UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
--------------
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended July 31, 1996
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from___
to___
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 (I.R.S. Employer
incorporation or organization) Identification No.)
65 Railroad Avenue, Ridgefield, New Jersey 07657
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 941-6550
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: N/A
The number of shares of common stock of the Registrant outstanding as of October
29,1996 was 8,319,833 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.
DOCUMENTS INCORPORATED BY REFERENCE - None.
PART I
Item 1. Business
Introduction
Plastic Specialties and Technologies, Inc. ("PST" or the "Company"), a
Delaware corporation, was formed in March 1984 by senior management to acquire
the assets of the plastic specialty sector of Dart & Kraft, Inc. ("Dart &
Kraft") in a leveraged buyout. PST was acquired by Ozite Corporation ("Ozite")
in 1990.
Ozite merged with PureTec Corporation ("PureTec"), formerly Pure Tech
International, Inc., at the close of Business on July 31, 1995 (the "Merger").
As of July 31, 1996, PureTec, through its ownership of Ozite, owned
approximately 83% of the outstanding common stock of PST.
The Company discontinued the manufacturing of non-woven textile products
and sold the related assets of this segment effective January 31, 1996. (See
Note 15 to the Consolidated Financial Statements included in Item 8 to this Form
10-K). In September, 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets of Pure Tech Plastics, Inc. and subsidiaries ("PTP") for
$4,500,000. The acquisition will be 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. As a result of the acquisition, PST
constitutes approximately 80% of PureTec's operations and product lines. (See
Note 14 to the Consolidated Financial Statements included in Item 6 to this Form
10-K).
Description of Business
PST is a leading producer of garden hose; disposable medical tubing;
medical-grade plastic materials; and precision tubing for writing instruments
and spray dispensers. The Company also produces vinyl compounds used for
automotive products, food packaging, and wire coatings; and, effective in
September, 1996, is a leader in plastic recycling, producing high-grade recycled
polyethylene terephthalate ("PET") for packaging and fiber applications.
The Company's operations consist of two manufacturing categories, "Plastic
Products," with approximately 75% of total sales for the year ended July 1996;
and "Plastic Materials," with approximately 25% of total sales for the year
ended July 1996. The Company's products are sold in the following markets, with
the operating divisions named in parenthesis, including the recycling operations
acquired in September, 1996:
- ----------------------------------------------------|---------------------------------------------------------
Plastic Products | Plastic Materials
- ----------------------------------------------------|---------------------------------------------------------
Lawn & Garden (Colorite Plastics) | Recycled & General Purpose Plastics
| (PureTech Plastics; Cybertech)
- ----------------------------------------------------|---------------------------------------------------------
Medical Tubing (Plastron) | Medical-grade Vinyl Compounds (Colorite Unichem)
- ----------------------------------------------------|---------------------------------------------------------
Specialty Tubing & Gaskets (ActionTechnology; |
American Gasket & Rubber) |
- ----------------------------------------------------|---------------------------------------------------------
Each of these markets has its own unique customer base, competitive
environment, cost and pricing structures, business cycles, and related business
strategies, as described in the following paragraphs.
Lawn & Garden
PST believes that its Colorite Plastics division is the leading producer of
garden hose in the United States, with more than 40% of the market. There are
two other principal competitors in the United States, and several smaller
companies having substantially smaller market shares. Founded in 1949 in
Garfield, New Jersey, Colorite Plastics now manufactures in six modern
facilities throughout the United States and Canada.
Garden hose products are sold primarily to home centers, hardware
cooperatives, food, automotive, drug and mass merchandising chains and catalog
companies throughout the United States and Canada. Approximately 88% of
sales are to Colorite Plastics' ten largest customers. The remaining sales are
divided among approximately 350 smaller customer accounts. Colorite Plastics' 10
largest customers include some of the fastest growing and most widely respected
retail chains in North America. Colorite Plastics' market strategy is to provide
a complete line of innovative, high-quality products along with superior
customer service. Innovations have included the patented Colorite(R) Evenflow(R)
design and the "drinking water safe" product lines. This successful strategy has
allowed the division to grow into its market leading position.
Products are sold directly through Colorite Plastics' salespeople and also
through approximately 20 independent representatives. The division sells both
private label and brand-name products to the retail market. Advertising is
limited to trade journals and advertising allowances to retailers.
Colorite Plastics manufactures vinyl garden hose by the plastic extrusion
process. The primary raw materials are polyvinyl chloride ("PVC") compounds and
brass couplings that are produced by the Company, and nylon reinforcement fiber
that is purchased from suppliers. The Colorite Plastics division typically sets
prices for its garden hose products in advance of each season and, to the extent
that raw material costs increase more than anticipated, the additional costs
cannot be passed on during that season.
The garden hose business is highly seasonal with approximately 75% of sales
occurring in the second half of the Company's fiscal year. As a result of the
need to build up inventories in anticipation of such second-half sales, the
Company's working capital requirements have historically peaked in the second
and third quarters of the Company's fiscal year. In addition, this seasonality
has a significant impact on the Company's net income from quarter to quarter.
The Company historically operates the first two quarters of the fiscal year at a
loss.
In addition to its core garden hose business, Colorite Plastics has
launched new products, such as a new line of irrigation products for the
do-it-yourself markets. For example, the division has introduced an irrigator
"soaker hose," composed of 65% recycled rubber, and the Auto-Moist(TM) line of
drip irrigation and watering products. Colorite Plastics also manufactures
specialty hose products such as air hose. Colorite Plastics, like other PST
divisions, is also expanding to international markets. In 1996, it began serving
the Canadian market with a new facility in Mississauga, Ontario.
Medical Tubing
The Company's Plastron division has been a leader in disposable medical
tubing for more than 35 years. Plastron's worldwide operation includes
strategically located plants in California, Georgia, and several production
lines at Action Technology Belgium that support sales to the medical industry.
These facilities include "clean room" extrusion operations. Plastron specializes
in high-quality, close tolerance tubing for applications such as Intravenous
("IV") therapy, hemodialysis equipment, cardio-vascular procedures, urinary
drainage and catheter products.
The Company believes that its Plastron division is a leading producer of
medical tubing in the United States, with approximately 50% of the merchant
(non-captive) market, and a leader in Europe with more than 50% of the market
for cardio-vascular applications. There are two other principal competitors in
the United States.
Medical tubing is sold primarily to a small number of manufacturers of
medical devices. Approximately 50% of sales are to Plastron's five largest
customers. Products are sold directly through Plastron's salespeople.
Advertising is limited to trade journals and trade shows.
Plastron manufactures medical tubing by the plastic extrusion process. The
primary raw materials are PVC compounds, which are produced by the Company, and
certain other plastic materials, which are purchased from a select number of
suppliers. Raw material price increases generally can be passed on to customers
after a delay of two or three months, although competitive pressures sometimes
prevent price increases.
Medical tubing is one of the Company's fastest growing product lines.
Continued growth is expected to come from general market expansion and expansion
in international markets, as well as the addition of new customers and new
products. New products include microbore tubing, silicone substitute
formulations, and trilayer tubing
substitutes. For example, Plastron has developed microbore tubing with extremely
small internal diameters. This microbore tubing can be used to regulate the
delivery of critical intravenous fluids without the need for more expensive drip
control devices. Medical professionals can precisely control the drug delivery
speed simply by selecting the proper diameter tube, thereby improving accuracy
and reducing cost.
Medical-grade Vinyl Compounds
The Company believes that its Colorite Unichem ("Unichem") division is the
world's leading producer of high-quality vinyl compounds for use in the medical
industry. These compounds are sold to leading manufacturers of medical devices
and equipment. These medical-grade compounds are also sold to producers of
tubing and closures for the food and beverage industry and used in a variety of
food contact applications.
The market for medical-grade vinyl compounds is highly specialized, with
two significant competitors. For more than 30 years, Unichem has been supplying
these specialized vinyl compounds for FDA-regulated applications. The Company
believes it competes effectively based on product quality and performance and
prompt delivery, and that price is a secondary consideration for its customers.
Unichem's chemists work closely with customers to develop compounds that address
their specific requirements. Through this custom work, Unichem has introduced a
number of breakthroughs to the medical device industry by developing
formulations with unique physical characteristics. For example, Unichem has
recently developed a new family of flexible vinyl compounds designed to replace
silicone rubber in a variety of medical and commercial applications.
Medical-grade compounds are produced in the Company's Ridgefield, New
Jersey facility. To meet growing demand, the Company's general purpose
compounding facility in Sparks, Nevada is being upgraded to produce
medical-grade compounds. In addition, the Company is building a plant in
Northern Ireland, near Belfast, to more efficiently serve European customers.
The Company also sells these compounds in Asian markets. Approximately 25% of
external sales are to Unichem's five largest customers. Products are sold
directly through Unichem's salespeople. Advertising is limited to trade journals
and trade shows.
The Unichem division purchases raw materials for its compounding operation
(PVC resins, plasticizer and stabilizers) from several sources, including other
PST divisions. The division in the past has generally been able to pass on raw
materials price increases to customers on a relatively timely basis.
Specialty Tubing & Gaskets
PST's specialty tubing and gasket product line consists of (i) extruded
plastic tubing, sold primarily to manufacturers of aerosol valves, dispenser
pumps, and writing instruments; (ii) rubber and thermoplastic gaskets for the
aerosol and dispenser pump markets; and (iii) consumer products, chiefly
consisting of swimming pool and other corrugated hose. These products are
manufactured primarily by the Company's Action Technology ("Action") and
American Gasket and Rubber divisions.
Most of Action's products are manufactured by the plastic extrusion process
and are sold throughout the United States, Europe, and selected worldwide
markets. Action is the largest tubing extruder in North America. Writing
instrument products include pen barrels and ink tubing as well as ink reservoirs
for felt-tip pens. Action's sales to the dispenser industry are comprised of dip
tubes which transmit the contents of a dispenser can to the nozzle, and plastic
and rubber gaskets and seals used in the manufacture of dispenser valves and
pumps. These products are manufactured to very precise tolerances, according to
the specifications developed by Action and its customers for specific
applications. Action also manufactures consumer products which are primarily
sold to retail merchandisers, including hose lines of various grades and types
used for swimming pool and industrial applications.
The Company believes Action's products compete successfully based on
product quality, prompt delivery, technical service and price. Action believes
that its ability to produce high volumes of products to exact specifications has
been a key to its success in the marketplace and the longevity of its customer
relationships.
Each Action facility is strategically located to supply regional customers
on a timely basis. In the United States, Action maintains plants in New Jersey,
Illinois (2), and production lines at Plastron facilities in California and
Georgia. Action's European plants, in Belgium and Italy, serve the European
market with products similar to those manufactured in the United States.
Action has a division-wide marketing force located in Rockaway, New Jersey.
In addition, most of Action's operating facilities have their own sales force
comprised of full-time employees who report to the manager of each plant. Action
also uses independent representatives to sell its pool hose products. In July,
1996, Action entered into a joint agreement with Haviland Consumer Products to
market and manufacture an expanded line of pool hose, which will take advantage
of the technology and marketing strengths of both companies.
The raw materials for all of Action's products (primarily polyethylene and
polypropylene) are purchased from a number of different suppliers. Some PVC
compounds are purchased by Action from other PureTec divisions. The Action
division has generally been able to pass through increases in raw material costs
to its customers pursuant to multi-year contracts and other agreements.
Recycled & General Purpose Plastics
The Company believes that its new recycling division, Pure Tech Plastics,
is the leading supplier of high-quality recycled PET for reuse in bottle-grade
and sheet applications. The division has developed proprietary processes for
cleaning, sorting, and recycling post-consumer plastic bottles into clean flakes
or pellets. This technology has been optimized to produce extremely high quality
recycled PET, suitable for reuse in new bottles. The technology continues to be
refined by Company engineers, and has been licensed to other companies in a
number of countries, including Taiwan, South Korea, Canada, and Japan.
Pure Tech Plastics competes with other recycling facilities both to obtain
materials for recycling and to sell recycled materials to manufacturers.
Competitors include larger companies with substantially greater financial
resources than the Company. Competition for supplies of recyclable material is
based upon price and promptness of service in collecting or accepting material.
Competition foreskins of recycled material is based on price and consistency of
quality.
General purpose plastics include vinyl compounds produced by the Cybertech
division. The current compound capacity of this division is over 95 million
pounds annually. Approximately 50% of products produced is sold to the Colorite
Plastics division for use in the manufacture of garden hose. The remaining
compound is sold externally to manufacturers, primarily in the wire and cable,
footwear, general purpose extrusion and molding markets. Cybertech compounds are
sold throughout the United States by an internal sales force and approximately
ten independent representatives.
The markets for general purpose vinyl compounds are highly fragmented, and
neither PST nor any competitor has a controlling share. The Company believes it
competes effectively based on product quality, performance and prompt delivery,
and price.
The Company purchases raw materials from several sources and also
manufactures them internally. The Cybertech division also recycles scrap vinyl.
These divisions in the past generally have been able to pass on raw materials
price increases to outside customers on a relatively timely basis.
Patents and Trademarks
The Company seeks to protect its proprietary know-how through the
application of patent and trademark laws. However, in the opinion of management,
none of its patents or trademarks is material to its operations.
