UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 333-32041
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PRECISE TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 25-1205268
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 Mosside Boulevard
North Versailles, Pennsylvania 15137-2553
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(412) 823-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of November 5, 1999, one share of the Company's Common Stock was
outstanding.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1999 1998
---- ----
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 312 $ 240
Accounts receivable, net 20,131 14,931
Inventories 8,432 6,510
Prepaid expenses and other 3,814 453
Deferred income taxes 806 806
--------- ---------
Total current assets 33,495 22,940
Property, plant and equipment, net 41,638 43,537
Intangible and other assets, net 25,378 26,931
--------- ---------
Total assets $ 100,511 $ 93,408
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Current maturities of long-term debt $ 6,438 $ 10,193
Accounts payable 10,250 6,607
Accrued liabilities 6,876 4,109
Tooling deposits 4,087 3,963
--------- ---------
Total current liabilities 27,651 24,872
Long-term debt, less current maturities 84,140 80,031
Deferred income taxes 998 998
Commitments and contingencies -- --
Stockholder's deficit:
Common stock, no par value; 1,000 shares authorized, and
1 share issued and outstanding at September 30, 1999
and December 31, 1998 1 1
Additional paid-in-capital 3,555 3,555
Accumulated other comprehensive loss (292) (292)
Retained deficit (15,542) (15,757)
--------- ---------
Total stockholder's deficit (12,278) (12,493)
--------- ---------
Total liabilities and stockholder's deficit $ 100,511 $ 93,408
========= =========
See accompanying notes.
3
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Net sales $ 26,684 $ 24,718 $ 82,418 $ 72,882
Cost of sales 20,617 19,365 63,795 57,989
-------- -------- -------- --------
Gross profit 6,067 5,353 18,623 14,893
Selling, general, and
administrative 3,088 2,755 9,373 7,881
Plant closure costs -- -- -- 31
Amortization of
intangible assets 253 274 761 901
-------- -------- -------- --------
Operating income 2,726 2,324 8,489 6,080
Other expense (income):
Interest expense 2,812 2,578 7,810 7,778
Other -- 12 (1) (21)
-------- -------- -------- --------
(Loss) income before
income taxes (86) (266) 680 (1,677)
(Benefit) provision for
income taxes (33) 292 465 52
-------- -------- -------- --------
Net (loss) income $ (53) $ (558) $ 215 $ (1,729)
======== ======== ======== ========
See accompanying notes.
4
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
---------------------------
1999 1998
---- ----
Operating Activities (unaudited)
Net income (loss) $ 215 $ (1,729)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 5,706 5,802
Amortization of financing fees 613 419
Loss on sale of fixed assets 57 71
Changes in assets and liabilities:
Accounts receivable (5,200) (535)
Inventories (1,922) (750)
Prepaid expenses and other (3,184) (685)
Accounts payable 3,643 784
Accrued liabilities 2,767 2,507
Tooling deposits 124 681
-------- --------
Net cash provided by operating activities 2,819 6,565
Investing Activities
Capital expenditures (1,987) (2,019)
Proceeds from sale of fixed assets 79 112
-------- --------
Net cash used in investing activities (1,908) (1,907)
Financing Activities
Borrowings on revolving line of credit 25,300 11,900
Payments on revolving line of credit (23,600) (14,300)
Repayment of long-term debt (2,539) (2,639)
-------- --------
Net cash used in financing activities (839) (5,039)
-------- --------
Net increase (decrease) in cash 72 (381)
Cash at beginning of period 240 560
-------- --------
Cash at end of period $ 312 $ 179
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,949 $ 5,276
======== ========
Income taxes, net of refund $ 489 $ 30
======== ========
Supplemental schedule of noncash investing and financing
activities:
Capital lease agreements for equipment $ 1,194 $ 1,469
======== ========
See accompanying note
5
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
1. Financial Statement Presentation
The consolidated balance sheet at September 30, 1999, and the
consolidated statements of income and consolidated statements of cash flows for
the periods ended September 30, 1999 and 1998, have been prepared by Precise
Technology, Inc. (the "Company"), without audit. In the opinion of Management,
all normal and recurring adjustments necessary to present fairly the financial
position, results of operations and changes in cash flows at September 30, 1999
and for the periods presented have been made.
