
Foreign exchange (loss) gain (66) 11
Other, net 150 (128)
------------- -------------
(9,050) (8,319)
------------- -------------
Loss before income taxes and discontinued
operations (849) (2,179)
Income tax (provision) benefit (64) 350
------------- -------------
Loss before discontinued operations (913) (1,829)
Discontinued operations:
Loss on sale of Ozite Manufacturing 1,445 --
Loss from discontinued operations 979 524
------------- -------------
2,424 524
NET LOSS $ (3,337) $ (2,353)
============= =============
LOSS PER COMMON SHARE:
Loss before discontinued operations $ (.11) $ (.22)
Discontinued operations (.29) (.06)
------------- -------------
NET LOSS PER COMMON SHARE: $ (.40) $ (.28)
============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,319,833 8,319,833
============= =============
See notes to consolidated financial statements
6
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
January 31,
-----------------
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,337) $(2,353)
Adjustments to reconcile net loss to net
cash used in operating activities:
Gain on sale of property (301) -
Amortization 1,073 1,071
Depreciation 2,834 2,588
Deferred income taxes (64) (31)
Provision for losses on accounts
receivable (21) 49
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 2,971 1,623
Inventories (17,053) (29,408)
Prepaid expenses and other
current assets (1,026) (145)
Other assets, net (53) 214
Notes and interest receivable
from officers (7) (7)
Increase (decrease) in liabilities:
Accounts payable, other current
liabilities and accrued interest (3,735) (1,318)
Other long-term liabilities 141 204
------- --------
Net cash used in operating activities
from continuing operations (18,578) (27,513)
-------- --------
Adjustment for Loss on sale of
discontinued operations 1,445 -
-------- --------
Net cash used in operating
activities (17,133) (27,513)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,616) (2,907)
Proceeds from sale of property 848 -
-------- --------
Net cash used in investing
activities $ (3,768) $ (2,907)
--------- ---------
(Continued)
7
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Continued)
Six Months Ended
January 31,
-----------------
1996 1994
---- ----
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments):
Revolving credit facility, net $ 17,246 $ 29,512
Foreign term loan (639) (568)
Foreign capital lease 146 -
Advances to majority
stockholder - Ozite Corp. - (179)
-------- --------
Net cash provided by financing activities 16,753 28,765
EFFECT OF EXCHANGE RATE CHANGES ON CASH 170 (110)
-------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,978) (1,765)
CASH AND CASH EQUIVALENTS,
beginning of the period 4,741 4,297
-------- --------
CASH AND CASH EQUIVALENTS,
end of the period $ 763 $ 2,532
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,655 $ 7,758
======== ========
Income taxes $ 652 $ 574
======== ========
(Concluded)
See notes to consolidated financial statements
8
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
A. ORGANIZATION
On July 6, 1994, Ozite Corporation ("Ozite") entered into an Agreement and Plan
of Merger with Pure Tech International, Inc. ("Pure Tech") for the combination
of the companies (the "Merger"). The Merger was approved by the Stockholders of
Pure Tech and Ozite at a joint meeting on July 26, 1995 and became effective as
of the close of business July 31, 1995.
As of January 31, 1996, Ozite owned approximately 83% of the outstanding common
stock of Plastic Specialties and Technologies, Inc. ("PST" or the "Company").
Ozite is a wholly-owned subsidiary of Pure Tech as a result of the Merger.
PST was formed in 1984 by its senior management to acquire the plastic
specialty sector of Dart & Kraft through a leveraged buyout. 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"). Pursuant to the PST Merger, each issued and
outstanding share of common stock of Holdings was automatically converted into
one issued and outstanding share of common stock of PST. All outstanding
warrants, which were exercisable for common stock of Holdings, upon the PST
Merger, became exercisable for common stock of PST. The PST Merger was accounted
for at historical cost in a manner similar to the pooling-of-interests method of
accounting as it was a merger of entities under common control. Upon
consummation of the PST Merger, the historical consolidated financial statements
of Holdings became the historical consolidated financial statements of PST.
