SECURITIES EXCHANGE COMMISSION
WASHINGTON, DC 20549
10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission File No. 1-7215
PEERLESS TUBE COMPANY
New Jersey (State of Jurisdiction) 22-1191280
58-76 LOCUST AVENUE
BLOOMFIELD, NEW JERSEY 07003
TELEPHONE: 973-743-5100
Securities registered pursuant to section 12 (g) of the act:
Title of Class Exchange
-------------- --------
Common stock $1.33-1/3 par value Over the counter (PLSU)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
On March 1, 2000, the aggregate market value of the voting stock held by non
affiliates of the Registrant was approximately $923,615. The market value is
based on the bid price of $ .3750 as of March 1, 2000. Over the last 52 weeks,
actual trades of relatively small amounts of the Company's shares of stock have
ranged in transaction price from $ .1250 - $ .3750.
Common Stock, Par Value $1.33-1/3
Outstanding at March 1, 2000. 2,462,973 shares
Documents incorporated by reference:
Part I and II: Annual Report to Shareholders for the Year Ended December 31,
1999.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 1
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TABLE OF CONTENTS
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Item Page
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Part I. 1 Business 3
2 Properties 6
3 Legal Proceedings 6
4 Submission of Matters to a Vote of Security Holders 6
Part II. 5 Market for the Registrant's Common Stock and Related Stockholder Matters. 8
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8
8 Financial Statements and Supplementary Data 8
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8
Part III. 10 Directors and Executive Officers of the Registrant 9
11 Executive Compensation 9
12 Security Ownership of Certain Beneficial Owners and Management 9
13 Certain Relationships and Related Transactions 9
Part IV. 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 10
Signatures
</TABLE>
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 2
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PART I
ITEM 1: BUSINESS
The Company's primary product shipped in the United States is aluminum aerosol
pressurized cans. The market size is an estimated 3.0 billion units. Major
product groups include personal products, household products, automotive and
industrials, paints and finishes, insect sprays, and food products. Aluminum
containers historically comprise 10% of the aerosol market with personal
products and hair sprays comprising the largest segments.
The tube industry is comprised of plastic, laminate, and metal products. The
major markets are pharmaceutical, dentifrice, cosmetic, and personal care. The
estimated annual tube volume is 2.95 billion units. The metal tube market, which
represents the Company's segment of the market, has become a small part of the
Company's overall sales mix.
The Company does not fill any containers that it manufacturers. The other
product lines mentioned previously are of relatively minor importance, are in a
highly competitive market, and are sold to a small number of specialty
customers.
The industry in which the Company competes is extremely price competitive. The
Company continues to offer a high quality product, meet customer product
demands, and at the same time remain price competitive.
SALES 1997-1999
<TABLE>
<CAPTION>
Description 1999 1998 1997
<S> <C> <C> <C>
Seamless aerosol cans $12,280,000 $14,300,000 $15,152,000
Collapsible metal tubes 1,279,000 782,000 844,000
Miscellaneous 822,000 475,000 292,000
----------- ----------- -----------
Total $14,381,000 $15,557,000 $16,288,000
=========== =========== ===========
</TABLE>
The Company supplies approximately 100 customers including 15-20 major accounts.
In 1999, two customers accounted for 45% (32% and 13%) of the Company's sales.
In 1998, two customers accounted for 60% (48% and 12%) of the Company's sales.
In 1997, sales to two customers accounted for 61% (27% and 34%) of the Company's
sales.
Excess capacity in the industry has had an adverse effect on the Company.
However, steps are currently being taken to implement operational changes and
reduce costs in order to offset the loss in volume.
The current sales backlog of production orders and inventory on hand is slightly
less than last year. This position can change rapidly as customers release new
orders or adjust desired quantities. The Company's production is against firm
orders and subject to firm and final pricing.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 3
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THE MANUFACTURING PROCESS
While production lines for aluminum aerosols and tubes can be dissimilar,
automatic production machinery and equipment perform each of the following steps
in a continuous process:
Extruding the can or tube:
1. Trimming the can or tube to its proper length.
2. Heating and cleaning the can or tube shell.
3. Coating or lining the interior and/or exterior of the shell.
4. Decorating and over lacquering the container.
5. Necking or forming the orifice or shoulders of the can or tube.
6. Packaging the product.
Solid aluminum slugs are first fed through a hopper into an impact extrusion
press 250-400 tons pressure at impact point. Then the containers, now
recognizable as such, are fed by conveyors, during which time a micrometer and
other tests are made periodically to check wall and bottom thickness, into a
trimmer that shears the side wall to correct length. After the container shells
have been trimmed, the containers are conveyed through one or more ovens and
washing tanks. Then they are fed back onto a production line where they are spun
on spindles or other transfer devices, and sprayed with coats of the desired
internal resin liner. To set these resins for maximum resistance to certain
product corrosivity, the containers are preheated and baked in an oven at very
high temperatures (over 500(Degree) F). A vinyl or epoxy-type base coat of the
desired color is then sprayed on the outside of the container. After going
through another drying oven, the containers are positioned for lithography (of
up to six colors) on an offset press and then dried. If specifications call for
a high degree of protection of the container finish against possible marring by
product spray or drip, the containers are then given a coating with an external
clear lacquer, usually of the epoxy type. After final drying, a "rolling"
machine turns the neck inward or outward, so that the lip touches the inside of
the neck to form a continuous interior circumferential bead leaving the mouth
circular. In addition to product compatibility discussed below, this necking
process, plus the seamless construction and the exceptionally high bursting
strength, gives the aerosol its chief selling appeal from a technical
standpoint; while the seamless construction combined with the printing
capability provides the aesthetic appeal and marketability. The finished
products, at a rate of up to 150 per minute, are packed for shipment to the
customer.