In late June and early July 1999, the Company caused each of its
wholly-owned subsidiaries; Precise Technology of Delaware, Inc., Precise
Technology of Illinois, Inc., Precise TMP, Inc., Precise Polestar, Inc., and
Massie Tool, Mold & Die, Inc., to engage in a series of mergers with the Company
as the ultimate sole surviving corporation of the mergers. Precise Polestar,
Inc., and Massie Tool, Mold & Die, Inc., were merged into Precise TMP, Inc., on
June 30, 1999. Precise Technology of Delaware, Inc., and Precise Technology of
Illinois, Inc., were merged into Precise Technology, Inc., on June 30, 1999, and
Precise TMP, Inc. was merged into Precise Technology, Inc., on July 1, 1999.
Upon consummation of the mergers, each of the Guarantors' separate corporate
existence ceased.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required for complete financial statements prepared in accordance with
generally accepted accounting principles. It is suggested that these
consolidated financial statements be read in conjunction with the Company's
annual report on Form 10-K for the year ended December 31, 1998, which contains
a summary of the Company's accounting principles and other information.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The results of operations for the period ended September 30, 1999, are
not necessarily indicative of the operating results to be expected for the full
year.
2. Inventories
The major components of inventories were as follows (in thousands):
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
Finished products $2,002 $1,309
Raw materials 1,998 2,085
Tooling and dies 4,432 3,116
------ ------
Total $8,432 $6,510
====== ======
6
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
3. Commitments and Contingencies
The Company is involved from time to time in lawsuits that arise in the
normal course of business. The Company actively and vigorously defends all
lawsuits. Management believes that there are no pending lawsuits that will have
a material affect on the Company's financial position or results of operations.
4. Long -Term Debt
On June 13, 1997, the Company entered into a $30 million Credit
Agreement with a financial institution, which expires in 2002. The Credit
Agreement contains certain covenants which require the Company to maintain
leverage ratios, fixed charge and interest coverage ratios and minimum net
worth. The Credit Agreement further limits capital expenditures, declaration of
dividends and other restricted payments, and additional indebtedness. The Credit
Agreement contains other operating covenants, including a restriction on the
sale, encumbrance or transfer of the Company's assets or capital stock. The
Credit Agreement was amended, effective March 31, 1999. The amendment reduced
the borrowing capacity of the Company by allowing for draws of a specified
percentage of certain assets, determined on a monthly basis, up to a maximum of
$30 million. The borrowing capacity of the Company as of September 30, 1999 was
approximately $17.8 million. As a result of the amendment, $270,000 of deferred
financing fees that related to the original Credit Agreement was written-off and
charged to interest expense.
5. Segment Information
The Company has two reportable segments: injection molding and mold
making. The Company's injection molding segment produces highly engineered,
close tolerance, precision plastic products. The Company's mold making segment
has extensive tool and die manufacturing capabilities.
The Company evaluates performance and allocates resources based on
gross margin. As a result, the Company does not allocate certain general and
administrative expenses to its operating segments, including depreciation,
amortization and interest expense.
The Company's reportable segments are business units that offer
different products and services. The reportable segments are each managed
separately because they manufacture and distribute distinct products or services
with different production processes.
