<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, 1997
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 13, 1997, 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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
C O N T E N T S
Page
Part I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of 3
January 31, 1997 and July 31, 1996
Consolidated Statements of Operations 4-5
for the three and six month periods ended
January 31, 1997 and 1996
Consolidated Statements of Cash Flows 6
for the six month periods ended
January 31, 1997 and 1996
Notes to Consolidated Financial 7-9
Statements
Item 2. Management's Discussion and Analysis 10-13
of Financial Condition and Results of
Operations
Part II OTHER INFORMATION:
Item 1 to Item 6. 14
Signatures 15
2
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
January 31, July 31,
1997 1996
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................... $ 1,496 $ 6,098
Accounts receivable, less allowance of $632 and $1,280 as of
January 31, 1997 and July 31, 1996, respectively ............................... 36,899 42,291
Inventories ......................................................................... 68,360 32,992
Prepaid expenses and other current assets ........................................... 2,742 2,591
Deferred income taxes ............................................................... 348 544
-------- --------
TOTAL CURRENT ASSETS ...................................................................... 109,845 84,516
PROPERTY, PLANT AND EQUIPMENT, net ........................................................ 51,450 45,608
EXCESS OF COST OF INVESTMENT OVER NET ASSETS
ACQUIRED, net ....................................................................... 41,241 41,921
OTHER ASSETS, net ......................................................................... 7,079 5,631
NOTES AND INTEREST RECEIVABLE FROM OFFICERS ............................................... 393 388
-------- --------
TOTAL ASSETS .............................................................................. $ 210,008 $ 178,064
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short term borrowings ............................................................... $ 49,638 $ 14,138
Accounts payable .................................................................... 21,583 20,432
Other current liabilities ........................................................... 6,497 11,268
Accrued interest .................................................................... 2,770 2,562
Current portion of long-term debt ................................................... 848 1,360
-------- --------
TOTAL CURRENT LIABILITIES ........................................................... 81,336 49,760
-------- --------
OTHER LONG-TERM LIABILITIES ............................................................... 2,669 2,262
DEFERRED INCOME TAXES ..................................................................... 3,544 3,663
LONG-TERM DEBT ............................................................................ 127,856 127,642
-------- --------
TOTAL LIABILITIES ......................................................................... 215,405 183,327
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000 share authorized; 8,319,833
shares issued and outstanding, at January 31, 1997
and July 31, 1996, respectively ............................................... 83 83
Additional paid-in capital .......................................................... (15,424) 13,132
Accumulated deficit ................................................................. (16,557) (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 .................................. (1,244) 666
-------- --------
NET STOCKHOLDERS' DEFICIT ........................................................... (5,397) (5,263)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............................................... $ 210,008 $ 178,064
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
---- ----
(Unaudited)
(As Restated)
<S> <C> <C>
NET SALES ............................................ $ 48,572 $ 56,576
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold ............................ 34,926 43,508
Selling, general and administrative ........... 7,838 7,730
Amortization of intangible assets ............. 353 384
----------- -----------
43,117 51,622
----------- -----------
INCOME FROM OPERATIONS .............................. 5,455 4,954
----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense .............................. 4,442 4,647
Debt issuance cost and discount amortization .. 248 193
Foreign exchange (gain) loss .................. (59) 38
Other, net .................................... 78 470
----------- -----------
4,709 5,348
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES .................................. 746 (394)
Benefit for income taxes ...................... (82) (299)
----------- -----------
(LOSS) INCOME FROM CONTINUING OPERATIONS ............. 828 (95)
----------- -----------
DISCONTINUED OPERATIONS:
Loss from non-woven textiles operations ....... (545) (2,218)
----------- -----------
NET INCOME (LOSS) .................................... 283 (2,313)
=========== ===========
INCOME (LOSS) PER COMMON SHARE ......................