Though each container has the same physical characteristics, they may differ
widely as to special features. Selection of internal liners, lithographic print
inks, base coat formulation and external lacquers are all conditioned by the
chemical characteristics of product and propellant and how each reacts with the
other. Also acting to differentiate the containers of one customer from those of
another are the form of product dispersal, the type of metal or plastic overcap,
and possible corrosive characteristics of the valve components intended for a
particular product. The Company obtains samples of all the components after the
custom filler or marketer has achieved product and propellant compatibility, and
parallel tests are conducted to evolve the right liners and coatings to use so
that they fit the particular product. Frequently, the customer changes his
source of supply, and seemingly minor changes may throw out all the formulation
specifications.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 4
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Some of the external coating problems are ameliorated by the use of aluminum,
which has surface especially suited to receive coatings. Aerosol cans contain
99.4% aluminum (or slightly less than metal tubes to impart greater rigidity),
and under a microscope, the aluminum surface looks like a series of raw teeth
which readily pick up high quality coating and inks with good hard adhesive
qualities.
SEGMENT DATA
The Company has one segment of business which is the manufacture of containers,
either aluminum cans or tubes. All of its major product lines are sold to the
same marketer and/or manufacturing industries for highly similar end uses. All
products are fabricated by the extrusion method of forming metal and many
customers are buying all product lines for sale to essentially the same markets.
The products are manufactured under the same roof with overlapping labor forces
and overhead, and on similar machinery.
RAW MATERIALS
The basic raw materials essential to the operation of the Company are aluminum
ingot, paint, ink and paper products for packaging and shipping containers. All
necessary supplies are readily available. The Company has a supply agreement for
aluminum slugs that expires in the year 2000. The Company may terminate this
supply agreement upon thirty days written notice to the buyer provided the
buyer's selling price to the Company is not competitive with market quotes
obtained from at least three other vendors for aluminum.
ENVIRONMENT
The Company is subject to federal, state, and local requirements regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment. It is the Company's policy to comply with these
requirements, and the Company believes that as a general matter its policies,
practices and procedures are properly designed to prevent unreasonable risk of
environmental damage, and of resulting financial liability, in connection with
its business. Some risk of environmental damage is, however, inherent in
particular operations and products of the Company, as is the case with other
companies engaged in similar businesses.
The Company is and has been engaged in handling, manufacture, use or disposal of
several substances, which are classified as hazardous or toxic by one or more
regulatory agencies. The Company believes that its handling, manufacture, use
and disposal of such substances have generally been in accord with environmental
law and regulations. It is possible, however, that future knowledge or other
developments, such as improved capability to detect such substances in the
environment, increasingly strict environmental laws and standards and
enforcement policies thereunder, could bring into question the Company's
handling, manufacture, use, or disposal of such substances.
EMPLOYEES
The Company presently employs approximately 130-150 persons at its facility
located in Bloomfield, New Jersey. The Company is a non-union organization and
management's relationship with its employees is considered excellent.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 5
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ITEM 2: PROPERTIES
The Company's facility is located in Bloomfield, New Jersey.
The land, building, and equipment are pledged as collateral under various loan
agreements with the Company's secured working capital lender, which has a
security interest in substantially all the Company's assets.
The executive, administrative, marketing and engineering offices along with the
manufacturing and warehouse facilities are contained in three (3) buildings, a
total of 261,000 square feet. There is adequate space to expand the operations
if required.
ITEM 3: LEGAL PROCEEDINGS
In January 1998, a jury verdict was rendered against the Company in a lawsuit
filed by a former employee alleging age discrimination and breach of contract.
The amount of damages and attorney's fees awarded to the employee approximated
$638,000. On June 5, 1998, a settlement agreement with the former employee was
reached whereby the Company would pay, over a two year period, a total of
$700,000 including interest, of which $60,000 was paid in 1998. In June 1999, as
part of a further agreement, $600,000 was paid as full and final settlement of
the suit.
There are several other suits arising in the normal course of business. The
Company believes these suits are without merit and is vigorously defending its
position in each suit. Counsel for the Company cannot offer an opinion as to the
probable outcome of such cases.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Shareholders at the annual meeting, expected to be held in September, will
be asked to elect the Board of Directors and ratify the Company's independent
auditors.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 6
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EXECUTIVE OFFICERS OF THE REGISTRANT
Name, position Officer Age Business Background
since
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<S> <C> <C> <C>
Frederic Remington, Chairman of the 1965 70 Elected to the Board of Directors in 1965. Joined the Company
Board, Chief Executive Officer in 1950 after attending Temple University and New Jersey
Institute of Technology, formerly Newark College of
Engineering. Vice President, Operations in 1968, Vice
President, Engineering in 1977, Senior Vice President,
Engineering in 1986 and Chairman of the Board and Chief
Executive Officer in 1989.
Richard W. Potts, President and 1970 63 Elected to the Board of Directors in 1970. Bachelor of
Director Science degree from Rensselaer Polytechnic Institute and a
Masters Degree from Newark College of Engineering (NJIT).
Joined the Company in 1963. Vice President, Manufacturing
since 1968. Senior Vice President, Production in 1986.
President and Chief Operating Officer in 1989. Member of the
Executive Committee of the Board. Ann Gaccione, Secretary 1992
62 Joined the Company in 1978. Secretary, 1978-1988; assistant
corporate secretary, 1989-1991; and executive secretary and
administrative assistant to the Chairman of the Board, 1989 to
present.