Research and Development
The Company employs certain professionals who, along with other
responsibilities, are engaged in research relating to the development of new
products and to the improvement of existing products. The Company works closely
with certain clients to develop and improve certain products and product lines.
For the years ended July 31, 1994, 1995, and 1996, $756,000, $877,000 and
$662,000, respectively, were expended on research and development activities.
Employees
As of July 31, 1996, the Company employed approximately 1,012 full-time
employees (excluding the newly acquired recycling operations), of which
approximately 904 were employed in the United States and the balance in Europe
and Canada. Certain employees at facilities in Ridgefield and Rockaway, New
Jersey are represented by the International Brotherhood of Teamsters, under
contracts that expire August 1, 1997. Certain employees in East Farmingdale, New
York are represented by the Waste Material Sorters, Trimmers & Handlers Union,
under a contract that expires on April 30, 1998. Approximately 44% of all
employees are members of unions including a majority of the European employees.
The Company believes that employee relations at all of its manufacturing
facilities are good, and it has not experienced any work stoppage since its
formation.
Environmental Matters
As described in Item 3. Legal Proceedings, the Company is party to
environmental proceedings in the ordinary course of business, none of which
management believes are likely to have a material adverse effect on its
consolidated financial position or results of operations. Additionally, in
management's opinion none of these proceedings nor compliance with Federal,
state and local environmental laws and regulations are believed to require any
material estimated capital expenditures for environmental control facilities in
the foreseeable future.
Item 2. Properties
The Company believes that its facilities are suitable and have
sufficient productive capacity for its current and foreseeable operational and
administrative needs. Set forth below is a list and brief description of all of
the Company's offices and facilities, all of which are owned unless otherwise
indicated.
Approximate
Location Function Square Feet
- -------- -------- -----------
Ridgefield, New Jersey (1) Corporate Headquarters 9,900
Libertyville, Illinois (8) Manufactures all Ozite Product 286,000
Tonawanda, New York (1) Manufactures brass couplings 31,000
Piscataway, New Jersey (3) Manufactures general
purpose vinyl compounds 150,000
Ridgefield, New Jersey Manufactures garden hose and
medical-grade vinyl compounds 328,000
Ridgefield, New Jersey (3) Warehouse 70,000
Sparks, Nevada (3) Manufactures garden hose and
vinyl compounds 250,000
Waco, Texas Manufactures garden hose 104,600
McKenzie, Tenneessee (2) Manufactures porous pipe 20,000
Mississauga, Ontario (4) Manufactures garden hose 150,000
City of Industry, Manufactures medical tubing
California (5) and other specialty tubing 110,000
Clinton, Illinois Manufactures dip tubes,
writing instrument products
and corrugated hose 62,500
Dalton, Georgia Manufactures medical tubing
and other specialty tubing 40,000
Erembodegem Manufactures medical tubing 88,200
(Aalst),Belgium and other specialty tubing
Milan (Gaggiano), Italy (6) Manufactures rubber compounds 15,000
Milan (Gaggiano), Italy Manufactures dispenser gaskets 25,800
and rubber injection-molded parts
Rockaway, New Jersey Manufactures specialty tubing and
related products 98,600
Schiller Park, Illinois Manufactures rubber compounds 20,000
Schaumburg, Illinois (7) Manufactures dispenser gaskets 58,000
Flint, Michigan (10) PET recycling plant (grinding only) 42,500
Grand Rapids, Michigan (2) PET recycling plant (grinding only) 31,500
Howell, Michigan PET recycling plant (grinding only) 18,400
Livonia, Michigan (2) PET recycling plant 60,000
East Farmingdale, New York (2) PET recycling plant 49,000
Auburn, Maine (9) Plastics and aluminum baling
operation 22,000
- -------------------------------
(Years relate to calendar years)
(1) Lease expires in 2001.
(2) Lease expires in 1996.
(3) Lease expires in 2002.
(4) Lease expires in 2005.
(5) Lease expires in 1999.
(6) Lease expires in 2000, with an option to renew for another six year
period.
(7) Lease expires in 2020.
(8) Operation was closed effective March 9, 1996 and vacated August 26, 1996
at the end of the lease term.
(9) Lease expires in 2000.
(10) Lease expires in 1997.
- -------------------------------
Item 3. Legal Proceedings
The Company is party to certain litigation and environmental proceedings in
the ordinary course of business, none of which the Company believes are likely
to have a material adverse effect on its consolidated financial position or
results of operations.
In January 1993 and 1994, PST's Belgian subsidiary received income tax
assessments aggregating approximately $2,483,000 (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 $1,059,000
(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 was appropriate and that the assessments are without merit. Therefore,
PST has appealed and has not paid or accrued for the assessments. Based on the
advise 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. (See Note 11 to the
Consolidated Financial Statements included in Item 8 to this Form 10-K).
In May 1992, PST and all of its directors (as of 1988), as well as K and B
Liquidating Corp. (a former subsidiary of PST which is being liquidated) were
named in two lawsuits filed in the Minnesota state courts. The plaintiffs are
Douglass Hutchinson (since deceased) and James Czaja, both of whom were former
employees of a former subsidiary of PST, Circuit Chemistry Manufacturing Corp.
("Circuit Chemistry"). The suits allege several causes of action, all of which
center upon a claim that PST and/or other defendants did not adequately disclose
sufficient information to the plaintiffs in connection with the acquisition from
the plaintiffs by PST of their 20% equity interest in Circuit Chemistry, and the
termination of their employment agreements. Each complaint seeks various items
of damage totaling approximately $7,000,000. Counsel has been retained by PST in
Minnesota, and the
cases have been removed to the Federal Court in Minnesota. Only PST, Mr. Fred
Broling, Chairman and Chief Executive Officer of PST, and a former director
remain in the suits, as the case against the other defendants has been
dismissed.
As a result of motions made by the Company, certain issues were resolved
favorable to the Company and discovery is continuing. However, counsel have
advised that evidence received to date warrants a motion for summary judgement
dismissing all claims and the motion will be filed shortly. The matter is being
vigorously defended and management believes the suits have no merit.
Under the 1984 Agreement of Purchase and Sale between Dart & Kraft and PST
(the "1984 Agreement"), Dart & Kraft retained responsibility for liabilities
resulting from any violation of applicable environmental law or laws and
regulations of the Occupational Safety and Health Administration ("OSHA") prior
to the date of the 1984 Agreement. Dart & Kraft further agreed to indemnify PST,
as of the effective date of the 1984 Agreement, for existing, pending,
threatened, or unasserted action suits, or other claims or proceedings (whether
contingent or otherwise), with respect to certain matters (including
environmental matters). Pursuant to the split-up of Dart & Kraft in 1987, Kraft,
Inc. retained all liability under the 1984 Agreement (accordingly, references to
Dart & Kraft herein include only Kraft after the effective date of the
split-up).
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and state laws similar to CERCLA, PST may be subject to liability
for cleanup costs and other damages resulting from past off-site disposal of
hazardous substances by PST or its corporate predecessors, or for the
contamination of property currently owned by PST with respect to such materials.
PST is unaware of any on-site or off-site hazardous substance contamination for
which it is reasonably likely to be liable. There are also several matters
governed by CERCLA resulting from the activities of a former PST division,
Synthetic Products Co. (sold to Cookson America, Inc. ("Cookson") in August
1988) and a PST subsidiary, Ware Chemical Co. ("Ware Chemical"), that is no
longer in operation and whose assets were also sold to Cookson in 1988.
On February 18, 1993, Ware Chemical 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 CERCLA, for cleanup costs
that have been incurred and will be incurred in the future with respect to the
remediation of the Davis Landfill site in Rhode Island. The defendants/third
party plaintiffs have impleaded Ware Chemical (but not PST), alleging that Ware
Chemical and other third party defendants are also liable for cleanup costs at
this site, because, according to the allegation, Ware Chemical (then owned by
Dark & Kraft) arranged for the disposal of hazardous substances that were
eventually disposed of at the Davis site. The alleged disposal by Ware Chemical
took place between 1975 and 1976. Ware Chemical is one of over 100 parties that
have been named as defendants or third party defendants in this matter. The most
recent estimate of the cost of the remediation to the 100 third party defendants
at the Davis site (according to counsel for the defendants/third party
plaintiffs) is upwards of $25 million.
Liability under CERCLA is, in most instances, strict, joint and several
(meaning that Ware Chemical could be liable for all response costs incurred at
the Davis site). However, Ware Chemical has no assets and has been dormant since
1988. Furthermore, PST is not aware of any evidence at this time that directly
establishes that the materials transshipped to the Davis site were materials
sent by Ware Chemical. Finally, liability at CERCLA sites is typically shared
with other potentially responsible parties, and costs are commonly allocated
according to the relative volumes of waste deposited at a particular site. PST
does not currently have information as to Ware Chemical's relative share of the
waste allegedly deposited at the Davis site; however, based on documents
provided to PST, the absolute volume of waste allegedly sent to the site by Ware
Chemical is small. Ware Chemical, as well as many of the other third party
defendants, received and rejected an offer to settle this matter for $250,000
each. For these reasons and because Ware Chemical is a dormant subsidiary
without any assets, management believes that this litigation involving Ware
Chemical will not have a material adverse effect upon the financial position or
results of operations of the Company. In addition, even if Ware Chemical were to
be found responsible for a portion of such clean-up costs, PST believes that
Kraft is obligated to indemnify it for all costs and expenses incurred in
connection with the Davis claim. However, Kraft has denied that it is obligated
to indemnify Ware Chemical for this matter.
In addition to the Davis matter, Cookson advised PST that it was notified
by the United States Environmental Protection Agency ("EPA") in 1991 that Ware
Chemical may be a potentially responsible be party at
the Quanta Resources site in Edgewater, New Jersey. Since this initial
notification, PST has not received any further information and has not been
contacted again by the EPA or by any private parties that may have liability at
the site.
PST was also notified by Kraft in October 1989 of the existence of a claim
by the New Jersey Department of Environmental Protection and Energy ("NJDEPE")
with respect to the Chemical Control site in Elizabeth, New Jersey, but PST has
not received any further information regarding this claim. Information produced
in the Davis matter indicated that Ware Chemical used a hazardous waste
transporter that sent hazardous wastes to the Chemical Control site. PST has no
basis at this time to determine whether it will be subject to liability with
respect to the Chemical Control site or the amount of said liability. As noted
above, Ware Chemical is a dormant company with no assets.
In addition to the above, PST is also subject to certain obligations
pursuant to the New Jersey Environmental Cleanup Responsibility Act ("ECRA")
(which has been amended and renamed the "Industrial Site Recovery Act"). Under
ECRA, the "transferor" of an industrial establishment was required to certify
that no hazardous substances had been discharged or released at the industrial
establishment before a transfer could take place; otherwise, the transferor is
required to prepare a cleanup plan or enter into a consent agreement with the
NJDEPE to investigate and remediate releases of hazardous substances pursuant to
NJDEPE-approved procedures. Dart & Kraft assumed responsibility for compliance
with ECRA in connection with the 1984 sale of its plastic sector to PST, and has
completed all of its obligations, except for the cleanup of Colorite's
Ridgefield, New Jersey facility and possible clean up of the Ware sites
described above. Kraft has an approved cleanup plan for the Colorite facility
and final papers for a negative declaration clearing the site from environmental
liability have been received.
In August 1995, North York Performing Arts Centre, a Canadian Corporation,
instituted suite against Ozite and PST and others, claiming that certain wall
covering manufactured by Ozite and or PST was defective, causing damage to a
theater located in Ontario. The plaintiff claims $900,000 in compensatory
damages and $600,000 in additional damages. The matter has been referred to the
insurance carriers for each of the entities. Discovery is just beginning.
The Company's operations are subject to requirements imposed under certain
federal, state and local environmental and health and safety laws and
regulations, including the federal Clean Water Act, Clean Air Act, Resource
Conservation and Recovery Act ("RCRA"), CERCLA and OSHA and comparable state
laws, relating to waste water discharges, air emissions, solid waste management
and disposal practices, work place safety and real property use and ownership.
The Company believes that it is in substantial compliance with such laws and
regulations. No assurances can be given, however, that the Company will continue
to be able to secure, renew, and maintain compliance with the terms and
conditions of the required environmental permits and approvals, that other
environmental permits or approvals may not be required for the Company's
operations or that penalties will not be imposed by regulatory entities for any
failures to have secured all required environmental permits or approvals.
Further, there can be no assurances that more stringent statutory or regulatory
environmental or work place safety requirements will not be enacted or adopted
in the future which could have a material adverse effect on or materially
restrict the Company's operations or business.
There can be no assurance as to the ultimate outcome of these litigations
or their possible impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
During the year ended July 31, 1996, there were no matters submitted to a
vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of September 30, 1996, approximately 83% of the common stock, par value
$.01 per share, of the
Company was owned by PureTec Corporation, through its ownership of Ozite. There
are no established public trading markets for the common stock of the Company.
