<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: April 30, 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 June 11, 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
April 30, 1997 and July 31, 1996
Consolidated Statements of Operations 4-5
for the three and nine month periods ended
April 30, 1997 and 1996
Consolidated Statements of Cash Flows 6
for the nine month periods ended
April 30, 1997 and 1996
Notes to Consolidated Financial 7-10
Statements
Item 2. Management's Discussion and Analysis 11-15
of Financial Condition and Results of
Operations
Part II OTHER INFORMATION:
Item 1 to Item 6. 16
Signatures 17
* * * * * * * * * * * *
2
<PAGE>
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30, July 31,
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 3,411 $ 6,098
Accounts receivable, less allowance of $713 and $1,280 as of
April 30, 1997 and July 31, 1996, respectively ................. 56,404 42,291
Inventories ......................................................... 64,467 32,992
Prepaid expenses and other current assets ........................... 3,132 2,591
Deferred income taxes ............................................... -- 544
--------- ---------
TOTAL CURRENT ASSETS ...................................................... 127,414 84,516
PROPERTY, PLANT AND EQUIPMENT, net ........................................ 57,130 45,608
EXCESS OF COST OF INVESTMENT OVER NET ASSETS
ACQUIRED, net ....................................................... 40,898 41,921
OTHER ASSETS, net ......................................................... 6,940 5,631
NOTES AND INTEREST RECEIVABLE FROM OFFICERS ............................... 393 388
--------- ---------
TOTAL ASSETS .............................................................. $ 232,775 $ 178,064
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short term borrowings ............................................... $ 46,115 $ 14,138
Accounts payable .................................................... 29,210 20,432
Other current liabilities ........................................... 13,444 11,268
Accrued interest .................................................... 6,283 2,562
Current portion of long-term debt ................................... 762 1,360
Current deferred income taxes ....................................... 392 --
--------- ---------
TOTAL CURRENT LIABILITIES ................................................. 96,206 49,760
--------- ---------
OTHER LONG-TERM LIABILITIES ............................................... 2,560 2,262
DEFERRED INCOME TAXES ..................................................... 3,492 3,663
LONG-TERM DEBT ............................................................ 133,861 127,642
--------- ---------
TOTAL LIABILITIES ......................................................... 236,119 183,327
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, 1997
and July 31, 1996, respectively ................................ 83 83
Additional paid-in capital .......................................... 15,758 13,132
Accumulated deficit ................................................. (13,565) (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 .................. (1,050) 666
--------- ---------
NET STOCKHOLDERS' DEFICIT ........................................... (3,344) (5,263)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............................... $ 232,775 $ 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
April 30,
--------------------------
1997 1996
---- ----
(Unaudited)
(As Restated)
<S> <C> <C>
NET SALES ............................................................. $ 81,715 $ 90,307
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold ............................................. 62,182 67,189
Selling, general and administrative ............................ 8,934 8,524
Amortization of intangible assets .............................. 346 304
----------- -----------
71,462 76,017
----------- -----------
INCOME FROM OPERATIONS ............................................... 10,253 14,290
----------- -----------
OTHER EXPENSE (INCOME) :
Interest expense ............................................... 4,432 4,459
Debt issuance cost and discount amortization ................... 249 200
Foreign exchange gain .......................................... (66) (9)
Other, net ..................................................... 107 252
----------- -----------
4,722 4,902
----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ................................................... 5,531 9,388
Provision for income taxes ..................................... 2,743 3,044
----------- -----------
INCOME FROM CONTINUING OPERATIONS ..................................... 2,788 6,344
----------- -----------
DISCONTINUED OPERATIONS:
(Loss) on disposition of non-woven textile operations (net of
tax benefit of $18 in 1997) .................................. (30) --
Reduction in loss on disposition of non-woven textile operations
due to increase in anticipated tax benefit ................... -- 536
Reduction in loss from discontinued operations
due to increase in anticipated tax benefit .................. -- 288
----------- -----------
(30) 824
NET INCOME ............................................................ $ 2,758 $ 7,168
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income from continuing operations ............................ $ 0.33 $ 0.76
(Loss) income from discontinued operations ................... (0.00) 0.10
----------- -----------
Net Income per common share .................................... $ 0.33 $ 0.86
=========== ===========
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>
Nine Months Ended
April 30,
--------------------------
1997 1996
(Unaudited)
(As Restated)
<S> <C> <C>
NET SALES ........................................................... $ 183,863 $ 200,322
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold ........................................... 140,397 153,413
Selling, general and administrative .......................... 24,121 21,602
Amortization of intangible assets ............................ 1,028 1,066
----------- -----------
165,546 176,081
----------- -----------
INCOME FROM OPERATIONS ............................................. 18,317 24,241
----------- -----------
OTHER EXPENSE (INCOME):
Interest expense ............................................. 13,021 13,255
Debt issuance cost and discount amortization ................. 719 585
Foreign exchange (gain) loss ................................. (119) 57
Other, net ................................................... 162 485
----------- -----------
13,783 14,382
----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ................................................. 4,534 9,859
