UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 333-32041
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PRECISE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1205268
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Mosside Boulevard
North Versailles, Pennsylvania 15137-2553
(Address of principal executive offices) (Zip Code)
(412) 823-2100
(Registrant's telephone number, including area code)
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 May 12, 2000, one share of the Company's Common Stock was outstanding.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
---- ----
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 468 $ 318
Accounts receivable, net 17,088 15,133
Inventories, net 7,861 6,352
Deposits on capital leases 4,026 5,276
Prepaid expenses and other 415 289
Deferred income taxes 683 683
-------------- ------------
Total current assets 30,541 28,051
Property, plant and equipment, net 50,776 44,950
Intangible and other assets, net 25,207 25,173
-------------- ------------
Total assets $106,524 $98,174
============== ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 7,239 $ 5,722
Accounts payable 12,233 11,789
Accrued liabilities 7,014 4,639
Tooling deposits 2,575 1,292
-------------- ------------
Total current liabilities 29,061 23,442
Long-term debt, less current maturities 88,854 85,829
Deferred income taxes 1,247 1,247
Commitments and Contingencies -- --
Stockholder's deficit:
Common stock, no par value; 1,000 shares authorized,
and 1 share issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 1 1
Additional paid-in-capital 3,555 3,555
Minimum pension liability (193) (193)
Retained deficit (16,001) (15,707)
-------------- ------------
Total stockholder's deficit (12,638) (12,344)
-------------- ------------
Total liabilities and stockholder's deficit $(106,524) $98,174
============== ============
See accompanying notes.
3
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
(unaudited)
Net sales $30,692 $26,811
Cost of sales 24,793 20,761
-------------- -------------
Gross profit 5,899 6,050
Selling, general, and administrative 3,256 3,091
Amortization of intangible assets 254 254
-------------- -------------
Operating income 2,389 2,705
Other expense (income):
Interest expense 2,631 2,519
Other -- (1)
-------------- -------------
(Loss) income before income taxes (242) 187
Provision for income taxes 52 195
-------------- -------------
Net loss $ (294) $ (8)
============== =============
See accompanying notes.
4
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
---------------------------------
2000 1999
---- ----
(unaudited)
Operating Activities:
Net loss $ (294) $ (8)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 2,002 1,970
Amortization of financing fees 126 139
(Gain)/loss on sale of fixed assets (1) 13
Changes in operating assets and liabilities:
Accounts receivable (1,955) (1,406)
Inventories (1,509) (1,364)
Deposits on capital leases 1,250 --
Prepaid expenses and other (541) (172)
Accounts payable 445 2,782
Accrued liabilities 2,374 2,025
Tooling deposits 1,284 560
------------- -----------
Net cash provided by operating activities 3,181 4,539
Investing Activities:
Capital expenditures (2,958) (377)
Proceeds from sale of fixed assets 1 --
------------- -----------
Net cash used in investing activities (2,957) (377)
Financing Activities:
Borrowings on revolving line of credit 10,600 5,200
Payments on revolving line of credit (9,800) (7,600)
Repayment of long-term debt (874) (912)
------------- -----------
Net cash used in financing activities (74) (3,312)
------------- -----------
Net increase in cash 150 850
Cash at beginning of period 318 240
------------- -----------
Cash at end of period $ 468 $ 1,090
============= ===========
See accompanying notes.
5
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Three Months Ended
March 31,
-------------------------------
2000 1999
---- ----
(unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 516 $ 266
============ ============
Income taxes, net of refund $ 50 $ 41
============ ============
Supplemental schedule of noncash investing and financing
activities:
Capital lease agreements for equipment $ 4,613 $ --
============ ============
See accompanying notes.
6
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet at March 31, 2000, and the consolidated
statements of income and consolidated statements of cash flows for the periods
ended March 31, 2000 and 1999, have been prepared by Precise Technology, Inc.
("Precise"), without audit. In the opinion of Management, all recurring and
non-recurring adjustments necessary to present fairly the financial position,
results of operations and changes in cash flows at March 31, 2000 and for the
periods presented have been made.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements prepared in accordance with
generally accepted accounting principles. It is suggested that these
consolidated financial statements be read in conjunction with the Company's
annual report on Form 10-K for the year ended December 31, 1999 which contains a
summary of the Precise's accounting principles and other information.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the operating results to be expected for the full
year.