On November 8, 1993, PST issued $125,000,000 principal amount of 11-1/2%
Senior Secured Notes due 2003 (the "Senior Secured Notes"). The terms of the
bond indenture governing the Senor Secured Notes limit the amount of dividends
that PST is permitted to pay up to the sum of 50% of the cumulative consolidated
net income since November 8, 1993, plus 100% of certain net proceeds received by
PST from the sale of capital stock, contributions to capital and the aggregate
net proceeds of any indebtedness converted into capital stock. PST is, however,
permitted under the indenture to (i) declare and pay dividends of up to
$6,000,000 on its outstanding common stock from the proceeds received by it from
the sale of the Senior Secured Notes; (ii) distribute the $5,000,000 13-1/2%
subordinated note of Bagcraft Corporation of America ("Bagcraft") issued to PST
and the 50,000 shares of 13-1/2% cumulative redeemable preferred stock of
Bagcraft held of record by PST (collectively, the "Bagcraft Investment"), or
payments thereon or proceeds therefrom, if any, received by PST, and (iii)
distribute the 772,000 shares of Artra Group, Inc. ("Artra") which PST holds
("Artra Common Shares"). The Amended and Restated Senior Loan Agreement (the
"Restated Agreement") dated as of November 8, 1993 between PST and a Commercial
Lending Company ("CLC") further prohibits PST's payment of dividends or
distribution in respect of its common stock or its purchase or retirement of any
shares of its common stock except for (i) the distribution of the Bagcraft
Investment, or payments thereon or proceeds therefrom, if any, received by PST,
and (ii) the payment of dividends of up to $6,000,000 from the proceeds received
by PST from the sale of the Senior Secured Notes (See Note 9 to the Consolidated
Financial Statements included in Item 8 to this Form 10-K).
On December 29, 1993, PST declared a dividend of $1.32 per common share to
all stockholders of record as of March 15, 1994. On March 29, 1994, PST declared
a second dividend of $.05 per common share to all stockholders of record as of
April 15, 1994. Based upon these declarations, dividends totaling $9,363,000 and
$1,628,000 were received by Ozite and the minority stockholders, respectively.
As permitted by PST's Indenture for the Senior Secured Notes and the
Restated Agreement, the dividend was paid with $6,000,000 of proceeds from the
issuance of Senior Secured Notes and $5,000,000 from the recovery of the
investment in the Bagcraft subordinated note (See Note 5 to the Consolidated
Financial Statements included to Item 8 to this Form 10-K).
In connection with the Merger, on July 13, 1995 PST declared a dividend of
the 772,000 Artra Common Shares and 3,675 shares of 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 3,040.23 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 635.77 shares of BCA preferred stock to the
minority stockholders.
The Restated Agreement prohibits the payment of dividends or distributions
except for (i) certain tax-sharing payments for actual tax liabilities and (ii)
$300,000 per fiscal year to the extent required to pay certain fees and
expenses. All distributions by the Company to Ozite were in compliance with such
indenture and loan agreement.
Item 6. Selected Financial Data
(Dollars in thousands, except per share data)
The following table presents selected consolidated financial data of the
Company and its subsidiaries as of and for the years ended July 31, 1992, 1993,
1994, 1995 and 1996 and is derived from the audited consolidated financial
statements. All information contained herein should be read in conjunction with
"Item 7. Management's Discussion and Analysis of financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company included
in Item 8 to this Form 10-K.
July 31,
---------------------------------------------------------------------
Income Statement Data (for the
fiscal year ended): 1992 1993 1994 1995 1996
---------------------------------------------------------------------
Net Sales .................................... $ 171,632 $ 169,521 $ 190,524 $ 221,190 $ 253,361
Income(loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting change ......................... (1,379) (6,950) 4,513 1,196 5,625
Discontinued operations, net of
income taxes(1) ........................... (427) (734) 92 (1,294) (2,126)
Extraordinary item(2) ........................ -- -- (4,275) -- --
Cumulative effect of accounting
change(3) ................................. -- -- 1,110 -- --
--------- --------- --------- --------- ---------
Net income(loss) ............................. $ (1,806) $ (7,684) 1,440 $ (98) $ 3,499
========= ========= ========= ========= =========
Earnings per share data (4):
Income (loss) from continuing
operations ................................ $ (.20) $ (1.00) $ .59 $ .14 $ 0.68
========= ========= ========= ========= =========
Discontinued operations ...................... $ (.06) $ (.11) $ .01 $ (.15) $ (.26)
========= ========= ========= ========= =========
Net income(loss) ............................. $ (.26) $ (1.11) $ .19 $ (.01) $ .42
========= ========= ========= ========= =========
Balance Sheet Data (as of end of
period):
Total assets ................................. $ 151,215 $ 141,531 $ 160,550 $ 182,292 $ 178,064
Working capital .............................. 7,918 8,326 26,981 25,567 34,756
Long-term debt (5) ........................... 97,908 93,907 126,739 125,741 127,642
Cash dividends declared per
common share ................................. $ -- $ -- $ 1.37 $ -- $ --
(1) The discontinued operations relate to the Company's sale of all the assets
of Ozite Manufacturing.
(2) Extraordinary item, net of income taxes, represents a loss from the early
extinguishment of long-term debt (See Note 9 to the Consolidated Financial
Statements included in Item 8 to this Form 10-K).
(3) The cumulative effect of accounting change is a $1,110 gain on the adoption
of the Statement of Financial Accounting Standards No. 109 ("SFAS No. 109")
"Accounting for Income Taxes", which was adopted by the Company effective
August 1, 1993. (See Note 2-g to the Consolidated Financial Statements
included in Item 8 to this Form 10-K).
(4) Income (loss) per common and common equivalent share is computed based upon
the weighted average number of common shares and common share equivalents
outstanding during the period. The calculation does not give effect to the
conversion of warrants to purchase common stock when such securities have
an antidilutive effect. All outstanding warrants were converted into common
stock or expired in the year ended July 31, 1994. The weighted average
number of common shares and common equivalent shares used in the
calculation was 6,833,333 for the year ended July 31, 1992; 6,918,784 for
the year ended July 31, 1993; 7,612,857 for the year ended July 31, 1994;
and 8,319,833 for the years ended July 31, 1995, and 1996.
(5) Excludes current maturities of long-term debt of $2,181, $3,487, $1,098,
$1,271, and $1,360 as of July 31, 1992, 1993, 1994, 1995, and 1996,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands, except per share data)
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 fiscal years ended
July 31, 1994, 1995 and 1996:
Year Ended July 31,
1994 1995 1996
---- ---- ----
Net sales ....................................... 100% 100% 100%
Cost of goods sold .............................. 75 77 76
----- ----- -----
Gross profit .................................... 25 23 24
Selling, general and administrative expenses .... 13 12 12
Amortization of intangibles ..................... 1 1 1
----- ----- -----
14 13 13
----- ----- -----
Operating income ................................ 11 10 11
Interest expense, net and amortization
of deferred financing costs ..................... 9 8 7
Recovery of investments in affiliate ............ (2) -- --
Foreign exchange loss ........................... 0 0 0
Other, net ...................................... 0 0 0
----- ----- -----
Income from continuing operations
before income taxes, extraordinary item
and cumulative effect of accounting change ...... 4 2 4
Provision for income taxes ...................... 2 1 2
----- ----- -----
Income from continuing operations ............... 2 1 2
Discontinued operations ......................... 0 (1) (1)
----- ----- -----
Income (loss) before extraordinary item and
cumulative effect of accounting change .......... 2 (0) 1
Extraordinary item .............................. (2) -- --
Cumulative effect of accounting change .......... 1 -- --
----- ----- -----
Net income ...................................... 1% (0)% 1%
===== ===== =====
Fiscal year ended July 31, 1996 vs. fiscal year ended July 31, 1995.
Net sales for the year ended July 31, 1996 ("fiscal 1996") were $253,361,
an increase of $32,171 or 15% compared to the year ended July 31, 1995 ("fiscal
1995").
In the U.S. plastic products segment, net sales for fiscal 1996 increased
by $22,137 (17%) to $152,352 from $130,215 for fiscal 1995. The majority of the
increase was a result of increased sales volume in garden hose, dip tubing and
medical tubing, and certain price increases. Approximately 85% of the increase
in net sales for the U.S. plastic product segment is attributable to sales
volume with the remainder due to price increases. The U.S. plastics segment
accounted for 53% of the Company's gross sales for fiscal 1996 compared to 52%
for fiscal 1995.
In the European plastic products segment, net sales for fiscal 1996
increased by $2,163 (7%) to $34,158 from $31,995 for fiscal 1995. The increase
was the result of increased sales volume in gaskets and dip tubing and increased
sales volume in medical tubing and aggregate price increases of 2%. The effect
of currency fluctuations was negligible. The European plastic products segment
accounted for 12% of the Company's gross sales for fiscal 1996 compared to 13%
for fiscal 1995.
In the plastic materials segment, net external sales for fiscal 1996
increased by $6,100 (10%) to $69,372 from $63,272 for fiscal 1995. The majority
of the increase was a result of increased sales volume in PVC compound and
certain price increases. The increase in net external sales for the plastic
material segment is comprised of an increase in sales volume of approximately
$5,000 and price increases for the remainder. The plastic material segment
accounted for 35% of the Company's gross sales for both fiscal 1996 and 1995.
The plastic materials segment provides PVC compound to the domestic plastics
product segment. Transfers are made at raw material cost plus a value added
factor for labor and overhead. For fiscal year 1996, the plastic materials
segment transferred approximately $32,000. This was approximately 28% greater
than fiscal 1995 which was approximately $25,000.
Gross profit for fiscal 1996 was $61,934, an increase of $11,938 (24%)
compared to $49,996 for fiscal 1995. Gross profit as a percentage of net sales
increased to 24% from 23% for the same periods. Timing differences in the
Company's ability to pass through higher raw material costs during fiscal 1995
positively affected gross profit in fiscal 1996 as raw material costs declined.
The Company's domestic operation were most positively affected by the raw
material price decreases in fiscal 1996.
Selling, general and administrative expenses for fiscal 1996 were $31,121,
a $3,576 (13%) increase compared to fiscal 1995. As a percentage of net sales,
these expenses remained constant at 12% in fiscal 1996 and 1995. The increase in
selling, general and administrative expenses was primarily attributable to
increased sales volume.
Operating income for fiscal 1996 and 1995 was $29,402 (11% of net sales)
and $21,082 (10% of net sales), respectively. This $8,320 (39%) increase was
primarily attributable to increased sales volume, lower raw material costs and
improved manufacturing efficiencies.
Operating income in the U.S. plastic product segment increased $6,417 (43%)
for fiscal 1996 to $21,463 from $15,046 for fiscal 1995. Operating income as a
percentage of net sales within the U.S. plastic product segment increased to 14%
for fiscal 1996 from 12% for fiscal 1995. The increase in operating income was
primarily attributable to increased sales volume, lower raw material costs and
improved manufacturing efficiencies.
Operating income in the European plastic product segment decreased $1,276
(15%) for fiscal 1996 to $7,097 from $8,373 for fiscal 1995. Operating income as
a percentage of net sales within the European plastics segment decreased to 21%
for fiscal 1996 from 26% for fiscal 1995. The decrease in operating income was
primarily a result of decrease sales volume, and slight increases in raw
material costs, partially offset by an increase in prices.
Operating income in the U.S. plastic material segment increased $3,535
(135%) for fiscal 1996 to $6,156 from $2,621 for fiscal 1995. Operating income
as a percentage of net sales within the U.S. plastic materials segment increased
to 6% for fiscal 1996 from 3% for fiscal 1995. The increase in operating income
was primarily attributable to increased sales volume and increased manufacturing
efficiencies partially offset by higher selling and administration expenses.
Interest expense and amortization of deferred financing costs for fiscal
1996 and 1995 was $18,132 and $17,818 respectively. This $314 (2%) increase was
primarily attributable to increased borrowing for European operations, partially
offset by lower average short-term borrowings.
The income tax provision for the year ended July 31, 1996 is comprised of a
$2,933 deferred federal tax provision, a $2,349 foreign tax provision and a $300
current state tax provision. For the year ended July 31, 1995 the tax provision
is comprised of a domestic federal and state benefit of $900 and a foreign
current and deferred tax provision of $2,707. The income tax provision in fiscal
1996 differs from the income tax provision calculated at the statutory rate due
to the use of net operating loss carryforwards, the restoration of deferred
taxes, the difference between the U.S. statutory rate and foreign income tax
rates, state income taxes, amortization of goodwill and other non-deductible
benefits. The income tax provision in fiscal 1995 differs from the income tax
provision calculated at the statutory rate due to amortization of goodwill and
other non-deductible benefits, the reduction of previously provided taxes and
the difference between the U. S. statutory rate and foreign income tax rates.
The Company generated net income from continuing operations of $5,625 for
fiscal 1996 compared to $1,196 in fiscal 1995. The increase is primarily
attributed to increase sales volume.
The Company recognized a loss on the sale of its Ozite Manufacturing
operations in fiscal 1996. This loss amounted to $1,479 net of a $762 tax
benefit. Losses generated from these operations amounted to $647 and $1,294 in
fiscal 1996 and 1995, respectively, net of applicable income tax benefit of $332
and $440, respectively.
Fiscal year ended July 31, 1995 vs. Fiscal year ended July 31, 1994.
Net sales for the year ended July 31, 1995 ("fiscal 1995") were $221,190,
an increase of $30,666 or 16% compared to the year ended July 31, 1994 ("fiscal
1994").
