<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________.
COMMISSION FILE NUMBER 0-30067
PVC CONTAINER CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2616435
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(STATE OF OTHER JURISDICTION OF IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER
401 Industrial Way West, Eatontown, New Jersey 07724
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (908) 542-0060
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
<S> <C>
None None
</TABLE>
Cover Page 1 of 2 Pages
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the average bid and asked prices of such stock as of
September 13, 1996, was $6,808,304.
The number of shares outstanding of the registrant's only class of common stock,
as of the latest practicable date, is as follows:
<TABLE>
<CAPTION>
Class Outstanding as of September 13, 1996
----- ------------------------------------
<S> <C>
Common Stock, $.01 par value 6,964,705
</TABLE>
EXHIBIT INDEX is located at Page 20
Cover Page 2 of 2 Pages
<PAGE> 3
PART I
Item 1. Description of Business.
General. PVC Container Corporation (the "Company") was
incorporated in Delaware on June 14, 1968. The Company's major business activity
consists of the manufacture and sale of a line of plastic bottles made from
polyvinyl chloride ("PVC") compounds and high-density polyethylene ("HDPE")
resins. Some of the HDPE bottles are fluorinated to improve the chemical
resistance and barrier properties of the containers manufactured by the
Company's wholly-owned subsidiary known as Airopak Corporation. These bottles
("plastic bottles") are used primarily for the packaging of cosmetics,
toiletries, foods, household chemicals lawn and garden and industrial chemical
products.
PVC compounds are used by the Company or sold to other plastic
bottle manufacturers for the production of plastic bottles which compete with
those produced by the Company. These PVC compounds are sold through the
Company's wholly-owned subsidiary, Novatec Plastics & Chemicals Company, Inc.
("Novatec"). During the last several years, the Company has made some progress
in its efforts to diversify its PVC compound business. For example, the Company
recently developed and began to sell several categories of specialty PVC
compounds for non-bottle applications ("specialty compounds") including extruded
profiles for window frames and accessories, furniture, molding and other indoor
fixtures, and a variety of injection molded electrical and electronic housings
(the "Company's targeted markets'"). Sales of specialty compounds have been
encouraging, although no assurance can be given as to their ultimate market
acceptance.
The Company operates its business in one industry segment.
Accordingly, no information is being furnished herein or in the accompanying
financial statements relating to industry segments of the Company. The Company
has not identified in its annual reports to shareholders revenue and income
relating to lines of business because the Company believes it has been engaged
since its inception in one dominant line of business consisting of the
manufacture and sale of plastic containers and compounds used in the manufacture
of containers.
Sales. The Company's plastic bottles are sold primarily to
manufacturers of toiletries and cosmetics, food, household chemicals, lawn and
garden and industrial chemical products, private label manufacturers of similar
products, and bottle distributors who sell to such manufacturers. PVC compounds
are sold to the Company and to other manufacturers of plastic bottles, and a
small but increasing amount of specialty compounds are sold to a diverse range
of manufacturers of other products. A limited amount of the Company's total
sales is made through commission sales representatives. During the fiscal year
ended June 30, 1996, no one customer accounted for 10% or more of the Company's
net sales.
Sales of the Company's plastic bottles and PVC bottle
compounds have accounted for most of the Company's net income; sales of
specialty compounds to non-bottle customers have accounted for the remainder of
the Company's net income. Plastic bottles are offered in food grade and non-food
grade materials, fluorinated or non-fluorinated, in clear and opaque colors and
in a range of sizes from one ounce to two and one-half gallons. The Company
produces plastic bottles utilizing its own molds, in proprietary designs ("stock
bottles") which are of its own design and also
<PAGE> 4
produces on a contractual basis plastic bottles in molds owned by the customer,
utilizing their designs and specifications ("custom bottles").
Sales of plastic bottles are generally a "regional" business.
The majority of the Company's customers are within a 300 mile radius of the
Company's respective plastic bottle manufacturing plants. Freight costs prohibit
shipping plastic bottles long distances due to their bulky nature, except for
specialty bottles of a unique design or fluorinated containers that are not
available from local manufacturers. In contrast, the Company's PVC compounds
which are sold in the form of plastic pellets and are denser than plastic
bottles can be shipped throughout the continental United States and Canada, and
tend to be less regional and more of a "national" business.
The Company's business is usually characterized by low
customer demand during the months of July and August and the last half of
December due to shutdowns of buyers' plants during those periods.
Manufacturing Operations. The Company uses extrusion blow
molding equipment to manufacture its PVC plastic bottles. The same equipment is
also used to manufacture fluorinated and non-fluorinated plastic bottles from
HDPE and can also be used with some modifications, to process bottles from other
blow molding polymers, including polypropylene, glycol-modified polyethylene
terephthalate ("PETG") and some new extrusion grade polyethylene terephathalate
resins ("EPET") which are presently semi-commercial. The equipment is not
suitable, however to the manufacture of bottles made from injection stretch blow
molding grades of polyethylene terephthalate ("PET") which is becoming an
increasing threat to the Company in high-volume bottle markets. In this
connection during June 1996, the Company acquired technology to manufacture
injection stretch blow molded PET bottles. The Company plans to utilize this PET
capability as both a defensive as well as a growth strategy by seeking new
packaging opportunities that require PET bottles. See "Competition and
Marketing".
The Company operates facilities in Eatontown, New Jersey,
Paris, Illinois and Manchester, Pennsylvania for the manufacturing of plastic
bottles. In August 1989, the Company relocated its existing plastic bottle
business from a leased facility in Eatontown, New Jersey to a newly constructed
plant, also in Eatontown, New Jersey, owned by the Company. This new facility
provided the Company with additional space needed to support manufacturing in
efficiencies and capacity. In April 1993, the Company commenced operations in a
new facility, located in Paris, Illinois which was added to support growth of
the Company's midwest bottle business. On August 4, 1994, the Company acquired
from Air Products and Chemicals Inc., through its recently incorporated
wholly-owned subsidiary known as Airopak Corporation the assets of a specialty
container business. The business is conducted from leased facilities located in
Manchester, Pennsylvania, and relates to the manufacture and sale of AIROPAK(R)
fluorinated HDPE containers. The assets of the business consist of equipment,
machinery and inventory used in connection with the manufacturing of such
containers. A description of the Company's plastic bottle facilities is set
forth below in item 2 entitled "Properties".
The Company manufactures plastic compounds utilizing a two
stage process consisting of mixing a powder blend of various resins and other
ingredients in an intensive mixer, and subsequently melting the powder in a
compounding extrusion system for pelletizing the final plastic compound
products. Three compounding lines are located in a separate facility in
Eatontown, New Jersey, which began operations during October 1982. The Company
will continue to purchase small
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<PAGE> 5
amounts of PVC bottle compounds produced by others for use in the manufacturing
of plastic bottles where customers specify a competing material. The capacity of
the Company's PVC compounding facility is more than adequate to supply the
Company's current requirements for PVC compound. The Company uses its excess PVC
compounding capacity to produce PVC bottle compounds and specialty compounds for
sale to other plastic processors of PVC bottles and other targeted markets. A
description of the Company's compound facility is set forth below in Item 2
entitled "Properties".
The Company is the only manufacturer of plastic bottles that
is vertically integrated in the manufacturing of PVC bottle compounds. The
Company uses its ability to produce specialized plastic bottle compounds to
enhance its technology as a specialty blow molder of plastic bottles. Although
there are derived marketing advantages resulting from this unique integration,
the economic advantage the Company previously enjoyed as a manufacturer of both
plastic bottles and PVC compounds has greatly diminished, because of intense
competition in the supply of PVC bottle compounds.
Raw Materials. Since the Company completed and opened its PVC
compounding facility in 1982, the Company has manufactured for its own use most
of the PVC compounds used by it in the manufacture of plastic bottles. PVC
compounds are the principal raw material used in connection with manufacturing
such plastic bottles. The major ingredients used to manufacture such PVC
compounds are PVC resins (approximately 85%) and MBS
(methacrylate-butadiene-styrene) impact modifiers (approximately 12%). The
balance of such ingredients includes heat stabilizers, lubricants, processing
aids, and toners (pigments), which materials are readily available from various
suppliers.
A shortage of petroleum, should it develop, would have an
effect on the availability and the cost of the raw materials used by the Company
in connection with its business. Moreover, certain grades of PVC resins used in
the manufacture of the Company's PVC compounds are made by a limited number of
domestic suppliers of PVC resin. The availability and price of such PVC resins
have a direct effect on the business of the Company. Although sufficient PVC
resin and HDPE are currently available for the Company's operations, no
assurance can be given that adequate supply of plastic resins will be available
to the Company in the future. During the first six months of the fiscal year
ended June 30, 1996 PVC and HDPE resin prices declined dramatically, then
stabilized and have subsequently increased steadily through the fiscal year
ended June 30, 1996. The Company has been able to recover the cost of the resin
price increase by increasing the sales price of its plastic bottles. Higher
prices for PVC resins as well as HDPE are the result of the supply/demand of
plastic resins and ethylene becoming in balance or in tight supply due to the
improving world wide economy and the lack of new polymer resin capacity being
built in time to support growth of these plastic resins. See "Competition &
Marketing" below.