Provision for income taxes .................................. 3,163 3,108
----------- -----------
INCOME FROM CONTINUING OPERATIONS ................................... 1,371 6,751
----------- -----------
DISCONTINUED OPERATIONS:
Loss from disposition of non-woven textiles operations (net of
tax benefit of $231 in 1997 and $536 in 1996) .............. (362) (909)
Loss from discontinued operations (net of tax benefit
of $288 ) ................................................. -- (691)
----------- -----------
(362) (1,600)
NET INCOME .......................................................... $ 1,009 $ 5,151
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income from continuing operations ......................... $ 0.16 $ 0.81
Loss from discontinued operations ......................... (0.04) (0.19)
----------- -----------
Net income per common share .................................. $ 0.12 $ 0.62
=========== ===========
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>
Nine Months Ended
April 30,
--------------------
1997 1996
-------- --------
(Unaudited)
(Restated)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................ $ 1,009 $ 5,151
Adjustment for Recycling acquisition (see Note 1 ) ................................... 857 (1,300)
-------- --------
Income from continuing operations net of acquisition adjustment ........................ 1,866 3,851
Adjustment to reconcile net income to net cash used in
operating activities from continuing operations:
Amortization ................................................................ 1,747 1,651
Depreciation ................................................................ 4,492 5,325
Deferred income taxes ....................................................... (459) (86)
Gain on the sale of fixed assets ............................................. (18) (321)
Provision for losses on accounts receivable
and other reserves ........................................................ (564) 250
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ........................................... (14,569) (19,735)
Inventories ................................................... (31,998) (4,703)
Prepaid expenses and other current assets ..................... (557) 2,574
Other assets .................................................. (1,709) (953)
Notes and interest receivable from officers ................... (5) (11)
Increase (decrease) in liabilities:
Accounts payable, other current liabilities, accrued interest,
current deferred taxes and current portion of long term debt 14,469 4,470
Other long-term liabilities ................................... (417) 132
-------- --------
NET CASH USED IN OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS .......................................... (27,722) (7,556)
-------- --------
Adjustment for loss on disposition of discontinued operations ............................. -- 909
-------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
FROM DISCONTINUED OPERATIONS .......................................... -- 909
-------- --------
NET CASH USED IN OPERATING ACTIVITIES .................................... (27,722) (6,647)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................... (6,400) (8,453)
Acquisition of Recycling operations .................................................... (4,400) --
Proceeds from sale of property and equipment ........................................... 28 915
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ...................................... (10,772) (7,538)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under revolving credit facility, net ........................................... 31,977 10,497
Long term financings and grants........................................................... 2,362 3,007
Repayment of term loans .................................................................. (598) --
(Repayment of) financing under capital leases ............................................ (135) 122
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................................. 33,606 13,626
EFFECT OF EXCHANGE RATE CHANGES ON CASH ................................................... 2,201 1,019
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................................... (2,687) 460
CASH AND CASH EQUIVALENTS, beginning of the year .......................................... 6,098 4,741
-------- --------
CASH AND CASH EQUIVALENTS, end of year .................................................... $ 3,411 $ 5,201
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................................... $ 9,228 $ 9,552
======== ========
Income taxes ........................................................................... $ 737 $ 1,796
======== ========
Non-cash financing transaction:
Capital contributed by PureTec related to recycling acquisition ............... $ 1,769 $ --
Capitalized lease Colorite Europe Limited premises ............................ $ 3,784 --
</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
three 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 April 30, 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 nine months ended
April 30, 1996 have been restated to reflect the above recycling acquisition:
Three Months Nine Months
Net sales as originally reported $ 83,848 $178,192
Add Sales of recycling 6,459 22,130
-------- --------
Net sales as reported herein $ 90,307 $200,322
======== ========
Income from operations as originally reported $ 6,364 $ 5,451
Add recycling operating results (20) 1,300
-------- --------
Income from continuing operations as
reported herein $ 6,344 $ 6,751
======== ========
7
<PAGE>
2. INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of PST as of April 30, 1997, the
consolidated statements of operations for the three and nine month periods ended
April 30, 1997 and 1996 and the consolidated statements of cash flows for the
nine months ended April 30, 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:
April 30, July 31,
1997 1996
------- -------
(Unaudited)
Raw materials & supplies $22,006 $14,552
Recycled material 803 --
Work-in-process 1,634 1,549
Finished goods 40,024 16,891
------- -------
$64,467 $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 April 30, 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. SHORT TERM BORROWINGS AND LONG TERM DEBT
On August 23, 1996, Colorite Europe Limited ("CEL"), an indirect wholly
owned subsidiary of PST, entered into an agreement with a UK Commercial Bank to
provide the following credit facilities:
a. Working Capital Facility of $243 ((pound)150) with interest charged at
the sum of 2.0% plus the London Interbank Offered Rate ("LIBOR").