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite Mfg.") in
Libertyville, Illinois to Foss as of January 31, 1996. The Company had been
exploring a relocation alternative until this unsolicited offer was accepted.
Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,000,000, which was
received by PST on February 12, 1996. Furthermore, the Agreement provides that
the Company will receive a minimum of $450,000 for all of its machinery and
equipment at the facility.
Accordingly, the Ozite Mfg. operations have been reflected as discontinued
operations in the statements of operations and cash flows for all periods
presented with receivables from Foss included in prepaid expenses and other
current assets at January 31, 1996.
B. INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of PST as of January 31, 1996, the consolidated
statements of operations for the three and six month periods ended January 31,
1996 and 1995 and the consolidated statements of cash flows for the six months
ended January 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
9
<PAGE>
generally accepted accounting principles have been condensed or omitted. The
July 31, 1995 balance sheet data is derived from the audited consolidated
financial statements. 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, 1995.
C. RELATED PARTIES - DIVIDENDS
Investment in Bagcraft Corporation of America ("Bagcraft")
PST acquired from 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 with $10,000
of the net proceeds of a public offering of senior secured notes, senior
subordinated notes and detachable warrants in 1987. Bagcraft is a wholly-owned
subsidiary of BCA Holdings, Inc. ("BCA"), and BCA is a wholly-owned subsidiary
of ARTRA Group Incorporated ("Artra"), an affiliated company. The preferred
stock is mandatorily redeemable on July 1, 1997. The Company has not received or
recorded cumulative preferred dividends due to cash payment restrictions imposed
by Bagcraft's secured lender. In March 1993, the Company had received 675 shares
of preferred stock of BCA ("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. The BCA Preferred Stock provides a
$1,000 per share liquidation preference and annual cumulative dividends of
$60.00 per share when and if declared by BCA.
As of January 31, 1996 and July 31, 1995, the Company had not received or
recorded dividends of $6,341 and $5,894, respectively, related to the investment
in Bagcraft and BCA Preferred Stock. Under the terms of the Merger, the Company
intends to declare a dividend of the Bagcraft Investment to Shareholders. There
is currently no public market for the Bagcraft or BCA Preferred Stock.
Investment in Artra
PST previously held 772,000 shares of common stock of Artra (the "Artra Common
Shares"). The investment in the Artra Common Shares, which represented
approximately 11.5% of the outstanding common stock of Artra at July 31, 1995,
was accounted for under the equity method of accounting as the Company, through
certain principal stockholders and officers of Ozite, exercises significant
influence over the policy decisions of Artra. Through the Company's recording of
its share of the net losses of Artra and other related items, the carrying value
of the investment in the Artra Common Shares had been reduced to zero.
In connection with the Merger (see Note A), on July 13, 1995 PST declared a
dividend of the 772,000 Artra Common Shares to all stockholders of record as of
July 31, 1995. Based on this declaration 638,452 shares have been transferred to
Ozite and 133,548 shares are in the process of being transfered for the minority
stockholders, respectively. Such shares received by Ozite have been distributed
in connection with the settlement of certain of Ozite's liabilities.
D. INCOME TAXES
In January 1993 and 1994, the Company's Belgian subsidiary received income tax
assessments of approximately $2,461 (75,247,000 Belgian francs) for the
disallowance of certain foreign tax credits claimed for the years ended July 31,
1990 and 1991. Additionally, in January 1995, the subsidiary received an income
tax assessment of approximately $1,049 (32,083,000 Belgian francs) for the year
ended July 31, 1992. Although the future outcome of these matters are uncertain,
the Company believes that its tax position was appropriate and that the
assessments are without merit. Therefore, the Company has appealed and has not
paid or accrued for the assessments. Based on the advice of legal counsel in
Belgium, the Company believes that the assessment appeals will be accepted by
the tax authorities in Belgium, although there can be no assurances whether or
when such appeals will be accepted.