Income (Loss) from continuing operations ... $ 0.01 (0.01)
Loss from discontinued operations .......... $ (0.07) (0.27)
----------- -----------
Net Income (loss) per common share ............ $ 0.03 (0.28)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ............................ 8,319,833 8,319,833
=========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
------------------------------------
1997 1996
----------- -----------
(Unaudited)
(As Restated)
<S> <C> <C>
NET SALES ............................................. $ 98,609 $ 110,015
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold ............................. 73,957 86,224
Selling, general and administrative ............ 15,118 13,078
Amortization of intangible assets .............. 682 762
----------- -----------
89,757 100,064
----------- -----------
INCOME FROM OPERATIONS ............................... 8,852 9,951
----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense ............................... 8,517 8,796
Debt issuance cost and discount amortization ... 470 385
Foreign exchange (gain) loss ................... (53) 66
Other, net ..................................... 58 233
----------- -----------
8,992 9,480
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ................................... (140) 471
Provision for income taxes .................... 165 64
---------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS .............. (305) 407
----------- -----------
DISCONTINUED OPERATIONS:
Loss from non-woven textiles operations ........ (545) (2,424)
----------- ----------
NET LOSS .............................................. $ (850) $ (2,017)
=========== ===========
(LOSS) INCOME PER COMMON SHARE :
(Loss) Income from continuing operations .... $ (0.04) $ 0.05
(Loss) Income from discontinued operations .. $ (0.07) (0.29)
----------- ----------
Net loss per common share ...................... $ (0.10) $ (0.24)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ............................. 8,319,833 8,319,833
=========== ==========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
--------------------
1997 1996
-------- --------
(Unaudited)
(Restated)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations ................................................................ $ (305) $ (2,017)
Adjustment for Recycling acquisition (see Note 1 ) ............................................ 857 (1,320)
-------- --------
Loss from continuing operations net of acquisition adjustment ................................... 552 (3,337)
Adjustment to reconcile net loss to net cash used in
operating activities from continuing operations:
Amortization ......................................................................... 1,152 1,073
Depreciation ......................................................................... 3,067 2,834
Deferred income taxes ................................................................ (96) (64)
Gain on the sale of fixed assets ...................................................... (9) (301)
Provision for losses on accounts receivable
and other reserves ................................................................. (647) (21)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable .................................................... 6,005 2,971
Inventories ............................................................ (35,414) (17,053)
Prepaid expenses and other current assets .............................. (144) (1,026)
Other assets ........................................................... (1,675) (53)
Notes and interest receivable from officers ............................ (5) (7)
Increase (decrease) in liabilities:
Accounts payable, other current
liabilities and accrued interest ..................................... (3,362) (3,735)
Other long-term liabilities ............................................ 552 141
NET CASH USED IN OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS .................................................... (30,024) (18,578)
-------- --------
(Loss) income from discontinued operations ......................................................... (545) 1,445
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
FROM DISCONTINUED OPERATIONS ................................................... (545) 1,445
-------- --------
NET CASH USED IN OPERATING ACTIVITIES ............................................. (30,569) (17,133)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................................ (3,851) (4,616)
Acquisition of Recycling operations ............................................................. (4,400) --
Proceeds from sale of property and equipment .................................................... 19 848
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ............................................... (8,232) (3,768)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under revolving credit facility, net .................................................... 35,500 17,246
Repayment of term loans ........................................................................... (368) (639)
(Repayment of) financing under capital leases ..................................................... (9) 146
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................................... 35,123 16,753
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................................................ (924) 170
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .......................................................... (4,602) (3,978)
CASH AND CASH EQUIVALENTS, beginning of the year ................................................... 6,098 4,741
-------- --------
CASH AND CASH EQUIVALENTS, end of year.............................................................. $ 1,496 $ 763
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................................................ $ 8,857 $ 8,655
======== ========
Income taxes..................................................................................... $ 592 $ 652
======== ========
Non-cash financing transaction:
Capital contributed by PureTec related to recycling acquisition.......................... $ 1,769 $ --
======== ========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 and the
recycling of plastics. 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 January 31, 1997, 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 and PureTec. 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.