7
PRECISE TECHNOLOGY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
PRECISE HOLDING CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
5. Segment Information - (continued)
Information by industry segment is set forth below:
Nine Months Ended September 30, 1999
-----------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
--------- -------- ----------- ------------
(in thousands)
Revenues from external customers $ 65,781 $ 16,637 $ -- $ 82,418
Segment gross margin 17,378 1,245 -- 18,623
Depreciation and amortization expense 3,970 798 938 5,706
Interest expense -- -- 7,810 7,810
Segment assets 51,528 15,397 33,586 100,511
Net capital expenditures (including 2,318 590 273 3,181
capital leases)
Nine Months Ended September 30, 1998
-----------------------------------------------------------------
Unallocated
Injection Mold Corporate Total
Molding Making Items Consolidated
--------- -------- ----------- ------------
(in thousands)
Revenues from external customers $60,792 $12,090 $ -- $72,882
Segment gross margin 13,874 1,019 -- 14,893
Depreciation and amortization expense 2,559 508 2,735 5,802
Interest expense -- -- 7,778 7,778
Segment assets 49,122 10,743 32,555 92,420
Net capital expenditures (including 2,931 57 500 3,488
capital leases)
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's operating data for the three and nine months ended September 30,
1999 and 1998 are set forth below as percentages of net sales:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.3 78.4 77.4 79.6
----- ----- ----- -----
Gross profit 22.7 21.6 22.6 20.4
Selling, general and administrative 11.6 11.1 11.4 10.8
Amortization of intangible assets 0.9 1.1 0.9 1.3
----- ----- ----- -----
Operating income 10.2 9.4 10.3 8.3
Other expense (income):
Interest expense 10.5 10.5 9.5 10.6
Other 0.0 0.0 0.0 0.0
----- ----- ----- -----
(Loss) income before income taxes (0.3) (1.1) 0.8 (2.3)
(Benefit) provision for income taxes (0.1) 1.2 0.6 0.1
----- ----- ----- -----
Net (loss) income (0.2)% (2.3)% 0.2% (2.4)%
===== ===== ===== =====
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 compared to Three Months Ended September
30, 1998
Net sales. The Company's net sales increased to $26.7 million for the
three months ended September 30, 1999, an increase of $2.0 million, or 8.0%,
from the comparable period in the prior year. The increase in net sales was
attributable to increased injection molding sales and mold making sales.
Injection molding sales for the three months ended September 30, 1999
increased $0.6 million, or 2.8%, to $21.1 million due to (1) a full quarter of
production in 1999 of a significant new program which was in the start-up phase
in 1998, (2) an increase in demand from certain product lines and (3) the
addition of other new product lines in 1999. This increase was partially offset
by decreased volumes to certain customers who have either insourced, selected
another molder with a closer "ship-to" point, or are experiencing product
maturity.
Mold making sales for the three months ended September 30, 1999
increased $1.4 million, or 34.8%, to $5.6 million. The increase is primarily due
to new mold making programs and increased mold sales related to the management
of mold making programs from outside vendors.
Gross Profit. The Company's gross profit increased to $6.1 million for
the three months ended September 30, 1999, an increase of $0.7 million, or
13.3%, from the comparable period in the prior year. The increase in gross
profit is primarily due to the higher injection molding and mold making sales.
Gross profit margin increased to 22.7% for the three months ended September 30,
1999 from 21.6% in the comparable period in the prior year.
Injection molding's gross profit for the three months ended September
30, 1999 increased $0.5 million, or 10.6%, to $5.5 million. Gross profit margin
increased to 26.0% for the three months ended September 30, 1999 from 24.2% in
the comparable period in the prior year. This increase is due to (1) increased
sales, (2) increased employee utilization and (3) decreased raw material content
from aggressive purchasing tactics.
9
Mold making's gross profit for the three months ended September 30,
1999 increased $183,000 or 47.2%, to $0.6 million. Gross profit margin increased
to 9.8% for the three months ended September 30, 1999 from 9.2% in the
comparable period in the prior year. This increase in gross profit is primarily
due to the increase in mold sales.
Selling, general and administrative. Selling, general and
administrative expenses increased to $3.1 million for the three months ended
September 30, 1999, an increase of $0.3 million, or 12.1%, over the comparable
period in the prior year. The increase in selling, general and administrative
expenses was primarily due to increased salaries and wages due to an increase
in employees and annual merit and performance-based increases.
Amortization. The Company's amortization of intangible assets decreased
to $253,000 for the three months ended September 30, 1999 from $274,000 in the
comparable period in the prior year. This decrease resulted primarily from the
expiration of non-compete agreements during July of 1998.
