<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 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, 1995
Commission file number 1-9403
Portage Industries Corporation
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 39-1150850
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1325 Adams Street, Portage, WI 53901
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (608) 742-7123
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value American Stock Exchange
- - ---------------------------- --------------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
- - -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K /X/
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. X Yes _____ No
Based on the closing price on January 31, 1996, the aggregate market
value of voting stock held by nonaffiliates of the registrant was $13,411,884,
representing 2,235,314 shares assuming, solely for purposes of this
calculation, that "affiliates" includes all Directors and Executive Officers of
registrant.
On January 31, 1996, there were 2,269,100 shares of Common Stock
issued and outstanding.
The Exhibit Index, showing documents incorporated by reference and
documents filed herewith, is located at pages 26-28. (The total number of
pages sequentially numbered is 28.)
1
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Part 1
Item 1. Business
General
The Company was incorporated in Wisconsin in 1971 and reincorporated
in Delaware on December 18, 1986. From January 1983, to April 1987, the
Company was a wholly-owned subsidiary of Composite Container Corporation.
The Company manufactures and markets extruded and coextruded plastic
sheet/rollstock which is sold to customers primarily for use in the manufacture
of a wide range of products, including parts for automotive and recreational
vehicles, farm equipment components, environmental products, lawn and garden
products, agricultural products and home improvement products, and for
packaging of their products, such as meat and dairy products, medical devices
and pharmaceutical products. It also produces thermoformed plastic products
manufactured to customer specifications and for applications in many of the
same areas.
Coextruded plastic sheet is produced by the simultaneous extrusion of
more than one resin into plastic sheets with multiple layers. These multiple
layers, which can be a combination of expensive and less expensive polymers,
can provide a combination of properties, including barriers against moisture,
chemicals, light, oxygen and flavors, and various levels of strength, rigidity,
bulk, economy, thermoformability and printability. These properties allow
packaging made from barrier coextruded plastic sheet to more cost effectively
offer a longer shelf life than monolayer plastic sheet.
All products are currently manufactured at two locations in Portage,
WI and fall under one business segment; the manufacture and thermoforming of
extruded and coextruded plastic sheet/rollstock.
Product Sales
The Company markets its products principally through its own sales
force and manufacturer's representatives.
During 1995 its products were sold to approximately 140 customers,
primarily located within a 500-mile radius of Portage, Wisconsin. The Company
generally does not sell its products under long-term contracts, but rather
manufactures products to order.
Sales to customers, each representing over 10% of the Company's total
net sales, were as follows for the past three years.
2
<PAGE> 3
<TABLE>
<CAPTION>
Customer 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Triangle Plastics, Inc. 20% 17% 23%
American National Can 11% * *
</TABLE>
*Amounts are less than 10% of net sales.
The following table sets forth, for the same years, the approximate
percentage of the Company's sales by end-user industry category:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Packaging 39.0% 37.0% 44.8%
Automotive and recreational vehicles 24.8 16.9 16.7
All Other 36.2 46.1 38.5
</TABLE>
Backlog
The Company's backlog was approximately $4,900,000 at December 31,
1995, compared to $3,800,000 at December 31, 1994. The Company anticipates to
fill these orders in the first quarter of 1996.
Product and Market Development
In the years ended December 31, 1995, 1994, and 1993, the Company
incurred unreimbursed product and market development expenses of approximately
$354,000, $309,000 and $322,000, respectively. The Company also expended small
amounts for customer-sponsored product development in such years.
Competition
The plastic sheet industry is highly competitive in the Company's
market area. Because the Company manufactures a wide variety of products, it
competes in different areas with many other companies, some of which are much
larger and have more extensive production facilities, larger sales and
marketing staffs and/or substantially greater financial resources than the
Company. At least two of the Company's customers have the capability of
extruding plastic and several customers are able to thermoform plastic. In
addition, other companies have the capability of producing and selling
coextruded plastic sheet. In addition to pricing, important competitive
factors in the Company's business are the ability to manufacture and deliver
consistently to required standards for product quality, customer service and
timeliness.
3
<PAGE> 4
Employees
The Company had approximately 165 full-time non-union employees at
January 31, 1996, including officers and administrative personnel.
Raw Materials
The various plastic resins used by the Company in its manufacturing
process are available from a number of domestic suppliers. The Company has
been able to obtain sufficient material to meet its requirements.
Patents and Trademarks
The Company has no patents or trademarks that are material to
its business.