Accordingly, operating results for the three and six months ended January 31,
1996 have been restated to reflect the above recycling acquisition:
Three Months Six Months
Net sales as originally reported .......... $ 52,069 $ 94,344
Add Sales of recycling .................... 4,507 15,671
-------- --------
Net sales as reported herein .............. $ 56,576 $110,015
======== ========
Loss from operations as originally reported $ (578) $ ( 913)
Add recycling operating results ........... 483 1,320
-------- --------
Income from continuing operations as
reported herein ....... $ (95) $ 407
======== ========
7
<PAGE>
2. INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of PST as of January 31, 1997, the
consolidated statements of operations for the three and six month periods ended
January 31, 1997 and 1996 and the consolidated statements of cash flows for the
six months ended January 31, 1997 and 1996 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. INVENTORIES
Inventories consist of the following:
January 31, July 31,
1997 1996
---- ----
(Unaudited)
Raw materials & supplies $18,143 $14,552
Recycled material 613 --
Work-in-process 1,587 1,549
Finished goods 48,017 16,891
------- -------
$68,360 $32,992
======= =======
4. INVESTMENTS IN AFFILIATES AND CERTAIN RELATED TRANSACTIONS
a. Dividends
In connection with the Merger (see Note 1), on July 31, 1995 PST
declared a dividend of 772,000 Artra Group, Inc. ("Artra") Common Shares and
3,675 shares of BCA Holdings, Inc. ("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
In 1987, 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 for $10,000. Bagcraft is a wholly-owned
subsidiary of BCA and BCA is wholly-owned subsidiary of Artra. 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).
As of January 31, 1997, PST held 133,556 shares of common stock of
Artra. The carrying value of this investment is zero.
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
8
<PAGE>
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 $2,611 (75,247,000 Belgian Francs) for
the disallowance of certain foreign tax credits and investment losses claimed
for the years ended July 31, 1990 and 1991. Additionally, in January 1995, the
subsidiary received an income tax assessment of approximately $1,113 (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 is appropriate
and that the assessments are without 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.
9
<PAGE>
PART I
FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
Item 1. FINANCIAL STATEMENTS
See pages 3 through 9.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 and
six month periods ended January 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1997 1996 1997 1996
------ ------ ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of goods sold (71.9) (76.9) (75.0) (78.4)
------ ------ ------ ------
Gross profit 28.1 23.1 25.0 21.6
Selling, general and administrative expenses (16.1) (13.7) (15.3) (11.9)
Amortization of intangible assets (0.7) (0.7) (0.7) (0.7)
----- ----- ------ -----
Income from operations 11.2 8.8 9.0 9.0
Interest expense (9.1) (8.2) (8.6) (8.0)
Debt issuance costs and discount amortization (0.5) (0.3) (0.5) (0.3)
Foreign exchange (gain) loss 0.1 (0.1) 0.1 (0.1)
Other, net (0.2) (0.8) (0.1) 0.2
----- ----- --- ---
(Loss) income from continuing operations before income taxes 1.5 (0.7) (0.1) 0.4
Income tax (provision) benefit 0.2 0.5 (0.2) --
----- ----- ---- ----
(Loss) income from continuing operations 1.7 (0.2) (0.3) 0.4
Discontinued operations (1.1) (3.9) (0.6) (2.2)
----- ----- ----- -----
Net loss 0.6 % (4.1)% (0.9)% (1.8)%
====== ====== ======= =======
</TABLE>
Three months ended January 31, 1997 vs. Three months ended January 31, 1996:
Net sales for the three months ended January 31, 1997 ("fiscal 1997")
were $48,572, a decrease of $8,004, or 14.1% compared to the three months ended
January 31, 1996 ("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 increased sales volume in dip
tubing, gaskets,
10
<PAGE>
medical tubing and PVC compound and certain price increases. Garden hose sales
were lower primarily due to late ordering by the Company's larger customers.
Gross profit for the three months ended January 31, 1997 was $13,646,
an increase of $578 (4.4%) compared to a gross profit of $13,068, for the three
months ended January 31, 1996. Gross profit was adversely affected by a sharp
decline in PET prices and lower sales volume. Gross profit as a percentage of
sales increased from 23.1% to 28.1% 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
January 31, 1997 were $7,838, a $108 (1.4%) increase compared to the three
months ended January 31, 1996. As a percentage of net sales, these expenses
increased to 16.1% from 13.7% for the same period. The percentage increase is
attributable to the quarterly decline in sales and an increase in warehousing
costs.