2. Inventories
The major components of inventories were as follows:
March 31, December 31,
2000 1999
------------------ ------------------
(unaudited)
Finished products $2,316 $1,998
Raw materials 2,564 1,815
Tooling and dies 2,981 2,539
------------------ ------------------
Total $7,861 $6,352
================== ==================
7
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
3. Commitments and Contingencies
Precise is involved from time to time in lawsuits that arise in the
normal course of business. Precise actively and vigorously defends all lawsuits.
Management believes that there are no pending lawsuits that will have a material
affect on the Precise's financial position.
4. Long-Term Debt
On June 13, 1997, Precise entered into a $30 million Credit Agreement
with a financial institution, which expires in 2002. The Credit Agreement
contains certain covenants which require Precise to maintain leverage ratios,
fixed charge and interest coverage ratios and minimum net worth. The Credit
Agreement further limits capital expenditures, declaration of dividends and
other restricted payments, and additional indebtedness. The Credit Agreement
contains other operating covenants, including a restriction on the sale,
encumbrance or transfer of the Precise's assets or capital stock. The Credit
Agreement was amended, effective March 31, 1999. The amendment reduced the
borrowing capacity of Precise by allowing for draws of a specified percentage of
certain assets, determined on a monthly basis, up to a maximum of $30 million.
The borrowing capacity of Precise as of March 31, 2000, was approximately $16.6
million.
5. Segment Information
Precise has two reportable segments: injection molding and mold
manufacturing. Precise's injection molding segment produces high-volume, highly
engineered, precision thermoplastic products. Precise's mold manufacturing
segment has extensive tool and die manufacturing capabilities.
Precise evaluates performance and allocates resources based on gross
margin and/or market need. As a result, Precise does not allocate certain
general and administrative expenses to its operating segments including
depreciation, amortization and interest expense.
Precise's reportable segments are business units that offer different
products and services. The reportable segments are each managed separately
because they manufacture and distribute distinct products or services with
different production processes.
8
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
5. Segment Information - (continued)
Information by industry segment is set forth below:
Three Months Ended March 31, 2000
---------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Manufacturing Items Consolidated
-------------- ---------------- --------------- --------------
(in thousands)
Revenues from external customers $26,703 $3,989 $ -- $30,692
Segment gross margin 5,534 365 -- 5,899
Depreciation and amortization expense 1,540 261 201 2,002
Interest expense -- -- 2,631 2,631
Segment assets 59,073 12,142 35,309 106,524
Net capital expenditures 7,151 365 54 7,570
Three Months Ended March 31, 1999
---------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Manufacturing Items Consolidated
-------------- ---------------- --------------- --------------
(in thousands)
Revenues from external customers $22,278 $ 4,533 $ -- $26,811
Segment gross margin 5,926 124 -- 6,050
Depreciation and amortization expense 1,358 263 349 1,970
Interest expense -- -- 2,519 2,519
Segment assets 48,287 13,174 33,993 95,454
Net capital expenditures 334 -- 43 377
6. Subsequent Events
On May 5, 2000, Precise purchased all of the outstanding stock of Phaff
B.V., a private limited company, incorporated under the laws of the Netherlands.
The acquisition was financed with indebtedness under the Credit Agreement
totaling $11.1; $9.0 million of which was a term loan and $2.1 of which was a
draw on Precise's revolving line of credit. The acquisition was accounted for as
a purchase in accordance with generally accepted accounting principles. The
purchase price will be allocated to acquired assets based upon the fair market
values at the date of the acquisition, with any remaining amount being allocated
to goodwill. This allocation will be made within one year of the acquisition
date.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On May 5, 2000, Precise purchased all of the outstanding stock of Phaff B.V., a
limited liability company, incorporated under the laws of the Netherlands. The
acquisition was financed with a $9.0 million term loan and a $2.1 million draw
on Precise's revolving line of credit.