In the U.S. plastic products segment, net sales for fiscal 1995 increased
by $9,110 (8%) to $130,215 from $121,105 for fiscal 1994. The majority of the
increase was a result of increased sales volume in garden hose, dip tubing and
medical tubing, and certain price increases. The increase in net sales for the
U.S. plastic product segment is comprised of an increase in sales volume of
$5,500 and price increases of $3,610. The U.S. plastic products segment
accounted for 52% of the Company's gross sales for fiscal 1995 compared to 57%
for fiscal 1994.
In the European plastic products segment, net sales for fiscal 1995
increased by $7,964 (33%) to $31,995 from $24,031 for fiscal 1994. The increase
was the result of increased sales volume in gaskets, medical tubing and dip
tubing. Approximately $3,775 of the increase was the result of currency
fluctuations. The remainder of the increase was due to price increases. The
European plastic products segment accounted for 13% of the Company's gross sales
for fiscal 1995 compared to 11% for fiscal 1994.
In the plastic materials segment, net external sales for fiscal 1995
increased by $14,522 (30%) to $63,272 from $48,750 for fiscal 1994. The majority
of the increase was a result of increased sales volume in PVC compound and
certain price increases. The plastic material segment accounted for 35% of the
Company's gross sales for fiscal 1995 compared to 32% for fiscal 1994. Transfers
of PVC compound to the plastic products segment were approximately $25,000 and
$21,000 for fiscal 1995 and 1994.
Gross profit for fiscal 1995 was $49,996, an increase of $1,580 (3%)
compared to $48,416 for fiscal 1994. Gross profit as a percentage of net sales
decreased to 23% from 25% for the same periods. Timing differences in the
Company's inability to pass through higher raw material costs, adversely
affected gross profit in fiscal 1995 despite increased manufacturing
efficiencies. The Company's PVC compound and garden hose operations were most
adversely affected by the raw material price increases in fiscal 1995.
Selling, general and administrative expenses for fiscal 1995 were $27,545,
a $1,945 (8%) increase compared to fiscal 1994. As a percentage of net sales,
these expenses decreased to 12% compared to 13% for the same periods. The
increase in selling, general and administrative expenses was primarily
attributable to increased sales volume.
Operating income for fiscal 1995 and 1994 was $21,082 (10% of net sales)
and $21,452 (11% of net sales), respectively. This $370 (1%) decrease was
primarily attributable to higher raw material costs partially offset by
increased sales volume and improved manufacturing efficiencies.
Operating income in the U.S. plastic product segment decreased $2,744 (15%)
for fiscal 1995 to $15,046 from $17,790 for fiscal 1994. Operating income as a
percentage of net sales within the U.S. plastic product segment decreased to 12%
for fiscal 1995 from 15% for fiscal 1994. The decrease in operating income was
primarily attributable to higher raw material costs partially offset by
increased sales volume and improved manufacturing efficiencies.
Operating income in the European plastic product segment increased $2,543
(44%) for fiscal 1995 to $8,373 from $5,830 for fiscal 1994. Operating income as
a percentage of net sales within the European plastics segment increased to 26%
for fiscal 1995 from 24% for fiscal 1994. The increase in operating income was
primarily a result of increase sales volume, currency fluctuations and
manufacturing efficiencies, partially offset by higher raw material costs.
Operating income in the U.S. plastic material segment increased $1,174
(81%) for fiscal 1995 to $2,621 from $1,447 for fiscal 1994. Operating income as
a percentage of net sales within the U.S. plastic materials segment increased to
3% for fiscal 1995 from 2% for fiscal 1994. The increase in operating income was
primarily attributable to increased sales volume and improved manufacturing
efficiencies, partially offset by higher raw material costs.
Interest expense and amortization of deferred financing costs for fiscal
1995 and 1994 was $17,818 and $17,197, respectively. This $621 (4%) increase was
primarily attributable to higher average short-term borrowings.
The income tax provision for the year ended July 31, 1995 is comprised of a
$2,707 foreign tax provision partially offset by a domestic federal and state
income tax benefit of $900. For the year ended July 31, 1994 the tax provision
is comprised of a domestic federal and state provision of $2,442 and a foreign
tax provision of $1,876. The income tax provision differs from the income tax
provision calculated at the statutory rate due to the difference between the
U.S. statutory rate and foreign income tax rates, state income taxes,
amortization of goodwill and other non-deductible benefits.
The Company generated net income from continuing operations of $1,196 in
fiscal 1995 compared to $4,513 in fiscal 1994. The company recognized a net loss
on the discontinued opertions of $1,294 in fiscal 1995 compared to net income of
$92 in fiscal 1994.
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 in the Company's other markets, and
lower raw material costs, the Company's accounts receivable increased $1,730
from $40,561 at July 31, 1995 to $42,291 at July 31, 1996 and inventory
decreased $8,034 from $41,026 at July 31, 1995 to $32,992 at July 31, 1996.
Cash and cash equivalents increased $1,357 for fiscal 1996, compared to a
$444 increase for fiscal 1995. The changes for these periods were attributable
to the factors discussed below.
For fiscal 1996, net cash provided by operating activities was $18,311. The
Company used the $18,311 in cash generated from operating activities, along with
$1,337 in proceeds from the sale of equipment and $3,451 in proceeds from new
loans incurred by its foreign subsidiaries to (i) reduce its borrowing under its
Revolving Credit Facility by $12,356, (ii) reduce the aggregate foreign term
loan principal by $1,271 and (iii) incur $7,986 in capital expenditures.
For fiscal 1995, net cash used in operating activities was $9,938, The
Company funded operating activities, repaid $1,185 of its outstanding term
loans, advanced $300 to its parent and expended $7,251 on capital improvements
by borrowing an additional $19,478 under its Revolving Credit Facility.
Working capital was $34,756 as of July 31, 1996, an improvement of $9,189
as compared to July 31, 1995. This increase was the result of a higher accounts
receivable balance ($42,291 compared to $40,561), and lower outstanding short
term borrowings ($14,138 compared to $26,494), offset by lower inventory
balances ($32,992 compared to $41,026).
As of July 31, 1995, working capital was $25,567, a decrease of $1,414, as
compared to fiscal 1994. This decrease was the result of a higher accounts
receivable balance ($40,561 compared to $37,220), higher inventory balances
($41,026 compared to $25,207), offset by higher outstanding short-term
borrowings ($26,494 compared to $7,016).
The Company's businesses are relatively stable and mature and do not
generally require significant ongoing additions to plant and equipment. Capital
expenditures for fiscal 1994, 1995 and 1996 were $7,160, $7,251, and
$7,986 respectively. In September 1996, the Company acquired certain assets of
PureTec's recycling business, effectively transferring this business to PST.
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 of borrowings
under the Agreement were used to repay the borrowings outstanding under a prior
loan and security agreement with a bank. On November 8, 1993 in connection with
the issuance of $125,000 principal amount of senior secured notes and the use of
the proceeds thereof, the Agreement was amended and restated to, among other
things, provide for revolving credit advances of up to $40,000 through July 31,
1997 and letters of credit of up to $1,000.
On February 14, 1995, PST further amended the Agreement with the CLC to,
among other things, increase the maximum revolving credit advances to $50,000
(the "Restated Agreement"). The other terms and covenants contained in the
Restated Agreement are substantially the same as those contained in the original
agreement except that outstanding revolving credit advances shall not exceed
$8,000 for 30 consecutive days during the period from July 1 to September 30 of
each year, and annual domestic capital expenditures are limited to $6,600 per
year (exclusive of up to $1,000 of approved business acquisitions). Prospective
interest rate relief (ranging from 0.25% to 0.50%) is possible if the Company
meets certain defined fixed coverage ratios.
The Restated Agreement contains covenants, the most restrictive of which
are maintenance of certain financial ratios, prohibition of the incurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. Borrowings under the
Restated Agreement are secured by substantially all the domestic current assets
of PST. In addition, 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.
On July 31, 1995, PST further amended its $50,000 Agreement with the CLC
to, among other things, adjust certain ratios and to waive the provision that
outstanding revolving credit advances shall not exceed $8,000 for the 30
consecutive days during the period from July 1 to September 30 for each year.
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.
Future 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 has commenced on a new plant in Northern Ireland for the
Company's Unichem division. For
purposes of this new business venture, a new subsidiary is in formation,
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 introducements 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 additional borrowing from
a commercial bank) at Action Belgium N.V.
PureTec Corporation ("PureTec")
</R
>
In September, 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets of Pure Tech Plastics, Inc. and subsidiaries ("PTP") for $4,400.
The acquisition will be 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. The $1,970 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.
Inflation
Generally, the Company's operations have benefited from relatively stable
or declining prices for raw materials. In Fiscal 1996, the Company benefited
domestically from declining raw material costs. Foreign operations saw raw
material costs continue to rise until they stabilized during the second quarter.
Raw material costs had increased significantly in fiscal 1995 after increasing
only slightly in fiscal 1994. 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.
Item. 8 Financial Statements and Supplemental Data
Financial statements are included herein beginning with page F-1.
Supplementary data is not required to be presented.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below are the names, ages and positions of the current directors
and executive officers of PST.
Name Age Position
---- --- ---------
Fred W. Broling 61 Chairman of the Board
David C. Katz 56 President and Director
Peter R. Harvey 61 Vice President and Director
John J. Harvey 65 Director
Robert A. Calabrese 60 Director
Leo Gans 70 Vice President
Joseph T. Bruno 61 Vice President
- Human Resources
Thomas Gilboy 42 Vice President, Treasurer
and Chief Financial Officer
Paul Litwinczuk 43 Secretary
Mr. Broling has served as Chairman of the Board of PST since 1984. Prior to
such time, from 1981 to 1984, Mr. Broling served as the President of the plastic
specialty sector of Dart & Kraft. Mr. Broling has also been Chairman and Chief
Executive Officer of Ozite since August 1990 and Chairman and Chief Executive
Officer of PureTec since July 1995.
Mr. Katz has served as President and Director of PST since August 1996. Mr.
Katz has also served as a director of Ozite since 1994 and has served as
President of PureTec since its inception, as a director of PureTec since 1991,
and as Chief Operating Officer of PureTec since 1994.
Mr. Peter R. Harvey has served as Vice President of PST since 1987, a
Director of PST since June 1993. Mr. Harvey is the President, Chief Operating
Officer and a Director of Arta Group Incorporated ("Artra") (fashion jewelry,
flexible packaging and investments), since 1968; a Director of The Lori
Corporation (fashion jewelry and staffing business in telecommunications and
computers), since 1984. He has also served as Chief Executive Officer, from 1985
to 1993, President, from 1983 to 1985 and from 1988 to 1993, and chairman from
1895 to 1995 of SoftNet Systems, Inc. ("SoftNet"). Mr. Harvey has served as a
director of PureTec since July 1995.
Mr. John J. Harvey has served as a Director of PST since June 1993. He has
also served as a Director of Ozite since August 1990; Chairman of the Board and
Chief Executive Officer of Artra since 1968; and Chairman of the Board of The
Lori Corporation, since 1985. Mr. Harvey has served as a director of PureTec
since July 1995.
Mr. Calabrese has served as a Director of PST since June 1995. Mr.
Calabrese has been the President of R.C. Industries Inc. and Chief Executive
Officer of its Aetna Division (metal finishing) since 1970. Mr. Calabrese has
served as a director of PureTec since July 1995.
Mr. Gans has served as Vice President of PST since 1984 and was a director
of PST from 1989 until June 1993. He also served as President of the Action
Division since 1983, and, prior thereto, he was President of such division when
it was part of Dart & Kraft. Mr. Gans has served as a director of PureTec since
July 1995.
Mr. Bruno has served as Vice President - Human Resources of PST since 1986.
Prior thereto, from 1979 to 1985, he served as a Director and Vice President of
Personnel for Wilson Fiberfil International, a division of Dart & Kraft.
Mr. Gilboy has served as Vice President, Treasurer and Chief Financial
Officer of PST since May 1996. Previously (from 1991 to 1996) Mr. Gilboy had
been Vice President and Chief Financial Officer of Troy Corporation, a specialty
chemical company.
Mr. Litwinczuk has served as Secretary of PST since April, 1996. Mr.
Litwinczuk has served as Secretary of Ozite since April 1996 and has served as
the Secretary of PureTec since July 1995 and as its Assistant Secretary since
1991.
Peter R. Harvey and John J. Harvey are brothers. PST is a subsidiary of Ozite,
which is a subsidiary of PureTec.
Compensation Committee Interlocks and
Insider Participation; Additional Information
Compensation of executive officers is determined by the Company's Board of
Directors. Messrs. Fred Broling and Peter R. Harvey currently serve on PST's
Board of Directors, are currently employed as officers of PST and have served as
directors and officers of PST and continue to serve Ozite in such capacities.
See "Item 13. Certain Relationships and Related Transactions."