Inventory. Depending upon the level of demand and scheduling
requirements for the Company's products, the Company maintains on average 4-6
weeks of plastic bottles finished goods inventory and approximately 2-3 weeks of
plastic compound finished goods inventory. From time to time, depending upon the
prices and availability of raw materials (principally PVC resins), the Company
will pre-buy or increase inventory of raw materials from a normal 2-3 week
supply to up to a 2 month supply, in order to offset anticipated price
increases. During peak sales periods, it is sometimes necessary to store
inventory of the Company's products and raw materials in outside warehousing.
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<PAGE> 6
Backlog. The backlog of unfilled orders of the Company as at
June 30, 1996 was approximately $5,000,000; the backlog of unfilled orders as at
June 30, 1995 was approximately $4,400,000. The Company expects that
substantially all of the backlog as at June 30, 1996 will be filled within the
fiscal year ending June 30, 1997.
Competition and Marketing. The Company believes it is one of
approximately thirty manufacturers of plastic bottles in the United States, one
of at least five manufacturers of PVC bottle compounds and one of at least five
manufacturers of specialty compounds for use in the Company's targeted markets.
The dominant manufacturers of plastic bottles are Owens-Brockway, Inc. and
Silgan Corp. The dominant manufacturers of PVC bottle compounds and PVC
specialty compounds are Occidental Chemical Corporation, Geon, Inc., and Georgia
Gulf Corporation. The Company's sales volume, production capacity, and
consumption of PVC resin are small compared to its competitors. The Company's
major PVC compound competitors are large, integrated petrochemical companies
with greater financial resources than the Company, many of which also
manufacture PVC resin.
The Company principally competes in the plastic bottle market
on the basis of quality, customer service and product design. The Company
believes it produces a relatively high quality product in a timely manner in
accordance with customer specifications and requirements, with a high level of
customer service, and believes that this constitutes one of the primary areas in
which the Company can compete with others in the same industry.
The Company sometimes purchases its supply of PVC resin from
its PVC compound competitors. This has, at times, caused the Company to have
difficulty obtaining adequate supplies of PVC resin and has permitted its
competitors to increase PVC resin costs charged to the Company, which has
resulted in reduced profit margins on PVC bottle compound; profit margins on PVC
specialty compounds remain stronger because the Company faces less price
competition.
The market for PVC bottles and PVC bottle compounds has
declined somewhat during the past several years due to industry concern of PVC
based packaging's ability to cope with solid waste issues. (See item entitled
"Environmental Issues.") Industry demand for PVC bottles and compounds is,
however, currently stable. The demand for PVC specialty compounds for use in the
Company's targeted markets is experiencing modest growth which is higher than
that of PVC bottle compounds. Competition in the area of PVC bottle compounds
will remain intense during the foreseeable future because of excess PVC bottle
compound manufacturing capacity and because PVC bottle compound buyers are
increasingly concerned about price and less concerned about quality and service.
In this respect, PVC bottle compound resembles a commodity business. This trend
may inhibit the Company from further expanding its share of the PVC bottle
compound market.
In response to these pressures in the PVC bottle compound
market, the Company is continuing in its effort to develop specialty compounds
for a diverse range of targeted markets. The Company believes that these
specialty compound markets will be less sensitive to wide swings in the cost of
PVC resin and may be more influenced by the performance, quality, and service
which is characteristic of a specialty type business. In particular, the Company
is marketing injection molding PVC compound for use in the communications,
electronics and appliance markets and extrusion compounds for use in window
frames, indoor furniture and other specialty "profile" markets.
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<PAGE> 7
The Company believes its technical, marketing and
manufacturing capability is equal to that of its major competitors in the
plastic bottle market in its region, particularly in the toiletry, cosmetic and
household chemical product segments, and believes its technical and marketing
ability is equal to that of its major competitors in the PVC compound markets in
its region; its manufacturing capability for the PVC compound markets is limited
by its lack of a facility to produce PVC resin.
A shortage of labor and higher cost of living in New Jersey
has caused the Company to increase the hourly wages it pays employees at its New
Jersey bottle manufacturing plant and has caused it to experience increased
turnover. This trend has resulted in some difficulty in hiring and retaining
labor for work on swing shifts, weekends and holidays. Since the Company's
business is labor-intensive, the Company believes it will eventually need to
increase automation of its operation, but in the near term may face a
disadvantage relative to competitors in areas with a larger labor pool. The
Company has been able, however, to offset this condition by expanding and
shifting a portion of its business to its lower cost facility located in Paris,
Illinois. The Company has recently announced the construction of a new plastic
bottle facility in Walterboro, South Carolina which facility will become
operational during October 1996, and as a result also contribute to making the
Company more cost competitive. See "Properties".
The Company lacks the ability to apply some types of
decorations (such as silk screen printing and hot stamped foils) to plastic
bottles, unlike many leading plastic bottle manufacturers with which it
competes. As a result, the Company must ship its plastic bottles to and from
subcontractors at added freight expense to perform this work. The Company
realizes a small profit by charging a premium for subcontracted decoration.
During April 1990 the Company installed a new Therimage decorating line for the
high speed application of heat transfer labels to plastic bottles. This
represented the Company's first entry in decorating activity which has resulted
in added value to the Company's products. During May 1992, the Company started
up its second Therimage decorating line to support additional demand for this
type of decorated bottle. However, the Company believes it will eventually need
to develop additional capabilities to decorate plastic bottles, and in the near
term may face a slight disadvantage relative to some competitors who have
greater decorating capabilities compared to the Company.
PVC competes with PET and PETG as a material for use in the
manufacture of transparent plastic bottles. Manufacturers of bottles made of PET
have captured a portion of the edible oil, household chemical and medicinal
segments of the plastic bottle market from PVC bottle manufacturers. Because the
price of PET bottles becomes competitive on high volume orders of custom bottles
(i.e., orders of more than approximately 5 million to 10 millions units), there
is a substantial risk that customers who have large custom bottle requirements
may increasingly consider using PET bottles instead of PVC bottles. However,
because most of the Company's custom bottle business consists of low or
mid-range volume orders, the Company's custom bottle business has been less
vulnerable to PET. However, recently several stock PET containers of similar
shape and size to some of the Company's PVC stock bottles are becoming more
prevalent in the Company's markets. Although injection PET tooling is
considerably more expensive than PVC extrusion tooling, some components of PET
molds and tooling can be shared over several custom or stock designs thereby
reducing the higher tooling/mold intensity associated with the injection based
PET stock and custom bottle business. Additionally, some plastic bottle buyers
have recently turned to PETG because they believe it is an environmentally safer
alternative to PVC bottles, notwithstanding PETG's 30-50% higher resin price as
compared to PVC compound. The Company has the ability to manufacture PETG
bottles by modifying its equipment, and recently the Company has manufactured
and sold
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<PAGE> 8
PETG bottles. Also, several new grades of EPET resins (lower cost than PETG)
have recently been introduced that potentially could displace PVC in some bottle
applications. Although there have been limited commercial successes to date, the
Company has been successful in manufacturing several designs of plastic bottles
using EPET on its existing equipment. As indicated above, under "Manufacturing
Operations", the Company purchased during June 1996 equipment and technology to
manufacture injection stretch blow molded PET containers. This new capacity
allows the Company to compete for PET bottle applications in the plastic bottle
market. See "Environmental Regulation" below.
Research and Development. The Company spent approximately
$252,000 during the past fiscal year ended June 30, 1996 and approximately
$414,000 during the preceding two fiscal years ended June 30, 1994 on research
activities relating to the development of new designs of containers and the
production of compounds. The major thrust of the Company's research and
development efforts is currently in the area of new PVC compound development.
Environmental Regulation. The Company does not believe that
compliance with federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of material into the environment, or
otherwise relating to the protection of the environment, has had or will have
any material effect upon the capital expenditures, earnings or competitive
position of the Company. However, the future of PVC as a material for packaging
foods has been dampened by the Food and Drug Administration's ("FDA's")
unwillingness to implement standards with regard to levels of residual vinyl
chloride monomer ("VCM") acceptable for food packaging. Although the FDA's
proposed levels of VCM are expected to be easily attainable by the Company's
industry, the FDA has been precluded from issuing the standards by the
Environmental Protection Agency ("EPA"). The EPA is insisting that a new
environmental impact statement be developed prior to promulgating new standards.
The EPA's concern is that the adoption of the FDA's new regulations will
stimulate additional demand for PVC bottles and, hence, add to the PVC in the
waste stream. The Society of Plastics Industry ("SPI"), and Vinyl Institute
("VI") which represent the PVC industry on this issue, estimates that it will
take several years to complete an acceptable environmental impact statement.
In addition, as it is now a supplier of a primary raw
material, the Company may have to comply with existing regulations promulgated
by the EPA with respect to the emission of VCM into the environment and
regulations promulgated by the Occupational Safety and Health Administration
regarding material safety.
Additionally, solid waste disposal and mandatory recycling
have become a major environmental issue with respect to plastic packaging in
general. Concerns over the incineration of PVC compounds, which allegedly result
in hydrochloric acid and dioxin emissions, have also recently been voiced.