</TABLE>
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 7
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Peerless Tube Company Corporation Common Stock is traded over-the-counter.
The Company is traded under the symbol PLSU. There has been a relatively small
number of trades during 1999.
The range of the high and low common stock sale's prices as reported by the NASD
bulletin board over the counter for each of the quarters for the years ended
December 31, 1999, 1998, and 1997 are listed as follows:
QUARTER 1999 1998 1997
- ------------------- ----------------- ---------------- -----------------
1 $0.4400 $0.3125 $0.6250
$0.3750 $0.2600 $0.4375
2 $0.4400 $0.4375 $0.3750
$0.4400 $0.2800 $0.3125
3 $0.6250 $0.2800 $0.5000
$0.5000 $0.1250 $0.3125
4 $0.6600 $0.2500 $0.3750
$0.3750 $0.0625 $0.3000
- ------------------- ----------------- ---------------- -----------------
There were no stock or cash dividends declared or paid since 1989. Under the
Company's loan agreement, the Company is restricted from the payment of
dividends.
The approximate number of record holders of the Company's Common Stock, at
December 31, 1999, was 1,100.
ITEM 6: SELECTED FINANCIAL DATA
The information included under the caption Selected Financial Data Five Years
Ended December 31, 1999 at page 17 of the Company's 1999 Annual Report to
shareholders is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis" at pages 13-16, management section, of
the Company's 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, together with the reports
therein of Goldstein Golub Kessler LLP dated March 1, 2000 appear on pages 1-12,
auditor's section, of the Company's 1999 annual report to shareholders.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on any auditing , accounting or financial disclosure
in 1999.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 8
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information, relating to the directors of the Registrant, as well as information
relating to compliance with section 16(a) of the Securities Exchange Act of 1934
is contained in a definitive Proxy statement primarily involving election of
directors and appointment of independent accountants. The Registrant is
simultaneously filing this document with the Securities and Exchange Commission
pursuant to Regulation 14a, and such information is incorporated by reference.
Certain other information relating to the Executive Officers of the Registrant
appears at page 7 of this Form 10-K Annual Report.
ITEM 11: EXECUTIVE COMPENSATION
Information relating to executive compensation is also contained in the Proxy
statement referred to above in Item 10: Directors and Executive Officers of the
Registrant, and such information is incorporated by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management is also contained in the Proxy statement referred to above in Item
10: Directors and Executive Officers of the Registrant, and such information is
incorporated by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions can be
found in Note 11 to the consolidated financial statements and on page 7,
management section, of the Company's 1999 annual report to stockholders and
incorporated herein by reference.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 9
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ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
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<CAPTION>
Annual Report to
Shareholders
Page
Description
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(1) Consolidated Financial Statements*:
Independent Auditors Report 1
Consolidated Balance Sheets as of December 31, 1999 and 1998 2
Consolidated Statements of Operations and Accumulated Deficit For the Years Ended
December 31, 1999, 1998, and 1997 3
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Notes to the Consolidated Financial Statements 5-12
(2) Consolidated Financial Statement Schedules:
None Required
No reports on Form 8-K were filed during the last quarter covered by this report.
All other documents have been filed and are incorporated by reference.
</TABLE>
* The consolidated financial statement schedules should be read in conjunction
with the Consolidated Financial Statements incorporated by reference in Item 8
of the Form 10-K Annual Report. Schedules other than those listed above have
been omitted because of the absence of the conditions under which they are
required or because information required is shown in the consolidated financial
statements or the notes thereto.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 10
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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.
PEERLESS TUBE COMPANY
Registrant
By:
---------------------------------------
Frederic Remington, Jr.
Chairman of the Board and Chief Executive Officer
By:
---------------------------------------
Richard W. Potts
President and Director
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 11
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OUR VISION We will be one of the leaders in the
packaging industry, successful in
everything we do.
- --------------------------------------------------------------------------------
OUR We will achieve our vision by being a
COMMITMENT Total Quality Company, continuously
improving our processes to satisfy our
internal and external customers.
- --------------------------------------------------------------------------------
OUR VALUES CUSTOMERS - Our first priority is to
satisfy our customers.
PEOPLE - We help our employees improve
their skills, encourage them to take
risks, treat them fairly, and recognize
their accomplishments, asking them to
approach their jobs with passion and
commitment.
TEAMWORK - We build trust and teamwork
with open, candid communications. We
work together and share technologies and
best practices with our suppliers and
customers.
INNOVATION - We accept change as the
rule, not the exception, and drive it by
encouraging creativity.
PERFORMANCE - We encourage the highest
expectations, set ambitious goals, and
quite simply strive to be the best.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 12
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SALES AND RESULTS OF OPERATIONS 1999 COMPARED TO 1998
SALES
Net sales for the year ended December 31, 1999 decreased $1,176,000 or 8% on
sales of $14,381,000 when compared to 1998 net sales of $15,557,000. Aerosol
volume for 1999 was $12,280,000 as compared with sales for 1998 of $14,300,000
or a decrease of 14%. Aluminum tube sales for 1999 were $1,279,000 as compared
with 1998 tube sales of $782,000 or an increase of 64%. Miscellaneous sales for
1999 totaled $822,000 as compared to $475,000 in 1998. The decrease in sales was
a result of a slight decrease in sales to a major customer.
In 1999, the Company's sales to two customers accounted for 45% (32% and 13%) of
the Company's total sales. In 1998, two customers accounted for 60% (48% and
12%) of the Company's sales.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the years ended December 31, 1999 and December 31, 1998 was
$1,242,000 or 8.6% of sales and $303,000 or 2.0% of sales, respectively. This
was primarily the result of lower aluminum costs and reduced factory personnel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
1999 were $1,518,000 or 11% of sales as compared to $1,874,000 or 12% of sales
for the year ended December 1998.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1999 was $335,000 as compared
to $270,000 in 1998.