Operating income for the three months ended January 31, 1997 and 1996
were $5,455 and $4,954, respectively. The $501 decrease is primarily
attributable to lower sales, resultant lower gross margins and higher selling,
general and administrative expenses.
Interest expense for the three month periods ended January 31, 1997 and 1996
were $4,442 and $4,647, respectively.
The income tax benefit for the three months ended January 31, 1997 is
comprised of a foreign tax provision of $518 and a federal income tax benefit of
$600 , which is based on expected results for the full year. The income tax
provision for the three months ended January 31, 1996 was comprised of a foreign
income tax provision of $501 partially offset by a domestic federal income tax
benefit of $800 which was based on expected results for the full year.
The Company had a loss from continuing operations for the three month
period ended January 31, 1997 of $ 828 and loss from continuing operations $95
for the three month period ended January 31, 1996.
The Company sold its Ozite manufacturing division in March of 1996. The
$2,218 loss recorded by this operation for the three months ended January 31,
1996 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 January 31, 1997 and January 31, 1996, the results from the
recycling operations were as follows:
Sales for the periods were $3,781 and $9,425, respectively and
represents a $5,644 decline. Gross profit was $50 for the three months ended
January 31, 1997 and $655 for the three months ended January 31, 1996. The
decrease in sales and gross profit was directly attributable to a sharp decline
in PET prices. Selling, general and administrative expenses decreased $580 to
$363 for the second 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 ($333) and $(642) for the second quarters of fiscal
1997 and 1996, respectively.
Six months ended January 31, 1997 vs. Six months ended January 31, 1996:
Net sales for the six months ended January 31, 1997 ("fiscal 1997")
were $98,609, a decrease of $11,406, or 10.4% compared to the six months ended
January 31, 1996 ("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 increased sales volume in dip
tubing, gaskets, medical tubing and PVC compound and certain price increases.
Garden hose sales were lower primarily due to late ordering by the Company's
larger customers.
Gross profit for the six months ended January 31, 1997 was $24,652, an
increase of $861 (3.6%) compared to a gross profit of $23,791, for the six
months ended January 31, 1996. Gross profit was adversely affected by a sharp
decline in PET prices and lower sales volume. Gross profit as a percentage of
sales increased from 21.6% to 25.0% for the same period. The increase is
principally attributable to lower raw material costs for most segments and
improved manufacturing efficiencies.
Selling, general and administrative expenses for the six months ended
January 31, 1997 were $15,118, a $2,040 (15.6%) increase compared to the six
months ended January 31, 1996. As a percentage of net sales, these expenses
increased to 14.8% from 11.9% for the same period. The increase in the dollar
amount of selling, general and administrative expenses 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. The increase as a percent of sales is due to the above noted
items as well as the decline in sales.
Operating income for the six months ended January 31, 1997 and 1996 was
$8,852 and $9,951, respectively. The $1,099 decrease is primarily attributable
to lower sales, resultant lower gross margins and higher selling, general and
administrative expenses.
11
<PAGE>
Interest expense for the six month periods ended January 31, 1997 and
1996 was $8,517 and $8,796, respectively. This $279 or 3.1% increase is
primarily attributable to lower short term borrowings.
The income tax provision for the six months ended January 31, 1997 is
comprised of a foreign tax provision of $1,065 partially offset by a federal
income tax benefit of $900 , which is based on expected results for the full
year. The income tax provision for the six months ended January 31, 1996 was
comprised of a foreign income tax provision of $1,064 partially offset by a
domestic federal income tax benefit of $1,000 which is based on expected results
for the full year.
The Company had a loss from continuing operations for the six month
period ended January 31, 1997 of $ 2,914 and income from continuing operations
of $407 for the six month period ended January 31, 1996.
