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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: April 30, 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 June 14, 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.
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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 3-4
April 30, 1996 and July 31, 1995
Consolidated Statements of Operations 5-6
for the three and nine month periods ended
April 30, 1996 and 1995
Consolidated Statements of Cash Flows 7-8
for the nine month periods ended
April 30, 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
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Part I. Financial Information
Item 1. Financial Statements
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
April 30, July 31,
1996 1995
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,201 $ 4,741
Accounts receivable, less allowance of
$2,662 and $2,550, respectively 58,549 40,561
Inventories 43,601 41,026
Prepaid expenses and other current assets 2,686 2,139
-------- --------
TOTAL CURRENT ASSETS 110,037 88,467
EXCESS COST OF INVESTMENT OVER NET ASSETS
ACQUIRED 42,265 43,286
PROPERTY, PLANT AND EQUIPMENT, net 44,725 44,795
OTHER ASSETS, net 5,502 5,370
NOTES AND INTEREST RECEIVABLE FROM OFFICERS 385 374
-------- --------
TOTAL ASSETS $202,914 $182,292
======== ========
(Continued)
3
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Continued)
April 30, July 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings $ 36,991 $ 26,494
Accounts payable 22,151 19,673
Other current liabilities 10,251 12,842
Accrued interest 6,220 2,620
Current portion of long-term debt 1,722 1,271
-------- --------
TOTAL CURRENT LIABILITIES 77,335 62,900
OTHER LONG-TERM LIABILITIES 1,327 1,195
DEFERRED INCOME TAXES 1,114 1,200
LONG-TERM DEBT 127,899 125,741
-------- --------
TOTAL LIABILITIES 207,675 191,036
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000
shares authorized; 8,319,833 shares
issued and outstanding at April 30, 1996
and July 31, 1995 83 83
Additional paid-in capital 12,107 12,107
Accumulated deficit (13,197) (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 1,066 934
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (4,761) (8,744)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $202,914 $182,292
======== ========
(Concluded)
See notes to consolidated financial statements
4
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Three Months Ended
April 30,
-------------------
1996 1995
---- ----
(Unaudited)
Net sales $83,848 $70,351
--------- ---------
Cost and expenses:
Cost of goods sold 61,365 54,840
Selling, general and administrative 8,509 6,294
--------- ---------
69,874 61,134
--------- ---------
Operating income 13,974 9,217
--------- ---------
Other expense:
Interest expense, net and amortization of
deferred financing costs (4,613) (4,808)
Foreign exchange loss 9 (31)
Other, net 38 64
--------- ---------
(4,566) (4,775)
--------- ---------
Income before income taxes and discontinued
operations 9,408 4,442
Income tax provision (3,043) (1,564)
--------- ---------
Income before discontinued operations 6,365 2,878
Discontinued operations:
Reduction in loss on sale of Ozite Manufacturing
due to increase in anticipated tax benefit 536 --
Reduction in loss/ (Loss) from discontinued
operations, (net of tax benefit of $288 in
1996) 288 (181)
--------- ---------
824 (181)
NET INCOME $ 7,189 $ 2,697
========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Income before discontinued operations .76 .34
Income (loss) from discontinued operations .10 (.02)
--------- ---------
NET INCOME PER COMMON SHARE: $ .86 $ .32
========= =========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,319,833 8,319,833
========= =========
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 share data)
Nine Months Ended
April 30,
------------------
1996 1995
---- ----
(Unaudited)
Net sales $178,192 $153,530
---------- ----------
Cost and expenses:
Cost of goods sold 134,346 117,704
Selling, general and administrative 21,671 20,469
---------- ----------
156,017 138,173
---------- ----------
Operating income 22,175 15,357
---------- ----------
Other (expense)income:
Interest expense, net and amortization of
deferred financing costs (13,747) (13,010)
Foreign exchange (loss) gain (57) (20)
Other, net 188 (64)
---------- ----------
(13,616) (13,094)
---------- ----------
Income before income taxes and discontinued
operations 8,559 2,263
Income tax provision (3,108) (1,214)
---------- ----------
Income before discontinued operations 5,451 1,049
Discontinued operations:
Loss on sale of Ozite Manufacturing,
(net of tax benefit of $536) (909) --