Operating income. Operating income increased to $2.7 million for the
three months ended September 30, 1999, an increase of $0.4 million, or 17.3%,
over the comparable period in the prior year. Operating income as a percentage
of net sales increased to 10.2% for the three months ended September 30, 1999
from 9.4% in the comparable period in the prior year primarily due to higher
gross margin, which was partially offset by higher selling, general and
administrative expenses.
Interest expense. Interest expense increased to $2.8 million for the
three months ended September 30, 1999 from $2.6 million in the comparable period
in the prior year, representing an increase of 9.1%. This increase is primarily
the result of higher amounts outstanding under the Company's revolving credit
agreement (the "Credit Agreement") and a write-off of $270,000 of deferred
financing fees due to the reduced borrowing capacity under the Credit Agreement.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the three months ended September 30,
1999 and 1998 primarily due to nondeductible goodwill amortization.
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
1998
Net sales. The Company's net sales increased to $82.4 million for the
nine months ended September 30, 1999, an increase of $9.5 million, or 13.1%,
from the comparable period in the prior year. The increase in net sales was
attributable to increased injection molding sales and mold making sales.
Injection molding sales for the nine months ended September 30, 1999
increased $5.0 million, or 8.2%, to $65.8 million due to a full period of
production in 1999 of a significant new program which was in the start-up phase
in 1998, and the addition of other new product lines and customers in 1999. This
increase was partially offset by decreased volumes to certain customers who have
either insourced or have selected another molder with a closer "ship-to" point.
Mold making sales for the nine months ended September 30, 1999
increased $4.5 million, or 37.6%, to $16.6 million. The increase is primarily
due to new mold making programs and increased mold sales related to the
management of mold making programs from outside vendors.
Gross Profit. The Company's gross profit increased to $18.6 million for
the nine months ended September 30, 1999, an increase of $3.7 million, or 25.0%,
from the comparable period in the prior year. Gross profit margin increased to
22.6% for the nine months ended September 30, 1999 from 20.4% in the comparable
period in the prior year. The increase in gross profit and gross profit margin
was primarily due to the increased injection molding and mold making sales.
Injection molding's gross profit for the nine months ended September
30, 1999 increased $3.5 million, or 25.3%, to $17.4 million. Gross profit margin
increased to 26.4% for the nine months ended September 30, 1999 from 22.7% in
the comparable period in the prior year. These increases are due to (1)
10
increased sales, (2) a favorable product mix and (3) decreased raw material
content from aggressive purchasing tactics and a favorable scrap rate.
Mold making's gross profit for the nine months ended September 30, 1999
increased $226,000, or 22.2%, to $1.2 million. Gross profit margin decreased to
7.3% for the nine months ended September 30, 1999 from 8.4% in the comparable
period in the prior year. The increase in sales contributed to the higher gross
profit although these sales earned lower margins which contributed to the
decrease in gross profit margin.
Selling, general and administrative. Selling, general and
administrative expenses increased to $9.4 million for the nine months ended
September 30, 1999, an increase of $1.5 million, or 18.9% over the comparable
period in the prior year. The increase in selling, general and administrative
expenses was primarily due to higher salaries, wages and fringe benefits due to
an increase in employess and annual merit and performance-based increases and
increased professional fees and travel costs relating to acquisition-related
activities, the implementation of the new computer system and the management of
significant new programs.
Amortization. The Company's amortization of intangible assets decreased
to $761,000 for the nine months ended September 30, 1999, from $901,000 in the
comparable period in the prior year. This decrease resulted primarily from the
expiration of non-compete agreements during July 1998.
Operating income. Operating income increased to $8.5 million for the
nine months ended September 30, 1999, an increase of $2.4 million, or 39.6%,
from the comparable period in the prior year. The increase in operating income
is due to higher gross margin partially offset by higher selling, general and
administrative expenses.
Provision for income tax. The Company's effective tax rates differed
from the applicable statutory rates for the nine months ended September 30, 1999
and 1998 primarily due to nondeductible goodwill amortization.