Environmental Matters
The Company is subject to federal, state and local laws and
regulations governing the quantity of certain specified substances that may be
emitted into the air, discharged into interstate and intrastate waters and
otherwise disposed of on and off the properties of the Company. There are no
administrative or judicial proceedings pending or threatened against the
Company alleging violations of such environmental laws or regulations.
No liability for environmental matters have been recorded, in as much
as Portage is not designated as a PRP nor is management aware of any other
environmental loss contingencies that would require recording such a liability
or disclosure in the financial statements or Form 10- K. During 1993, 1994 and
1995, Portage has not made any capital expenditures for environmental control
nor are any such capital expenditures planned during 1996. Amounts expensed
for environmental control activities during the past three years have been de
minimis. Portage knows of no material environmental clean-up costs that may be
necessary upon the disposal or at the end of the useful life of any equipment,
facilities or other assets.
Item 2. Properties
The Company's manufacturing facilities, warehouses, and executive
offices are all located in Portage, Wisconsin. The primary manufacturing
facility is a 105,000 square foot one-story, company owned industrial building.
The executive offices are located directly across the street in a company owned
one-story, 10,000 square foot office building. The Company leases two
one-story facilities containing a total of 66,000 square feet of which
one-third is used for manufacturing and two-thirds for storage. The Company's
existing facilities are believed adequate to meet the necessary capacity
requirements for the foreseeable future.
Item 3. Legal Proceedings
No pending material proceedings.
4
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of security holders during the
fourth quarter of 1995.
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock, $.01 par value, ("Common Stock"), is
traded on the American Stock Exchange. The Company has not paid any dividends
since its initial public offering, and presently intends to retain all future
earnings to finance its business.
The Company is also subject to certain restrictive covenants under a
Letter of Credit Reimbursement Agreement supporting the outstanding balance of
an Industrial Revenue Bond. Dividend distributions may be effectively
restricted as a result of the covenants. See Note 3 of the Notes to Financial
Statements.
The following table represents the high and low sales price of the
Common Stock for each quarter in 1994 and 1995:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
3/31/94 $4 3/4 $3 3/8
6/30/94 4 1/8 3 3/8
9/30/94 3 7/16 2 7/8
12/31/94 2 13/16 2 5/16
3/31/95 3 1/4 2 9/16
6/30/95 3 2 5/8
9/30/95 2 5/16 2 11/16
12/31/95 4 1/4 2 1/4
</TABLE>
At January 31, 1996, there were approximately 1,100 shareholders of
record of the Common Stock.
5
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $35,569 $31,973 $30,617 $24,623 $24,059
Net Income (Loss) $ 481 $ 664 $ 561 $ (320) $ (612)
(A)
Earnings (Loss)
Per Share $ .21 $ .29 $ .25 $ (.14) $ (.27)
Weighted Average
Shares Outstanding 2,269 2,264 2,258 2,250 2,233
Current Assets $ 7,036 $ 6,804 $ 6,082 $ 5,853 $ 5,521
Total Assets $15,236 $15,401 $15,454 $16,076 $16,126
Current Liabilities $ 5,832 $ 5,924 $ 6,341 $ 6,867 $ 5,768
Long Term Debt $ 1,700 $ 2,250 $ 2,575 $ 3,350 $ 4,100
Stockholders' Equity $ 7,498 $ 7,012 $ 6,301 $ 5,724 $ 6,021
</TABLE>
(A) Includes the effect of adoption of SFAS No. 109.
6
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
1995 vs. 1994
Net sales increased in 1995 by $3,596,000 or 11.2% over 1994 to
$35,569,000. This increase is primarily due to a 315 percent increase in net
sales from light gauge thermoforming and a shift in product mix within extruded
products from products which use lower cost materials, to products that use
higher priced raw materials resulting in increased sales dollars. Fourth
quarter sales of $9,752,000 were 11% higher than fourth quarter 1994 sales,
primarily due to increased sales in the food and medical packaging industries.
During the past three years, the Company has been non-cyclical in
nature due primarily to the additional business obtained in the medical and
food packaging industries.
The Company had an 18% reduction in material processed during 1995 as
compared to 1994. This decline is primarily due to the Company's continued
effort in extruded products to move from high volume markets, which typically
carry lower margins, to select niche markets, which typically carry higher
margins.
The Company's gross profit margin decreased from 13.1% in 1994 to
11.4% in 1995. This decrease is primarily due to the development costs of new
projects undertaken at the request of two customers in 1995. These projects
fall into the Company's strategic niche marketing efforts, and the Company
anticipates these projects will benefit the Company in 1996 and future years.