10
<PAGE>
E. COMMITMENTS AND CONTINGENCIES
On February 18, 1993, Ware Chemical Co. ("Ware Chemical"), a former PST
subsidiary, 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. The defendants/third party plaintiffs
have impleaded Ware Chemical (but not PST), alleging that Ware Chemical and
other third party defendants are also liable for cleanup costs at this site,
because, according to the allegation, Ware Chemical (then owned by Dart & Kraft;
now Kraft, Inc.) arranged for the disposal of hazardous substances that were
eventually disposed of at the Davis site. The alleged disposal by Ware Chemical
took place between 1975 and 1976. Ware Chemical is one of over 100 parties that
have been named as defendants or third party defendants in this matter. The most
recent estimate of the cost of the remediation to the 100 third party defendants
at the Davis site (according to counsel for the defendants/third party
plaintiffs) is upwards of $25,000. Limited discovery has been permitted by the
court and a trial is not expected before 1997.
Liability under CERCLA is, in most instances, strict, joint and several (meaning
that Ware Chemical could be liable for all response costs incurred at the Davis
site). However, Ware Chemical has no assets and has been dormant since 1988. In
addition, liability at CERCLA sites is typically shared with other potentially
responsible parties, and costs are commonly allocated according to the relative
volumes of waste deposited at a particular site. PST does not currently have
information as to Ware Chemical's relative share of the waste allegedly
deposited at the Davis site; however, based on documents provided to PST, the
absolute volume of waste allegedly sent to the site by Ware Chemical is small.
Ware Chemical, as well as many of the other third party defendants, received and
rejected an offer to settle this matter for $250 each. For these reasons, and
because Ware Chemical is a dormant subsidiary without any assets, management
believes that this litigation involving Ware Chemical will not have a material
adverse effect upon the financial position or results of operations of the
Company. In addition, even if Ware Chemical were to be found responsible for a
portion of such cleanup cost, PST believes that Kraft is obligated to indemnify
it for all costs and expenses incurred in connection with the Davis claim under
the terms of the 1984 Agreement of Purchase and Sale between Dart & Kraft and
PST. However, Kraft has denied that it is obligated to indemnify Ware Chemical
for this matter. At this time, the Company is unable to assess with any
reasonable certainty its ultimate liability, if any, for this matter and,
therefore, has not accrued any liability.
The Company's Belgian subsidiary has received an income tax assessment and may
be subject to similar assessments in the future (See Note D).
Additionally, the Company is party to certain other litigation 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.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 and six month
periods ended January 31, 1996 and 1995:
Three Months Ended Six Months Ended
January 31, January 31,
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of goods sold (76.6) (76.6) (77.4) (75.6)
----- ----- ----- -----
Gross profit 23.4 23.4 22.6 24.4
Selling, general and
administrative expenses (15.6) (15.7) (14.0) (17.0)
----- ----- ----- -----
Operating income 7.8 7.7 8.6 7.4
Interest expenses, net and
amortization of deferred
financing costs (9.3) (9.1) (9.7) (9.9)
Foreign exchange (loss) gain (0.1) 0.0 0.0 0.0
Other, net (0.1) (0.2) 0.2 (0.1)
----- ----- ----- -----
Loss before income taxes and
discontinued operations (1.7) (1.6) (0.9) (2.6)
Income tax (provision) benefit 0.6 (0.0) (0.0) 0.4
----- ----- ----- -----
Loss before discontinued operations (1.1)% (1.6) (0.9) (2.2)
Loss from discontinued operations (4.3) (0.7) (2.6) (0.6)
----- ----- ----- -----
NET LOSS (5.4)% (2.3)% (3.5)% (2.8)%
===== ===== ====== =====
Three months ended January 31, 1996 vs. three months ended January 31, 1995:
Net sales for the three months ended January 31, 1996 were $52,069,000, an
increase of $3,541,000 or 7.3%, compared to net sales of $48,528,000 for the
three months ended January 31, 1995. The increase was the result of increased
sales volume in garden hose, PVC compound, non-medical grade compound and
certain price increases. The increases were partially offset by decreased sales
volume in dip tubing and rubber gaskets.