The Company sold its Ozite manufacturing division in March of 1996. The
$2,424 loss recorded by this operation for the six months ended January 31, 1996
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 six
months ended January 31, 1997 and January 31, 1996, the results from the
recycling operations were as follows:
Sales for the periods were $9,029 and $20,589, respectively and
represents a $11,560 decline. Gross profit (loss) was ($579) the six months
ended January 31, 1997 and $2,214 for the six months ended October 31, 1996. The
decrease in sales and gross profit (loss) was directly attributable to a sharp
decline in PET prices. Selling, general and administrative expenses decreased
$1,045 to $573 for the first six months 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 ($1,152) and $242 for the first six months 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 of the Company's other
markets, and lower raw material costs, the Company concluded fiscal 1996 with
lower levels of inventory. The initial buildup of inventory for fiscal 1997 and
the collection of receivables resulted in the Company's net accounts receivable
decreasing ($5,392) from $42,291 at July 31, 1996 to $36,899 at January 31, 1997
and net inventory increasing $35,368 from $32,992 at July 31, 1996 to $68,360 at
January 31, 1997.
Cash and cash equivalents decreased $4,602 for the six months ended
January 31, 1997, compared to a $3,978 decrease for the six months ended January
31, 1996. The changes for these periods were attributable to the factors
discussed below.
For the six months ended January 31, 1997, net cash used in operating
activities was $30,569. The Company funded its operating activities (including
building up of inventory of $35,414), repaid $377 of its outstanding debt,
disbursed $3,851 on capital improvements and $4,400 for the plastic recycling
acquisition by borrowing an additional $35,500 under its Revolving Credit
Facility.
For the six months ended January 31, 1996, net cash used in operating
activities was $17,133. The Company funded operating activities (including
building up of inventory of $17,053), repaid $639 of its outstanding debt,
disbursed $4,616 on capital improvements by borrowing an additional $17,246
under its Revolving Credit Facility.
Working capital was $26,509 as of January 31, 1997 a decrease of $6,247
as compared to July 31, 1996. This decrease was primarily the result of lower
accounts receivable balance ($36,899 compared to $42,291) and higher short term
borrowings and accrued interest, partially offset by higher inventory.
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 six month period ended January 31, 1997 and 1996 were
$3,851 and $4,616, 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.
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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 were used
to repay the borrowings outstanding under a prior loan and security agreement
with a bank. The Agreement contains covenants, the most restrictive of which are
maintenance of certain financial ratios, prohibition of the occurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. Borrowings under the
Agreement are secured by substantially all the domestic current assets of PST.
Additionally, 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.
Effective January 31, 1997, PST amended this Agreement with the CLC
("Amended Agreement"), representing the fourth amendment to the Agreement. The
Amended Agreement provides, among other things, for revolving credit advances of
up to $50,000 through July 31, 2000 and letters of credit of up to $1,000. The
Amended Agreement provides for certain pricing performance adjustments based on
defined Performance Ratios. The Company will pay interest at a defined Index
Rate plus the Applicable Revolver Index Margin (ranging from 0.00% to 0.25%) or,
at the election of the Company, the LIBOR Rate plus the Applicable LIBOR Margin
(ranging from 2.50% to 3.00%). The Amended Agreement also provides that
outstanding revolving credit advances shall not exceed $20,000 for 30
consecutive days during the period from July 1 to September 30 for each year.
Furthermore, the Amended Agreement provides that domestic capital expenditures
are limited to $8,500, $9,000 and $9,500 in fiscal years ending 1997, 1998 and
1999 (and each fiscal year thereafter), respectively. The Company also has the
right to cancel the Agreement on 30 days' written notice and pay the CLC an
early termination fee of $175 if such cancellation occurs prior to January 31,
1998 and $100 if cancellation occurs on or after January 31, 1998 and prior to
September 30, 1998.
In addition, on January 31, 1997 the Company signed a Receivables
Agreement with the CLC that provides the Company with the ability to sell a 100%
ownership interest, without recourse, in certain Eligible Receivables generated
by PST. The CLC's commitment to purchase said receivables from PST are
restricted to the period beginning each February 1 and ending on each May 31.
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 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 is nearing completion 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). Foreign operations saw raw mateial costs
continue to rise until they stablizied during the second quarter. 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.
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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
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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: March 14, 1997 By: __________________________
Thomas V. Gilboy
Chief Financial Officer
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