Gross profit for the fourth quarter 1995 was 11% versus 13.1% for the
same period 1994. The decrease was primarily due to increased sales in certain
low margin food packaging industries during the last quarter of 1995.
Selling, general and administrative expenses increased by $366,000 to
$2,979,000. This increase is primarily due to increased expenses for
uncollectable receivables, legal fees and costs associated with the Board of
Directors' review of the Company's operations and strategic alternatives,
including the retention of a financial advisor to assist the Board of Directors
in its review.
Interest and other expenses decreased $233,000 or 49% for 1995. This
decline was the result of the Company refinancing its Industrial Revenue Bond
in May of 1994 with more favorable interest rates and the reduction in the
Company's line of credit borrowing.
Net income declined $183,000 or 27.6% from $664,000 in 1994 to
$481,000 in 1995 due to the above mentioned reasons.
7
<PAGE> 8
1994 vs. 1993
Net sales increased in 1994 by $1,356,000, or 4.4% over 1993, to
$31,973,000. This increase is primarily attributable to increased sales of
extruded sheet and rollstock to both new and existing customers and due to the
rising price of raw materials for which the majority of the increases were
passed on to our customers except as noted below. The Company's average
selling price per pound, which fluctuates with the cost of resins, decreased in
1994 by approximately 13% even though the cost of raw material increased. The
decrease in selling price is primarily attributable to product mix and due to
the toll processing of approximately 10,000,000 pounds of customers' raw
material, of which the sales dollars reflect conversion sales only. Total
pounds of finished product produced in 1994 were 18% higher than in 1993.
Traditionally, the Company experiences a softening of sales during its
first and fourth quarters as a result of the cyclical nature of its customer
base. During 1994, the Company continued to pursue business in the
non-cyclical industries such as the medical and food packaging industries which
helped contribute to the strong fourth quarter. Fourth quarter sales of
$8,808,000 were 11% higher than fourth quarter 1993 sales.
In 1994, the Company's gross profit margin increased to 13.1% from
12.3% in 1993. This increase was the result of a better mix of higher margin
business, reduced scrap rates and improved efficiencies achieved through higher
volume production runs. Increases in the cost of resins had a negative impact
on gross margin percentage due to the short notice and frequency of the
increases. Accordingly, not all price increases could be passed on to
customers at the time the price increases went into effect. The cost of resin
continues to rise in 1995. The Company currently has been, and anticipates it
will be able to pass these increases on to its customers.
Selling, general and administrative expenses increased by $70,000 to
$2,613,000, which primarily related to commissions on increased sales during
1994. As a percentage of sales, selling, general and administrative expenses
showed a slight decrease in 1994 as compared to 1993. The Company incurred
unreimbursed product and market development expenses of $309,000 in 1994 as
compared to $322,000 in 1993.
Interest expense declined from $492,000 in 1993 to $287,000 in 1994 as
a result of lower average long-term debt outstanding, reduced utilization of
the line of credit, and by the refinancing of the Company's $3,350,000
Industrial Revenue Bond.
On May 17, 1994, the Company refinanced $3,350,000 of its 1987 Series
of Industrial Revenue Bonds. Of the $198,000 of other expenses, approximately
$157,000 represents issue costs and other expenses related to refinancing the
1987 Series Bonds.
On June 1, 1993, the Company sold equipment relating to its heavy
gauge thermoforming operations. The sale of this equipment, together with
other sales of underutilized assets, generated $583,000 in cash and $275,000 in
gains during 1993.
As a result of the Companys continued efficiencies and cost control
measures, net income rose $103,000 from $561,000 in 1993 to $664,000 in 1994.
8
<PAGE> 9
Liquidity and Capital Resources
The Company continues to strengthen due to its third consecutive year
of profitability. The current ratio at December 31, 1995 was 1.21 to 1.0 as
compared to 1.15 to 1.0 at December 31, 1994. The Company improved its funded
debt-to equity ratio from .51 to 1.0 at the end of 1994 to .37 to 1.0 at the
end of 1995.
Cash provided by operations was $1,733,000 in 1995, an increase of
$732,000 from 1994. As sales increased in 1995, receivables remained
consistant with 1994. Extended payment terms with certain vendors on accounts
payable were the primary reasons for the increase in cash provided by operating
activities.