Further, the state and national concern over disposal of solid waste has
resulted in several states proposing bans of certain plastics including PVC
packaging materials. Thus far, however, no bans have been implemented that would
affect PVC as a packaging material. The SPI and VI have effectively lobbied
state legislatures which have enacted legislation supporting the recycling of
plastics. The Company is currently implementing a program that is mandatory in
certain states of placing a recycling code on the bottom of most bottles 8
ounces in capacity or larger. The Company believes, however, that the threat of
further regulatory actions inhibiting the future growth of PVC as a viable
packaging material will be minimal, although no assurances can be given that
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<PAGE> 9
further regulatory, or the threat of further regulatory action would not have a
negative affect on the Company's business.
Employees. As at June 30, 1996, the Company employed a total
of 294 people at its Eatontown facilities, of whom 30 are in executive,
administrative and clerical positions, 13 are engaged in sales activities and
251 are engaged in general manufacturing. The Company employed 101 people at its
new Paris, Illinois Facility as at June 30, 1995. The Company renewed its
collective bargaining agreement with Local 108 of the Retail, Wholesale and
Department Store Union, AFL-CIO, effective September 1, 1994 through August 31,
1997. As at June 30, 1996 Airopak Corporation's employed 71 people. The Company
considers its relations with its work force and the union to be good.
Financial Information about Foreign and
Domestic Operations and Export Sales
The Company had export sales of $5,229,000 during the fiscal
year ended June 30, 1996. Net sales to the northeast of the United States
amounted to $22,406,000 during such fiscal year; net sales to the Midwest
amounted to $18,645,000 net sales to the southeast amounted to $7,221,000; and
net sales to other domestic regions amounted to $3,715,000 during such fiscal
year.
Item 2. Properties.
The Company's manufacturing activities with respect to its
continuing businesses are conducted at the seven facilities described in the
following table:
<TABLE>
<CAPTION>
Building Area
Location(7) Purpose of Facility (square feet)
- ----------- ------------------- -------------
<S> <C> <C>
Eatontown, New Jersey Plastic Bottle Plant and 136,998(1)
warehousing and Office
Eatontown, New Jersey Plastic Bottle Warehouse and 22,500(2)
property rental
Eatontown, New Jersey Plastic Compounding Plant and 50,162(3)
warehousing and Office
Manchester, Pennsylvania Airopak Corporation Plant and 69,140(4)
warehousing
Manchester, Pennsylvania Airopak Corporation 25,000(5)
warehousing
Paris, Illinois Plastic bottles Plant and 62,500(6)
warehousing and office
Walterboro, S.C. Plastic bottle Plants 61,430(7)
warehousing and office
</TABLE>
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1. The Eatontown bottle plant manufacturing facility is
located at 401 Industrial Way West, Eatontown, New Jersey on 8.1 acres of real
property owned by the Company. The Company's principal executive offices are
also located at this location. The building is constructed from concrete panels,
and was completed in June 1989. In connection with the construction and
acquisition of certain equipment for this facility, the Company obtained
financing through the NJEDA. During June 1996 the Company completed the
construction of an additional 34,000 sq. foot warehouse and manufacturing space.
This expansion was financed by the Company through its revolving credit facility
at Fleet Bank N.A. as at June 30, 1996. On September 6, 1996 the Company
obtained additional financing in the amount of $1,200,000. See Note 5 to the
Notes to the Consolidated Financial Statements below.
2. During October 1991, the Company purchased an existing
22,500 square foot concrete building, located at 435 Industrial Way West,
Eatontown, New Jersey, situated on 4.0 acres of land adjacent to the Company's
plastic bottle facility. A portion of this building is being used as warehousing
for the Company's plastic bottles and the remaining space is leased to an
outside tenant. Financing for the acquisition of this property was obtained from
Fleet Bank NA. On July 16, 1996 the Company sold this property for cash in the
amount of $1,200,000. See Note 11 to the Notes to the Consolidated Financial
Statements below.
3. The Company's PVC Compounding manufacturing facility is
located at 275 Industrial Way West, Eatontown, New Jersey on 5.5 acres of real
property owned by the Company. It contains manufacturing, R&D, warehouse, and
administrative offices and is constructed from steel and concrete panels. In
March 1994, the Company completed the construction of an additional 21,000
square feet of warehouse and refinanced the facility with a new term Note and
mortgage from National Westminster Bank, NJ. See Note 5 to the Notes to the
Consolidated Financial Statements below.
4. As described in the section entitled "Manufacturing
Operations" the Company acquired a business located in Manchester, Pennsylvania.
The facilities in Manchester are leased and consist of a manufacturing and
warehouse facility in a steel building having a total of 69,140 square feet.
5. Airopak corporation also leases 25,000 square feet of
separate warehouse space also in a steel building. The aggregate annual rental
payable with respect to the manufacturing and warehouse space for the Airopak
Corporation detailed above and in Item 4 is $320,136 plus real estate taxes,
utilities and certain other charges payable under net leases which expire on
April 30, 1998 with respect to the manufacturing facility and April 30, 1998
with respect to the warehouse facility. It is believed that these facilities are
large enough to allow for future growth of the business conducted at these
facilities.
6. The Company commenced operations during April, 1993 in a
new 62,500 square foot concrete plastic bottle manufacturing facility located in
Paris, Illinois. The Company owns this facility and twenty acres of land on
which it is located. Financing for this facility was obtained from the Edgar
County Bank, the City of Paris, Illinois and the Illinois Small Business
Development Agency. See Note 5 to the Notes to the Consolidated Financial
Statements below.
7. As indicated above under "Competition and Marketing", the
Company is in the Process of the construction of a new plastic bottle located in
Walterboro, South Carolina consisting initially of 61,430 square feet. It is
anticipated that the facility will become operational during October 1996.
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<PAGE> 11
Item 3. Legal Proceedings.
There are no material pending legal proceedings which in the
opinion of management will adversely affect the business or financial condition
of the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
No matters were submitted to a vote of securityholders of the
Company during the fiscal year ended June 30, 1996.
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<PAGE> 12
PART II
Item 5. Market for Registrant's Common Stock
and Related Securityholder Matters.
The principal market in which the Company's common stock is
traded is the over-the-counter market. The closing bid quotation on September
13, 1996 was $3.12. The shares of common stock currently are quoted on NASDAQ
and bear the symbol "PVCC." The high bid and low asked quotations during the
fiscal years ended June 30, 1996 and June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1996
High Bid Low Asked
<S> <C> <C>
1st Quarter $2.875 $3.125
2nd Quarter 2.375 2.625
3rd Quarter 2.875 3.125
4th Quarter 2.375 2.625
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1995
High Bid Low Asked
<S> <C> <C>
1st Quarter $1.75 $1.87
2nd Quarter 2.00 2.12
3rd Quarter 2.12 2.25
4th Quarter 3.00 3.12
</TABLE>
As at September 13, 1996, the number of holders of record of
the issued and outstanding common stock of the Company was approximately 689.
The Company on December 20, 1991 paid to shareholders its
first dividend of $.05 per share of common stock, and a second, third and fourth
dividend in the same amount was paid on December 18, 1992 December 8, 1993 and
January 18, 1995. The Company declared on January 29, 1996 a stock dividend in
the amount of 3% per share and a total of 202,817 shares were paid on February
26, 1996 to shareholders in connection with this dividend. The Company declared
on August 29, 1996 a cash dividend of $.05 per share payable on September 20,
1996 to shareholders of record as of the close of business on September 13,
1996.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------------
SELECTED INCOME 1996 1995 1994 1993 1992
STATEMENT DATA: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $57,216,317 $53,886,103 $38,352,843 $37,036,068 $34,011,098
----------- ----------- ----------- ----------- -----------
Income from operations $ 4,950,200 $ 3,556,095 $ 1,535,767 $ 2,587,080 $ 2,681,523
----------- ----------- ----------- ----------- -----------
Net Income $ 2,552,570 $ 1,610,665 $ 647,260 $ 1,398,453 $ 1,280,385
----------- ----------- ----------- ----------- -----------
Earnings per share:*
Weighted average shares
outstanding* 6,964,705 6,964,730 6,931,256 6,905,683 6,777,523
--------- ---------- ---------- ----------- -----------
Income from operations $ .71 $ .51 $ .22 $ .37 $ .40
----------- ----------- ----------- ----------- -----------
Net Income $ .37 $ .23 $ .09 $ .20 $ .19
----------- ----------- ----------- ----------- -----------
Cash dividends per share $ - $ .05 $ .05 $ .05 $ .05
Stock dividends per share $ .08 $ - $ - $ - $ -
SELECTED BALANCE
SHEET DATA
Current assets $19,274,008 $16,605,173 $14,716,364 $13,931,064 $10,255,858
Current Liabilities $12,299,121 $10,655,197 $10,084,651 $ 9,598,949 $ 5,698,869
----------- ----------- ----------- ----------- -----------
Working capital $ 6,974,887 $ 5,949,976 $ 4,631,713 $ 4,332,115 $ 4,556,989
Total assets $44,181,871 $34,158,390 $32,159,249 $30,597,507 $22,360,608
Noncurrent liabilities $17,196,372 $11,369,189 $11,213,163 $10,596,293 $ 7,391,868
Stockholders' equity $14,686,378 $12,134,004 $10,861,435 $10,402,265 $ 9,269,871
</TABLE>
* Earnings per share calculations are based on the weighted average number of
shares of common stock and common stock equivalents outstanding.
