<PAGE> 1
Part I
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
--------------------
|_| 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
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2616435
- ------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
401 Industrial Way West, Eatontown, New Jersey 07724
--------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (732) 542-0060
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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1998
--------------------- -----------------------------
Common $.01 par value 7,004,705 shares
<PAGE> 2
Part I
Contents
Page
No.
------
Part I. Financial Information
Consolidated Balance Sheets-March 31, 1998 and June 30,
1997 3
Consolidated Statements of Income-Three Months Ended
March 31, 1998 and 1997 and Nine Months Ended March
31, 1998 and 1997 4
Consolidated Statements of Cash Flows-Nine Months Ended
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
Part II. Other Information 12
<PAGE> 3
Part I
PVC Container Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March June
31, 1998 30, 1997
--------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 297,921 $ 222,490
Accounts receivable, less allowance of
$394,433 at March 31, 1998 and
$244,692 at June 30, 1997 13,014,302 9,272,018
Inventories 11,981,635 9,407,146
Prepaid expenses, taxes and other current
assets 546,503 538,593
Deferred tax asset 946,517 946,517
--------------------------
Total current assets 26,786,878 20,386,764
Unexpended proceeds from construction loan 762,202 4,244,334
Properties and equipment at cost-net of
accumulated depreciation 34,446,133 21,410,268
--------------------------
$61,995,213 $46,041,366
==========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 9,479,296 $ 6,443,880
Accrued expenses 4,411,644 3,147,719
Income taxes payable 860,429 418,460
Current portion of long-term debt 1,627,730 1,866,648
--------------------------
Total current liabilities 16,379,099 11,876,707
Long-term debt 25,958,763 16,337,169
Deferred income taxes 1,150,466 1,188,466
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 7,004,705 shares
issued and outstanding as of March 31,
1998 and June 30, 1997 70,047 70,047
Capital in excess of par value 3,646,747 3,646,747
Retained earnings 14,790,091 12,922,230
--------------------------
Total stockholders' equity 18,506,885 16,639,024
--------------------------
$61,995,213 $46,041,366
==========================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Part I
PVC Container Corporation
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31 March 31
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 17,592,611 $ 15,558,608 $ 47,616,710 $ 41,442,780
Cost and expenses:
Cost of goods sold
(exclusive of
depreciation and
amortization expense
shown separately below) 13,257,057 12,138,508 36,428,041 32,718,007
Selling, general and
administrative expenses 1,652,655 1,332,976 4,719,962 3,824,669
Depreciation and
amortization 964,833 764,326 2,645,975 2,165,775
Equity in loss of jointly
owned company 19,343 45,145
------------------------------------------------------------
15,874,545 14,255,153 43,793,978 38,753,596
------------------------------------------------------------
Income from operations 1,718,066 1,303,455 3,822,732 2,689,184
Other income (expense):
Interest expense (297,289) (200,783) (754,202) (629,169)
Other income 44,436 90,166 70,486 242,748
------------------------------------------------------------
(252,853) (110,617) (683,716) (386,421)
------------------------------------------------------------
Income before provision for
income taxes 1,465,213 1,192,838 3,139,016 2,302,763
Provision for income taxes (593,055) (401,933) (1,271,255) (846,511)
------------------------------------------------------------
Net income $ 872,158 $ 790,905 $ 1,867,761 $ 1,456,252
============================================================
Earnings per share (basic
and diluted) $ .13 $ .11 $ .27 $ .21
============================================================
Cash dividends per share $ .06
============
</TABLE>
See accompanying notes.
4
<PAGE> 5
Part I
PVC Container Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31
1998 1997
-----------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,867,761 $ 1,456,252
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,645,975 2,165,775
Equity in loss of jointly owned company 45,145
Gain on sale of building (90,950)
Deferred income taxes (38,000) (123,363)
Changes in assets and liabilities:
Accounts receivable-net of allowances (1,472,649) 104,981
Inventories (1,467,762) (698,264)
Prepaid expenses and other current assets 13,035 (149,257)
Accounts payable and accrued expenses 2,087,380 448,648
Income taxes payable 441,969 (280,097)
-----------------------------
Net cash provided by operating activities 4,077,709 2,878,870
Cash flows from investing activities
Capital expenditures (3,175,375) (2,998,995)
Proceeds from sale of plant and equipment 2,682,867
Acquisition of business (10,209,579)
-----------------------------
Net cash used in investing activities (13,384,954) (316,128)
Cash flows from financing activities
Payments of long-term debt (3,077,044) (4,692,694)
Proceeds from long-term debt 12,459,720 2,700,000
Dividends paid (417,882)
-----------------------------
Net cash used in financing activities 9,382,676 (2,410,576)
-----------------------------
Net increase in cash and cash equivalents 75,431 152,166
Cash and cash equivalents at beginning of period 222,490 1,059,166
-----------------------------
Cash and cash equivalents at end of period $ 297,921 $ 1,211,332
=============================
Supplemental disclosure of cash flow information
Interest paid $ 756,600 $ 638,500
=============================
Income taxes paid $ 867,000 $ 807,000
=============================
</TABLE>
See accompanying notes.