b. Short Term Demand Loan of $1,458 ((pound)900), for bridging of capital
grants to be received from government related authorities in Northern Ireland.
Interest will be charged at the sum of 2.0% plus LIBOR.
c. Overdraft Facility of $729 ((pound)450), with interest charged at the
UK base rate, currently at 5.75%, plus 1.75%, payable quarterly.
At April 30, 1997, there were no amounts outstanding on these short
term credit facilities. These short term credit facilities are subject to
certain restrictions, collateral and covenants, and expire in July 31, 1997. The
Company intends to extend these, or similar facilities, with the UK Commercial
Bank.
In addition to the short term credit facilities for CEL described
above, the credit agreement with the UK Commercial Bank also provided for a Term
Loan of $2,107 ((pound)1,300), payable in 13 equal semi-annual installments of
$151 ((pound)93) commencing June 20, 1998 with a final payment of $158
((pound)98) on December 31, 2004. Interest will be charged at the sum of 1.75%
plus LIBOR. At April 30, 1997, the entire balance was outstanding. The Term Loan
is subject to certain restrictions, collateral and covenants. Additionally, CEL
has entered into a 20 year lease for the facilities that it has now occupied in
Northern Ireland. This lease is accounted for as a capital lease, and the
balance on the lease as of April 30, 1997 is $3,784 ((pound)2,335).
6. INCOME TAXES
In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $2,105 (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
$897 (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.
7. 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 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 responsibility.
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>
8. EARNINGS PER SHARE
In February, 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). This new standard, which supercedes APB Opinion No. 15, requires dual
presentation of basic and diluted earnings per share (EPS) on the face of the
income statement and a reconciliation of the income available to common
stockholders and weighted-average shares of the basic EPS computation to the
income available to common stockholders and weighted average shares plus
dilutive potential common shares of the diluted EPS computation. The objective
of the statement is to make the computation more comparable with international
accounting standards. SFAS 128 is effective for periods ending after December
15, 1997 (the Company's 1998 fiscal year). Earlier application of SFAS 128 is
not permitted. The Company's current EPS calculation conforms to basic EPS.
Diluted EPS is not expected to be materially different from basic EPS.