Mr. Broling and Mr. Peter R. Harvey recommend to the Board of Directors
compensation payable to executive officers of the Company. Mr. Broling's
compensation is based on the actual performance of the Company compared to the
operating plan. Messrs. Broling and Harvey consider the performance of the
Company, among other factors, in determining the compensation of other executive
officers; however, neither they nor the Board of Directors have adopted
compensation policies applicable to such other executive officers.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
Name and All Other
Principal Fiscal Compensation (1)
Position Year Salary Bonus (3) (i) (ii)
-------- ---- --------- --------- --- ----
Fred W. Broling, 1996 $259,216 $250,000 $ 3,018 $ 1,992
Chairman and Chief 1995 263,446 -- 9,240 1,992
Executive Officer 1994 293,672 250,000 9,198 1,992
David C. Katz, 1996 91,154 150,000 3,000 1,162
President and Director 1995 -- -- -- --
1994 -- -- -- --
Terence K. Brennan (2) 1996 161,762 175,000 4,213 1,992
Former Vice President, 1995 159,067 -- 6,403 1,992
Chief Financial Officer and 1994 149,013 175,000 6,235 1,992
Director
Leo Gans 1996 187,042 236,000 3,140 1,992
Vice President 1995 186,582 221,760 7,995 1,992
President - Action 1994 175,749 149,310 6,330 1,992
Technologies Division
Joseph T. Bruno, 1996 108,582 21,000 2,592 432
Vice President - 1995 105,665 -- 2,782 432
Human Resources 1994 103,582 42,000 2,641 432
Robert E. Brookman, Ph.D. 1996 191,582 49,454 3,000 1,992
President - Colorite Polymers 1995 190,703 99,000 3,000 1,992
Division 1994 187,083 99,782 3,000 1,992
(1) The amounts in this column represent (i) contributions made by the Company
to the Savings Plan for Employees of Plastic Specialties and Technologies,
Inc. and Affiliates and (ii) the amount of premiums paid by the Company for
life insurance policies for the benefit of the named executive officers.
(2) Under the terms of a separation agreement signed by Mr. Brennan in May,
1996, he will receive $150,000 over a twelve month period ending May 31,
1997. Mr. Brennan will be responsible for settling all outstanding
obligations prior to May 31, 1997 (See Item 13 - Indebtness of Management
to PST).
(3) Previously, bonus information was reported in the year paid. In the current
year, information has been changed to reflect amounts awarded for the
fiscal year.
Director's Compensation
Directors of the Company receive no compensation for serving as directors.
Compensation Pursuant to PST Pension Plan
Pensions for salaried personnel of PST are provided through the Plastic
Specialties and Technologies, Inc. And Affiliates Pension Plan, effective as of
May 10, 1984 and amended January 1, 1988 (the "PST Pension Plan"). The following
table illustrates the amount of the annual pension benefit payable under the PST
Pension Plan to a person in the specified average salary and year-of-service
classifications:
PENSION PLAN TABLE
Years of service
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
$100,000 $15,000 $20,000 $25,000 $30,000 $35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 or more 22,500 30,000 37,500 45,000 52,500
For purposes of the PST Pension Plan, compensation is defined as the total
wages, salaries, commissions, bonuses, overtime and special awards paid during
the year. All cash compensation reported in the Summary Compensation Table under
the columns "Salary" and "Bonus" is included in compensation under the PST
Pension Plan (subject to the dollar limitation shown in the Pension Plan Table),
for each officer listed.
The estimated number of credited years of service of each of the executive
officers listed in the Summary Compensation Table is as follows: Fred W.
Broling, 20 years; David C. Katz, 1 year; Leo Gans, 14 years; and Joseph T.
Bruno, 17 years.
The PST Pension Plan provides a monthly benefit payable for life, beginning
at age 65, equal to one-twelfth of one percent of the total compensation
received during the period the employee participated in the PST Pension Plan.
None of the PST pension benefits are subject to any deduction for Social
Security or other offset amounts.
Stock Options
The Company, as a subsidiary of PureTec, participates in the stock option
plans of PureTec. Information with respect to stock option transactions for
individuals who participate in such plans is included in the PureTec Form 10-K
Item 12. Security Ownership of Certain Beneficial owners and Management
As of October 29, 1996, Ozite owned approximately 83% of the outstanding
common stock of PST. The remaining 17% of the outstanding common stock was owned
by non-affiliates. Such common stock constitutes the only issued and outstanding
capital stock of the Company. Ozite is a wholly-owned subsidiary of PureTec.
No other person or group is known to be the beneficial owner of more than
five percent of any class of the registrant's voting securities.
Item 13. Certain Relationships and Related Transactions
Dividends
In connection with the Merger, on July 13, 1995 PST declared a dividend of
the 772,000 Artra Common Shares and 3,675 shares of 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 Class A 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
minority stockholders.
Transaction with Related Companies
PST held 772,000 shares of common stock of Artra (the "Artra Common
Shares"), which was accounted for on the equity method. Through the Company's
recording of its share of the net losses of Artra and other related items, the
carrying value of the investment in the Artra Common Shares had been reduced to
zero.
Peter R. Harvey and John Harvey are the controlling stockholders of Artra.
In addition, Peter R. Harvey is a director and the President and Chief Operating
Officer of Artra, and John Harvey is a director and the Chairman of the Board
and Chief Executive Officer of Artra.
The Company acquired from Bagcraft a $5,000,000 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 $5,000,000 in
Bagcraft for $10,000,000 in 1987. 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.
In July 1993, the Company recorded an impairment of its investment in
Bagcraft by establishing a valuation reserve to write-off the $10,000,000
carrying value of such investment as the Company was unable to determine, with
reasonable certainty, whether or when it would realize its investment in
Bagcraft. On December 28, 1993, PST received from Bagcraft $5,000,000 in cash
and 3,000 shares of BCA preferred stock as payment in full for the $5,000,000
subordinated note and unpaid interest due from Bagcraft totaling $3,094,000
respectively. In 1994, the Company recorded a $5,000,000 gain for the recovery
of its investment in the Bagcraft subordinated note. The interest due from
Bagcraft had been fully reserved and interest income was not recorded for the
receipt of the BCA preferred stock as such stock is not freely transferable. The
cash received was used to pay a portion of the PST dividend declared.
Peter R. Harvey is the President, Chief Operating Officer and a
director of Artra.
Certain Other Indebtedness
PST is due $1,089,000 from Ozite relating to a tax sharing agreement. The
Company has fully reserved this receivable from Ozite due to Ozite's inability
to settle this obligation. See Note 5c to the Consolidated Financial Statements
included in Item 8 to this Form 10-K.
Indebtedness of Management to PST
During fiscal 1996, Mr. Broling was indebted to PST in an amount not in
excess of $241,000 consisting of principal and interest outstanding on a demand
note dated June 15, 1988, bearing interest at 75% of the prime rate, not to
exceed 10%. Such indebtedness was incurred by Mr. Broling to finance the
purchase of common and preferred stock of the predecessor of Ozite. At September
30, 1996, the outstanding indebtedness was $243,000.
During fiscal 1996, Mr. Brennan, the former Vice President, Chief Financial
Officer and a Director, was indebted to PST in an amount not in excess of
$146,500 consisting of principal and interest outstanding on; (i) a demand note
dated June 15, 1988, bearing interest at 75% of the prime rate, not to exceed
10%; and (ii) a non-interest bearing demand note dated August 20, 1990. Such
indebtedness was incurred by Mr. Brennan to finance the purchase of common and
preferred stock of the predecessor of Ozite and to finance unreimbursed moving
expenses incurred moving to Illinois at PST's request, respectively. Under a
Separation Agreement entered into between Mr. Brennan and the Company, such
amounts are due to be repaid by May 31, 1997. At September 30, 1996, the
outstanding indebtedness was $147,000.
During fiscal 1996, Mr. Peter R. Harvey was indebted to PST in an amount
not in excess of $717,000 consisting of principal and interest outstanding on a
demand note dated May 20, 1988, bearing interest at the prime rate on the last
day of each fiscal year. Such indebtedness was a personal loan to Mr. Harvey. At
September 30, 1996, the outstanding indebtedness was $717,000. The Company has
ceased recognizing interest income on the notes receivable from Mr. Harvey since
1994.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)(1) Financial Statements - See Index to Financial Statements and Schedules
on page F-1.
(a)(2) Financial Statement Schedule. The following is a list of Financial
Statement Schedules filed as part of the Registration Statement.
Schedule II - Valuation and Qualifying Accounts
(a)(3) List of Exhibits
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to signed on its
behalf by the undersigned thereunto duly authorized.
PLASTIC SPECIALTIES & TECHNOLOGIES, INC.
/s/ Thomas V. Gilboy
By: _______________________________________
Thomas V. Gilboy
Chief Financial Officer
Dated: October 30, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated.
/s/ Fred W. Broling Chairman of the Board and October 30, 1996
- ------------------- Chief Executive Officer
Fred W. Broling
/s/ David C. Katz Director, President and October 30, 1996
- ------------------- Chief Operating Officer
David C. Katz
/s/ Robert Calabrese Director October 30, 1996
- --------------------
Robert Calabrese
/s/ John J. Harvey Director October 30, 1996
- --------------------
John J. Harvey
/s/ Peter R. Harvey Director October 30, 1996
- --------------------
Peter R. Harvey
Index To Exhibits
Number Exhibit
3.1 Restated Certificate of Incorporation of Plastic Specialties and
Technologies, Inc. ("PST") dated June 1, 1987, as amended;
incorporated by reference to Exhibit 3.1 to Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-66338).
3.2 Certificate of Ownership and Merger of PST Holdings, Inc. into PST.
3.3 By-laws of PST; incorporated by reference to Exhibit 3.8 to
Registration Statement on Form S-1 (No. 33-11686).
4.1 Form of Specimen Senior Subordinated Note (including in page A-1 of
Exhibit 4.10 to Amendment No. 2 to Registration Statement on Form S-1
(No. 33-11686).
10.1 Lease, dated June 1989, between Richard C. Lauer and Roy I. Anderson,
as lessor, and PST, as lessee, re: 19555 East Arenth Avenue, Industry,
California, incorporated by reference to Exhibit 28.1 to Form 10-Q of
the Registrants for the fiscal quarter ended October 31, 1992.
10.2 Lease, dated September 23, 1991, between E.T. Hermann and Jane D.
Herman 1978 Living Trust, as lessor, and the Colorite Plastics
Division of PST, as lessee, re: 909 East Glendale Avenue, Sparks,
Nevada, incorporated by reference to Exhibit 28.1 to Form 10-Q of the
Registrants for the fiscal quarter ended October 31, 1992.
10.3 Lease, dated January 1, 1993, between OHR Realty Corporation, as
lessor, and PST, as lessee, re: Piscataway, New Jersey; incorporated
by reference to Exhibit 28.1 to Form 10-Q of the Registrants for the
fiscal quarter ended October, 1992.
10.4 Libertyville sublease, dated October 27, 1980, between Ozite
Corporation and Brunswick Corporation; incorporated by reference to
Exhibit 10.1 to Annual Report on Form 1-K of the Registrants for the
fiscal year ended July 31, 1991.
10.5 Lease, dated April 24, 1972, between Pacific Western Warehouse, Inc.
and Dart Industries, Inc.
(assigned by Dart Industries, Inc. To PST); incorporated by reference
to Exhibit 10.8 to the Registration Statement on Form S-1 (No.
33-11686).
10.6 Lease, dated May 24, 1994 between LaSalle National Trust, N.A. as
Trustee under Trust Agreement dated May 16, 1994 and Known as Trust
Number 118722, as Lessor and American Gasket and Rubber Company (a
division of PST's Action Technology Subsidiary), as lessee, re:
Schaumburg, Illinois.
10.7 Plastic Specialties and Technologies, Inc. And Affiliates Pension
Plan, Amended and Restated Effective as of January 1, 1985;
incorporated by reference to Exhibit 10.18 to Registration Statement
on Form S-1 (No. 33-11686).
10.8 Senior Loan Agreement dated as of December 30, 1992 between PST, as
borrower, General Electric Capital Corporation, as agent and lender,
and certain participating lenders (the "GECC Senior Loan Agreement");
incorporated by reference to Exhibit 10.24 to Annual Report on Form
10-K of the Registrants for the fiscal year ended July 31, 1992.
10.9 Amendment No. 2 dated July 7, 1993 to the GECC Senior Loan Agreement;
incorporated by reference to Exhibit 10.9 to Registration Statement on
Form S-1 (No. 33-66338).
10.10 Amendment No. 3 dated October 8, 1993 to the GECC Senior Loan
Agreement; incorporated by reference to Exhibit 10.10 to Amendment No.
1 to Registration Statement on Form S-1 (No. 33-66338).
21 List of subsidiaries of PST
(b) None
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of July 31, 1995 and 1996 F-3
Consolidated Statements of Operations
for the years ended July 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Deficit
for the years ended July 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows
for the years ended July 31, 1994, 1995 and 1996 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-23
Schedule II - Valuation and qualifying accounts F-24
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Plastic Specialties and Technologies, Inc.
Ridgefield, New Jersey
We have audited the accompanying consolidated balance sheets of Plastic
Specialties and Technologies, Inc. (the "Company") as of July 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the three years in the period ended July 31, 1996.
Our audits also included the consolidated financial statement schedule listed in
the index to the consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of July 31, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended July 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2-g to the consolidated financial statements, in 1994, the
Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109.