Other income for the year ended December 31, 1999 was $336,000 as compared to
$1,000 for the year ended December 31, 1998. In February 1999, the Company
received a payment of $321,000 as the result of the final closing of their
pension plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of $421,000 at December 31, 1999.
This was a $1,314,000 increase from the negative working capital of $1,735,000
at December 31, 1998.
Cash at December 31, 1999 was $50,000 or an increase of $35,000 when compared to
the same date in 1998. In order to meet cash requirements during 1999, the
Company went through a refinancing, decreasing its current liabilities by
$1,427,000 and increasing long term debt by $1,064,000.
The Company has a working capital loan secured by the Company's accounts
receivables and inventories.
Management must monitor its cash resources very closely. Operational
improvements, aggressive marketing, and favorable aluminum pricing will be
required in order to improve cash availability.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 13
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SALES AND RESULTS OF OPERATIONS 1998 COMPARED TO 1997
SALES
Net sales for the year ended December 31, 1998 decreased $731,000 or 4% on sales
of $15,557,000 when compared to 1997 net sales of $16,288,000. Aerosol volume
for 1998 was $14,300,000 as compared with sales for 1997 of $15,152,000 or a
decrease of 6%. Aluminum tube sales for 1998 were $782,000 as compared with 1997
tube sales of $844,000 or a decrease of 7%. Miscellaneous sales for 1998 totaled
$475,000 as compared to $292,000 in 1997. The decrease in sales was a result of
a slight decrease in sales to a major customer.
In 1998, the Company's sales to two customers accounted for 60% (48% and 12%) of
the Company's total sales. In 1997, two customers accounted for 61% (34% and
27%) of the Company's sales.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the years ended December 31, 1998 and December 31, 1997 was
$303,000 or 2.0% of sales and $228,000 or 1.0% of sales respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
1998 were $1,874,000 or 12% of sales as compared to $2,778,000 or 17% for the
year ended December 1997.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1998 was $270,000 as compared
to $278,000 in 1997.
Other income for the year ended December 31, 1998 was $1,000 as compared to
$89,000 for the year ended December 31, 1997. Most of the other income in 1997
related to the surrender of life insurance policies.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of ($1,735,000) at December 31, 1998.
This was a $1,582,000 decrease from the working capital of ($153,000) at
December 31, 1997.
Cash at December 31, 1998 was $15,000 or a decrease of $153,000 when compared to
the same date in 1997. In order to meet cash requirements during 1998, the
Company was required to increase its line of credit in order to minimize the
drain in working capital and help in the net repayment of debt. The increase to
the line of credit was $271,000.
The Company has a working capital loan secured by the Company's accounts
receivables and inventories.
Management must monitor its cash resources very closely. Operational
improvements, aggressive marketing, and favorable aluminum pricing will be
required in order to improve cash availability.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 14
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SALES AND RESULTS OF OPERATIONS 1997 COMPARED TO 1996
SALES
Net sales for the year ended December 31, 1997 decreased $7,328,000 or 31% on
sales of $16,288,000 when compared to 1996 net sales of $23,616,000. Aerosol
volume for 1997 was $15,152,000 as compared with sales for 1996 of $17,921,000
or a decrease of 15%. Aluminum tube sales for 1997 was $844,000 as compared with
1996 Tube sales of $5,175,000 or a decrease of 84%. Miscellaneous sales for 1997
totaled $292,000 as compared to $520,000. The decrease in 1997 vs. 1996 in the
aerosol and tube lines was a result of excess capacity in the aerosol markets
and the closing of the Puerto Rico facility.
In 1997, the Company's sales to two customers accounted for 61% (27% and 34%) of
the Company's total sales. In 1996 three customers accounted for 55% (22%, 21%
and 12%) of the Company's sales.
The Company's sales of aluminum aerosols are approximately 93% of the 1997 sales
as compared to 76% in 1996. The mix change is a result of the closing of the
Puerto Rico facility in 1996. The Puerto Rico facility produced solely aluminum
tube product.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the year ended December 31, 1997 and December 31, 1996 was
$228,000 or 1.0% of sales and $2,115,000 or 9.0% of sales respectively. The
decrease in gross margin is primarily due to current excess capacity which the
Company has available. A large part of the Company's costs are "fixed" rather
than variable and the decreased demand for product in 1997 had a sufficient
impact on the Company's ability to absorb the high amount of fixed costs. While
the Company has been successful in reducing costs, it must increase its machine
hour leverage and "value added" hours, in order to be profitable. The Company
must increase its sales level in order to accomplish the above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
1997 were $2,778,000 or 17% of sales as compared to $2,528,000 or 11% for the
year ended December 1996. The increase in SG&A is due to non-recurring legal
expenses.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1997 was $278,000 as compared
to $607,000 in 1996. The decrease of $329,000 was a result of the termination of
the sales/leaseback agreement with the Block Drug Company.
Other income for the year ended December 31, 1997 was $89,000 as compared to
$1,786,000 for the year ended December 31, 1996. The decrease is largely
attributed to the Sale/Leaseback of Puerto Rico being terminated in November
1996. (See note 10, of notes to the Financial Statements).
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 15
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LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of ($153,000) at December 31, 1997.
This was approximately a $72,000 increase from the negative working capital of
($225,000) at December 31, 1996.