Accounts receivable, which were $3,065,000 at December 31, 1995, and
$3,026,000 at December 31, 1994, represents 25 days sales outstanding in 1995
and 26 days in 1994. Sales are generally made with 30-day terms, and the
Company has stressed the importance of effective credit and collection
procedures. During 1995, inventories increased $97,000 due to mix change;
however, inventories decreased 26% in pounds compared to 1994.
The level of capital expenditures, which has been financed by cash
flow from operations, was $834,000 in 1995. During 1995, the Company purchased
its corporate office facility and certain contents for $420,000 as required by
the lease agreement relating to the facility. Capital expenditures in 1996 are
expected to be about $700,000, and are to be funded through operating cash
flows.
On May 17, 1994, the Company refinanced the remaining $3,350,000
balance of its 1987 Series of Industrial Revenue Bond obligation to take
advantage of lower interest rates and to extend the maturity schedule. On
November 1, 1995, the revenue bond obligation was reduced by a principal amount
of $550,000, with the remaining $2,250,000 balance payable over the next four
years. In addition, the Company's borrowings under its $1.5 million line of
credit was reduced to $500,000 at December 31, 1995, from $800,000 at December
31, 1994.
On January 23, 1996, the Company entered into a letter of intent with
Spartech Corporation to be acquired by Spartech for a price of $6.60 in cash
per share of the Company's common stock. The acquisition will take the form of
a cash merger between the Company and a subsidiary of Spartech. Subject to
regulatory and other approvals, the transaction is expected to close on or
about May 1, 1996.
The Company has not paid dividends since becoming publicly-held in
1987. At the present time management does not expect to pay dividends in the
foreseeable future, as earnings will be reinvested in the business. Also, as
discussed in Note 3 of Notes to Financial Statements, a letter of credit
agreement, to which the Company is a party supporting the industrial revenue
bonds, contains certain financial covenants which may effectively restrict the
payment of dividends. (See Note 3 of Notes to Financial Statements.)
Item 8. Financial Statements and Supplementary Data
(See Next Page)
9
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Portage Industries Corporation
We have audited the accompanying balance sheets of Portage Industries
Corporation as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Portage Industries Corporation
as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Milwaukee, Wisconsin
January 30, 1996
10
<PAGE> 11
PORTAGE INDUSTRIES CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 186 $ 137
Accounts receivable, less $15 and $40 allowance for
doubtful accounts in 1995 and 1994, respectively 3,065 3,026
Inventories 3,456 3,359
Other 329 282
---------- ----------
Total current assets 7,036 6,804
Property, plant and equipment:
Land 186 163
Building and improvements 2,858 2,425
Machinery and equipment 9,547 9,189
Furniture and office equipment 350 330
Leasehold improvements 245 245
---------- ----------
13,186 12,352
Less accumulated depreciation 7,897 6,793
---------- ----------
Property, plant and equipment, net 5,289 5,559
Goodwill, net 2,825 2,929
Other 86 109
---------- ----------
Total assets $ 15,236 $ 15,401
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 500 $ 800
Current maturities of long-term debt 550 550
Accounts payable 4,221 3,906
Accrued expenses:
Compensation 181 304
Other 222 161
Deferred income taxes 158 203
---------- ----------
Total current liabilities 5,832 5,924
Long-term debt, net of current maturities 1,700 2,250
Deferred income taxes 206 215
Stockholders' equity:
Preferred stock, $.25 par value, 1,000,000 shares authorized;
none issued - -
Common stock, $.01 par value, 10,000,000 shares authorized;
2,269,100 and 2,266,725 for 1995 and 1994 shares issued and
outstanding, respectively 23 23
Additional paid-in capital 7,894 7,889
Accumulated deficit (419) (900)
---------- ----------
Total stockholders' equity 7,498 7,012
---------- ----------
Total liabilities and stockholders' equity $ 15,236 $ 15,401
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 12
PORTAGE INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 35,569 $ 31,973 $ 30,617
Cost of goods sold 31,525 27,770 26,840
---------- ---------- ----------
Gross profit 4,044 4,203 3,777
Selling, general and administrative expenses 2,979 2,613 2,543
---------- ---------- ----------
Income from operations 1,065 1,590 1,234
---------- ---------- ----------
Other income (expenses):
Interest expense (220) (287) (492)
Gain on sale of equipment - 8 275
Other, net (24) (198) (50)
---------- ---------- ----------
(244) (477) (267)
---------- ---------- ----------
Income before income taxes 821 1,113 967
Income taxes (340) (449) (406)
---------- ---------- ----------
Net income $ 481 $ 664 $ 561
========== ========== ==========
Net income per common share $ 0.21 $ 0.29 $ 0.25
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 13