Liquidity and Capital Resources
The Company generated cash flows from operations totaling $2.8 million
and $6.6 million in the nine months ended September 30, 1999 and 1998,
respectively. The decrease in cash flows from operations is primarily
attributable to increases in accounts receivable, tool and die inventory, and
prepaid expenses, which were partially offset by an increase in accounts payable
and accrued liabilities.
The Company's cash flows used in investing activities totaled $1.9
million in each of the nine month periods ended September 30, 1999 and 1998,
excluding capital lease agreements for equipment totaling $1.2 million and $1.5
million, in the nine months ended September 30, 1999, and 1998, respectively.
As of September 30, 1999, the Company has $3.5 million invested as cash deposits
on new equipment which will eventually be financed. These cash deposits will be
refunded at the time the capital leases are executed. During the first nine
months of 1999, the Company expended approximately $1.0 million in cash capital
expenditures on plant refurbishment and approximately $0.9 million for machinery
and ancillary equipment. The Company estimates its remaining capital
expenditures for 1999 to be $2.5 million in cash and $4.0 million in capital
leases. This increase in anticipated capital expenditures for the remainder of
1999 is for significant new programs that are anticipated to start in the first
quarter of 2000. During the first nine months of 1998, the Company expended
approximately $0.5 million in cash capital expenditures primarily for its new
Enterprise Resource Planning system, $0.4 million in cash capital expenditures
on plant refurbishment and $0.5 million in cash capital expenditures on
machinery and ancillary equipment for a new project for one of the Company's
larger customers.
The Company's cash flows used in financing activities totaled $0.8
million and $5.0 million for the nine months ended September 30, 1999 and 1998,
respectively. During the nine months ended September 30, 1999 and 1998,
regularly scheduled principal payments on the Company's capital lease
obligations and payments on the revolving line of credit under the Credit
Agreement contributed to the cash used in financing activities.
11
Management believes that the Company's cash flow from operations,
together with borrowing availability under the amended Credit Agreement, which
was $9.0 million at September 30, 1999, provides it with sufficient liquidity
necessary to fund capital improvements, service indebtedness and meet working
capital requirements for the Company's existing operations. However, the Company
is highly leveraged and, as a result, funds available for working capital,
capital expenditures, and other purposes may be limited or unavailable in the
event the Company does not generate cash flow at or above expected levels, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, borrowings under the Credit
Agreement are only available if the Company is in compliance with the covenants
and borrowing conditions contained in the agreement.
Year 2000 Disclosure
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of time-sensitive information by the Company's
computerized information systems. The year 2000 issue ("Y2K") is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar business activities.
State of Readiness. In 1997, the Company began a program to assess the
impact of the Y2K issue on the software and hardware used in the Company's
operations and has identified various areas to focus its Y2K compliance efforts.
They include business computer systems, manufacturing and warehousing systems,
end-user computing, technical infrastructure, and supplier and service provider
systems. The program's phases include assessment and planning, remediation,
testing and implementation.
The Company's management has developed a program to prepare the
Company's computer systems and related applications for the Y2K. The Company
believes that a majority of its Y2K issues have been addressed by the
installation of an Enterprise Resource Planning ("ERP") system software package
by Baan. The ERP system, which is Y2K compliant, is being used for the Company's
primary business application at its headquarters and manufacturing facilities.
All of the Company's facilities are currently using the ERP system. The Company
has developed a comprehensive plan to assist all departments and manufacturing
facilities in working towards compliance with Y2K issues for all other systems
beyond those being addressed by the ERP system. The Company has identified and
performed procedures to make compliant those other systems beyond the ERP system
by December 1999. If the Company's systems or the systems of other companies on
whose services the Company depends or with whom the Company's systems interface
are not Y2K compliant, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
Y2K Costs. Total costs for the Company's Y2K compliance efforts are
currently estimated to be approximately $2.8 to $3.2 million. The majority of
these costs relate to the ERP system installations and upgrades of which a
portion have been, and will be, capitalized and depreciated over the estimated
useful life of the associated software and hardware. The remaining costs have
been, and will be, charged directly to expense. Amounts capitalized for the
years ended December 31, 1998 and 1997 were approximately $0.5 million and $1.0
million, respectively. Amounts expensed for the years ended December 31, 1998,
and 1997 were approximately $0.5 million and $0.2 million, respectively. During
the nine months ended September 30, 1999 approximately $0.4 million was charged
to expense and approximately $50,000 was capitalized.
