The story of how one thriving business went bust almost overnight when its biggest client stopped paying.
THE BUSINESS: Custom packager
PRIMARY CAUSE OF DEATH: $2.2 million in unpaid accounts receivable
SECONDARY CAUSE OF DEATH: Relying heavily on one client's business
When it came to packaging, PTP Industries Inc. had success all wrapped up. The Baltimore company enjoyed a dizzying ride after its founding, bursting out of two urban locations and hiring scores of largely unskilled city residents to keep up with rising demand from clients such as Eveready, Procter & Gamble, Revlon, and Seagram.
So in 1993, when PTP--shorthand for Precision Thermoforming & Packaging--threatened to relocate to Norfolk, Va., Maryland's economic-development officials spent $5 million to acquire a derelict Montgomery Ward facility to keep the company--and its 150 jobs--in the state. Then the city and state provided $5 million in loan guarantees for the building's renovations, in exchange for a 15-year lease worth more than $21 million. A year later the federal government included the site in a $100-million program aimed at reinvigorating some of the country's most dilapidated urban areas, giving PTP up to $3,000 in tax credits for every resident of the local "empowerment zone" who was hired. As economic-development incentives go, it was a sure thing.
And PTP, buoyed by ever-increasing work making, assembling, and mailing packages of computer disks to prospective customers of fast-growing America Online, didn't disappoint. It hired more than 300 new employees in Maryland and was still struggling to keep pace with AOL's demand. Sales jumped from $24 million in 1993 to $38 million in 1996; 60% of those revenues were coming from AOL. PTP even opened new facilities in Texas and Nebraska to help fill AOL's anticipated demand.
But early this year AOL, which had directed PTP to produce 170 million packages for the computer disks and mail a portion of them, owed the company $2.2 million--and wasn't paying. PTP was frozen. Almost as quickly as it had risen, the company went out of business.
PTP's lender filed a lawsuit, seeking $2.2 million from AOL after PTP defaulted on a loan. PTP quickly followed with its own court action, seeking $80 million from AOL in a 10-count complaint that includes breach of contract. "I'm certain they thought they could crush us," William Hartley, president and co-owner, said as PTP was closing its doors.
AOL acknowledges that the money to PTP is owed but claims PTP committed fraud by charging for disks that had not been mailed. Both sides maintain they will fight and prove their case in court, probably early next year.
In mid-June, PTP, which never filed for bankruptcy protection, raised $3 million by auctioning off its $6.2 million worth of equipment, two-thirds of which was purchased especially for work it was doing for AOL. The money will only partially pay off creditors, says Stephen W. Egan, PTP's chief financial officer.
The PTP facility now sits vacant. "It's a pretty tragic sight to see what we have here compared with what we had," says Hartley.
PTP INDUSTRIES, William Hartley, 2000 Washington Blvd., Baltimore, MD 21230; 410-727-1828 31