Net cash at December 31, 1997 was $190,000 or a decrease of $37,000 when
compared to the same period in 1996. In order to meet cash requirements during
1997, the Company was required to increase its equipment loan in order to
minimize the drain in working capital and help in the net repayment of debt. The
increase to the equipment loan was $552,000.
The debt-equity-ratio at December 31, 1997 was 4:1 as compared to 1.5:1 at
December 31, 1996.
The Company has a working capital loan secured by the Company's accounts
receivables and inventories.
Management must monitor its cash resources very closely. Operational
improvements, aggressive marketing, and favorable aluminum pricing will be
required in order to improve cash availability and management.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 16
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<TABLE>
<CAPTION>
Peerless Tube Company Selected Financial
Data Five Years Ended December 31, 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $14,381,000 $15,557,000 $16,288,000 $23,616,000 $29,793,000
Net income (loss) ($275,000) ($1,840,000) ($2,739,000) $766,000 ($1,775,000)
Weighted average number of shares outstanding 2,462,973 2,462,973 2,462,973 2,462,973 2,462,973
Net income (loss) per share ($0.11) ($0.75) ($1.11) $0.31 ($0.72)
Cash dividends declared $0 $0 $0 $0 $0
Working capital (deficit) ($421,000) ($1,735,000) ($153,000) ($225,000) $31,000
Current ratio .85 .59
Property, plant and equipment - at cost $19,700,000 $19,700,000 $19,700,000 $19,638,000 $24,490,000
Accumulated depreciation $18,282,000 $17,562,000 $16,714,000 $15,514,000 $16,407,000
Property, plant and equipment - net $1,418,000 $2,138,000 $2,986,000 $4,124,000 $8,083,000
Total assets $3,988,000 $4,656,000 $6,429,000 $10,030,000 $15,443,000
Long-term debt $1,715,000 $651,000 $891,000 $484,000 $4,009,000
Total liabilities $4,814,000 $5,207,000 $5,140,000 $6,002,000 $12,181,000
Stockholders equity (deficit) ($826,000) ($551,000) $1,289,000 $4,028,000 $3,262,000
Debt to equity ratio N/A N/A 4.1 1.5 3.7
</TABLE>
*For the year ended December 31, 1996, the net income included a recognized gain
of $1,555,000, net of Puerto Rico capital gains tax, in connection with the
termination of the sale leaseback of the Puerto Rico facility.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 17
<PAGE>
PEERLESS TUBE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
PEERLESS TUBE COMPANY
CONTENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Peerless Tube Company
We have audited the accompanying consolidated balance sheets of Peerless Tube
Company as of December 31, 1999 and 1998, and the related consolidated
statements of operations and accumulated deficit, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peerless Tube
Company as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 of the
notes to consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows and has a stockholders'
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 1, 2000
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(rounded to nearest thousand)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 50,000 $ 15,000
Accounts receivable, less allowance for doubtful
accounts of $100,000 1,373,000 1,184,000
Inventories 919,000 1,233,000
Prepaid expenses and other current assets 63,000 86,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,405,000 2,518,000
Property, Plant and Equipment, net 1,418,000 2,138,000
Deferred Financing Costs 165,000
Deferred Tax Assets, net of valuation allowance of
$5,701,000 and $5,862,000, respectively
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,988,000 $ 4,656,000
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 740,000 $ 2,004,000
Accrued liabilities 595,000 1,145,000
Revolving credit line 1,184,000 868,000
Current portion of long-term debt 307,000 236,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,826,000 4,253,000
Long-term Debt 1,715,000 651,000
Other Liabilities 273,000 303,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,814,000 5,207,000
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Deficiency:
Common stock - $1.33-1/3 par value; authorized
5,000,000 shares; issued 2,536,935 shares 3,382,000 3,382,000
Additional paid-in capital 14,439,000 14,439,000
Accumulated deficit (18,303,000) (18,028,000)
Less 73,962 shares of stock in treasury, at cost (344,000) (344,000)
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY (826,000) (551,000)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 3,988,000 $ 4,656,000
===================================================================================================================================
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(rounded to nearest thousand except per share amounts)
<S> <C> <C> <C>
Net sales $ 14,381,000 $ 15,557,000 $ 16,288,000
Cost of sales 13,139,000 15,254,000 16,060,000
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,242,000 303,000 228,000
Selling, general and administrative expenses 1,518,000 1,874,000 2,778,000
- -----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (276,000) (1,571,000) (2,550,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (335,000) (270,000) (278,000)
Other income, net 336,000 1,000 89,000
- -----------------------------------------------------------------------------------------------------------------------------------
1,000 (269,000) (189,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss (275,000) (1,840,000) (2,739,000)
Accumulated deficit at beginning of year (18,028,000) (16,188,000) (13,449,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated deficit at end of year $(18,303,000) $(18,028,000) $(16,188,000)
===================================================================================================================================
Basic loss per share $ (.11) $ (.75) $ (1.11)
===================================================================================================================================
Weighted-average shares outstanding 2,462,973 2,462,973 2,462,973
===================================================================================================================================
The accompany notes and independent auditor's report shall
be read in conjunction with the consolidated financial statements
3
<PAGE>
PPERLESS TUBE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(rounded to nearest thousand)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (275,000) $(1,840,000) $(2,739,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 735,000 848,000 1,200,000
Pension costs 625,000
Provision for bad debts (110,000) (25,000)
(Increase) decrease in operating assets:
Accounts receivable (189,000) (91,000) 1,237,000
Inventories 314,000 981,000 446,000
Prepaid expenses and other current assets 23,000 (40,000) 95,000
Other assets 10,000 48,000
Increase (decrease) in operating liabilities:
Accounts payable (1,264,000) 14,000 (583,000)
Accrued liabilities (550,000) 378,000 (722,000)
Other liabilities (30,000) (360,000) 593,000
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,236,000) (210,000) 175,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under credit line 316,000 271,000 (522,000)
Proceeds from (reduction of) long-term debt and
current maturities 1,135,000 (236,000) (242,000)
Proceeds from long-term debt 552,000
Payment of deferred financing costs (180,000)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,271,000 35,000 (212,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 35,000 (175,000) (37,000)
Cash at beginning of year 15,000 190,000 227,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 50,000 $ 15,000 $ 190,000
===================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 335,000 $ 270,000 $ 278,000
===================================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Capital lease obligations incurred for acquisition
of property and equipment $ 62,000
===================================================================================================================================
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
4
</TABLE>
<PAGE>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. BUSINESS Peerless Tube Company (the "Company") supplies collapsible
ORGANIZATION metal tubes and seamless aluminum aerosol containers to
AND SIGNIFICANT national marketers primarily in the pharmaceutical,
ACCOUNTING cosmetic and toiletry industries. Manufacturing facilities
POLICIES: are located in Bloomfield, NJ.