PORTAGE INDUSTRIES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993 2,250,475 $ 23 $ 7,826 $ (2,125) $ 5,724
Issuance of shares 10,000 - 16 - 16
Net income - - - 561 561
------------ --------- ---------- ----------- -------------
Balances at December 31, 1993 2,260,475 23 7,842 (1,564) 6,301
Exercise of stock options 6,250 - 47 - 47
Net income - - - 664 664
------------ --------- ---------- ----------- -------------
Balances at December 31, 1994 2,266,725 23 7,889 (900) 7,012
Exercise of stock options 2,375 - 5 - 5
Net income - - - 481 481
------------ --------- ---------- ----------- --------------
Balances at December 31, 1995 2,269,100 $ 23 $ 7,894 $ (419) $ 7,498
============ ========= ========== =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
PORTAGE INDUSTRIES CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 481 $ 664 $ 561
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,104 1,075 1,069
Gain on disposals of equipment - (8) (275)
Amortization of goodwill 104 104 104
Deferred income taxes (54) 84 199
Effects of changes in certain assets and liabilities:
Accounts receivable (39) (775) (299)
Inventories (97) (42) 5
Refundable income taxes - - 67
Accounts payable 315 115 (439)
Accrued expenses (57) (166) 107
Other (24) (50) 104
---------- ---------- ----------
Net cash provided by operating activities 1,733 1,001 1,203
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (834) (406) (480)
Proceeds from disposals of equipment - 18 583
---------- ---------- ----------
Net cash (used in) provided by
investing activities (834) (388) 103
---------- ---------- ----------
Cash flows from financing activities:
Payments on long-term debt (550) (550) (750)
Decrease in short-term borrowings (300) (200) (300)
---------- ---------- ----------
Net cash used in financing activities (850) (750) (1,050)
---------- ---------- ----------
Net increase (decrease) 49 (137) 256
Cash and cash equivalents:
Beginning of year 137 274 18
---------- ---------- ----------
End of year $ 186 $ 137 $ 274
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company manufactures and sells extruded plastic sheet and
rollstock and thermoformed plastic products for a wide variety of
customer applications. The Company's customers are principally in the
food processing or packaging, medical, automotive, recreational
vehicle or other industrial markets.
The Company prepares its financial statements in conformity with
generally accepted accounting principles, which require management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, and expenses during the periods
presented. They also affect the disclosures of contingencies. Actual
results could differ from those estimates.
The following is a summary of significant accounting policies followed
by the Company in the preparation of its financial statements.
A. CONCENTRATION OF CREDIT RISK: Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of trade accounts receivable. The Company
provides credit in the normal course of business to its customers.
These customers are located in the Midwestern region of the United
States. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses and
generally does not require collateral to support the accounts
receivable balances.
In each of the years 1995, 1994 and 1993, the Company had sales to
customers which exceeded ten percent of net sales as follows: two
customers, $3,871,000 and $6,993,000 of sales in 1995; one
customer, $5,387,000 of sales in 1994, and one customer,
$7,031,000 of sales in 1993.
B. INVENTORIES: Inventories are stated at the lower of cost or
market, with cost determined on the last-in, first-out (LIFO)
method.
C. PROPERTY, PLANT AND EQUIPMENT: These assets are stated at cost,
less depreciation determined on the straight-line method over
their estimated useful lives. Betterments that extend the life of
the asset are capitalized; other repairs and maintenance are
expensed. The cost and accumulated depreciation applicable to
assets retired are removed from the accounts and the gain or loss
on disposition is recognized in income.
D. GOODWILL: Goodwill is amortized on the straight-line method over
40 years. Accumulated amortization is $1,308,000 and $1,204,000
at December 31, 1995 and 1994, respectively. Management
periodically considers the reasonably anticipated future
undiscounted cash flows from operations in assessing the
recoverability of goodwill.
15
<PAGE> 16
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
E. INCOME TAXES: Deferred income tax liabilities and assets are
recognized for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Under this method, deferred income tax liabilities and assets are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.
F. REVENUE RECOGNITION: Revenue generally is recognized by the
Company when goods are shipped.
G. RESEARCH AND PRODUCT DEVELOPMENT COSTS: Research and product
development costs related to potential new products and
applications are expensed when incurred. These costs totaled
$354,000, $309,000 and $322,000 for 1995, 1994 and 1993,
respectively.