5
<PAGE> 6
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements
Note 1 In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1998, and the results of
operations and cash flows for the nine month periods ended March 31,
1998 and 1997.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested
that these condensed financial statements be read in conjunction
with the financial statements and the notes included in the
Company's latest annual report on Form 10-K.
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share.
Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings
per share amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128 requirements.
Diluted earnings per share are based on the average number of common
shares outstanding during each period, assuming exercise of all
stock options having exercise prices less than the average market
price of the common stock using the treasury stock method. Common
stock and common stock equivalents amounted to 7,078,565 and
7,004,705 in the third quarter of 1998 and 1997, respectively, and
7,018,535 and 6,984,112 for the nine month periods ended March 31,
1998 and 1997, respectively.
Note 2 The accompanying financial statements include the accounts of PVC
Container Corporation and its wholly-owned subsidiaries, Novatec
Plastics Corporation, Novapak Corporation, Airopak Corporation
("Airopak") 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.
Note 3 Excluded from the consolidated statements of cash flows for the nine
months ended March 31, 1998 is the effect of certain noncash
financing activities related to the $3.5 million loan from GE
Capital obtained by the Company in April 1997 and the $5.5 million
South Carolina EDA loan obtained by the
6
<PAGE> 7
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Company in April 1996. Capital expenditures in connection with these
agreements totaled approximately $3,482,000 and $2,932,000 for the
nine months ended March 31, 1998 and 1997, respectively.
The purchase price for the business acquired (Note 5) in March 1998
is preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair market values as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired:
Accounts receivable, net $ 2,269,635
Inventory, net 1,106,727
Prepaid expenses and other current assets 20,945
Property, plant and equipment 9,024,233
Less liabilities assumed:
Accounts payable and accrued expenses (2,211,961)
------------
Net cash paid $ 10,209,579
============
</TABLE>
Note 4 Inventories consist of:
<TABLE>
<CAPTION>
March June
31, 1998 30, 1997
----------------------------
<S> <C> <C>
Raw materials $ 3,983,803 $ 3,227,543
Finished goods and supplies 6,785,707 5,546,262
----------------------------
Total LIFO inventories 10,769,510 8,773,805
Molds for resale in production 882,076 278,800
Supplies 330,049 354,541
----------------------------
$ 11,981,635 $ 9,407,146
============================
</TABLE>
Note 5 On March 30, 1998 the Company acquired from McKechnie Investments,
Inc., its wholly-owned subsidiary known as Charter Supply Co., Inc.
for approximately $10.2 million. The consolidated balance sheet as
of March 31, 1998 includes the assets acquired and liabilities
assumed from Charter Supply Co., Inc.
7
<PAGE> 8
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Note 6 On May 5, 1998, the Company announced that it will move its
Eatontown, New Jersey blow molding operations to a new $8.4 million
facility which is currently under construction in Hazleton,
Pennsylvania. The Company expects to obtain approximately $8.4
million of financing through the issuance of Industrial Development
Bonds and other state and local government instruments. Management
expects that the new facility will be fully operational by October
1, 1998.
8
<PAGE> 9
Part 1
PVC CONTAINER CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales for the three month period ended March 31, 1998 increased by 13.1% to
$17,593,000 compared to $15,559,000 for the three month period ended March 31,
1997. For the nine month period ended March 31, 1998, sales increased by 14.9%
to $47,617,000 compared to $41,443,000 for the nine month period ended March 31,
1997. Growth in the Company's PET product lines as well as a general improvement
in the demand for plastic bottles and compounds resulted in the higher revenues
for the current period.
Cost of goods sold for the three months ended March 31, 1998 was $13,257,000 or
75.3% of net sales as compared to $12,139,000 or 78.0% of net sales for the
three months ended March 31, 1997. For the nine months ended March 31, 1998 cost
of goods sold was $36,428,000 or 76.5% of net sales as compared to $32,718,000
or 78.9% of net sales for the nine months ended March 31, 1997. Increased
manufacturing efficiencies and lower plastic resin prices resulted in higher
operating margins.
Selling, General and Administrative expenses (SG&A") increased by $320,000 for
the three month period ended March 31, 1998 and by $895,000 for the nine month
period ended March 31, 1998 compared to the same period a year ago. For the
quarter ended March 31, 1998, SG&A expenses were $1,653,000 or 9.4% of net
sales, as compared to $1,333,000 or 8.6% of net sales for the quarter ended
March 31, 1997. For the nine months ended March 31, 1998, SG&A expenses were
$4,720,000 or 9.9% of net sales as compared to $3,825,000 or 9.2% of net sales
for the nine month period ended March 31, 1997. SG&A expenses have increased to
support the additional marketing expenses to further develop the Company's entry
into the PET market as well as an increase in staffing to support the Company's
business growth.