Gross profit for the three months ended January 31, 1996 was $12,199,000, an
increase of $842,000 (7.4%) compared to January 31, 1995. Gross profit as a
percentage of net sales remained stable at 23.4%. This is primarily attributable
to decreases in raw material costs, particularly resin and plasticizers, offset
by changes in product mix and increases in overhead and direct labor costs.
Selling, general and administrative expenses for the three months ended January
31, 1996 were $8,111,000, a $471,000 (6.2%) increase compared to the three
months ended January 31, 1995. As a percentage of net sales, selling, general
and administrative expenses decreased from 15.7% for the three months ended
January 31, 1995 to 15.6% for the three months ended January 31, 1996. The
decrease in selling, general and administrative expenses as a percentage of net
sales was primarily attributable to a reduction in professional fees offset by
selling expense associated with higher sales volumes. The reduction in
professional fees was mainly due to the completion of the implementation of a
fully integrated management software system in fiscal 1995 at the Colorite
division.
Operating income for the three months ended January 31, 1996 and 1995 was
$4,088,000 (7.8% of net sales) and $3,717,000 (7.7% of net sales), respectively.
The $371,000 (10.0%) increase was primarily attributable to higher sales volume
partially offset by higher selling, general and administrative costs.
12
<PAGE>
Interest expense, net and amortization of deferred financial costs for the three
month periods ended January 31, 1996 and 1995 were $4,868,000 and $4,410,000,
respectively. This $458,000 or 10.4% increase is primarily attributable to
higher short-term borrowings as the Company maintained higher levels of
receivables and inventory in order to meet increased sales volume.
The income tax benefit (provision) for the three months ended January 31, 1996
is comprised of a domestic federal and state income tax benefit of $800,000
partially offset by a foreign income tax provision of $501,000. For the three
months ended January 31, 1995, the income tax provision is comprised of a
foreign income tax provision of $543,000 and partially offset by a domestic
federal and state income tax benefit of $515,000. The income tax
benefit/provision differs from the income tax benefit/provision calculated at
the statutory rate due to the difference between the U.S. statutory rate and
foreign income tax rates, state income taxes, amortization of goodwill and other
non-deductible benefits.
The Company recognized a loss on discontinued operations for the three months
ended January 31, 1996. The loss is comprised of a loss on the sale of certain
assets and discontinued operations from its Ozite Manufacturing Division ("Ozite
Mfg.") of $1,445,000 and a loss of $773,000 from Ozite Mfg.'s operations for the
quarter. In the same period a year ago, there was an operating loss of $327,000.
This segment's operations had manufactured non-woven textiles.
The Company had a net loss of $2,796,000 for the three months ended January 31,
1996 compared to a net loss of $1,108,000 for three months ended January 31,
1995.
Six months ended January 31, 1996 vs. six months ended January 31, 1995:
Net sales for the six months ended January 31, 1996 were $94,344,000, an
increase of $11,165,000 or 13.4%, compared to net sales of $83,179,000 for the
six months ended January 31, 1995. The increase was a result of increased sales
volume in garden hose, non-medical grade PVC compound, medical tubing and
certain price increases. The increase was partially offset by decreased sales
volume in medical grade PVC compound, rubber gaskets, and dip tubing.
Gross profit for the six months ended January 31, 1996 was $21,363,000, an
increase of $1,048,000 (5.2%) compared to gross profit of $20,315,000 for the
six months ended January 31, 1995. Gross profit as a percentage of net sales
decreased to 22.6% from 24.4% for the same periods. The decrease is gross profit
as a percentage of sales is primarily attributable to changes in product mix,
increased overhead and direct labor costs partially offset by decreasing raw
material costs, particularly resin and plasticizer.