Retroactively restated for the 3% stock dividend paid on February 26, 1996
to shareholders of records on February 9, 1996.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
The Company's net sales for the fiscal year ended June 30,
1996 reached a record level of $57,216,000, increasing by approximately 6.2%
over the 1995 amount of $53,886,000. The increase in revenues was the result of
improvements in all areas of the Company's business. Plastic bottle sales and
PVC compound sales all showed some modest growth during the fiscal year.
-11-
<PAGE> 14
Gross profit as a percentage of net sales was 21.6% for the
fiscal year ended June 30, 1996, compared to 19.0% for the fiscal year ended
June 30, 1995. The cost of goods sold increased approximately $1,218,000 to a
level of $44,839,000, or 78.4% of net sales for the fiscal year as compared to
$43,621,000, or 81.0% of net sales for the prior fiscal year. The major reasons
for the improvement in the gross profit margin and decrease in cost of goods
sold as a percentage of net sales was the fluctuating PVC and HDPE resin prices
that saw a steep decline in the first six months of the fiscal year, and then a
slow steady increase in the second half of the fiscal year, which were, however,
offset with some product price increases that have raised margins to a healthier
level than historically achieved in prior years. Additionally, the Company
experienced higher operating capacity utilization during the fiscal year
compared to the prior year, which also improved plant efficiency and operating
margins.
Selling, general and administrative expenses ("SG&A) was
$4,505,000, or 7.9% of net sales for the fiscal year ended June 30, 1996 as
compared to $3,996,000, or 7.4% of net sales for the fiscal year ended June 30,
1995, representing a 12.8% increase over the same period last year. The increase
in SG&A was due in part to higher office incentive compensation, which is
proportionate to higher pretax income, increased workers compensation insurance
expense, due to a larger number of claims experience from prior years, as well
as some additional consulting expenses related to the Company's reengineering of
its operations and management information systems.
Income from operations for the fiscal year ended June 30, 1996
increased 39.2% to $4,950,000, or 8.7% of net sales as compared to $3,556,000,
or 6.6% of net sales for fiscal 1995. Higher operating income was the result of
increased sales volume across the entire Company's product mix, lower raw
material costs, and higher operating utilization in the Company's manufacturing
plants. The Company's share of the operating loss in the Edge Craft USA joint
venture was $108,000.
Net interest expense decreased $101,000 during the fiscal year
ended June 30, 1996, as compared to fiscal 1995. Lower interest expenses reflect
lower interest payments on several capital lease arrangements which were
completed during 1996, where payments of principal accounted for an increasing
portion of the payment as opposed to interest. Additionally, the overall
interest rates on the Company's financing from EDA loans decreased, reflecting
lower bond yields in fiscal 1996 compared to fiscal 1995.
Net income for the year ended June 30, 1996 increased 58.5% or
approximately $942,000 to $2,553,000, or $.37 per share as compared to
$1,611,000 or $.23 per share for fiscal 1995. The increase is due to the higher
gross profit from operations for fiscal 1996 compared to fiscal 1995.
FISCAL 1995 AS COMPARED TO FISCAL 1994
The Company's net sales for the fiscal year ended June 30,
1995 of $53,886,000 increased by approximately 40.5% over the 1994 amount of
$38,353,000. The increase in sales was the result of a general increase in the
demand for plastic bottles and compounds throughout the Company's lines of
business, in addition to the added sales from the Company's newly acquired,
wholly-owned subsidiary, Airopak Corporation.
-12-
<PAGE> 15
The cost of goods sold increased approximately 39.9% to a
level of $43,621,000, or 81.0% of net sales for the fiscal year ended June 30,
1995 as compared to $31,187,000, or 81.3% of net sales for the fiscal year ended
June 30, 1994. The increase in cost of goods sold was primarily due to higher
units sales volume and increased resin costs. Depreciation expense increased by
approximately $276,000 for the year ended June 30, 1995, as compared to the
prior period. The increase was primarily the result of the added depreciation
associated with the Company's newly purchased Airopak Corporation, as well as
new capital equipment employed at the Company's other manufacturing sites.
Selling, general and administrative expenses ("SG&A") was
$3,996,000, or 7.4% of net sales for the fiscal year ended June 30, 1995 as
compared to $3,193,000, or 8.3% of net sales for the fiscal year ended June 30,
1994, representing a 25.1% increase over the same period last year. The increase
in SG&A was due to the associated higher marketing, selling and administrative
expenditures associated with the increased level of sales volume, as well as the
addition of Airopak.
Income from operations for the fiscal year ended June 30, 1995
was $3,556,000, or 6.6% of net sales as compared to $1,536,000, or 4.0% of net
sales for fiscal 1994. Higher operating income was the result of increased sales
volume across the entire Company's product mix, the Airopak acquisition, and
higher operating utilization in the Company's manufacturing plants.
Net Interest expense increased $236,000 during the twelve
month period ended June 30, 1995, as compared to the same period in 1994. Higher
interest expenses primarily reflect the additional financing incurred with the
acquisition of the Airopak Corporation and the warehouse addition at our
compound facility.
Net income for the year ended June 30, 1995 increased
approximately $964,000 to $1,611,000, or $.24 per share as compared to $647,000,
or $.10 per share for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position at June 30, 1996 improved
from the prior year. Working capital increased approximately $1,025,000 to
$6,975,000 at June 30, 1996 from $5,950,000 at June 30, 1995. The current ratio
was 1.57 at June 30, 1996 and 1.56 at June 30, 1995.
Cash flow from operations during fiscal 1996 increased by
approximately $1,603,000. The major reason for the increase is due in part of a
$942,000 increase in net income, a $100,000 increase in depreciation, and a
$1,713,000 increase in accounts payable and accrued expenses all of which were
partially offset by a $1,929,000 increase in inventories and a $658,000 increase
in accounts receivable.
Inventories as at June 30, 1996 increased approximately
$1,929,000 to $8,364,000 as compared to $6,435,000 as at June 30, 1995,
reflecting a decrease in inventory turnover. Approximately $1.2 million of the
total increase in inventory was raw material, reflecting at year end the
purchase and pre-buying of a substantial quantity of PVC and HDPE resins from
its contract suppliers in anticipation of rising raw material prices. Offsetting
inventory growth, accounts payable increased from $5,633,000 at June 30, 1995 to
$6,865,000 as at June 30, 1996. Finished goods
-13-
<PAGE> 16
inventory accounted for the balance of the increase in inventory, which reflects
both a mix variance as well as several new items that have been added to
inventory to support new sales growth. Management anticipates higher sales
during the next fiscal year, as well as a decrease in raw material inventories
which will improve, inventory turnover.
During the twelve month period ended June 30, 1996, the
Company generated cash from operations of $4,850,000 and received $2,175,000 in
proceeds from long term debt, which was utilized to acquire $4,377,000 in
capital assets, invest $400,000 in the Edge Craft USA joint venture, and reduce
long term debt by $2,361,000.
On April 7, 1995, the Company formed a 50/50 joint venture
(called "Edge Craft USA Inc.") with Edge Craft, Ltd. of Ontario, Canada for the
manufacture and sale of vinyl edgebanding manufactured with PVC compounds
produced by the Company's wholly owned subsidiary, Novatec Plastics & Chemicals,
Inc. The joint venture agreement provides for each party to contribute
approximately $400,000 in capital to the venture. As at June 30, 1996, the
Company has made an investment of approximately $400,000 to the joint venture.
The Company's short term liquidity and short term capital
resources are projected to be adequate to allow the Company to continue to make
timely payments to trade and other creditors. The Company believes that the
financial resources available to it, including internally generated funds and
amounts available under its revolving credit facility would be sufficient to
meet its foreseeable working capital requirements. As of June 30, 1996, the
Company had unused sources of liquidity consisting of cash and cash equivalents
of $1,059,000 and available unused credit under a revolving credit facility of
$825,000.
Item 8. Financial Statements and Supplementary Data.
See annexed financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
-None-
-14-
<PAGE> 17
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth the directors and executive
officers of the Company. Each director holds office until his successor is
elected and qualifies.
<TABLE>
<CAPTION>
Name Age Held Office Since Offices with the Company
<S> <C> <C> <C>
Phillip L. Friedman 49 1982 President, Chief Executive, Financial
and Accounting Officer and Director
John C. D'Avella 48 1978 Executive Vice President of Sales,
Secretary and Director
Bertram D. Berkowitz 58 1989 Vice President Finance & Treasurer
Joel Francis Roberts 54 1989 Vice President Operations
</TABLE>
PHILLIP L. FRIEDMAN was employed by Occidental Chemical
Corporation (formerly Hooker Chemical Corporation), a leading manufacturer and
supplier of PVC resins and compounds from 1969 until December 1981, when he
joined the Company. During his last 5 years with Occidental, Mr. Friedman was
Manager of Business Development and Director of Commercial Development for the
Polyvinyl Chloride Plastics Division. As the Director of Commercial Development,
he was responsible for coordinating and reducing to commercial practice various
research and development projects within the plastics industry.