Parsippany, New Jersey
October 30, 1996
/s/ Deloitte & Touche LLP /s/
F-2
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
July 31, July 31,
ASSETS 1995 1996
-------- --------
CURRENT ASSETS:
Cash and cash equivalents.................... $ 4,741 $ 6,098
Accounts receivable, less allowance of
$2,550 in 1995 and $1,280 in 1996......... 40,561 42,291
Inventories.................................. 41,026 32,992
Prepaid expenses and other current assets.... 2,139 2,591
Deferred income taxes........................ -- 544
-------- --------
TOTAL CURRENT ASSETS............................ 88,467 84,516
PROPERTY, PLANT AND EQUIPMENT, net.............. 44,795 45,608
EXCESS OF COST OF INVESTMENT OVER NET ASSETS
ACQUIRED, net................................ 43,286 41,921
OTHER ASSETS, net............................... 5,370 5,631
NOTES AND INTEREST RECEIVABLE FROM OFFICERS..... 374 388
-------- --------
TOTAL ASSETS.................................... $182,292 $178,064
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings........................ $ 26,494 $ 14,138
Accounts payable............................. 19,673 20,432
Other current liabilities.................... 12,842 11,268
Accrued interest............................. 2,620 2,562
Current portion of long-term debt............ 1,271 1,360
-------- --------
TOTAL CURRENT LIABILITIES.................... 62,900 49,760
-------- --------
OTHER LONG-TERM LIABILITIES..................... 1,195 2,262
DEFERRED INCOME TAXES........................... 1,200 3,663
LONG-TERM DEBT.................................. 125,741 127,642
-------- --------
TOTAL LIABILITIES............................... 191,036 183,327
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $.01; 10,000,000 share
authorized; 8,319,833 shares issued and
outstanding, in 1995 and 1996,
respectively.............................. 83 83
Additional paid-in capital................... 12,107 12,107
Accumulated deficit.......................... (17,048) (13,549)
Receivable from majority
stockholder-Ozite Corporation............. (3,853) (3,853)
Receivable from officer, including
accrued interest.......................... (717) (717)
Minimum pension liability.................... (250) --
Cumulative foreign currency
translation adjustment....................... 934 666
-------- --------
NET STOCKHOLDERS' DEFICIT....................... (8,744) (5,263)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..... $182,292 $178,064
======== ========
See notes to consolidated financial statments
F-3
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended July 31,
1994 1995 1996
----------- ----------- -----------
Net sales ...................................................... $ 190,524 $ 221,190 $ 253,361
----------- ----------- -----------
Cost and expenses:
Cost of goods sold ........................................... 142,108 171,194 191,427
Selling, general and administrative expenses ................. 25,600 27,545 31,121
Amortization of intangibles .................................. 1,364 1,369 1,411
----------- ----------- -----------
169,072 200,108 223,959
----------- ----------- -----------
Operating income ............................................. 21,452 21,082 29,402
----------- ----------- -----------
Other expenses (income):
Interest expense, net and amortization of deferred
financing costs ............................................ 17,197 17,818 18,132
Recovery of investment in affiliate .......................... (5,000) -- --
Foreign exchange loss ........................................ 176 116 59
Other, net ................................................... 248 145 4
----------- ----------- -----------
12,621 18,079 18,195
----------- ----------- -----------
Income from continuing operations before income taxes,
extraordinary item, and cumulative effect of accounting
change........................................................ 8,831 3,003 11,207
Provision for income taxes ..................................... 4,318 1,807 5,582
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS .............................. 4,513 1,196 5,625
----------- ----------- -----------
Discontinued operations:
Income (loss) from operations, net of applicable
income tax benefit of $440 in 1995 and $332 in 1996 ........ 92 (1,294) (647)
Loss on disposal, net of applicable income tax benefit
of $762..................................................... -- -- (1,479)
----------- ----------- -----------
Income (loss) before extraordinary item and
cumulative effect of accounting change ....................... 4,605 (98) 3,499
----------- ----------- -----------
Extraordinary item - Loss related to extinguishment of senior
subordinated notes, net of income tax benefit of $2,032 ...... (4,275) -- --
Cumulative effect of accounting change ......................... 1,110 -- --
----------- ----------- -----------
NET INCOME (LOSS) .............................................. $ 1,440 $ (98) $ 3,499
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income from continuing operations ............................ $ 0.59 $ 0.14 $ 0.68
Income (loss)from discontinued operations .................... 0.01 (0.15) (0.26)
Extraordinary item ........................................... (0.56) -- --
Cumulative effect of accounting change ....................... 0.15 -- --
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE: ............................ $ 0.19 $ (0.01) $ 0.42
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ............................ 7,612,857 8,319,833 8,319,833
=========== =========== ===========
See notes to consolidated financial statements
F-4
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
Receivable
from Cumulative
Receivable Officer, Foreign
Additional from Including Minimum Currency
Common Paid-In Accumulated Majority Accrued Pension Translation
Stock Capital Deficit Stockholder Interest Liability Adjustment
BALANCE, AUGUST 1, 1993 ....... $71 $12,119 $ (7,399) $(3,253) $(717) $ -- $(223)
Net income .................... -- -- 1,440 -- -- -- --
Dividends paid ................ -- -- (10,991) -- -- -- --
Foreign currency translation
adjustment .................. -- -- -- -- -- -- 376
Exercise of warrants to
purchase common stock ....... 12 (12) -- -- -- -- --
Increase in receivable from
majority stockholder ........ -- -- -- (300) -- -- --
------ ---------- ----------- ----------- ---------- --------- -----------
BALANCE, JULY 31, 1994 ........ 83 12,107 (16,950) (3,553) (717) -- 153
Net loss ...................... -- -- (98) -- -- -- --
Foreign currency translation
adjustment .................. -- -- -- -- -- -- 781
Minimum pension liability ..... -- -- -- -- -- (250) --
Increase in receivable from
majority stockholder ........ -- -- -- (300) -- -- --
------ ---------- ----------- ----------- ---------- --------- -----------
BALANCE, JULY 31, 1995 ........ 83 12,107 (17,048) (3,853) (717) (250) 934
Net income .................... -- -- 3,449 -- -- -- --
Foreign currency translation
adjustment .................. -- -- -- -- -- -- (268)
Minimum pension liability ..... -- -- -- -- -- 250 --
------ ---------- ----------- ----------- ---------- --------- -----------
BALANCE, JULY 31, 1996 ........ $83 $12,107 $(13,549) $(3,853) $(717) $ -- $666
====== ========== =========== =========== ========== ========= ===========
See notes to consolidated financial statements
F-5
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended July 31,
1994 1995 1996
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations, extraordinary
item and cumulative effect of accounting change... $ 1,348 $ 1,196 $ 5,625
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities
from continuing operations:
Amortization ................................... 2,307 2,148 2,194
Depreciation ................................... 5,437 5,134 5,470
Deferred income taxes .......................... 128 455 3,013
Recovery of Investment in affiliate ............ (5,000) - -
Cumulative effect of accounting change ......... (1,110) - -
Extraordinary loss on extinguishment of debt ... 4,275 - -
Loss on the sale of fixed assets ............... - - 605
Provision for losses on accounts receivable
and other reserves ............................ 662 1,081 833
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ......................... (9,077) (2,535) (2,783)
Inventories ................................. (3,801) (15,411) 7,860
Prepaid expenses and other current assets ... 1,089 (801) (458)
Other assets ................................ (813) (25) (1,090)
Notes and interest receivable from officers.. (12) (15) (14)
Increase (decrease) in liabilities:
Accounts payable, other current liabilities
and accrued interest ....................... 10,591 (37) (806)
Other long-term liabilities ................. 836 166 1,082
------ ------ --------
Net cash provided by (used in)
operating activities: 6,860 (8,644) 21,531
------- ------- -------
(Loss) income from discontinued operations ......... 92 (1,294) (3,220)
-------- -------- -------
Net cash (used in) provided by operating
activities from discontinued operations: 92 (1,294) (3,220)
-------- -------- -------
Net cash provided by (used in)
operating activities ......................... 6,952 (9,938) 18,311
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (7,160) (7,251) (7,986)
Return of investment in affiliate ............. 5,000 - -
Repayment of advance from parent .............. - - -
Proceeds from sale of property and equipment .. 12 - 1,337
-------- ------- -------
Net cash used in investing activities ........ (2,148) (7,251) (6,649)
-------- ------- -------
See notes to consolidated financial statements
F-6
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended June 31,
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) under revolving credit facility,
net...................................................... $(11,846) $19,478 $(12,356)
Net proceeds from issuance of senior secured notes......... 120,000 - -
Repayment of senior subordinated notes..................... (92,202) - -
Proceeds of term loans..................................... - - 3,451
Repayment of term loans.................................... (7,530) (1,185) (1,271)
Dividends paid............................................. (10,991) - -
Advances to majority stockholders-Ozite Corporation........ (300) (300) -
-------- ------- --------
Net cash (used in) provided by financing activities....... (2,869) 17,993 (10,176)
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (256) (360) (129)
-------- ------- --------
NET INCREASE IN CASH AND CASH EQUIVLENTS................... 1,679 444 1,357
CASH AND CASH EQUIVALENTS, beginning of the year........... 2,618 4,297 4,741
-------- ------- --------
CASH AND CASH EQUIVALENTS, end of year..................... $ 4,297 $ 4,741 $ 6,098
======== ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 16,197 $17,068 $ 17,369
======== ======= ========
Income taxes.............................................. $ 2,506 $ 1,442 $ 3,108
======== ======= ========
Non-cash financing transaction:
Net effect of change in accounting principle
on property, plant and equipment.................... $ 925 $ - $ -
======== ======= ========
Changes in minimum pension liability................. $ - $ (250) $ 250
======== ======= ========
(concluded)
See notes to consolidated financial statements
F-7
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts 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. PST
services its markets through its network of 12 manufacturing 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 July 31, 1996, 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, PureTec and Pure Tech Plastics.
The expenses incurred at the general corporate office which are not directly
attributable to one entity are allocated to the Company and other affiliates.
Approximately $1,200 was allocated to PST for fiscal 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
b. Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits, commercial paper, time
deposits, and cash on hand. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be a cash equivalents.
c. Inventories
Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.
d. Excess of Cost of Investment Over Net Assets Acquired
The excess of cost of investment over the fair value of net assets acquired
is being amortized on a straight-line basis over the periods expected to be
benefited, which is estimated to be 40 years.
The Company continually assesses the recoverability of this intangible
asset by determining whether the amortization of the excess of the cost of the
investment balance over its remaining useful life can be recovered through
projected undiscounted future results of operations. The amount of goodwill
impairment, if any, is measured based on discounted projected future results of
operations. Based on the Company's projected results of operations over the
remaining useful life, management believes that there has not been an impairment
in the value of the excess of the cost of the investment over the fair value of
net assets acquired.
F-8
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated by the
straight-line method over the estimated useful lives of the related assets.
Repairs and maintenance are charged to expense as incurred. Depreciation is
computed on the straight-line method over the following estimated useful lives:
buildings and improvements, 20 years; furniture and fixtures, 10 years;
machinery and equipment, 10 years; and leasehold improvements, the lesser of the
term of the lease, including renewal options, or the useful lives of the asset
(See Note 4). Costs of the construction of certain long-term assets include
capitalized interest which is amortized over the estimated useful life of the
related asset. The Company capitalized interest costs of $220 in 1996.
In the event that facts and circumstances indicate that the cost of assets
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated fair value associated with the asset would
be compared to the asset's carrying amount to determine if a write down to
market value is required.
f. Deferred Financing Costs
The financing costs incurred in securing debt have been deferred and are
being amortized over the life of the related debt (See Notes 6, 7, and 9).
g. Income Taxes
For the fiscal year 1995 and prior, PST and Ozite were parties to a tax
sharing agreement and filed a consolidated federal income tax return. Beginning
with fiscal year 1996, the operations of PST will be included in the PureTec
consolidated federal income tax return. The Company's foreign subsidiaries file
separate foreign income tax returns.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," effective August 1, 1993. This Statement
supersedes Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes" previously utilized by the Company to determine its provision for income
taxes. The Company recorded income of $1,110 ($.15 per share) for the cumulative
effect of this accounting change in the year ended July 31, 1994. The adoption
of SFAS No. 109 required recognition of a net increase in property, plant and
equipment of $925 for the remaining deferred tax consequences of the difference
between the assigned values and tax basis of property, plant and equipment
recognized in Holdings' purchase of PST in 1987 accounted for under the purchase
method of accounting.
h. Revenue Recognition
The Company recognizes revenue when goods are shipped to customers. Returned
goods are recorded in inventory at cost if they are salable or at scrap value if
the goods cannot be resold. Volume rebates due to customers are recognized
currently on an estimated basis as the sales to which they relate are recorded.
i. Income (Loss) Per Common Share
Income (loss) per common and common equivalent share is computed based upon
the weighted average number of shares and common share equivalents outstanding
during the period. The calculation does not give effect to the conversion of
warrants to purchase common stock when such securities have an antidilutive
effect. The weighted average number of common and common share equivalents used
in the calculation was 7,612,857 for the year ended July 31, 1994, and 8,319,833
for the years ended July 31, 1995 and 1996.