The consolidated financial statements of the Company
include the accounts of Peerless and its wholly owned
inactive subsidiary, Peerless Tube Company of Puerto Rico,
Inc. All significant intercompany accounts and transactions
have been eliminated.
Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Depreciation of property, plant and equipment is provided
for by the straight-line and the declining-balance methods
over the estimated useful lives of the related assets.
Property, plant and equipment is stated at the lower of
cost, less accumulated depreciation, or net realizable
value.
Revenue from sales of products is recognized at the date of
shipment to customers.
The Company maintains its cash in bank accounts which, at
times, may exceed federally insured limits. The Company has
not experienced any losses on these accounts.
Basic earnings per share ("EPS") is computed as net
earnings divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares
issuable through stock-based compensation including stock
options, restricted stock awards and warrants. Diluted EPS
is not presented since the effect would be antidilutive.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
The Company reviews long-lived assets and identifiable
intangibles for impairment whenever events or changes in
circumstance indicate that the carrying value of an asset
may not be fully recoverable. The Company performs
nondiscounted cash flow analyses to determine if an
impairment exists.
Impairment losses on assets are determined based on the
present value of cash flows using discount rates which
reflect the inherent risk of the underlying business.
Impairment losses on assets to be disposed of are based on
the estimated proceeds to be received less costs of
disposal.
Statement of Financial Accounting Standards ("SFAS") No.
107, Disclosures About Fair Value of Financial Instruments,
requires management to disclose the estimated fair value of
certain assets and liabilities defined by SFAS No. 107 as
financial instruments. Financial instruments are generally
defined by SFAS No.
5
<PAGE>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
107 as cash, evidence of ownership interest in equity, or a
contractual obligation that both conveys to one entity a
right to receive cash or other financial instruments from
another entity and imposes on the other entity the
obligation to deliver cash or other financial instruments
to the first entity. At December 31, 1999 and 1998,
management believes that the carrying amount of the
revolving credit line approximates fair value because of
the short maturity of this financial instrument. The
carrying value of the Company's long-term debt is
considered to approximate fair value based upon current
borrowing rates offered to the Company.
Costs incurred in 1999 in the amount of approximately
$180,000 in connection with obtaining the borrowings
described in Note 8 have been deferred and are being
amortized over the terms of the borrowing by the
straight-line method. Accumulated amortization at December
31, 1999 is approximately $15,000.
Advertising costs are expensed as incurred. For the years
ended December 31, 1999 and 1998, advertising expense was
$29,000 and $73,000, respectively.
2. BUSINESS AND The accompanying consolidated financial statements have
DEBT been prepared in conformity with generally accepted
RESTRUCTURING: accounting principles, which contemplate continuation of
the Company as a going concern. Since 1988, however, the
Company has suffered recurring losses from operations and
negative cash flows and currently has a stockholders'
deficiency. These conditions raise substantial doubt about
its ability to continue as a going concern.
The Company's management has continually evaluated and
reshaped its business to improve the operational results of
the Company and respond to the changes in the economic and
competitive market in which the Company operates. Major
cost and head count reduction programs previously
implemented focused on reduction of pension and employee
benefits, particularly changes to healthcare benefits.
Except for periodic additions to meet peaks in sales
demand, the Company has reduced its workforce, both
salaried and hourly. Management introduced and implemented
new programs to improve its production, inventory
management and management cost accounting systems.
With the anticipated cooperation of its secured lender and
the additional consolidation of plant assets, management
believes that actions presently being taken to improve the
Company's operating performance including reductions of
staffing levels and stabilization of raw material prices
will provide adequate working capital, help minimize the
financial losses, and create the opportunity for the
Company to continue as a going concern.