Loss from discontinued operations,
(net of tax benefit of $288 in 1996) (691) (705)
---------- ----------
(1,600) (705)
NET INCOME $ 3,851 $ 344
========== ==========
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before discontinued operations $ .65 $ .13
Discontinued operations (.19) (.09)
---------- ----------
NET INCOME PER COMMON SHARE: $ .46 $ .04
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,319,833 8,319,833
========== ==========
See notes to consolidated financial statements
6
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended
April 30,
-----------------
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,851 $ 344
Adjustments to reconcile net income to net
cash used in operating activities:
Gain on sale of property (321) --
Amortization 1,651 1,607
Depreciation 5,325 3,893
Deferred income taxes (86) --
Provision for losses on accounts
receivable 250 154
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (19,735) (20,506)
Inventories (4,703) (24,901)
Prepaid expenses and other
current assets 2,574 (1,251)
Other assets, net (953) 14
Notes and Interest receivable
from officers (11) (11)
Increase (decrease) in liabilities:
Accounts payable, other current
liabilities and accrued interest 4,470 5,883
Other long-term liabilities 132 181
--------- --------
Net cash used in operating
activities from continuing
operations (7,556) (34,593)
--------- --------
Adjustment for loss on sale of
discontinued operations 909 --
--------- --------
Net cash used in operating
activities (6,647) (34,593)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,453) (4,378)
Proceeds from sale of property 915 --
--------- --------
Net cash used in investing
activities $ (7,538) $ (4,378)
--------- --------
(Continued)
7
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PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Continued)
Nine Months Ended
April 30,
-------------------
1996 1995
---- ----
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments):
Revolving credit facility, net $ 10,497 $ 38,619
Foreign term loan 3,007 (582)
Foreign capital lease 122 --
Advances to majority stockholder-Ozite Corp. -- (260)
-------- --------
Net cash provided by financing activities 13,626 37,777
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,019 (193)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 460 (1,387)
CASH AND CASH EQUIVALENTS,
beginning of the period 4,741 4,297
-------- --------
CASH AND CASH EQUIVALENTS,
end of the period $ 5,201 $ 2,910
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,552 $ 8,671
======== ========
Income taxes $ 1,796 $ --
======== ========
(Concluded)
See notes to consolidated financial statements
8
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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 April 30, 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, which was
received by PST on February 12, 1996. Furthermore, the Agreement provides that
the Company will receive a minimum of $450 for all of its machinery and
equipment at the facility. As of June 14, 1996 the Company has received
approximately $121 for its machinery and equipment at the facility.
Accordingly, the Ozite Mfg. operations have been reflected as discontinued
operations in the statements of operations for all periods presented.
B. INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of PST as of April 30, 1996, the consolidated
statements of operations for the three and nine month periods ended April 30,
1996 and 1995 and the consolidated statements of cash flows for the nine months
ended April 30, 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.
9
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Certain information and footnote disclosures normally included in financial
statements prepared in accordance with 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 (the "Bagcraft Subordinated Note") and 50,000 shares of
13-1/2% cumulative redeemable preferred stock with a liquidation preference of
$5,000 (the "Bagcraft Preferred Stock" and, collectively with the Bagcraft
Subordinated Note and the BCA Preferred Stock (as defined below), the "Bagcraft
Investment") 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 on the subordinated note 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. On December 28, 1993, PST received from Bagcraft $5,000 in cash
and 3,000 shares of BCA preferred stock as payment in full for the $5,000
subordinated note and unpaid interest due from Bagcraft totaling $3,094,
respectively. The interest due from Bagcraft had been fully reserved and
interest income was not recorded for the receipt of the BCA preferred stock as
such stock is not freely transferable.