F-9
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
j. Research and Development
Company-sponsored research and development expenditures are charged to
expense as incurred. Expenditures on research and development activities
amounted to $766, $872 and $642 for the years ended July 31, 1994, 1995 and
1996, respectively.
k. Receivable from Majority Stockholder - Ozite Corporation
Due from majority stockholder is comprised of $3,253 of expenditures paid
by the Company on behalf of a predecessor of Ozite in connection with the
acquisition of PST in fiscal 1987 and $300 of cash advances in both fiscal 1994
and 1995. The outstanding balance is due on demand and is non-interest bearing.
l. Foreign Subsidiaries
Financial statements of foreign subsidiaries are translated into U.S.
dollars at appropriate rates of exchange in accordance with the SFAS No. 52,
"Foreign Currency Translation".
m. Foreign Exchange Contracts
The Company's Belgian subsidiary enters into forward foreign exchange
contracts to hedge intercompany payables and foreign accounts payable. Market
value gains and losses on such contracts are currently recognized, and the
resulting credit or debit offsets foreign exchange gains or losses on the
related accounts payable (See Note 18).
n. Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
July 31,
--------
1995 1996
-------- --------
Raw materials $ 17,898 $ 14,552
Work-in-process 2,337 1,549
Finished goods 20,791 16,891
-------- --------
$ 41,026 $ 32,992
======== ========
F-10
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
July 31,
-----------------------
1995 1996
-------- --------
Land and land improvements $ 9,283 $ 9,851
Buildings and improvements 17,734 20,290
Furniture and fixtures 1,508 3,117
Machinery and equipment 53,210 60,273
Construction in progress 4,045 5,055
-------- -------
85,780 98,586
Accumulated depreciation (40,985) (52,978)
-------- -------
$ 44,795 $45,608
======== =======
5. INVESTMENTS IN AFFILIATES AND CERTAIN RELATED PARTY TRANSACTIONS
a. Dividends
On December 29, 1993, PST declared a dividend of $1.32 per common share to
all stockholders of record as of March 15, 1994. On March 29, 1994, PST declared
a second dividend of $.05 per common share to all stockholders of record as of
April 15, 1994. Based on these declarations, dividends totaling $9,363 and
$1,628 were paid to Ozite and the minority stockholders, respectively.
As permitted by PST's Indenture for the Senior Secured Notes and the
Restated Agreement (See Note 7) the dividend was paid with $6,000 of proceeds
from the issuance of Senior Secured Notes (See Note 9) and $5,000 from the
recovery of the investment in the Bagcraft subordinated note (discussed below).
In connection with the Merger (see Note 1), on July 13, 1995 PST declared a
dividend of the 772,000 Artra Common Shares and 3,675 shares of 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
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 in Bagcraft for $10,000 in 1987. Bagcraft is a
wholly-owned subsidiary of BCA Holdings, Inc. ("BCA") and BCA is wholly-owned
subsidiary of Artra Group, Inc. ("Artra") an affiliated company. 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 5.a above)
In July 1993, the Company recorded an impairment of its investment in
Bagcraft by establishing a valuation reserve to write-off the $10,000 carrying
value of such investment as the Company was unable to determine, with reasonable
certainty, whether or when it would realize its investment in Bagcraft. On
December 28, 1993, PST received from Bagcraft $5,000 in cash and 3,000 shares of
BCA preferred stock ( see 5a above ) as
F-11
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
5. INVESTMENTS IN AFFILIATES AND CERTAIN RELATED PARTY TRANSACTIONS
(continued)
payment in full for the $5,000 subordinated note and unpaid interest due
from Bagcraft totaling $3,094, respectively. In 1994, the Company recorded
a $5,000 gain for the recovery of its investment in the Bagcraft subordinated
note. The interest due from Bagcraft had been fully reserved and interest
income was not recorded for the receipt of the BCA preferred stock as such
stock is not freely transferable. The cash received was used to pay a
portion of the PST dividend declared.
PST held 772,000 shares of common stock of Artra (the "Artra Common
Shares"), which was accounted for on the equity method (see 5.a above). Through
the Company's recording of its share of the net losses of Artra and other
related items, the carrying value of the investment in the Artra Common Shares
had been reduced to zero.
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 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.
6. OTHER ASSETS
Other assets consist primarily of debt issuance cost of approximately
$4,808 and $4,025, net of accumulated amortization of $1,819 and $2,602 at July
31, 1995 and 1996, respectively (See Note 9).
7. SHORT-TERM BORROWINGS
Short-term borrowings at July 31, 1995 and 1996 consist of revolving credit
advances under the Senior Loan Agreement (the "Agreement").
On December 30, 1992, PST entered into a $50,000 Agreement with a
Commercial Lending Company ("CLC") that provided for revolving credit advances
of up to $42,500 through May 1, 1995, a Variable Rate Term Loan of $7,500 (See
Note 9) and letters of credit of up to $1,000. Proceeds of borrowings under the
Agreement were used to repay the borrowings outstanding under a prior loan and
security agreement with a bank. On October 29, 1993, the Agreement was amended
to permit the PST Merger (See Note 1). On November 8, 1993 in connection with
the issuance of $125,000 principal amount of senior secured notes and the use of
the proceeds thereof, the Agreement was amended and restated to, among other
things, provide for revolving credit advances of up to $40,000 through July 31,
1997 and letters of credit of up to $1,000. On February 14, 1995, PST further
amended the Agreement with the CLC to, among other things, increase the maximum
revolving credit advances to $50,000 (the "Restated Agreement").
The Restated Agreement contains covenants, the most restrictive of which
are maintenance of certain financial ratios, prohibition of the incurrence of
additional indebtedness, the payment of dividends, certain related party
transactions and limitations on capital expenditures. Additionally, outstanding
revolving credit advances shall
F-12
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
7. SHORT-TERM BORROWINGS (continued)
not exceed $8,000 for 30 consecutive days during the period from July 1
to September 30 of each year, annual domestic capital expenditures are
limited to $6,600 per year (exclusive of up to $1,000 of approved
business acquisitions) and prospective interest rate relief (ranging
from 0.25% to 0.50%) is possible if the Company meets certain defined fixed
coverage ratios. At July 31, 1996, the Company was not in compliance with
certain of the covenants of the Restated Agreement for which waivers have been
obtained. Borrowings under the Restated Agreement are secured by substantially
all the domestic current assets of PST. Revolving credit advances under the
Agreement are based on eligible receivables and inventory.
Interest payments are due monthly, based on the amounts outstanding during
the period. Revolving credit advances bear interest 1-1/2% above prime rate. As
of July 31, 1996, the prime rate of interest was 8.25%. The Restated Agreement
also requires PST to pay fees equal to 1/2% of the unused portion of the
revolving credit advances.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
July 31,
----------------------
1995 1996
------ -----
Salaries and wages............... $ 6,414 $ 4,024
Income taxes..................... 828 465
Other............................ 5,600 6,779
-------- --------
$ 12,482 $ 11,268
======== ========
F-13
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
9. LONG-TERM DEBT
Long-term debt consists of the following:
July 31,
--------------------
1995 1996
-------- --------
11-1/4% Senior Secured Notes due
December 1, 2003 $125,000 $125,000
7.10% Foreign Term Loan payable in Belgium Francs,
with quarterly interest payments, eight
semi-annual principal payments of approximately
$550 which commenced January 31, 1993 and a
balloon payment of $693 due on January 31, 1997
The loan is secured by a pledge of working capital
and a lien on certain fixed assets of the
Company's foreign operations 2,012 693
6.10 % Foreign Term Loan payable in Belgium
Francs, with quarterly interest payments, and
twenty semi-annual installments which commenced
June 1996 -- 1,263
9.93% Foreign Term Loan payable in Italian Lira,
with quarterly interest payments, and ten
semi-annual installments which commenced April
1996 -- 956
9.78% Foreign Term Loan payable in Italian Lira,
with quarterly interest payments, and ten
semi-annual installments which commence October
1996 -- 1,090
-------- --------
$127,012 $129,002
Current Portion 1,271 1,360
-------- --------
$125,741 $127,642
======== ========
The Senior Secured Notes, which require semi-annual interest payments on
June 1 and October 1, 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 described 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. At July 31, 1996,
under the covenant terms, the company is unable to pay dividends.
F-14
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
9. LONG-TERM DEBT (continued)
On December 8, 1993, PST completed redemption of its 13-1/8% senior
subordinated notes which resulted in the recording of a loss on extinguishment
of debt of $4,275 after a reduction for an income tax benefit of $2,032. The
loss on extinguishment of debt is comprised of the write-off of unamortized debt
discount and debt issuance costs totaling $2,438 and a redemption premium of
$3,869.
The aggregate amount of maturities of long-term debt as of July 31, 1996 is
as follows:
Fiscal Year:
1997 $ 1,360
1998 682
1999 698
2000 715
2001 547
Thereafter 125,000
--------
$129,002
========
10. STOCK WARRANTS
On June 1, 1987, the Company issued 1,500,000 warrants in connection with
the public offering of Senior Secured and Senior Subordinated Notes. The
warrants entitled the holders to purchase through June 1, 1994, under certain
circumstances, 1,500,000 shares of common stock at a price of $.01 per share. In
January 1993, the warrant agreement was amended to provide, among other things,
that the remaining 1,160,055 warrants would be exercisable at any time through
June 1, 1994 for no additional consideration. Prior to the expiration date of
June 1, 1994 warrants totaling 1,441,500 were exercised without payment of any
additional consideration for 1,441,500 shares of PST stock and the remaining
warrants expired on June 1, 1994.
11. INCOME TAXES
The provision for income taxes from continuing operations consists of the
following:
Year Ended July 31,
----------------------------
1994 1995 1996
---- ---- ----
Current Tax Provision (Benefit)
Federal $ 2,037 $ (900) $ --
Foreign 1,768 2,252 2,269
State 385 -- 300
------- ------ ------
4,190 1,352 2,569
------- ------ ------
Deferred Provision
Federal -- -- 2,933
Foreign 128 455 80
------- ------ ------
Total $ 4,318 $1,807 $5,582
======= ====== ======
F-15
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
11. INCOME TAXES (continued)
The Company's tax provision has been determined as if it were filing on a
separate return basis. Any currently payable amounts due or benefits from losses
to the extent recoverable from prior earnings are included as due to or from
parent or offsetting previous amounts due from parent. The Company is included
in the consolidated returns of its parent (Ozite through 1995 and PureTec
commencing in 1996). The reported results, as if filing on a separate return
basis, may be affected for tax purposes by the operating results or the use of
operating loss carryforwards of other members of the consolidated group. Such
effects are reflected in the accounts of the Company's parent.
The following reconciles the provision for income taxes at the U.S.
statutory rate to the provision for income taxes from continuing operations:
Year Ended July 31,
------------------------------
1994 1995 1996
-------- -------- ------
Computed tax provision at statutory
rate $3,034 $ 581 $ 3,810
State taxes, net of federal tax benefit 254 -- 198
Difference in foreign income tax rates 447 397 416
Amortization of goodwill 464 464 464
Losses not currently deductible -- 1,119 --
Uses of net operating losses and restoration
of deferred taxes -- -- 678
Reduction of previously provided taxes -- (900) --
Other nondeductible expenses 119 146 16
------ ------- -------
$4,318 $ 1,807 $ 5,582
====== ======= =======
Income (loss) from continuing operations before income taxes and
extraordinary items relating to foreign and domestic operations are as follows:
Year Ended July 31,
-------------------------------------
1994 1995 1996
------- ------- -------
United States $ 4,569 $(3,791) $ 5,522
Europe 4,262 6,794 5,685
------- ------- -------
$ 8,831 $ 3,003 $11,207
======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, net of operating
loss and income tax credit carryforwards. The income tax effects of significant
items comprising the Company's net deferred tax liability as of July 31, 1995
and 1996 are as follows:
F-16
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
11. INCOME TAXES (continued)
July 31,
----------------
1995 1996
------- -------
Deferred tax assets:
- --------------------
Net operating loss carryforward $ 2,096 $ 1,175
Difference between book and tax basis of investments
in an affiliate 4,438 --
Allowance for doubtful accounts receivable 936 200
Capitalization of inventory costs 470 344
------- -------
Total deferred tax assets 7,940 1,719
------- -------
Deferred tax liability:
- -----------------------
Difference between book and tax basis of property
and equipment 4,676 4,838
Other 52 --
------- -------
Total deferred tax liabilities 4,728 4,838
------- -------
Net deferred tax asset (liability) before
valuation allowance 3,212 (3,119)
Less: Valuation allowance (4,412) --
------- -------
Net deferred tax liability $(1,200) $(3,119)
======= =======
A valuation allowance had been established in prior years as realization of
the net operating loss carryforward in 1995 and deductible temporary differences
attributable to U.S. operations was not more likely than not. The change for
1995 in the valuation allowance is due to changes in the temporary differences
and providing for an increase in the allowance for net operating losses. The net
deferred income tax liability as of July 31, 1995 relates primarily to income
taxes in foreign jurisdictions which cannot be offset against U.S. Federal
income taxes. In 1996, due to the dividends using the investments in affiliates
(See Note 5), the temporary difference attributable to such differences in book
and tax basis has been transferred to the recipients, and the Company can no
longer claim such difference. Accordingly, the decrease in the valuation
allowance is largely attributable to such event. Further, the company has
recognized in 1996 the cumulative temporary difference at such date including
the remaining net operating loss carryforward attributable to its operation
based upon its evaluation of its future operating results.