10
<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
nine month periods ended April 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1997 1996 1997 1996
------ ------ ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of goods sold (76.1) (74.4) (76.4) (76.6)
------ ------ ------ ------
Gross profit 23.9 25.6 23.6 23.4
Selling, general and administrative expenses (11.0) (9.5) (13.0) (10.8)
Amortization of intangible assets (0.4) (0.3) ( 0.6) (0.5)
------ ----- ------ ------
Income from operations 12.5 15.8 10.0 12.1
Interest expense (5.4) (4.9) (7.1) (6.6)
Debt issuance costs and discount amortization (0.3) (0.2) (0.4) (0.3)
Foreign exchange gain (loss) 0.1 --- 0.1 ---
Other, net (0.1) (0.3) (0.1) (0.3)
----- ----- ----- ------
Income from continuing operations before income taxes 6.8 10.4 2.5 4.9
Income tax (provision) benefit (3.4) (3.4) (1.8) (1.5)
----- ----- ----- ----
Income from continuing operations 3.4 7.0 0.7 3.4
Discontinued operations 0.0 0.9 (0.2) (0.8)
----- ----- ------- ------
Net Income 3.4% 7.9% 0.5% 2.6%
===== ===== ===== =====
</TABLE>
Three months ended April 30, 1997 vs. Three months ended April 30, 1996:
Net sales for the three months ended April 30, 1997 ("fiscal 1997")
were $81,715, a decrease of $8,592, or 9.5% compared to the three months ended
April 30, 1996 ("fiscal 1996"). The decrease is mainly attributable to decreases
in sales volume for garden hose and specialty resins and to price decreases for
PET; partially offset by increased sales volume in dip tubing, gaskets, medical
tubing and
11
<PAGE>
PVC compound and certain price increases. Garden hose sales were lower primarily
due to late ordering by the Company's larger customers, partly as a result of
unfavorable weather conditions.
Gross profit for the three months ended April 30, 1997 was $19,533, a
decrease of $3,585 (15.5%) compared to a gross profit of $23,118, for the three
months ended April 30, 1996. Gross profit was adversely affected primarily by
the decline in garden hose sales as well as the continuing affect of PET
pricing. Accordingly, gross profit as a percentage of sales decreased from 25.6%
to 23.9% for the same period.
Selling, general and administrative expenses for the three months ended
April 30, 1997 were $8,934, a $410 (4.8%) increase compared to the three months
ended April 30, 1996. As a percentage of net sales, these expenses increased to
11.0% from 9.5% for the same period. The percentage increase is attributable to
the quarterly decline in sales and an increase in warehousing costs as well as
corporate administrative expenses.
Operating income for the three months ended April 30, 1997 and 1996
were $10,253 and $14,290, respectively. The $4,037 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 April 30, 1997 and
1996 were $4,432 and $4,459, respectively.
The income tax provision for the three months ended April 30, 1997 is
comprised of a foreign tax provision of $1,021 and a federal tax provision of
$1,722, which is based on expected results for the full year. The income tax
provision for the three months ended April 30, 1996 was comprised of a foreign
income tax provision of $868 and a domestic federal income tax provision of
$2,176 which was based on expected results for the full year.
The Company had income from continuing operations for the three month
period ended April 30, 1997 of $ 2,788 and income from continuing operations
$6,344 for the three month period ended April 30, 1996.
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 April 30, 1997 and April 30, 1996, the results from the recycling
operations were as follows:
Sales for the periods were $4,335 and $6,459, respectively and
represents a $2,124 decline. Gross profit was $930 for the three months ended
April 30, 1997 and $635 for the three months ended April 30, 1996. The decrease
in sales was directly attributable to a sharp decline in PET prices. Selling,
general and administrative expenses was $497 for the third quarter of fiscal
1997 as compared to $319 for the same period in fiscal 1996. Income (loss) from
operations was $433 and $(20) for the third quarters of fiscal 1997 and 1996,
respectively.
Nine months ended April 30, 1997 vs. Nine months ended April 30, 1996:
Net sales for the nine months ended April 30, 1997 ("fiscal 1997") were
$183,863, a decrease of $16,459, or 8.2% compared to the nine months ended April
30, 1996 ("fiscal 1996"). The decrease is mainly attributable to decreases in
sales volume for garden hose and specialty resins and to price decreases for
PET; 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, partly
as a result of unfavorable weather conditions affecting the garden hose
business.
Gross profit for the nine months ended April 30, 1997 was $43,466, a
decrease of $3,443 (7.3%) compared to a gross profit of $46,909, for the nine
months ended April 30, 1996. Gross profit was adversely affected by the decline
in garden hose sales as well as the decline of PET.
Selling, general and administrative expenses for the nine months ended
April 30, 1997 were $24,121, a $2,519 (11.7%) increase compared to the nine
months ended April 30, 1996. As a percentage of net sales, these expenses
increased to 13.0% from 10.8% for the same period. This increase is due to the
start-up of Colorite Europe Limited in Ireland, as well as a reversal of
previously accrued expenses that impacted fiscal 1996.
Operating income for the nine months ended April 30, 1997 and 1996 was
$18,317 and $24,241, respectively. The $5,924 decrease is primarily attributable
to lower sales, resultant lower gross margins and higher selling, general and
administrative expenses. Weather conditions have continued to adversely affect
the garden hose business.