As of April 30, 1996 and July 31, 1995, the Company had not received or recorded
dividends of $6,572 and $5,894, respectively, related to the investment in
Bagcraft and BCA Preferred Stock. Under the terms of the Merger, the Company has
declared 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.
10
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D. INVENTORIES
Inventories consist of the following:
April 30, July 31,
1996 1995
---- ----
Raw materials $18,069 $17,898
Work-in-process 1,496 2,337
Finished goods 24,036 20,791
------- -------
$43,601 $41,026
======= =======
E. INCOME TAXES
In January 1993 and 1994, the Company's Belgian subsidiary received income tax
assessments of approximately $2,390 (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 $1,020 (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.
F. 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. 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 o 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 E).
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
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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 nine month
periods ended April 30, 1996 and 1995:
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of goods sold (73.2) (78.0) (75.4) (76.7)
----- ----- ----- -----
Gross profit 26.8 22.0 24.6 23.3
Selling, general and
administrative expenses (10.1) (8.9) (12.2) (13.3)
----- ----- ----- -----
Operating income 16.7 13.1 12.4 10.0
Interest expenses, net and
amortization of deferred
financing costs (5.5) (6.8) (7.7) (8.5)
Foreign exchange (loss) gain 0.0 (0.0) (0.0) (0.0)
Other, net 0.0 0.0 0.1 (0.0)
----- ----- ----- -----
Income (loss) before income
taxes and discontinued
operations 11.2 6.3 4.8 1.5
Income tax provision (3.6) (2.2) (1.7) (0.8)
----- ----- ----- -----
Income before discontinued
operations 7.6 4.1 3.1 0.7
Income (loss) from discontinued
operations 1.0 (0.3) (0.9) (0.5)
NET INCOME 8.6% 3.8% 2.2% 0.2%
===== ===== ===== =====
Three months ended April 30, 1996 vs. three months ended April 30, 1995:
Net sales for the three months ended April 30, 1996 were $83,848,000, an
increase of $13,497,000 or 19.2%, compared to net sales of $70,351,000 for the
three months ended April 30, 1995. The increase was the result of increased
sales volume in garden hose, PVC compound and certain price increases. The
increases were partially offset by decreased sales volume in rubber gaskets.
Gross profit for the three months ended April 30, 1996 was $22,483,000, an
increase of $6,972,000 (44.9%) compared to April 30, 1995. Gross profit as a
percentage of net sales increased to 26.8% from 22.0% for the same periods. This
is primarily attributable to decreases in raw material costs, particularly resin
and plasticizers, changes in product mix to higher margin items and certain
price increases, partially offset by increases in overhead and direct labor
costs.
Selling, general and administrative expenses for the three months ended April
30, 1996 were $8,509,000, a $2,215,000 (35.2%) increase compared to the three
months ended April 30, 1995. As a percentage of net sales, selling, general and
administrative expenses increased to 10.1% for the three month ended April 30,
1996 from 8.9% for the three months ended April 30, 1995. The increase in
selling, general and administrative expenses was primarily attributable to
higher sales volumes offset by a reduction in professional fees. The reduction
in professional fees was mainly due to the substantial 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 April 30, 1996 and 1995 was
$13,974,000 (16.7% of net sales) and $9,217,000 (13.1% of net sales),
respectively. The $4,757,000 (51.6%) increase was primarily attributable to
higher sales volume and decreases in raw material costs partially offset by
higher selling, general and administrative costs.
Interest expense, net and amortization of deferred financial costs for the three
month periods ended April 30, 1996 and 1995
12
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were $4,613,000 and $4,808,000, respectively. This $195,000 or 4.1% decrease is
primarily attributable to lower short-term borrowings as the Company reduced
inventory in meeting increased sales volume.