6
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3. ALLOWANCE Information relating to the allowance for doubtful accounts is as follows:
Balance at beginning of year $100,000 $ 210,000
Deductions or write-off of uncollectible
accounts receivable (110,000)
----------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $100,000 $ 100,000
================================================================================================================
4. INVENTORIES: Inventories are comprised of the following:
December 31, 1999 1998
----------------------------------------------------------------------------------------------------------------
Raw materials $510,000 $ 648,000
Work-in-process 27,000
Finished goods 409,000 558,000
----------------------------------------------------------------------------------------------------------------
$919,000 $1,233,000
================================================================================================================
5. PROPERTY, Property, plant and equipment is comprised of the following:
PLANT AND
EQUIPMENT: Estimated
December 31, 1999 1998 Useful Life
----------------------------------------------------------------------------------------------------------------
Land $ 462,000 $ 462,000
Buildings and improvements 4,348,000 4,348,000 10 to 45 years
Machinery and equipment 13,276,000 13,276,000 7 to 13 years
Furniture, fixtures and office
equipment 1,614,000 1,614,000 5 to 10 years
----------------------------------------------------------------------------------------------------------------
19,700,000 19,700,000
Less accumulated depreciation
and amortization (18,282,000) (17,562,000)
----------------------------------------------------------------------------------------------------------------
$ 1,418,000 $ 2,138,000
================================================================================================================
Substantially all of the Company's equipment serves as collateral for short- and long-term borrowings
(see Notes 8 and 9).
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6. ACCRUED Accrued liabilities are comprised of the following:
LIABILITIES:
December 31, 1999 1998
----------------------------------------------------------------------------------------------------------------
Payroll, payroll taxes and payroll-related costs $168,000 $ 208,000
Professional fees 145,000 110,000
Deferred revenue 105,000 105,000
Environmental 100,000 100,000
Legal settlement 360,000
All other 77,000 262,000
----------------------------------------------------------------------------------------------------------------
$595,000 $ 1,145,000
================================================================================================================
7. INCOME TAXES: The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities.
Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
December 31, 1999 1998
----------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement benefits other than pensions $ 12,000 $ 8,000
Accrual differences 123,000 385,000
Accounts receivable and inventory valuation
allowances 123,000 123,000
Net operating loss carryforward 5,097,000 5,000,000
Investment tax credit carryforward 346,000 346,000
----------------------------------------------------------------------------------------------------------------
5,701,000 5,862,000
Valuation allowance (5,701,000) (5,862,000)
----------------------------------------------------------------------------------------------------------------
$ - 0 - $ - 0 -
================================================================================================================
At December 31, 1999, the Company had cumulative net operating loss carryforwards of approximately $14,500,000
available to offset future taxable income. These carryforwards will expire in various years through 2014.
At December 31, 1999 and 1998, the Company had investment tax credit carryforwards of approximately $346,000
available to be carried forward to offset future taxes payable. A substantial portion of these carryforwards
will expire in the year 2001.
8. REVOLVING During 1999, the Company terminated its revolving credit facility with an asset-based working capital lender
CREDIT and entered into a refinancing agreement with a major national asset-based lender covering both a new revolving
FACILITY: credit facility and a new term loan. This credit facility expires in July 2006. Borrowings are
8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
based on specified levels of accounts receivable and inventories of the Company and bear interest at the prime
rate (8.5% at December 31, 1999) plus 3% on the outstanding balance. The maximum amount available under the line
of credit is $5,000,000 less the principal balance of the equipment term loan ($2,022,000 at December 31, 1999)
(see Note 9).
Certain of the terms of the revolving credit agreement, as amended, require the pledge of substantially all the
Company's assets as collateral.
Proceeds from these borrowings were used to 1) repay the existing asset-based lender in full; 2) pay the
$600,000 ($640,000 less $40,000 settlement) remaining due from the lawsuit verdict in favor of a former employee
(pursuant to the terms of the settlement agreement, the Company paid $700,000, including interest, to this
former employee over a two-year period. The settlement award was charged to operations in 1998); and 3) to pay
all real estate and other taxes as well as other past due accounts payable.
9. LONG-TERM Long-term debt is comprised of the following:
DEBT:
December 31, 1999 19985
---------------------------------------------------------------------------------------
Equipment term loan payable in monthly
installments of $25,600 plus interest through
July 1, 2006. The loan bears interest at the prime
rate (8.5% at December 31, 1999) plus 3%. $2,022,000 $ 822,000
Various purchase money capital leases for
manufacturing and office equipment, with interest
rates ranging from 11% to 18%. Final payment
made in 1999. 65,000
----------------------------------------------------------------------------------------
2,022,000 887,000
Less current portion (307,000) (236,000)
----------------------------------------------------------------------------------------
LONG-TERM DEBT $1,715,000 $ 651,000
========================================================================================
Maturities of long-term debt are as follows:
Year ending December 31,
2000 $ 307,000
2001 307,000
2002 307,000
2003 307,000
2004 307,000
Thereafter 487,000
----------------------------------------------------------------------------------------
$2,022,000
========================================================================================
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10. RETIREMENT The Company maintained a noncontributory defined benefit plan covering most of its domestic employees. The
PLANS: plan was formally terminated effective August 1, 1997. On or about October 15, 1998, lump-sum payments were
made to the remaining participants in complete settlement of all benefit obligations under the plan. There were
residual assets remaining in the plan subsequent to these lump-sum payments. The overfunded amount, less
termination charges, taxes and other required costs, was not expected to be material and was to revert to the
Company. Therefore, the prepaid cost of $625,000 at the termination date was charged to operations in 1998.
During February 1999, the Company received a final payment of $306,000 for the overfunded amount which has been
reflected in other income at December 31, 1999.
Commencing in 1995, the Company offered a 401(k) retirement savings plan to all nonunion full-time employees who
have completed one year of employment. Employees may contribute a percentage of their gross salaries as defined
in the plan, subject to limits prescribed by the Internal Revenue Service. The Company's contributions are at
the discretion of the board of directors. Participants are fully vested upon entering the plan. Officers of the
Company serve as trustees of the plan. There were no Company contributions for 1999 and approximately $13,000
for 1998.