Y2K Risks. The reasonable worst-case scenario for the Company with
respect to the Y2K problem is the failure of a key system or supplier system
that causes shipments of the Company's products to customers to be temporarily
interrupted. This could result in the Company not being able to produce one or
more product lines for a period of time, which in turn could lead to lost sales
and profits for the Company and its customers. The Company is in the process of
conducting a Y2K assessment survey for all of its
12
suppliers and customers. Favorable risk assessments for Y2K compliance have been
received by a majority of the Company's significant suppliers and customers.
Contingency Plans. As a part of the Company's Y2K strategy, contingency
plans have been developed and any systems requiring remediation have one or more
contingency plans. The Company's staff, independent accountants and the Board of
Directors are updated on a regular basis as to the Y2K status. In addition,
supplier site audits, where feasible, have been and will continue to be
performed in 1999. There can be no assurances, however, that these contingency
plans will be effective to eliminate all Y2K risks.
Cautionary Statement on Forward-Looking Statements
This Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks, uncertainties, and other
factors, some of which are beyond the Company's control, and that actual results
may differ materially from those in forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to: (1) general
economic conditions in the markets in which the Company operates, (2) reliance
on key customers and supply contracts, (3) volatility of customer demand (4)
exposure to fluctuations in resin cost and supply, (5) customer outsourcing
decisions, (6) reliance on key manufacturing facilities, (7) the impact of
significant competition from companies of varying sizes including divisions or
subsidiaries of larger companies, (8) risks associated with Y2K issues and
(9) other risks detailed from time to time in the Company's Securities and
Exchange Commission filings. The Company does not intend to update these
forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates.
The Company's primary interest rate risk relates to its long-term debt
obligations. At September 30, 1999, the Company had total long-term obligations,
including the current portion of those obligations, of approximately $90.5
million. Of that amount $81.8 million was in fixed rate obligations and $8.7
million was in variable rate obligations. Assuming a 10% increase in interest
rates on the Company's variable rate obligations (i.e., an increase from the
September 30, 1999 weighted average interest rate of 8.18% to a weighted average
interest rate of 9.0%), interest expense for the nine months ended September 30,
1999 would be approximately $47,000 higher based on the September 30, 1999
outstanding balance of variable rate obligations. The Company has no interest
rate swap or exchange agreements.
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 - Certificate of Incorporation of Precise Intellectual
Property Holdings Company, Inc.
Exhibit 3.2 - By Laws of Precise Technology Intellectual Property
Holdings Company, Inc.
Exhibit 10.1 - License and Royalty Agreement between Precise
Intellectual Property Holdings Company, Inc. and Precise Technology,
Inc.
Exhibit 10.2 - Amended and Restated Second Amendment and Consent to
Credit Agreement as of March 31, 1999, among Precise Holding
Corporation, Precise Technology, Inc., the subsidiary guarantors party
thereto, the lenders party thereto and Fleet National Bank, as agent
and Issuing Bank.
Exhibit 10.3 - Consent and Third Amendment to Credit Agreement as of
September 30, 1999, among Precise Holding Corporation, Precise
Technology, Inc., the subsidiary guarantors party thereto, the lenders
party thereto and Fleet National Bank, as agent and Issuing Bank.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
PRECISE TECHNOLOGY, INC.
(Registrant)
Date November 9, 1999 /s/ John R. Weeks
----------------- --------------------------------------------
John R. Weeks
President and Chief Executive Officer
Date November 9, 1999 /s/ Gregory R. Conley
----------------- --------------------------------------------
Gregory R. Conley
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
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