Selling, general and administrative expenses for the six months ended January
31, 1996 were $13,162,000, a $1,013,000 (7.2%) decrease compared to the six
months ended January 31, 1995. As a percentage of net sales, these expenses
decreased to 14.0% compared to 17.0% for the same periods. The decrease in
selling, general and administrative expenses was primarily attributable to a
reduction in professional fees, insurance expense, promotional expense and
corporate expenses. The reduction in professional fees was mainly due to the
completion of the implementation of a fully integrated management software
system in fiscal 1995 at the Colorite division. As a result of higher safety
oriented procedures and an improved claim history, the Company experienced
reduced insurance expenses. Promotional expenses and other selling expenses
normally associated with higher sales volume declined as the Company had strong
orders at the fiscal 1995 year end which resulted in early fiscal 1996 sales.
Included in the decrease in Corporate expenses were aggregate decreases in
management compensation.
Operating income for the six months ended January 31, 1996 and 1995 was
$8,201,000 (8.6% of net sales) and $6,140,000 (7.4% of net sales), respectively.
The $2,061,000 (33.6%) increase was primarily attributable to higher sales
volume partially offset by an increase in cost of sales.
Interest expense, net and amortization of deferred financial costs for the six
month periods ended January 31, 1996 and 1995 were $9,134,000 and $8,202,000,
respectively. This $932,000 or 11.4% increase is primarily attributable to
higher short-term borrowing as the Company maintained higher levels of
receivables and inventories in order to meet higher increased sales volume.
13
<PAGE>
During the first quarter of fiscal 1996, the Company recorded a gain of
approximately $286,000 from the sale of its Schiller Park, Illinois facility.
The gasket manufacturing operation which had occupied the facility moved to a
leased facility in Schaumberg, Illinois.
The income tax (provision)benefit related to continuing operations for the six
months ended January 31, 1996 and 1995 included foreign, federal and state
income taxes. The income tax provision for the six months ended January 31, 1996
is comprised of a foreign income tax provision of $1,064,000 partially offset by
a domestic federal and state benefit of $1,000,000 which is based on expected
results for the full year. The income tax benefit for the six months ended
January 31, 1995 is comprised of a domestic federal and state income tax benefit
of $1,480,000 partially offset by a foreign income tax provision of $1,130,000.
The income tax benefit/provision differs from the income tax benefit/provision
calculated at the statutory rate due to the difference between the U.S.
statutory rate and foreign income tax rates, state income taxes, amortization of
goodwill and other non-deductible benefits.
The Company recognized a loss on discontinued operations for the six months
ended January 1, 1996. The loss is comprised of a loss on the sale of certain
assets and discontinued operatons from Ozite Mfg. of $1,445,000 and a loss of
$979,000 for Ozite Mfg.'s operations for the six month period. In the same
period a year ago, there was an operating loss of $524,000.
The Company had a net loss of $3,337,000 for the six months ended January 31,
1996 compared to a net loss of $2,353,000 for six months ended January 31, 1995.
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 flows 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 make required payments of principal and interest on
its debt, to permit anticipated capital expenditures and to fund working capital
requirements.
The market for the Company's garden hose is seasonal, with sales to the consumer
peaking in the spring and summer seasons. The Company's seasonal buildup of
garden hose inventory, peaks in the second quarter.
Cash and cash equivalents for the six months ended January 31, 1996 decreased
$3,978,000 compared to a decrease of $1,765,000 for the six months ended January
31, 1995. The changes for these periods were attributable to the factors
discussed below.
For the six months ended January 31, 1996 net cash used in operating activities
was $17,133,000 comprised primarily of an increase in inventories of
$17,053,000, an aggregate decrease in accounts payable, other current
liabilities and accrued interest of $3,735,000, and an increase in prepaid
expenses and other current assets of $1,026,000 partially offset by a net loss
of $3,337,000 adjusted for non-cash charges of depreciation of $2,834,000,
amortization of $1,073,000 and loss on sale of discontinued operations of
$1,445,000 and a decrease in accounts receivable of $2,971,000. The Company
funded these operations, incurred $4,616,000 for capital expenditures and repaid
$639,000 of its foreign term loan by using $3,978,000 in cash and cash
equivalents and by borrowing an additional $17,246,000 under is Revolving Credit
Facility.