H. NET INCOME PER SHARE: Net income per share is determined based on
the weighted average number of common shares outstanding during
the period (2,268,506 in 1995, 2,264,225 in 1994 and 2,257,975 in
1993). Dilution that could result from the exercise of stock
options is not material.
2. INVENTORIES:
Inventories consist of the following December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials $ 1,898 $ 2,402
Finished goods and work-in-process 1,873 1,207
---------- ----------
3,771 3,609
Excess of current cost over LIFO cost (315) (250)
---------- ----------
$ 3,456 $ 3,359
========== ==========
</TABLE>
16
<PAGE> 17
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. DEBT:
Long-term debt consists of Industrial Revenue Bonds with a floating
interest rate of 5.35% and 5.75% at December 31, 1995 and 1994,
respectively. The terms of the Industrial Revenue Bonds require the
Company to maintain a letter of credit which includes covenants
requiring, among other things, the Company to refrain from paying
dividends, and to maintain, among other financial covenants, certain
current ratios and certain levels of tangible net worth.
Future scheduled maturities of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1996 $ 550
1997 550
1998 550
1999 600
----------
$ 2,250
==========
</TABLE>
Short-term borrowings at December 31, 1995 and 1994 consist of amounts
outstanding under a $1.5 million demand line of credit with interest
at .5% over the bank's reference rate (totaling 9.25% at December 31,
1995). The maximum allowable borrowings under the line of credit may
not exceed 75% of eligible accounts receivable.
Substantially all assets of the Company are pledged as collateral for
its borrowings.
4. EMPLOYEE BENEFITS:
The Company maintains a profit sharing plan for the benefit of
substantially all employees. Contributions are determined at the
Board of Directors' discretion. The plan also entitles participants
to make voluntary contributions under Sec. 401(k) of the Internal
Revenue Code. The Company may, at its discretion, make a matching
contribution for management and nonmanagement personnel equal to a
percentage of the participant's voluntary contributions. The Company
did not make discretionary profit sharing contributions in 1995, 1994
or 1993, and the Company's matching 401(k) contributions in those
years were insignificant.
5. STOCK OPTIONS AND WARRANTS:
In 1986, the Company established a stock option plan (1986 Plan) for
the purpose of granting incentive and nonqualified stock options to
officers and other key employees for the purchase of 140,000 common
shares in the aggregate. The option price for incentive options is
equal to the market value on the date of grant, while the option price
for nonqualified options is established by the Board. All other terms
of the options, which have a maximum duration of 10 years, are set at
the Board's discretion. All options under the 1986 Plan were granted
prior to 1990.
17
<PAGE> 18
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. STOCK OPTIONS AND WARRANTS, CONTINUED:
In 1990, the Company established another stock option plan (1990
Plan), to be administered by the Compensation Committee of the Board
of Directors, for the same purpose as the 1986 Plan. The setting of
the option price and other terms of the options are consistent with
the 1986 Plan. The total common shares which may be purchased
pursuant to the exercise of 1990 Plan options is 110,000. As of
December 31, 1995, shares available for granting of options under the
1990 Plan totaled 32,500.
The following is a summary of stock option transactions under the
plans:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding, beginning of year 62,925 36,175 45,625
Granted 56,000 33,000 5,000
Exercised ($1.88 to $2.70 per share) (2,375) (6,250) -
Cancelled (1,000) - (14,450)
---------- ---------- ----------
Outstanding, end of year;
($1.88 to $3.75 per share) 115,550 62,925 36,175
========== ========== ==========
Exercisable, end of year;
($1.88 to $3.75 per share) 115,550 62,925 33,342
========== ========== ==========
</TABLE>
In addition, a warrant exists which allows the holder to acquire up to
137,500 common shares at $4.50 per share, exercisable through April 9,
1996.
6. INCOME TAXES:
Income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current - Federal $ 394 $ 365 $ 207
Deferred - Federal (54) 84 199
---------- ---------- ----------
$ 340 $ 449 $ 406
========== ========== ==========
</TABLE>
Differences between the Federal statutory income tax rates and the
Company's effective tax rates are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 34.0%
Goodwill amortization 4.3 3.2 3.7
Other, net 3.1 3.1 4.2
---------- ---------- ----------
Effective income tax rate 41.4% 40.3% 41.9%
========== ========== ==========
</TABLE>
18
<PAGE> 19
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED:
For state income tax purposes, a manufacturer's sales tax credit
carryforward of $70,000 exists which expires in varying amounts in the
years 2004-2009.