JOHN C. D'AVELLA, from June 1973 to July 1974, was an employee
of Cosmetics Unlimited, Bogota, New Jersey in the area of purchasing and
inventory control. From July 1974 to September 1975 he was employed as the
General Manager in charge of purchasing and sales at D'Avella's Pharmacy in
Newark, New Jersey. Mr. D'Avella was employed from September 1975 to 1978 as
Sales Manager of the Company. In 1978 he became Vice President in Charge of
Sales and Secretary of the Company.
BERTRAM D. BERKOWITZ has been actively employed by the Company
since May 1983. He became a Vice President of Finance and Treasurer during
November 1989.
JOEL FRANCIS ROBERTS, from 1984 to July 1986, was a plant
manager for Technical Plastics Extruders, an extruder of sheet material. During
July 1986 he joined the Company as a plant manager and became a Director of
Operations during 1989. He became a Vice President for Operations during
November 1989.
Item 11. Executive Compensation.
Incorporated by reference from the Company's definitive
information statement to be filed with the Commission not later than 120 days
following the end of the Company's fiscal year.
-15-
<PAGE> 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Incorporated by reference from the Company's definitive or
information statement to be filed with the Commission not later than 120 days
following the end of the Company's fiscal year.
Item 13. Certain Relationships and Related Transactions.
None.
-16-
<PAGE> 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Income for the three years ended
June 30, 1996
Consolidated Statements of Stockholders' Equity for the three
years ended June 30, 1996
Consolidated Statements of Cash Flows for the three years
ended June 30, 1996
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules.
Report of Independent Auditors on Consolidated Financial
Statement Schedules
For the three years ended June 30, 1996
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Certificate of Incorporation of the Company filed
with the Secretary of State of the State of Delaware
(filed as Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended June 30, 1988 (the "1988
10-K"), and incorporated herein by reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2 to the
1988 10-K, and incorporated herein by reference).
10.1 Deferred Compensation Plan established June 4, 1986
and effective July 1, 1986 (filed as Exhibit 10.1 to
the Company's Form 10-K for the fiscal year ended
June 30, 1987 (the "1987 10-K"), and incorporated
herein by reference).
-17-
<PAGE> 20
10.2 Profit Sharing Savings Plan (Flexinvest 401(k) Plan)
effective July 1, 1984 (filed as Exhibit 10.2 to the
1987 10-K, and incorporated herein by reference).
10.3 1981 Incentive Stock Option Plan filed as an Exhibit
to the Company's Form 10-K for fiscal 1982 and
incorporated herein by reference (filed as Exhibit
10.3 to the 1987 10-K, and incorporated herein by
reference).
10.4 Employment Agreement between the Company and Phillip
L. Friedman dated July 1, 1982 as amended on June 4,
1986 (filed as Exhibit 10.4 to the 1987 10-K, and
incorporated herein by reference).
10.5 Lease for the Company's container manufacturing plant
dated October 5, 1973 and amended July 2, 1974
between John Donato, Jr. and the Company (filed as
Exhibit 10.5 to the 1987 10-K, and incorporated
herein by reference).
10.7 Loan and Security Agreement among the Company, First
Jersey National Bank and Novatec dated June 1, 1984
and modified March 31, 1986 (filed as Exhibit 10.7 to
the 1987 10-K, and incorporated herein by reference).
10.8 Credit Agreement among the Company, New Jersey
Economic Development Authority, United Jersey Bank
and The First Jersey National Bank dated as of
November 1, 1981 (filed as Exhibit 10.8 to the 1987
10-K, and incorporated herein by reference).
10.9 Bond Financing Agreement among the Company, New
Jersey Economic Development Authority, United Jersey
Bank and The First Jersey National Bank dated
November 27, 1984 (filed as Exhibit 10.9 to the 1987
10-K, and incorporated herein by reference).
10.10 Collective Bargaining Agreement dated September 1,
1988 between the Company and Local 108, Retail,
Wholesale and Department Store Union, AFL-CIO (filed
as Exhibit 10.10 to the 1988 10-K, and incorporated
herein by reference).
10.11 Third Amendment to Employment Agreement between
Phillip L. Friedman and the Company dated November
29, 1989 (filed as Exhibit 10.11 to 1990 10-K and
incorporated herein by reference).
10.12 Asset Purchase Agreement between Airopak Corporation
and Air Products and Chemicals, Inc. dated 8/4/94
(filed as Exhibit 10 to the report on Form 8-K filed
on August 8, 1994 and incorporated herein by
reference).
16 Letter dated March 1, 1989 from Gassman, Rebhun &
Co., P.C. regarding resignation as certifying
accountant for the Company (filed as Exhibit 16 to
the February 28, 1989 8-K, and incorporated herein by
reference).
-18-
<PAGE> 21
21 Subsidiaries of the Company (filed as Exhibit 22 to
the 1987 10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
99.1 Second Amendment to the PVC Container Corporation
1981 Incentive Stock Option Plan, dated July 6, 1989,
with the unanimous written consent of Directors of
the Company (filed as Exhibit 28.1 to 1990 10-K and
incorporated herein by reference.
99.2 Letter dated September 22, 1989 from Phillip L.
Friedman to Bidyuk AG regarding the termination of
their Option Agreement dated December 14, 1987 (filed
as Exhibit 28.2 to 1990 10-K and incorporated herein
by reference).
Exhibits filed herewith:
None.
(b) Reports on Form 8-K filed during last quarter of the year ended June
30, 1996:
None.
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are submitted as a
separate section of this filing.
(d) Financial statement schedules
The financial statement schedules required by Regulation S-X are
submitted as a separate section of this filing.
-19-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PVC CONTAINER CORPORATION
(Registrant)
By: /s/ Phillip L. Friedman
-------------------------------------
Phillip L. Friedman,
President and Chief Executive Officer
Date: September 13, 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Phillip L. Friedman Chief Executive, September 13, 1996
- ----------------------------- Financial and Accounting
Phillip L. Friedman Officer, and Director
/s/ John C. D'Avella Executive Vice President, September 13, 1996
- ----------------------------- and Director
John C. D'Avella
</TABLE>
-20-
<PAGE> 23
PVC CONTAINER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K
JUNE 30, 1996
-21-
<PAGE> 24
CONSOLIDATED FINANCIAL STATEMENTS
PVC CONTAINER CORPORATION
June 30, 1996, 1995 and 1994
<PAGE> 25
PVC Container Corporation
Consolidated Financial Statements
June 30, 1996, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Consolidated Balance Sheets................................................. 2
Consolidated Statements of Income........................................... 3
Consolidated Statements of Stockholders' Equity............................. 4
Consolidated Statements of Cash Flows....................................... 5
Notes to Consolidated Financial Statements.................................. 6
</TABLE>
<PAGE> 26
Report of Independent Auditors
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the accompanying consolidated balance sheets of PVC Container
Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1996. 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 consolidated financial position of PVC
Container Corporation as of June 30, 1996 and 1995 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
August 16, 1996
1
<PAGE> 27
PVC Container Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,059,166 $ 1,171,137
Accounts receivable, less allowance of $243,000 in 1996 and 1995
8,863,444 8,205,733
Inventories 8,363,522 6,435,008
Prepaid expenses, taxes and other current assets 292,210 325,892
Deferred income taxes 695,666 467,403
-----------------------------
Total current assets 19,274,008 16,605,173
Unexpended proceeds from construction loan 5,239,425
Properties, plant and equipment at cost - net of
accumulated depreciation 19,377,239 17,553,217
Investment in jointly owned company 291,199
-----------------------------
$44,181,871 $34,158,390
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,864,889 $ 5,633,003
Accrued expenses 2,801,882 2,321,238
Income taxes payable 831,950 340,491
Current portion of long-term debt 1,800,400 2,360,465
-----------------------------
Total current liabilities 12,299,121 10,655,197
Long-term debt 16,165,229 10,290,732
Deferred income taxes 1,031,143 1,078,457
Stockholders' equity:
Preferred stock, par value $1.00, authorized 1,000,000 shares, none issued
Common stock, par value $.01, authorized 10,000,000 shares, 6,964,705 and
6,761,913 shares issued and outstanding as of June 30, 1996 and 1995,
respectively 69,647 67,618
Capital in excess of par value 3,527,147 2,971,498
Retained earnings 11,089,584 9,094,888
-----------------------------
Total stockholders' equity 14,686,378 12,134,004
-----------------------------
$44,181,871 $34,158,390
=============================
</TABLE>
See accompanying notes.