For the six months ended January 31, 1995, net cash used in operating activities
was $27,513,000, comprised primarily of an increase in inventories of
$29,408,000, and an aggregate decrease in accounts payable, other current
liabilities and accrued interest of $1,318,000 partially offset by a net loss of
$2,353,000 adjusted for non-cash charges of depreciation of $2,588,000 and
amortization of $1,071,000 and a decrease in accounts receivable of $1,623,000.
The Company funded these operations, incurred $2,907,000 for capital
expenditures, repaid $568,000 of its foreign term loan and advanced $179,000 to
its parent by using $1,765,000 in cash and cash equivalents and by borrowing an
additional $29,512,000 under its Revolving Credit Facility.
14
<PAGE>
Working capital was $23,142,000 as of January 31, 1996 as compared to
$25,567,000 as of July 31, 1995. This $2,425,000 decrease is primarily
attributable to an increase in short-term borrowing ($43,740,000 compared to
$26,494,000) partially offset by an increase in inventories ($56,024,000
compared to $41,026,000).
The Company's businesses are relatively stable and mature and do not generally
require significant additions to property, plant and equipment. Capital
expenditures for the six month period ended January 31, 1996 and 1995 were
$4,616,000 and $2,907,000, respectively. The increase is primarily attributable
to the European operations which added a rubber compound line, an extrusion
line, and a warehouse extension.
The Company is party to certain litigation 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. See
Note E to the consolidated financial statements included in Part I, Item 1 to
this Form 10-Q. In addition, in January 1993 and 1994, the Company's Belgian
subsidiary received income tax assessments of approximately $2,461,000
(75,247,000 Belgian francs) for the disallowance of certain foreign tax credits
and investment losses claimed for the year ended July 31, 1990 and 1991.
Additionally, in January 1994, the subsidiary received an income tax assessment
of approximately $1,049,000 (32,083,000 Belgian francs) for the year ended July
31, 1992. Although the future outcome of these matters are uncertain, the
Company believes that its tax position was appropriate and that the assessments
are without merit. Therefore, the Company has appealed and has not paid or
accrued for the assessments. Based on the advice of legal counsel in Belgium,
the Company 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.
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite Mfg.") in
Libertyville, Illinois to Foss as of January 31, 1996. The company had been
exploring a relocation alternative until this unsolicited offer was accepted.
Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,000,000, which was
received by PST on February 12, 1996. Furthermore, the Agreement provides that
the Company will receive a minimum of $450,000 for all of its machinery and
equipment at the facility.
Accordingly, the Ozite Mfg. operations have been reflected as discontinued
operations in the statements of operations and cash flows for all periods
presented with the assets held for sale included in prepaid assets and other
current assets at January 31, 1996.
15
<PAGE>
Part II: OTHER INFORMATION
Item 1. Legal Proceedings: No reportable events
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
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.
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
Registrant
Date: March 21, 1996 By: Terence K. Brennan
Terence K. Brennan
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 763
<SECURITIES> 0
<RECEIVABLES> 38,568
<ALLOWANCES> 2,392
<INVENTORY> 56,024
<CURRENT-ASSETS> 99,283
<PP&E> 95,475
<DEPRECIATION> 51,588
<TOTAL-ASSETS> 191,071
<CURRENT-LIABILITIES> 76,141
<BONDS> 125,000
0
0
<COMMON> 83
<OTHER-SE> (12,580)
<TOTAL-LIABILITY-AND-EQUITY> 191,071
<SALES> 94,344
<TOTAL-REVENUES> 0
<CGS> 72,981
<TOTAL-COSTS> 86,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,134
<INCOME-PRETAX> (849)
<INCOME-TAX> 84
<INCOME-CONTINUING> (913)
<DISCONTINUED> (2,424)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,337)
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