The income tax provision for the three months ended April 30, 1996 is comprised
of a domestic federal and state income tax provision of $1,612,000 and a foreign
income tax provision of $1,431,000. The federal tax provision anticipates the
utilization of approximately $3,500,000 of net operating loss carryforwards, and
the effective tax rate used to calculate the federal tax provision reflects such
utilization. For the three months ended April 30, 1995, the income tax provision
is comprised of a foreign income tax provision of $899,000 and a domestic
federal and state income tax provision of $665,000 The income tax provision
differs from the income tax 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
and the utilization of net operating loss carryforwards.
The Company recognized a reduction in the loss on discontinued operations for
the three months ended April 30, 1996. The gain is comprised of federal tax
benefits totalling $824,000 which was applied against a second quarter 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 $181,000. This segment's operations had manufactured
non-woven textiles.
The Company had net income of $7,189,000 for the three months ended April 30,
1996 compared to net income of $2,697,000 for three months ended April 30, 1995.
Nine months ended April 30, 1996 vs. nine months ended April 30, 1995:
Net sales for the nine months ended April 30, 1996 were $178,192,000, an
increase of $24,662,000 or 16.1%, compared to net sales of $153,530,000 for the
nine months ended April 30, 1995. The increase was a result of increased sales
volume in garden hose, PVC compound, medical tubing and certain price increases.
The increase was partially offset by decreased sales volume in rubber gaskets.
Gross profit for the nine months ended April 30, 1996 was $43,846,000, an
increase of $8,020,000 (22.4%) compared to gross profit of $35,826,000 for the
nine months ended April 30, 1995. Gross profit as a percentage of net sales
increased to 24.6% from 23.3% for the same periods. The increase in gross profit
as a percentage of sales is primarily attributable to decreasing raw material
costs, particularly resin and plasticizer, and changes in the product mix to
higher margin products partially offset by increased overhead and direct labor
costs.
Selling, general and administrative expenses for the nine months ended April 30,
1996 were $21,671,000, a $1,202,000 (5.9%) increase compared to the nine months
ended April 30, 1995. As a percentage of net sales, these expenses decreased to
12.2% compared to 13.3% for the same periods. The decrease in selling, general
and administrative expenses as a percentage of sales 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
substantial 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 nine months ended April 30, 1996 and 1995 was
$22,175,000 (12.4% of net sales) and $15,357,000 (10.0% of net sales),
respectively. The $6,818,000 (44.4%) increase was primarily attributable to
higher sales volume, and decreases in raw material costs partially offset by
higher selling, general and administrative costs.
Interest expense, net and amortization of deferred financing costs for the nine
month periods ended April 30, 1996 and 1995 were $13,747,000 and $13,010,000,
respectively. This $737,000 or 5.7% 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. Inventory levels
were reduced during the third quarter.
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The income tax provision related to continuing operations for the nine months
ended April 30, 1996 and 1995 included foreign, federal and state income taxes.
The income tax provision for the nine months ended April 30, 1996 is comprised
of a foreign income tax provision of $1,932,000 a domestic federal and state
provision of $1,176,000 which is based on expected results for the full year.
The federal tax provision anticipates the utilization of approximately
$3,500,000 of net operating loss carryforwards, and the effective tax rate used
to calculate the federal tax provision reflects such utilization. The income tax
provision for the nine months ended April 30, 1995 is comprised of a a foreign
income tax provision of $2,029,000 partially offset by a domestic federal and
state income tax benefit of $815,000. The income tax provision differs from the
income tax 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 and the
utilization of net operating loss carryforwards.
The Company recognized a loss on discontinued operations for the nine months
ended April 30, 1996. The loss is comprised of a loss on the sale of certain
assets and discontinued operations from Ozite Mfg. of $1,445,000 net of a
federal tax benefit of $536,000 and a loss of $979,000 net of a federal tax
benefit of $288,000 for Ozite Mfg.'s operations for the nine month period. In
the same period a year ago, there was an operating loss of $705,000.
The Company had net income of $3,851,000 for the nine months ended April 30,
1996 compared to net income of $344,000 for nine months ended April 30, 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 nine months ended April 30, 1996 increased
$460,000 compared to a decrease of $1,387,000 for the nine months ended April
30, 1995. The changes for these periods were attributable to the factors
discussed below.