Interest expense for the nine month periods ended April 30, 1997 and
1996 was $13,021 and $13,255, respectively. This represents a $234 or 1.7%
decrease.
12
<PAGE>
The income tax provision for the nine months ended April 30, 1997 is
comprised of a foreign tax provision of $2,086 and a federal tax provision of
$1,077, which is based on expected results for the full year. The income tax
provision for the nine months ended April 30, 1996 was comprised of a foreign
income tax provision of $1,932 and a domestic federal income tax provision of
$1,176 which is based on expected results for the full year.
The Company had income from continuing operations for the nine month
period ended April 30, 1997 of $ 1,371 and income from continuing operations of
$6,751 for the nine month period ended April 30, 1996.
The Company sold its Ozite manufacturing division in March of 1996. The
$1,600 loss (net of applicable tax benefit of $824) for the nine months ended
April 30, 1996 is reflected as discontinued operations for the period. This loss
is comprised of a loss on the sale of certain assets and discontinued operations
from Ozite of $909 (net of a federal tax benefit of $536) and a loss of $691
(net of a federal tax benefit of $288) for Ozite's operations for the nine
months ended April 30, 1996.
As mentioned above, included in the results of operations is the effect
of the acquisition of the newly acquired recycling operations. For the nine
months ended April 30, 1997 and April 30, 1996, the results from the recycling
operations were as follows:
Sales for the periods were $9,814 and $22,130, respectively and
represents a $12,316 decline. Gross profit was $1,160 for the nine months ended
April 30, 1997 and $3,063 for the nine months ended April 30, 1996. The decrease
in sales and gross profit was directly attributable to a sharp decline in PET
prices. Selling, general and administrative expenses was $1,050 for the first
nine months of fiscal 1997 as compared to $997 for the same period in fiscal
1996. Income from operations was $110 and $1,300 for the first nine 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. For fiscal 1997, however, sales volume has been
weaker than expected due to late ordering and unfavorable weather conditions.
Consequently, this has resulted in a buildup of inventory from $32,992 at July
31, 1997 to $64,467 at April 30, 1997. Accompanying this inventory buildup was
an increase in short term borrowings from $14,138 at July 31, 1997 to $46,115 at
April 30, 1997.
Cash and cash equivalents decreased $2,687 for the nine months ended
April 30, 1997, compared to a $460 increase for the nine months ended April 30,
1996. The changes for these periods were attributable to the factors discussed
below.
For the nine months ended April 30, 1997, net cash used in operating
activities was $27,722. The Company funded its operating activities (including
building up of inventory of $31,998), disbursed $6,400 on capital improvements
and $4,400 for the plastic recycling acquisition by borrowing an additional
$31,977 under its Revolving Credit Facility.
For the nine months ended April 30, 1996, net cash used in operating
activities was $6,647. The Company funded operating activities (including
building up of inventory of $4,703), disbursed $8,453 on capital improvements by
borrowing an additional $10,497 under its Revolving Credit Facility.
Working capital was $31,208 as of April 30, 1997 a decrease of $3,548
as compared to $34,756 at July 31, 1996. This decrease was primarily the result
of higher short term borrowings ($46,115 compared to $14,138), higher accrued
liabilities and interest, offset by higher accounts receivables and higher
inventory $31,475.
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 nine month period ended April 30, 1997 and 1996 were
$6,400 and $8,453 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. In addition, capital expenditures
have occurred in regard to the start-up of Colorite Europe Limited in Ireland.
13
<PAGE>
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 $6 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 material
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
14
<PAGE>
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.
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: June 11, 1997 By: s/ Thomas V. Gilboy
------------------- -------------------------
Thomas V. Gilboy
Chief Financial Officer
17
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 3,411
<SECURITIES> 0
<RECEIVABLES> 57,117
<ALLOWANCES> 713
<INVENTORY> 64,467
<CURRENT-ASSETS> 3,132
<PP&E> 57,130
<DEPRECIATION> 0
<TOTAL-ASSETS> 232,775
<CURRENT-LIABILITIES> 96,206
<BONDS> 133,861
0
0
<COMMON> 83
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<TOTAL-LIABILITY-AND-EQUITY> 232,775
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<TOTAL-COSTS> 165,546
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<INCOME-TAX> 3,163
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