11. STOCK OPTION In 1992, the Company adopted a stock option plan under which incentive stock options may be granted to officers
PLAN: and key employees to purchase up to a maximum of 250,000 shares of common stock. The options granted to
employees under the plan are to vest and become exercisable at the rate of 25% per year following the grant of
such options provided that certain conditions are satisfied. The stock options are exercisable at a price of not
less than 100%, or 110% in the case of a 10% or greater stockholder, of the market value at date of grant. The
exercise price of options issued is $.52 per share. All options are exercisable over a 10-year period, except
for 10% or greater stockholders, in which case the period is 5 years. Activity in stock options during the years
was as follows:
Weighted-
Average
Exercise Price
Year ended December 31, 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 109,800 124,200 $2.08 $2.50
Granted during the year 150,000 $.52
Expired during the year (109,800) (14,400) 2.50 5.75
----------------------------------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR 150,000 - 0 - 109,800 $.52 $2.08
================================================================================================================
Options exercisable at year-end 37,500 84,800
================================================================================================================
SFAS No. 123, Accounting for Stock-based Compensation, encourages but does not require companies to record
compensation cost for employee stock option grants. The Company has chosen to continue to account for employee
option
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
grants using Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been
recognized for employee stock option grants and the Company has elected to adopt the disclosure provisions only
of SFAS No. 123.
If the Company had elected to recognize compensation cost based on the fair value of the options granted at the
grant date as prescribed by SFAS No. 123, the Company's net loss for the year ended December 31, 1999 would
approximate the pro forma amount indicated below:
Net loss - as reported $(275,000)
Net loss - pro forma $(353,000)
Basic loss per share - as reported $ (.11)
Basic loss per share - pro forma $ (.14)
----------------------------------------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for the year ended December 31, 1999: expected
volatility of 184%, risk-free interest rate of 4.8%, no dividend yield and all options have expected lives of 10
years.
No stock options were granted by the Company during the years ended December 31, 1998 and 1997. Accordingly, no
pro forma disclosures are presented.
12. OTHER POST- The Company provides healthcare and life insurance benefits to certain active and retired employees. The
RETIREMENT Company adopted SFAS No. 106, Employer's Accounting for Post-retirement Beenfits Other Than Pensions. SFAS No.
BENEFITS: 106 requires the Company to accrue the estimated cost of retiree benefit payments during an employee's active
service life. The retiree medical and life insurance programs are not funded. Claims and expenses are paid from
the general assets of the Company. The balance of this accrual is adjusted based on actuarial adjustments and
employment activity during the periods involved. The activity of this liability is as follows:
December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------------------------
Beginning of year $23,000 $23,000 $ 70,000
Adjustment to recognize the cost
of benefits, net 13,000 (47,000)
----------------------------------------------------------------------------------------------------------------
END OF YEAR $36,000 $23,000 $ 23,000
================================================================================================================
13. MAJOR CUS- In 1999, two customers accounted for 45% (32% and 13%) of the Company's sales. In 1998, sales to two customers
TOMERS AND accounted for 60% (48% and 12%) of the Company's sales. In 1997, two customers accounted for 61% (34% and 27%)
CONCENTRA- of the Company's sales.
TION OF CREDIT
RISK:
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
accounts receivable. At December 31, 1999, in management's opinion, there is no significant risk of loss on
these instruments and management believes its allowance for losses are adequate. Two customers accounted for
approximately 47% of net accounts receivable at December 31, 1999.
14. COMMITMENTS At December 31, 1999, the Company had purchase commitments outstanding of approximately $785,700 for raw aluminum
through June 2000. These are substantially offset by firm purchase orders on contracts from customers.
In the ordinary course of business, the Company is a party to various lawsuits, the outcome of which, in the
opinion of management, will not have a material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
The Company is subject to federal, state and local requirements regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment. It is the Company's policy to comply with
these requirements, and the Company believes that as a general matter its policies, practices and procedures are
properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in
connection with its business. Some risk of environmental damage is, however, inherent in particular operations
and products of the Company, as is the case with other companies engaged in similar businesses.
The Company is and has been engaged in the handling, manufacture, use or disposal of several substances which are
classified as hazardous or toxic by one or more regulatory agencies. The Company believes that its handling,
manufacture, use and disposal of such substances have generally been in accord with environmental laws and
regulations. It is possible, however, that future knowledge or other developments, such as improved capability to
detect such substances in the environment, increasingly strict environmental laws and standards and enforcement
policies thereunder, could bring into question the Company's handling, manufacture, use or disposal of such
substances.
The Company has and will continue to incur operating costs for environmental compliance. In connection with the
removal of several underground storage tanks, the Company is monitoring several wells to ensure appropriate
action is taken with respect to any ground water contamination. Future modifications and capital additions to
existing equipment may also be required as regulations are enacted. At the present time, management is unable to
fully estimate the amount of potential expenditures in these areas for future years, but believes the Company has
acted prudently in its environmental practices and responsibilities.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000076958
<NAME> PEERLESS TUBE COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 50,000
<SECURITIES> 0
<RECEIVABLES> 1,473,000
<ALLOWANCES> (100,000)
<INVENTORY> 919,000
<CURRENT-ASSETS> 2,405,000
<PP&E> 19,700,000
<DEPRECIATION> (18,282,000)
<TOTAL-ASSETS> 3,988,000
<CURRENT-LIABILITIES> 2,826,000
<BONDS> 0
0
0
<COMMON> 3,382,000
<OTHER-SE> (4,208,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,988,000
<SALES> 14,381,000
<TOTAL-REVENUES> 14,717,000
<CGS> 13,139,000
<TOTAL-COSTS> 1,518,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335,000
<INCOME-PRETAX> (275,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275,000)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