The components of the net deferred tax liability as of December 31,
1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued compensation $ 47 $ 52
Accounts receivable 6 16
State credit carryforwards 47 66
---------- ----------
100 134
---------- ----------
Deferred tax liabilities:
Property, plant and equipment 230 318
Inventories 234 234
---------- ----------
464 552
---------- ----------
Net deferred income tax liability $ 364 $ 418
========== ==========
</TABLE>
7. LEASE COMMITMENTS:
The Company is obligated under operating leases for two outside
warehouses and certain items of equipment. Generally, the Company
pays taxes, insurance and other expenses related to the leased
property. Future minimum rentals under the noncancellable operating
leases currently in effect are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 114
1997 95
1998 78
1999 63
2000 63
Thereafter 100
----------
$ 513
==========
</TABLE>
Rent expense during 1995, 1994 and 1993 was $116,000, $342,000 and
$395,000, respectively.
19
<PAGE> 20
PORTAGE INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest $ 220 $ 380 $ 512
========== ========== ==========
Income taxes $ 303 $ 293 $ 43
========== ========== ==========
</TABLE>
Noncash financing and investing transactions were as follows:
- In connection with the exercise of stock options for 2,375 common
shares in 1995, a related compensation cost of $4,429 was
transferred to additional paid-in capital.
- In 1993, the Company accepted $176,000 of tooling as payment for one
customer's outstanding trade receivable balance.
- In 1993, the Company issued 10,000 shares of common stock to an
officer as additional compensation (recorded at $16,000) for
services rendered during the past two years. This compensation had
been accrued at December 31, 1992.
9. SUBSEQUENT EVENTS:
On January 23, 1996, the Company's Board of Directors approved the
sale of all shares of outstanding common stock to Spartech Corporation
for a cash purchase price of $6.60 per share.
20
<PAGE> 21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Pursuant to general instruction G-3, the information required by Part
3 will be filed with the Commission not later than 120 days after the end of
the Company's fiscal year.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, PORTAGE INDUSTRIES CORPORATION has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:
PORTAGE INDUSTRIES CORPORATION
By Anthony J. Lisauskas By Mark E. Showers
---------------------------- -------------------------------
Anthony J. Lisauskas Mark E. Showers
President Controller/Secretary/Treasurer
(Chief Executive Officer) (Chief Fin. & Acctng. Officer)
Date: February 21, 1996 Date: February 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Robert L. Lestina, Jr. Date: February 21, 1996
- - -------------------------------
Robert L. Lestina, Jr.
Director
Robert C. Hazzard Date: February 21, 1996
- - -------------------------------
Robert C. Hazzard
Director
Anthony J. Lisauskas Date: February 21, 1996
- - -------------------------------
Anthony J. Lisauskas
Director
Paul N. Erickson Date: February 21, 1996
- - -------------------------------
Paul N. Erickson
Director
22
<PAGE> 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<S> <C>
(a) (1) The following financial statements are included Page
in Part II, Item 8: Numbers
Report of Independent Accountants 10
Financial Statements:
Balance Sheets - December 31, 1995 and 1994 11
Statements of Operations - Years Ended
December 31, 1995, 1994 and 1993 12
Statements of Stockholders' Equity - Years Ended
December 31, 1995, 1994 and 1993 13
Statements of Cash Flows - Years Ended
December 31, 1995, 1994 and 1993 14
Notes to Financial Statements 15 - 20
(2) The following financial statement schedules for
the years 1995, 1994 and 1993 are submitted herewith:
Report of Independent Accountants on Schedules 24
Schedule II - Valuation and Qualifying Accounts 25
(3) Exhibits required by Item 601 of Regulation S-K:
Reference is made to the Exhibit Index contained
on pages 26-28 hereof.
(b) No Current Reports on Form 8-K were filed during
the fourth quarter of 1995.
(c) Exhibits
Reference is made to the Exhibit Index contained
on pages 26-28 hereof.
(d) Financial Statement Schedules
Reference is made to the financial statement
schedules contained on pages 24-25 hereof.
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Portage Industries Corporation
Our report on the financial statements of Portage Industries Corporation as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, is included on page 10 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 23 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand, L.L.P.
Milwaukee, Wisconsin
January 30, 1996
24
<PAGE> 25
PORTAGE INDUSTRIES CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
________
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance
Beginning Costs and (1) at End
Description of Year Expenses Deductions of Year
----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Allowance for doubt-
ful accounts:
1995 $ 40 $ 82 $ 107 $ 15
1994 40 9 9 40
1993 40 16 16 40
</TABLE>
(1) Represents accounts charged off, net of recoveries.