2
<PAGE> 28
PVC Container Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 57,216,317 $ 53,886,103 $ 38,352,843
Cost and expenses:
Cost of goods sold (exclusive of depreciation
and amortization expense shown separately below)
44,838,971 43,620,839 31,186,619
Selling, general and administrative expense 4,505,330 3,995,793 3,192,661
Depreciation and amortization expense 2,813,340 2,713,376 2,437,796
Equity in loss of jointly owned company 108,476
----------------------------------------------------
52,266,117 50,330,008 36,817,076
----------------------------------------------------
Income from operations 4,950,200 3,556,095 1,535,767
Other income (expenses):
Interest expense (796,463) (897,765) (662,004)
Interest income 1,346 298 167
Other income 139,284 96,034 161,773
----------------------------------------------------
(655,833) (801,433) (500,064)
----------------------------------------------------
Income before provision for income taxes 4,294,367 2,754,662 1,035,703
Provision for income taxes 1,741,797 1,143,997 388,443
----------------------------------------------------
Net income $ 2,552,570 $ 1,610,665 $ 647,260
====================================================
Earnings per share $ .37 $ .23 $ .09
Cash dividends per share .05 .05
Stock dividends per share .08
</TABLE>
See accompanying notes.
3
<PAGE> 29
PVC Container Corporation
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
ISSUED AND CAPITAL IN TOTAL
OUTSTANDING EXCESS OF RETAINED STOCKHOLDERS'
-------------------------
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1992 6,349,313 $63,493 $2,768,592 $ 6,437,786 $ 9,269,871
Net income 1,398,453 1,398,453
Cash dividends (323,090) (323,090)
Issuance of common stock 112,500 1,125 55,906 57,031
--------------------------------------------------------------------------------
Balance, June 30, 1993 6,461,813 64,618 2,824,498 7,513,149 10,402,265
Net income 647,260 647,260
Cash dividends (338,090) (338,090)
Issuance of common stock 300,000 3,000 147,000 150,000
--------------------------------------------------------------------------------
Balance, June 30, 1994 6,761,813 67,618 2,971,498 7,822,319 10,861,435
Net income 1,610,665 1,610,665
Cash dividends (338,096) (338,096)
--------------------------------------------------------------------------------
Balance, June 30, 1995 6,761,813 67,618 2,971,498 9,094,888 12,134,004
Net income 2,552,570 2,552,570
Cash dividends (196) (196)
Stock dividends 202,892 2,029 555,649 (557,678) --
--------------------------------------------------------------------------------
Balance, June 30, 1996 6,964,705 $69,647 $3,527,147 $ 11,089,584 $ 14,686,378
================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 30
PVC Container Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------------------------
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,552,570 $ 1,610,665 $ 647,260
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,813,340 2,713,376 2,437,796
Equity in loss of jointly owned company 108,476
Deferred income taxes (275,577) 115,344 (75,439)
Gain on sale of equipment (54,282)
Changes in assets and liabilities:
Accounts receivable (657,711) (953,233) (585,792)
Inventories (1,928,514) 279,434 (252,096)
Prepaid expenses, taxes and other current assets 33,682 (133,459) 86,983
Accounts payable and accrued expenses 1,712,530 (543,825) 535,630
Income taxes payable 491,459 158,973 17,346
-------------------------------------------------
Net cash provided by operating activities 4,850,255 3,247,275 2,757,406
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,376,787) (1,873,708) (3,261,612)
Investment in jointly owned company (399,675)
Proceeds from sale of equipment 101,656
Purchase of business (1,070,173)
-------------------------------------------------
Net cash used in investing activities (4,776,462) (2,943,881) (3,159,956)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued in connection with
stock options 150,000
Proceeds from long-term debt 2,175,000 3,270,000 2,150,000
Payments on indebtedness (2,360,568) (2,581,842) (1,692,590)
Dividends paid (196) (338,096) (338,090)
-------------------------------------------------
Net cash (used in) provided by financing activities (185,764) 350,062 269,320
-------------------------------------------------
Net (decrease) increase in cash and cash equivalents (111,971) 653,456 (133,230)
Cash and cash equivalents, beginning of year 1,171,137 517,681 650,911
-------------------------------------------------
Cash and cash equivalents, end of year $ 1,059,166 $ 1,171,137 $ 517,681
=================================================
</TABLE>
See accompanying notes.
5
<PAGE> 31
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
PVC Container Corporation (the "Company") was incorporated in Delaware on June
14, 1968. The Company's major business activity primarily consists of the
manufacture and sale of a line of plastic bottles made from polyvinyl chloride
compounds and high density polyethylene resins. These bottles are used primarily
for the packaging of cosmetics, toiletries, foods, household chemicals, lawn and
garden, and industrial chemical products.
CONSOLIDATION
The accompanying financial statements include the accounts of PVC Container
Corporation and its wholly-owned subsidiaries, Novatec Plastics & Chemicals Co.,
Inc., Airopak Corporation and PVC Container International Sales Corporation, a
foreign sales company incorporated in the U.S. Virgin Islands on March 1, 1993.
All intercompany accounts have been eliminated.
ACQUISITION
On August 4, 1994, the Company acquired certain assets from Air Products and
Chemicals, Inc., for its recently incorporated wholly-owned subsidiary known as
Airopak Corporation for $1.57 million.
The Company accounted for the acquisition as a purchase. Accordingly, the
acquired assets have been recorded at their estimated fair values at the date of
acquisition. The results of operations of the acquired business are included in
the accompanying consolidated statement of income from the date of acquisition.
The pro forma results of operations for the period July 1, 1994 to August 4,
1994 have not been presented as such amounts are not material.
CASH EQUIVALENTS
The Company considers investments with maturities of three months or less when
acquired to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of LIFO cost or market value. Cost for
substantially all of the inventories is determined under the LIFO method.
6
<PAGE> 32
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation is provided for financial reporting purposes on a straight-line or
double declining balance method over the estimated useful lives of the related
assets. Maintenance and repairs are charged to operations as incurred. Major
renewals and betterments are capitalized.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred and
amounted to $252,000, $217,000 and $196,000 in 1996, 1995 and 1994,
respectively.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding retroactively restated for the 3%
stock dividend declared by the Board of Directors payable on February 26, 1996
to stockholders of record on February 9, 1996. No common stock dividend was paid
in 1995 or 1994.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
7
<PAGE> 33
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1995 balances have been reclassified to conform to 1996 presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Raw materials $3,299,353 $2,089,192
Finished goods 4,656,053 3,761,231
---------------------------
Total LIFO inventories 7,955,406 5,850,423
Molds for resale, in production 109,465 232,901
Supplies 298,651 351,684
---------------------------
Total $8,363,522 $6,435,008
===========================
</TABLE>
The excess of inventory valued on FIFO basis which approximates replacement cost
over LIFO cost at June 30, 1996 was approximately $216,000. Replacement cost
exceeded LIFO cost by approximately $648,000 at June 30, 1995.
3. PROPERTIES, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Life
1996 1995 in Years
----------------------------------------------------
<S> <C> <C> <C>
Land $ 653,965 $ 653,965
Building and improvements 11,341,533 9,876,365 20-25
Machinery and equipment 23,544,007 20,801,806 7-10
Molds 2,549,376 2,197,281 3- 5
Office furniture and equipment 1,003,397 925,499 5-l0
Motor vehicles 34,447 34,447 3- 5
Leasehold improvements 5,300 5,300
--------------------------------
39,132,025 34,494,663
Less accumulated depreciation 19,754,786 16,941,446
--------------------------------
$19,377,239 $17,553,217
================================
</TABLE>
8
<PAGE> 34
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
4. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Accrued payroll $ 467,000 $ 368,722
Accrued vacation 603,852 524,492
Accrued employee incentives 1,187,142 830,597
Other accrued expenses 543,888 597,427
---------------------------
$2,801,882 $2,321,238
===========================
</TABLE>
5. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
<S> <C> <C>
Notes payable:
South Carolina Economic Development Authority
Loan $ 5,500,000
New Jersey Economic Development Authority:
Series D Note 3,650,000 $ 3,900,000
Fleet Bank of New Jersey:
435 Industrial Way Mortgage 705,000 750,000
Equipment Notes 1,565,088 2,091,360
Term notes 2,968,800 3,764,520
Revolving note 2,175,000
Edgar County Bank Construction Loan 568,125 601,875
City of Paris:
Community Development Assistance Loan 409,877 438,548
Revolving Loan Fund 123,068 131,636
Air Products note payable 496,556
Illinois Small Business Development Loan 300,671 318,463
Metropolitan Life note payable 117,768
Obligations under capital leases 40,471
--------------------------------
17,965,629 12,651,197
Less current portion (1,800,400) (2,360,465)
--------------------------------
$ 16,165,229 $ 10,290,732
================================
</TABLE>
9
<PAGE> 35
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows: 1997 - $1,800,400; 1998 -
$4,961,254; 1999 - $2,221,874; 2000 - $599,302; 2001 - $616,685; and 2002 to
2016 - $7,766,114. Interest paid amounted to $749,327, $881,021 and $650,929 in
1996, 1995 and 1994, respectively.
NOTE PAYABLE - SOUTH CAROLINA ECONOMIC DEVELOPMENT AUTHORITY "S.C. EDA"
This note is due April 1, 2016 and is payable in increasing amounts on April 1
of each year through April 1, 2016. Prepayments may be made without penalty.
This note is subject to prior mortgages in favor of the Fleet Bank of New
Jersey. The effective interest rate on this obligation was 3.9% in 1996.