As of July 31, 1996, the Company had a net operating loss carryforwards
attributable to its operations of approximately $3,078 for income tax purposes
which expire in 2011. The Company has not provided deferred income taxes on
undistributed foreign earnings of $21,890 as it has the ability and intent to
permanently reinvest such earnings.
In January 1993 and 1994, the Company's Belgian subsidiary received income
tax assessments aggregating approximately $2,483 (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 $1,059 (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 was appropriate
and that the assessments are with 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.
F-17
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
12. EMPLOYEE BENEFIT PLANS
The Company maintains a noncontributory defined benefit pension plan which
covers substantially all employees of PST not covered by a collective bargaining
agreement, who have completed one year of service and are not participants in
any other pension plan. The plan is also available to affiliates of PST who bear
their respective costs for their covered employees. In 1994, the Company also
had a plan for all employees of the Ozite Manufacturing Division covered by a
collective bargaining agreement. The Ozite plan was merged into a
multi-employer plan effective June 1, 1994.
The funding policy of the Company is to make contributions to the plan
based on actuarial computations of the minimum required contribution for the
plan year. The plans' assets are invested primarily in the Master Trust Fund of
PST in accordance with the investment agreements of the plan.
Net pension costs consists of the following:
Year Ended July 31,
----------------------------
1994 1995 1996
-------- -------- ------
Service cost $ 573 $ 486 $ 561
Interest cost on projected benefit obligation 330 360 542
Actual return on plan assets (117) (259) (557)
Net amortization and deferrals (274) (131) 183
------- ------- -------
$ 512 $ 456 $ 729
======= ======= =======
The funded status of the plan and the amount recognized in the
accompanying consolidated balance sheets is as follows:
July 31,
------------------
1995 1996
------- -------
Vested benefit obligation $(5,098) $(5,831)
======= =======
Accumulated benefit obligation $(5,345) $(6,089)
======= =======
Projected benefit obligation $(5,345) $(7,807)
Plan assets at fair value 5,003 6,029
------- -------
Projected benefit obligation in excess of
plan assets (342) (1,778)
Prior service cost not yet recognized in net
periodic pension cost 39 35
Unrecognized net loss 250 1,150
Unrecognized net transition obligation 24 22
Adjustment to recognize minimum required
liability (313) --
------- -------
Accrued pension costs $ (342) $ (571)
======= =======
The expected long-term rate of return on plan assets of the plan was 9% for
all periods presented and the discount rate was 8-1/4% for the year ended July
31, 1994, and 8% for the years ended July 31, 1995 and 1996. In the current
year, the projected unit credit method was adopted to reflect the final pay
terms of the plan, which caused the increase in the projected benefit
obligation.
Additionally, PST has a savings plan for all non-collective bargaining
employees whereby PST will match each employee's contribution up to 2% of the
employee's earnings. The plan is also made available to PST affiliates who bear
their respective costs. Such contribution amounted to approximately $399, $504
and $457 for the years ended July 31, 1994, 1995 and 1996, respectively.
F-18
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
12. EMPLOYEE BENEFIT PLANS (continued)
The Company has made contributions to multi-employer pension plans in the
amount of approximately $68, $62 and $41 for the years ended July 31, 1994,
1995, and 1996, respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The estimated fair value of cash and cash equivalents, account receivable,
notes and interest receivable from officers, short-term borrowings, accounts
payable and long-term debt, including the Senior Secured Notes which were
trading at an amount that approximates face value, approximate those amounts
reflected in the balance sheet based on pertinent information available to
management.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Although credit
risk related to the Company's trade receivables is limited due to the large
number of customers in differing industries and geographic areas, sales to one
major nationwide retailer accounted for approximately 17.2%, 16.9% and 19.6% of
the Company's net sales for the years ended July 31, 1994, 1995 and 1996,
respectively.
14. SEGMENT INFORMATION
In the current year, the Company has changed its method of reporting
segment information to separate its previously reported domestic plastics
business into the products and materials segments. The Company is engaged
primarily in two business segments, plastic products and plastic materials. The
plastic products segment principally produces lawn and garden hose, medical
tubing and specialty tubing and gaskets. The plastic materials segment
principally produces recycled and general purpose plastics and medical grade
vinyl compounds. The plastic products segment has operations in the United
States, Europe and Canada (Canadian operations commencing in 1996, which are
included in the domestic amounts below). The plastic materials segment operates
principally in the United States. Financial information concerning the Company's
business segments and the geographic areas in which it operates is as follows:
F-19
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
14. SEGMENT INFORMATION (continued)
Year Ended July 31,
` -------------------------------------------
1994 1995 1996
---- ---- ----
Net Sales:
Plastics Products:
Domestic $ 121,105 $ 130,215 $ 152,352
Europe 24,031 31,995 34,158
Plastic Materials 69,519 88,665 101,687
Intercompany Eliminations (24,131) (29,685) (34,836)
--------- --------- ---------
Total net sales $ 190,524 $ 221,190 $ 253,361
========= ========= =========
Operating Income:
Plastic Products:
Domestic $ 17,790 $ 15,046 $ 21,463
Europe 5,830 8,373 7,097
Plastics Materials 1,447 2,621 6,156
Corporate & Eliminations (3,615) (4,958) (5,314)
--------- --------- ---------
Total operating income $ 21,452 $ 21,082 $ 29,402
========= ========= =========
Depreciation and Amortization:
Plastic Products:
Domestic $ 3,896 $ 3,534 $ 3,563
Europe 602 875 1,131
Plastic Materials 1,913 1,676 1,825
Corporate 1,333 1,197 1,145
--------- --------- ---------
Total depreciation and amortization $ 7,744 $ 7,282 $ 7,664
========= ========= =========
Capital Expenditures:
Plastic Products & Materials:
Domestic $ 3,161 $ 3,778 $ 2,440
Europe 1,523 1,098 3,804
Plastic Materials 2,207 1,778 1,331
Corporate 269 597 411
--------- --------- ---------
Total capital expenditures $ 7,160 $ 7,251 $ 7,986
========= ========= =========
Identifiable Assets:
Plastic Products & Materials:
Domestic $ 91,958 $ 102,871 $ 102,076
Europe 17,743 24,621 26,539
Plastic Materials 35,781 40,027 39,717
Corporate & Eliminations 15,068 14,773 9,732
--------- --------- ---------
Total identifiable assets $ 160,550 $ 182,292 $ 178,064
========= ========= =========
F-20
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
14. SEGMENT INFORMATION (continued)
Operating income represents net sales less cost of goods sold and selling,
general and administrative expenses of each segment before deductions for
general corporate expenses not directly related to an individual segment of
$2,928 for 1994, $4,113 for 1995 and $4,322 for 1996 and the elimination of
intercompany profits principally due to Plastic Material Sales to Plastic
Products. Identifiable assets are those used in the operations of each segment,
including an allocation of goodwill. Corporate identifiable assets consist
primarily of cash, prepaid expenses, fixed assets and deferred debt costs offset
by the elimination of intersegment profit in ending inventories.
15. DISCONTINUED OPERATIONS
On December 21, 1995, PST entered into an Asset Purchase Agreement (the
"Agreement") with Foss Manufacturing Company, Inc. ("Foss") for the sale of
certain assets of PST's Ozite Manufacturing Division ("Ozite
Mfg.") in Libertyville, Illinois to Foss as of January 31, 1996. The Company had
been exploring a relocation alternative until this unsolicited offer was
accepted. Under the terms of the Agreement, Foss purchased Ozite Mfg.'s accounts
receivable and inventory, net of reserves, as well as certain prepaid expenses,
trade names, trademarks, and patents for approximately $3,025, which was
received by PST on February 12, 1996. Furthermore, the Agreement provided for
the Company to receive a minimum of $450 for all of its machinery and equipment
at the facility. During the fourth quarter of fiscal 1996, adjustments were made
to increase by $570 the estimated loss on disposal recorded in the second
quarter due to the final shut down of these facilities.
Accordingly, the Ozite Mfg. operations have been reflected as discounted
operations in the statement of operations for all periods presented. Net sales
generated from these operations amounted to $13,051, $11,714 and $4,882 for the
years ended July 31, 1994, 1995 and 1996.
16. SUBSEQUENT EVENT
In September, 1996, the Company acquired the recycling operations of
PureTec, comprised of certain fixed assets, raw materials inventory and certain
other assets of PureTech Plastics, Inc. and subsidiaries ("PTP") for $4,400. The
acquisition will be 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. The $1,970 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.
For the year ended July 31, 1996, PTP recorded net sales of $32,859 and a
net loss of $1,705. The following unaudited information indicates the July 31,
1996 proforma combined results of operations as if the acquisition had occurred
on August 1, 1995:
Net Sales $286,220
========
Net Income $ 1,794
========
Income per Share $ .22
========
17. COMMITMENTS AND CONTINGENCIES
On February 18, 1993, Ware Chemical Co. ("Ware Chemical"), a former PST
subsidiary, was served with a third party complaint in the matter of United
States v. Davis. In Davis, the United States has alleged that certain private
entities are liable, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act
F-21
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
17. COMMITMENTS AND CONTINGENCIES (continued)
("CERCLA"), for cleanup costs that have been incurred, and will be
incurred in the future, with respect to the remediation of the Davis
Landfill site in Rhode Island. The defendants/third party plaintiffs
have impleaded Ware Chemical (but not PST), alleging that Ware Chemical and
other third party defendants are also liable for cleanup costs at this site,
because, according to the allegation, Ware Chemical (then owned by Dark & Kraft;
now Kraft, Inc.) arranged for the disposal of hazardous substances that were
eventually disposed of at the Davis site. The alleged disposal by Ware Chemical
took place between 1975 and 1976. Ware Chemical is one of over 100 parties that
have been named as defendants or third party defendants in this matter. The most
recent estimate of the cost of the remediation at the Davis site (according to
counsel for the defendants/third party plaintiffs) is upwards of $25,000.
Liability under CERCLA is, in most instances, strict, joint and several
(meaning that Ware Chemical could be liable for all response cost incurred at
the Davis site). However, Ware Chemical has no assets and has been dormant since
1988. Furthermore, PST is not aware of any evidence at this time that directly
establishes that the materials transshipped to the Davis site were materials
sent by Ware Chemical. Finally, liability at CERCLA sites is typically shared
with other potentially responsible parties ("PRP's"), and costs are commonly
allocated according to the relative volumes of waste deposited at a particular
site. PST does not currently have information as to Ware Chemical's relative
share of the waste allegedly deposited at the Davis site; however, based
on documents provided to PST, the absolute volume of waste allegedly
sent to the site by Ware Chemical is small. Ware Chemical, as well as
many of the other third party defendants, received and rejected an offer to
settle this matter for $250 each. For these reasons, and because Ware Chemical
is a dormant subsidiary without any assets, management believes that this
litigation involving Ware Chemical will not have a material adverse effect upon
the financial position or results of operations of the Company. In addition,
even if Ware Chemical were to be found responsible for a portion of such cleanup
cost, PST believes that Kraft is obligated to indemnify it for all costs and
expenses incurred in connection with the Davis claim under the terms of the 1984
Agreement of Purchase and Sale between Dart & Kraft and PST. However, Kraft has
denied that it is obligated to indemnify Ware Chemical for this matter. At this
time, the Company is unable to assess with any reasonable certainty its ultimate
liability, if any, for this matter and, therefore, has not accrued any
liability.
The Company's Belgian subsidiary has received an income tax assessment and
may be subject to similar assessments in the future (See Note 11). 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.
The Company rents various warehouse, office and manufacturing facilities
and certain equipment under lease agreement classified as operating leases. Rent
expense was approximately $2,214, $2,563, and $2,857 for the years ended July
31, 1994, 1995 and 1996, respectively.
Future minimum rental payments under noncancelable operating leases as of
July 31, 1996 are as follows:
1997 3,367
1998 3,495
1999 3,418
2000 3,351
2001 3,275
Thereafter 4,273
-------
$21,179
=======
As of July 31, 1996, the Company had available letters of credit of up to
$1,000 from the CLC (See Note 7), of which $225 was outstanding.
F-22
PLASTIC SPECIALTIES & TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, excepts per share data)
18. FOREIGN EXCHANGE CONTRACTS
The Company's Belgian subsidiary uses forward foreign exchange contracts to
hedge intercompany payables and foreign accounts payable. The aggregate face
value was $1,600 at July 31, 1994. At July 31, 1994 these contracts were for the
exchange of Belgian francs for U.S. dollars and matured on various dates through
January 1995. There were no forward foreign exchange contracts outstanding at
July 31, 1995 or 1996.
* * * * * * * * * * * * *
F-23
SCHEDULE II
PLASTIC SPECIALTIES AND TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Additions
Additions/ --------------------------
Balance at (Reductions) Charged to Accounts Balance at
Beginning Costs and Other Charged End of
of Period Expenses Accounts Off Period
Classification
Year Ended July 31, 1994
Allowance for doubtful
receivables $ 2,346 $ 662 $ -- $ (128) $ 2,880
======= =========== ========= ========== =======
Year Ended July 31, 1995
Allowance for doubtful
receivables $ 2,880 $ (119) $ -- $ (211) $ 2,550
======= =========== ========= ========== =======
Year Ended July 31, 1996
Allowance for doubtful
receivables $ 2,550 $ 832 $ -- $ (2,102) $ 1,280
======= =========== ========= ========== =======
F-24