25
<PAGE> 26
PORTAGE INDUSTRIES CORPORATION
Index to Exhibits
<TABLE>
<CAPTION>
Page No.'s
<S> <C> <C>
3.1 Certificate of Incorporation. (1)
3.2-1 Certificate of Amendment to Certificate of Incorporation. (1)
10.1 1986 Stock Option Plan. (1)
10.1-1 1990 Stock Option Plan. (2)
10.4 Form of Technology and Patent Assignment and License Agreement between
the Company and Composite Container Corporation. (1)
10.6 Lease between the Company and Norman O. Sauey, Jr., dated as of
January 18, 1983. (1)
10.6-1 First Amendment to the Lease agreement between Norman O. Sauey, Jr.
and Portage Industries. (3)
10.8-1 Lease between the Company and Robert A. Mael Airways, dated
August 1, 1987. (4)
10.8-2 First amendment to the Lease agreement between Robert A. Mael
Airways and Portage Industries Corporation, dated August 1, 1992. (5)
10.11-1 Form of Warrant to purchase Common Stock issued to John Becker. (6)
10.12 Employment agreement between Mr. Lisauskas and Portage Industries
dated August 12, 1991. (3)
10.13 Trust Indenture between Registrant and Firstar Trust Company securing
$3,350,000 City of Portage, Wisconsin Adjustable Rate Industrial Development
Revenue Refunding Bonds, Series 1994 (Portage Industries Corporation Project)
dated as of May 1, 1994 (7)
10.14 Loan Agreement between Registrant and City of Portage, Wisconsin relating to
$3,350,000 City of Portage, Wisconsin Adjustable Rate Industrial Development
Revenue Refunding Bonds, Series 1994 (Portage Industries Corporation Project) (7)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
10.15 Reimbursement Agreement dated as of May 16, 1994 between Bank One
Milwaukee, N.A. and Registrant (7)
10.16 Pledge and Security Agreement dated May 1, 1994 between Registrant
and Bank One Milwaukee, N.A. (7)
10.17 Remarketing Agreement dated as of May 1, 1994 between Registrant and
Bank One, Columbus, N.A. relating to $3,350,000 City of Portage,
Wisconsin Adjustable Rate Industrial Development Revenue Refunding
Bonds, Series 1994 (Portage Industries Corporation Project)
(7)
10.18 Defeasance Agreement between City of Portage, Wisconsin, Firstar Trust
Company and Registrant, dated as of May 1, 1994 relating to $7,000,000
City of Portage, Wisconsin Industrial Revenue Bonds (Portage Industries
Corporation Project) (7)
10.19 Bond Placement Agreement dated as of May 16, 1994 between Registrant,
City of Portage, Wisconsin and Bank One Columbus, N.A. (7)
</TABLE>
27
<PAGE> 28
FOOTNOTES
<TABLE>
<S> <C>
(1) Incorporated by reference to Exhibits filed with Registrant's Form S-1 Registration Statement Reg. No. 22-10971.
(2) Incorporated by reference to Exhibits filed with Registrant's Proxy Statement for its 1990 Annual Meeting of
Stockholders.
(3) Incorporated by reference to Exhibits filed with Registrant's Annual Report on Form 10-K for the year ended December
31, 1991, as amended.
(4) Incorporated by reference to Exhibits filed with Registrant's Annual Report on Form 10-K for the year ended December
31, 1989.
(5) Incorporated by reference to Exhibits filed with Registrant's Annual Report on Form 10-K for the year ended December
31, 1992.
(6) Incorporated by reference to Exhibits filed with Registrant's Annual Report on Form 10-K for the year ended December
31, 1990.
(7) Incorporated by reference to Exhibits filed with Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 3,065
<ALLOWANCES> 0
<INVENTORY> 3,456
<CURRENT-ASSETS> 7,036
<PP&E> 13,186
<DEPRECIATION> 7,897
<TOTAL-ASSETS> 15,236
<CURRENT-LIABILITIES> 5,832
<BONDS> 1,700
0
0
<COMMON> 23
<OTHER-SE> 7,475
<TOTAL-LIABILITY-AND-EQUITY> 15,236
<SALES> 35,569
<TOTAL-REVENUES> 35,569
<CGS> 31,525
<TOTAL-COSTS> 31,525
<OTHER-EXPENSES> 3,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220
<INCOME-PRETAX> 821
<INCOME-TAX> 340
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