Precise's operating data for the three months ended March 31, 2000 and 1999 are
set forth below as percentages of net sales:
Three Months Ended
March 31,
--------------------------
2000 1999
Net sales 100.0% 100.0%
Cost of sales 80.8 77.4
------------- ------------
Gross profit 19.2 22.6
Selling, general and administrative 10.6 11.5
Amortization of intangible assets 0.8 1.0
------------- ------------
Operating income 7.8 10.1
Other expense (income):
Interest expense 8.6 9.4
Other 0.0 (0.0)
------------- ------------
(Loss)/income before income taxes (0.8) 0.7
Provision for income taxes 0.2 0.7
------------- ------------
Net loss (1.0)% (0.0)%
============= ============
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 compared to Three Months Ended March 31, 1999
Net sales. Precise's net sales increased to $30.7 million for the three
months ended March 31, 2000, an increase of $3.9 million, or 14.5%, from the
comparable period in the prior year. The increase in net sales was attributable
to increased injection molding sales in the amount of $4.4 million, which were
partially offset by decreased mold manufacturing sales in the amount of $0.5
million.
Injection molding sales for the three months ended March 31, 2000,
increased $4.4 million, or 19.9%, to $26.7 million. The increase is primarily
attributable to sales at two new injection molding facilities in the amount of
$4.2 million. These facilities began operations in the fourth quarter of 1999
and the first quarter of 2000.
Mold manufacturing sales for the three months ended March 31, 2000,
decreased $0.5 million, or 12.0%, to $4.0 million. The decrease is primarily due
to a decrease in mold sales related to the management of mold manufacturing
programs performed by outside vendors of $1.4 million, which was partially
offset by an increase in internally-produced mold manufacturing sales of $0.9
million.
Gross Profit. Precise's gross profit decreased to $5.9 million for the
three months ended March 31, 2000, from $6.1 million for the three months ended
March 31, 1999. Gross profit margin decreased to 19.2% for the three months
ended March 31, 2000 from 22.6% in the comparable period in the prior year.
Injection molding's gross profit for the three months ended March 31,
2000 decreased $0.4 million, or 6.6%, to $5.5 million due as a percentage of
injection molding net sales, gross profit decreased from 26.6% to 20.7% for the
three months ended March 31, 2000. The decrease was primarily due to the start
up of a new facility as well as the start up of significant programs at several
other facilities, a contract restriction in passing resin price increases to a
significant customer and decreased equipment utilization.
Mold manufacturing's gross profit for the three months ended March 31,
2000 increased $241,000, to $365,000 due to increased utilization associated
with the increase in internally-produced mold manufacturing sales.
Selling, general and administrative. Selling, general and
administrative expenses increased to $3.3 million for the three months ended
March 31, 2000, an increase of $165,000, or 5.3%, over the
10
comparable period in the prior year. Selling, general and
administrative expenses, as a percentage of net sales, decreased from 11.5% to
10.6% for the three months ended March 31, 1999 and March 31, 2000,
respectively. The increase in selling, general and administrative expenses was
primarily due to increased salaries, wages, and fringe benefits due to annual
merit increases and an increase in total employees and an increase in insurance
expense. These increases were partially offset by a decrease in fees and
services.
Amortization. Precise's amortization of intangible assets remained
constant at $254,000 for the three months ended March 31, 2000, compared to the
same period in the prior year. As a percentage of net sales, amortization
expense decreased to 0.8% for the three months ended March 31, 2000, from 1.0%
for the same period in the prior year.
Operating income. Operating income decreased to $2.4 million for the
three months ended March 31, 2000, a decrease of $316,000, or 11.7%, over the
comparable period in the prior year. Operating income as a percentage of net
sales decreased to 7.8% for the three months ended March 31, 2000 from 10.1% in
the comparable period in the prior year, primarily as a result of higher
selling, general and administrative expenses.
Interest expense. Interest expense increased to $2.6 million for the
three months ended March 31, 2000 from $2.5 million in the comparable period in
the prior year representing an increase of 4.4%. This increase is primarily a
result of interest due on a higher level of outstanding indebtedness. As a
percentage of net sales, interest expense decreased from 9.4% for the three
months ended March 31, 1999, to 8.6% for the three months ended March 31, 2000.
Provision for income tax. Precise's effective tax rates differed from
the applicable statutory rates for the three months ended March 31, 2000 and
1999 primarily due to nondeductible goodwill amortization.
Liquidity and Capital Resources
Precise generated cash flows from operations totaling $3.2 million and
$4.5 million in the three months ended March 31, 2000 and 1999, respectively.