The agreement contains certain provisions which require the funds to be held in
trust (the "Trust") by a third-party financial institution until such time that
equipment purchases are made. The funds are invested at rates of return
comparable to the interest rate paid by the Company on the obligation. Equipment
purchases in connection with this agreement are paid directly from the Trust.
S.C. EDA has issued tax exempt bonds to fund the debt. Should the tax exempt
status of this bond issue be negated, the rate of interest of this note would be
retroactively adjusted.
NOTE PAYABLE - NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY "N.J. EDA"
SERIES D NOTE
This note is due October 31, 2006 and is payable as follows: $250,000 due on
October 1, each year through October 1, 2006 and $900,000 due on October 31,
2006. Prepayments may be made without penalty. This note is subject to prior
mortgages in favor of the Fleet Bank of New Jersey. The effective interest rate
on this obligation was 3.7% and 3.8% in 1996 and 1995, respectively.
N.J. EDA has issued tax exempt bonds to fund the debt. Should the tax exempt
status of this bond issue be negated, the rate of interest of this note would be
retroactively adjusted.
10
<PAGE> 36
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
435 INDUSTRIAL WAY MORTGAGE
During fiscal year 1992, the Company financed $900,000 for the purchase of a
building adjacent to its property. The mortgage is payable in 59 monthly
principal installments of $3,750 and a final lump sum payment for the remaining
balance on July 31, 1997, plus interest at 8.53%. The mortgage is collateralized
by the building.
EQUIPMENT NOTES
During fiscal year 1995, the Company received a second draw down on its
$2,300,000 equipment loan from Fleet Bank, amounting to $1,260,000. The note
requires principal payments of $21,355 and interest at 9.31% on the first of
every month through the note's maturity in March 1999, at which time the full
unpaid principal and interest are due. The first draw down note provides for the
monthly payment of interest at 7.82% through and including May 1, 1995.
Principal payments of $10,000 and interest are due thereafter on the first of
every month through the note's maturity in March 1999, at which time the full
unpaid principal and interest are due. The borrower may prepay this note in
whole or in part in accordance with the loan agreement. The notes are
collateralized by the equipment.
During fiscal year 1995, the Company obtained a $950,000 equipment loan from
Fleet Bank for its newly acquired Airopak division. The note is payable in
eighty-four monthly payments of $11,310, plus interest at 9.19%. The note is
collateralized by the equipment.
During fiscal year 1992, the Company purchased $750,000 of equipment which was
financed by Fleet Bank. The notes are payable in sixty monthly payments of
$12,501, plus interest at prime plus 1/2% (the effective rate is equal to 9.0%
in 1996 and 7.75% in 1995). The notes are collateralized by the equipment.
TERM NOTES
During fiscal year 1994, the Company purchased $1,200,000 of property and
equipment which was financed through a term note with Fleet Bank. The note
provides for principal payments of $5,000 and interest due monthly through the
note's maturity, March 1, 1999, when the full amount of unpaid principal and
interest is due. The note may be prepaid in whole or in part subject to certain
requirements stated in the loan agreement. The note is collateralized by the
property and equipment purchased.
11
<PAGE> 37
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
During fiscal year 1993, the Company purchased $3,000,000 of equipment which was
financed through three term notes with Fleet Bank. The notes, with original
principal balances of $1,500,000, $900,000 and $600,000 are payable in sixty
monthly payments of $50,000 plus interest at 7.29%, 6.8% and 6.69%,
respectively. The notes are collateralized by the equipment.
REVOLVING NOTE
During fiscal year 1996, the Company purchased $2,175,000 of property and
equipment which was financed through a revolving note with Fleet Bank.
Borrowings under this revolving note bear interest at the prime rate (8.25% at
June 30, 1996) and are payable in full on October 31, 1997. The note may be
prepaid in whole or in part subject to certain requirements stated in the loan
agreement. The note is collateralized by the property and equipment purchased.
EDGAR COUNTY BANK CONSTRUCTION LOAN
During fiscal year 1993, the Company financed $675,000 for real estate
improvements for a manufacturing plant in Paris, Illinois. The loan is payable
in sixty monthly principal payments of $2,813 and a final lump sum payment of
$506,250 on April 30, 1998, plus interest at 6.75%. The loan is collateralized
by a shared first lien interest for the land and building in Paris, Illinois in
conjunction with an inter creditor agreement between the bank and the City of
Paris.
COMMUNITY DEVELOPMENT ASSISTANCE LOAN
In fiscal year 1993, the Illinois Department of Commerce and Community Affairs
approved a loan with the City of Paris for development of a manufacturing plant
in Illinois for $500,000 which will be payable in 180 monthly installments of
$3,453 including interest at 3%. The loan is collateralized by a shared first
lien interest for the land and building in Paris, Illinois in conjunction with
an inter creditor agreement between the City of Paris and Edgar County Bank.
REVOLVING LOAN FUND
The Illinois Department of Commerce and Community Affairs also approved a
revolving loan fund from the City of Paris to assist in the development of the
manufacturing plant in Illinois for $150,000 in fiscal year 1993. The loan is
payable in 180 monthly
12
<PAGE> 38
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
installments of $1,033 including interest at 3%. The loan is collateralized by a
subordinate lien interest for the land and building in Paris, Illinois in
conjunction with an inter creditor agreement between the City of Paris and Edgar
County Bank.
ILLINOIS SMALL BUSINESS DEVELOPMENT LOAN
In fiscal year 1994, the Illinois Department of Commerce and Community Affairs
approved a loan with the City of Paris for the expansion of the Company's
manufacturing plant in Illinois for $350,000 which is payable in 180 monthly
installments of $2,767 including interest at 5% and a final payment to satisfy
the conditions of the loan. The loan can be prepaid in whole or in part without
penalty. The loan is collateralized by the property and improvements thereafter
as well as the rent issues and profits of the premises.
6. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------
<S> <C>
1997 $112,629
1998 76,098
1999 61,792
2000 38,160
2001 38,160
</TABLE>
Rental expense for operating leases amounted to $118,594, $142,179 and $102,947
in 1996, 1995 and 1994, respectively.
7. PENSION PLAN
On September 1, 1990, the Company instituted a non-contributory defined benefit
pension plan (the Plan) for all eligible full-time union employees. Benefits are
based on years of service. The Company contributes to the Plan amounts,
actuarially determined by the Unit Credit Actuarial Cost Method, which provides
the Plan with sufficient assets
13
<PAGE> 39
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
to meet future benefit payment requirements. The assets of the Plan are invested
principally in short-term investments. Net pension cost consists of the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Normal service cost $ 55,513 $ 52,085 $ 45,088
Interest on projected benefit obligation 43,376 37,729 31,275
Gain on return of plan assets (27,862) (18,837) (12,456)
Amortization cost 14,532 12,537 9,720
----------------------------------------
Net periodic pension cost $ 85,559 $ 83,514 $ 73,627
========================================
</TABLE>
The reconciliation of the funded status of the Plan to the amount on the
Company's balance sheet is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 612,944 $ 519,552
==========================
Accumulated benefits $ 667,803 $ 582,850
==========================
Actuarial present value of projected benefit obligation $(667,803) $(582,850)
Market value of plan assets 438,265 314,607
--------------------------
Projected benefit obligation in excess of plan assets (229,538) (268,243)
Unrecognized net obligation existing at transition 135,917 148,273
Unrecognized net loss 137,443 125,538
Adjustment required to recognize minimum liability (273,360) (273,811)
--------------------------
Accrued pension liability $ 229,538 $ 268,243
==========================
</TABLE>
The assumptions used in determining the funded status of the Plan are as
follows: (i) discount rate - 7.5% in 1995 and 1994, and (ii) expected rate of
return on assets of 8.5% for 1995 and 1994.
The Company maintains a voluntary salary reduction 401(k) plan covering all
non-union employees with more than one year of service. Eligible employees may
elect to contribute up to 6% of their salaries up to ERISA's maximum annual
level. The Company contributes an amount equal to 25% of the employee's
contribution and, at its discretion, may make additional contributions to the
plan based on earnings. The Company contributed $520,123, $337,534 and $124,448
in 1996, 1995 and 1994, respectively.
14
<PAGE> 40
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEES' INCENTIVE STOCK OPTION PLAN
The Company maintains an Incentive Stock Option Plan. Under the plan, the
Company may grant options for the purchase of up to an aggregate of 1,080,000
shares of its common stock. The options granted are exercisable to the extent of
20% per year on a cumulative basis through expiration. At June 30, 1996, 282,000
shares of common stock were reserved for issuance.