For the nine months ended April 30, 1996 net cash used in operating activities
was $6,647,000 comprised primarily of an increase in accounts receivable of
$19,735,000, an increase in inventories of $4,703,000 and an increase in other
assets of $953,000, partially offset by net income of $3,851,000 adjusted for
non-cash charges of depreciation of $5,325,000, amortization of $1,651,000 and
loss on sale of discontinued operations of $909,000, an aggregate increase in
accounts payable, other current liabilities and accrued interest of $4,470,000,
and a decrease in prepaid expenses and other current assets of $2,574,000. The
Company funded these operations and incurred $8,453,000 for capital expenditures
by borrowing an additional $10,497,000 under its Revolving Credit Facility and
increasing its foreign borrowings by $3,007,000.
For the nine months ended April 30, 1995, net cash used in operating activities
was $34,593,000, comprised primarily of an increase in accounts receivable of
$20,506,000, an increase in inventories of $24,901,000 and an increase in
prepaid expenses and other current assets of $1,215,000 partially offset by net
income of $344,000 adjusted for non-cash charges of depreciation of $3,893,000
and amortization of $1,607,000 and an aggregate decrease in accounts payable,
other current liabilities and accrued interest of $5,883,000. The Company funded
these operations, incurred $4,378,000 for capital expenditures, repaid $582,000
of its foreign term loan and advanced $260,000 to its parent by using $1,387,000
in cash and
14
<PAGE>
cash equivalents and by borrowing an additional $38,619,000 under its Revolving
Credit Facility.
Working capital was $32,702,000 as of April 30, 1996 as compared to $25,567,000
as of July 31, 1995. This $7,135,000 increase is primarily attributable to an
increase in accounts receivable ($58,549,000 compared to $40,561,000) and
inventories ($43,601,000 compared to $41,026,000) partially offset by increases
in short term borrowings ($36,991,000 compared to $26,494,000), accounts payable
($22,151,000 compared to $19,673,000) and accrued interest ($6,220,000 compared
to $2,620,000).
The growth which the Company's businesses have experienced has resulted in
significant increases in equipment expenditures. Capital expenditures for the
nine month period ended April 30, 1996 and 1995 were $8,453,000 and $4,378,000,
respectively. The increase is primarily attributable to the European operations
which added a rubber compound line, an extrusion line, a dispenser tubing line,
and a warehouse extension.
During the third quarter of Fiscal 1996, Action Technology Italia ("Action
Italy") entered into loan agreements with a financial institution totalling
$1,708,000 (3,109,260,865 Italian Lira). The loans are repayable in ten
semi-annual installments with one commencing October 1996 through April 2001.
The other loan's initial payment is January 1999 and runs through January 2001.
The interest rate varies from 9.78% to 9.93%. The loans are secured by Action
Italy's equipment.
During the third quarter of Fiscal 1996, Action Technology Belgium ("Action
Belgium") entered into an agreement with a financial institution for $1,272,000
(40,000,000 Belgian Francs). The loan is repayable in 20 quarterly installments
commencing June 1996 through March 2001. The interest rate is 6.10%. The loan is
secured by Action Belgium's real property and contains certain restrictive
financial covenants.
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 F 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 $2,390,000
(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 1995, the subsidiary received an income tax assessment
of approximately $1,020,000 (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. As of June 14, 1996 the Company has received
approximately $121,000 for its machinery and equipment at the facility.
Accordingly, the Ozite Mfg. operations have been reflected as discontinued
operations in the statements of operations for all periods presented.
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
In January 1996 Mr. Terrence Brennan
announced his intention to resign his
position as Chief Financial Officer of the
Company. In May 1996 Thomas V. Gilboy joined
the Company as Chief Financial Officer.
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: June 14, 1996 By: /s/ Thomas V. Gilboy
-----------------------
Thomas V. Gilboy
Chief Financial Officer
17
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<PERIOD-END> JAN-31-1996
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