The decrease in cash flows from operations is primarily attributable to a lower
increase in accounts payable as compared to the prior period, partially offset
by a decrease in deposits on capital leases. Also contributing to the decrease
in cash flows from operations is the increase in accounts receivable and tooling
deposits, both of which are due to the increase in the level of business
activity.
Precise's cash flows used in investing activities totaled $3.0 million
and $0.4 million in the first quarter of 2000 and 1999, respectively, excluding
capital lease agreements for equipment totaling $4.6 million in the three months
ended March 31, 2000. The capital leases entered into in the first quarter of
2000, related to machinery acquired for new molding programs at several molding
facilities in an aggregate amount of $3.1 million; and $1.3 million for the
acquisition of machinery at a new molding facility. During the first three
months of 2000, Precise expended approximately $1.6 million on leasehold
improvements and automation equipment needed for new programs and $0.5 million
on additional machinery and equipment at the Streetsboro facility. During the
first three months of 1999, Precise expended approximately $0.4 million in cash
capital expenditures primarily for auxiliary and assembly equipment.
Precise's cash flows used in financing activities totaled $74,000 and
$3.3 million for the three months ended March 31, 2000 and 1999, respectively.
During the three months ended March 31, 2000, cash used in financing activities
was comprised of regularly scheduled principal payments on Precise's capital
lease obligations and revolving line of credit, which was partially offset by
borrowings on the revolving line of credit. During the three months ended March
31, 1999, regularly scheduled principal payments on Precise's capital lease
obligations and payments on the revolving line of credit contributed to the cash
used in financing activities.
Management believes that Precise's cash flow from operations, together
with borrowings under its Credit Agreement, which had a borrowing capacity of
$16.6 million of which $7.9 million was available at March 31, 2000, provides it
with sufficient liquidity necessary to fund capital improvements, service
indebtedness and meet working capital requirements for Precise's existing
operations. However, Precise is highly leveraged and, as a result, funds
available for working capital, capital expenditures, and other purposes may be
limited or unavailable in the event Precise does not generate cash flow at or
above expected levels, which could have a material adverse effect on its
business, financial condition and results of operations.
11
Cautionary Statement on Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that any forward-looking statements, including statements regarding the intent,
belief, or current expectations of Precise or its management, are not guarantees
of future performance and involve risks, uncertainties, and other factors, some
of which are beyond Precise's control, and that actual results may differ
materially from those in forward-looking statements. Such risks, uncertainties
and other factors include, but are not limited to: (a) general economic
conditions in the markets in which Precise operates, (b) reliance on key
customers and supply contracts, (c) volatility of customer demand (d) exposure
to fluctuations in resin cost and supply, (e) customer outsourcing decisions,
(f) reliance on key manufacturing facilities, (g) the impact of significant
competition from companies of varying sizes including divisions or subsidiaries
of larger companies and (h) other risks detailed from time to time in the
Company's Securities and Exchange Commission filings. Precise does not intend to
update these forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Precise is exposed to market risk from changes in interest rates.
Precise's primary interest rate risk relates to its long-term debt obligations.
At March 31, 2000, Precise had total long-term obligations, including the
current portion of those obligations, of approximately $96.1 million. Of that
amount $87.5 million was in fixed rate obligations and $8.6 million was in
variable rate obligations. Assuming a 10% increase in interest rates on
Precise's variable rate obligations (i.e., an increase from the March 31, 2000
weighted average interest rate of 8.80% to a weighted average interest rate of
9.68%), interest expense for the three months ended March 31, 2000 would be
approximately $19,000 higher based on the March 31, 2000 outstanding balance of
variable rate obligations. To date, Precise has not entered into any interest
rate swap or exchange agreements.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(i) Exhibit 27 - Financial Data Schedule
(ii) Exhibit 3.15 -- Articles of Incorporation of
Precise International, Inc.
(iii) Exhibit 3.16 - Bylaws of Precise International,
Inc.
(b) Reports on Form 8-K
None
12
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.
PRECISE TECHNOLOGY, INC.
(Registrant)
Date May 15, 2000 /s/ John R. Weeks
------------ -----------------
John R. Weeks
President and Chief Executive Officer
Date May 15, 2000 /s/ Gregory R. Conley
------------ ---------------------
Gregory R. Conley
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
13