A summary of stock option activity relating to the Company's stock option plan
is as follows:
<TABLE>
<CAPTION>
AVERAGE PRICE NUMBER OF SHARES
---------------------------------
<S> <C> <C>
Outstanding, June 30, 1993 $ .50 300,000
Exercised .51 (300,000)
--------
Outstanding, June 30, 1994 .50 --
Exercised --
--------
Outstanding, June 30, 1995 --
Exercised --
--------
Outstanding, June 30, 1996 --
========
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,595,679 $ 827,256 $ 415,470
State 421,695 201,397 48,412
-------------------------------------------------
2,017,374 1,028,653 463,882
Deferred:
Federal (229,015) 112,526 (101,440)
State (46,562) 2,818 26,001
-------------------------------------------------
(275,577) 115,344 (75,439)
-------------------------------------------------
Total provision $ 1,741,797 $ 1,143,997 $ 388,443
=================================================
</TABLE>
15
<PAGE> 41
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The provision (benefit) for deferred income taxes arises from the differences
between the financial statement and tax bases of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Accelerated depreciation $ (30,677) $ 15,084 $ 92,186
Inventory reserves (8,000) (24,475) 71,225
Accrued liabilities and other (207,025) 124,735 (47,850)
Tax credits and carryforwards (191,000)
Other temporary differences (29,875)
--------------------------------------------
Deferred tax (benefit) expense $(275,577) $ 115,344 $(75,439)
============================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $1,031,143 $1,061,820
Other 16,637
---------- ----------
Total deferred tax liabilities 1,031,143 1,078,457
Deferred tax assets:
Bad debt reserves 97,077 97,077
Inventory reserves 128,728 104,448
Accrued liabilities and other 469,861 265,878
---------- ----------
Total deferred tax assets 695,666 467,403
---------- ----------
Net deferred tax liabilities $ 335,477 $ 611,054
========== ==========
</TABLE>
A reconciliation of the income tax provision and the amount computed by applying
the statutory federal income tax rate to earnings before income taxes is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Federal tax at statutory rate 34% 34% 34%
Effect of:
State income taxes, net of federal income tax benefit 6 6 5
Foreign operations (1) (2) (3)
Other 1 3 2
--------------------------
Effective income tax rate 40% 41% 38%
==========================
</TABLE>
16
<PAGE> 42
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Income taxes paid amounted to $1,462,000, $871,000 and $432,000 in 1996, 1995
and 1994, respectively.
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
As more fully described in Note 1, the Company acquired certain assets from Air
Products and Chemicals, Inc. on August 4, 1994. The purchase price was allocated
to the assets based on their estimated market values as follows:
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
Inventory $ 620,173
Fixed assets 950,000
Notes payable (500,000)
-----------
Net cash paid $ 1,070,173
===========
</TABLE>
Excluded from the consolidated statements of cash flows in 1996 was the effect
of certain noncash financing activities related to the $5.5 million South
Carolina EDA loan obtained by the Company in April 1996. Capital expenditures in
connection with this agreement totaled approximately $261,000 in 1996.
11. SUBSEQUENT EVENT
In July 1996, the Company sold its rental property located at 435 Industrial Way
West, Eatontown, New Jersey for $1,200,000 in cash. The remaining principal on
the mortgage totaling approximately $705,000 was repaid with a portion of the
proceeds from the sale. The rental property consists of an office building with
warehouse space and land with a net book value of approximately $1,100,000 at
June 30, 1996. Rental revenues generated by this property amounted to
approximately $144,000 and $126,000 in 1996 and 1995, respectively.
On September 6, 1996 the Company obtained a $1.2 million loan to finance the
expansion of their New Jersey manufacturing facility.
17
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
ON CONSOLIDATED SCHEDULES
The Board of Directors and Stockholders
PVC Container Corporation
In connection with our audits of the consolidated financial statements of PVC
Container Corporation as of June 30, 1996 and 1995, and for each of the three
years in the period ended June 30, 1996, we have also audited the consolidated
schedules included in this annual report on Form 10-K as listed in Item
14(a)(2).
In our opinion, the consolidated schedules referred to above present fairly, in
all material respects, the information required to be stated therein.
/s/ Ernst & Young LLP
--------------------------
Ernst & Young LLP
MetroPark, New Jersey
August 16, 1996
<PAGE> 44
PVC Container Corporation
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- --------------------------- -------- --------
Additions
--------------------------- Amount
Charged to Written
Balance Charged to Other Off Balance
Beginning Costs and Accounts Against End of
Description of Year Expenses (Described) Reserve Year
- ----------- --------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Valuation accounts
deducted from assets to
which they apply:
June 30, 1996:
Accounts receivable $242,692 $ -- $ -- $ -- $242,692
Inventory 50,000 70,000 -- 50,000 70,000
June 30, 1995:
Accounts receivable 242,692 -- -- -- 242,692
Inventory -- 50,000 -- -- 50,000
June 30, 1994:
Accounts receivable 242,692 -- -- -- 242,692
</TABLE>
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
<S> <C> <C>
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of the State of Delaware (filed as Exhibit
3.1 to the Company's Form 10-K for the fiscal year ended June
30, 1988 (the "1988 10-K"), and incorporated herein by
reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2 to the 1988 10-K,
and incorporated herein by reference).
10.1 Deferred Compensation Plan established June 4, 1986 and
effective July 1, 1986 (filed as Exhibit 10.1 to the
Company's Form 10-K for the fiscal year ended June 30, 1987
(the "1987 10-K"), and incorporated herein by reference).
10.2 Profit Sharing Savings Plan Flexinvest 401(k) Plan) effective
July 1, 1984 (filed as Exhibit 10.2 to the 1987 10-K, and
incorporated herein by reference).
10.3 1981 Incentive Stock Option Plan filed as an Exhibit to the
Company's Form 10-K for fiscal 1982 and incorporated herein
by reference (filed as Exhibit 10.3 to the 1987 10-K, and
incorporated herein by reference).
10.4 Employment Agreement between the Company and Phillip L.
Friedman dated July 1, 1982 as amended on June 4, 1986 (filed
as Exhibit 10.4 to the 1987 10-K, and incorporated herein by
reference).
10.5 Lease for the Company's container manufacturing plant dated
October 5, 1973 and amended July 2, 1974 between John Donato,
Jr. and the Company (filed as Exhibit 10.5 to the 1987 10-K,
and incorporated herein by reference).
10.7 Loan and Security Agreement among the Company, First Jersey
National Bank and Novatec dated June 1, 1984 and modified
March 31, 1986 (filed as Exhibit 10.7 to the 1987 10-K, and
incorporated herein by reference).
10.8 Credit Agreement among the Company, New Jersey Economic
Development Authority, United Jersey Bank and The First
Jersey National Bank dated as of November 1, 1981 (filed as
Exhibit 10.8 to the 1987 10-K, and incorporated herein by
reference).
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
<S> <C>
10.9 Bond Financing Agreement among the Company, New Jersey
Economic Development Authority, United Jersey Bank and The
First Jersey National Bank dated November 27, 1984 (filed as
Exhibit 10.9 to the 1987 10-K, and incorporated herein by
reference).
10.10 Collective Bargaining Agreement dated September 1, 1988
between the Company and Local 108, Retail, Wholesale and
Department Store Union, AFL-CIO (filed as Exhibit 10.10 to
the 1988 10-K, and incorporated herein by reference).
10.11 Third Amendment to Employment Agreement between Phillip L.
Friedman and the Company dated November 29, 1989 and
incorporated herein by reference.
10.12 Asset Purchase Agreement between Airopak Corporation and Air
Products and Chemicals, Inc. dated August 4, 1994 (filed as
Exhibit 10 to the report on Form 8-K filed on August 8, 1994
and incorporated herein by reference).
16 Letter dated March 1, 1989 from Gassman, Rebhun & Co., P.C.
regarding resignation as certifying accountant for the
Company (filed as Exhibit 16 to the February 28, 1989 8-K,
and incorporated herein by reference).
21 Subsidiaries of the Company (filed as Exhibit 22 to the 1987
10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
99.1 Second Amendment to the PVC Container Corporation 1981
Incentive Stock Option Plan, dated July 6, 1989, with the
unanimous written consent of Directors of the Company and
incorporated herein by reference.
99.2 Letter dated September 22, 1989 from Phillip L. Friedman to
Bidyuk AG regarding the termination of their Option Agreement
dated December 14, 1987 and incorporated herein by reference.
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-33957) pertaining to the PVC Container Corporation 1981
Incentive Stock Option Plan and in the related Prospectus of our report dated
August 16, 1996, with respect to the consolidated financial statements and
schedule of PVC Container Corporation included in the Annual Report (Form
10-K) for the year ended June 30, 1996.
/s/ Ernst & Young LLP
--------------------------
Ernst & Young LLP
MetroPark, New Jersey
September 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,059,166
<SECURITIES> 0
<RECEIVABLES> 9,106,444
<ALLOWANCES> 243,000
<INVENTORY> 8,363,522
<CURRENT-ASSETS> 19,274,008
<PP&E> 39,132,025
<DEPRECIATION> 19,754,786
<TOTAL-ASSETS> 44,181,871
<CURRENT-LIABILITIES> 12,299,121
<BONDS> 17,196,372
<COMMON> 69,647
0
0
<OTHER-SE> 14,616,731
<TOTAL-LIABILITY-AND-EQUITY> 44,181,871
<SALES> 57,216,317
<TOTAL-REVENUES> 57,356,947
<CGS> 44,838,971
<TOTAL-COSTS> 52,266,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 796,463
<INCOME-PRETAX> 4,294,367
<INCOME-TAX> 1,741,797
<INCOME-CONTINUING> 2,552,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,552,570
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