Depreciation expense increased to $965,000 for the three months ended March 31,
1998 as compared to $764,000 for the three months ended March 31, 1997. For the
nine month period ended March 31, 1998, depredation expense was $2,646,000 as
compared to $2,166,000 for the nine month period ended March 31, 1997. This
increase is attributed to additional capital employed at the Company's newly
constructed Walterboro, South Carolina plastic bottle manufacturing facility,
expansion at our Paris, Illinois facility, and purchase of new PET manufacturing
equipment
Income from Operations increased $415,000 during the three month period ended
March 31, 1998 as compared to the same period a year ago. For the three months
ended March 31, 1998, income from operations was $1,718,000 or 9.8% of net sales
as compared to $1,303,000 or 84% of net sales for the three months ended March
31, 1997. Income from Operations for the nine month period ended March 31, 1998
increased by 42.2% to $3,823,000 or 8.0% of net sales as compared to $2,689,000
or 6.5% of net sales for the nine month period ended March 31, 1997.
9
<PAGE> 10
Part I
PVC CONTAINER CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Higher operating income was primarily the result of improved operating margins
and higher plant utilizations during the nine month period ended March 31, 1998
as compared to the nine month period ended March 31, 1997.
Interest expense increased $96,000 for the quarter ended March 31, 1998 and by
$125,000 for the nine month period ended March 31, 1998 compared to the same
period a year ago. For the quarter ended March 31,1998 interest expense was
$297,000 as compared to $201,000 for the quarter ended March 31, 1997. For the
nine months ended March 31, 1998, interest expense was $754,000 as compared to
$629,000 for the nine month period ended March 31, 1997. This increase is the
result of additional debt associated with the investments made in our new
Walterboro, S.C. manufacturing facility, expansion at our Paris, Illinois
manufacturing facility and new PET production equipment
Net income for the quarter ended March 31, 1998 increased 10.2% to $872,000 or
$.13 on a diluted earnings per share basis as compared to $791,000 or $.11 on a
diluted earnings per share basis for the same period a year ago. For the nine
months ended March 31, 1998, net income increased to $1,868,000 or $.27 on a
diluted earnings per share basis as compared to $1,456,000 or $.21 on a diluted
earnings per share basis for the nine month period ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and working capital remained adequate for the nine month
period ended March 31, 1998. Net working capital as at March 31, 1998 increased
$1,898,000 to $10,408,000 compared to $8,510,000 as at June 30, 1997. The
current ratio of assets to liabilities decreased from 1.72 to 1.64 as at March
31, 1998, primarily attributed to increase in accounts payable and accrued
expenses. A portion of this dilution is associated with the acquisition by the
Company on March 30,1998 of the assets and assumption of certain liabilities of
Charter Supply Co., Inc. (a wholly-owned subsidiary of McKechnie Investments,
Inc.). Additionally the Company pre-purchased approximately $575,000 of resins
which is currently reflected in accounts payable as a hedge against resin price
increases. This material will be consumed in production during our next fiscal
quarter.
During the nine month period ended March 31, 1998, the Company generated cash
from operations of $4,078,000 and received proceeds from long-term debt in the
amount of $12,460,000. Cash horn operations and the aforementioned proceeds were
used to acquire $3,175,000 in capital assets, reduce long-term debt by $3,077,00
and acquire the new business for $10,210,000, of which $10,000,000 was financed
with long-term debt, with the balance of the funds coming from cash flow.
The Company's short term liquidity and short term capital resources are adequate
for timely payment of trade and other creditors. The Company's sources of credit
are sufficient to meet working capital and capital needs in the foreseeable
future. At March 31, 1998, the Company had unused sources of liquidity
consisting of cash and cash equivalents of $298,000, unexpended proceeds from
EDA construction loans of $762,000, and the availability of unused credit under
a revolving credit facility of $2,600,000.
10
<PAGE> 11
Part I
PVC CONTAINER CORPORATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
In connection with the recently announced move of the Eatontown, NJ bottle
manufacturing facility to Hazleton, PA, the Company expects to obtain
approximately $8.4 million of financing through the issuance of Industrial
Development Bonds and other state and local government instruments.
11
<PAGE> 12
Part II
PVC Container Corporation
Other Information
Item 6 - Exhibits and Reports on Form 8-K:
(b) Reports on Form 8-K - A report on Form 8-K was filed with the
Securities and Exchange Commission on April 14, 1998, reporting on
the acquisition by the Registrant, effective March 30, 1998, of all
of the assets and the assumption of certain liabilities of Charter
Supply Co., Inc. (a wholly-owned subsidiary of McKechnie
Investments, Inc.) and to which report on Form 8-K was annexed as an
exhibit the Asset Purchase Agreement between the Registrant and
McKechnie Investments, Inc. and Charter Supply Co., Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PVC CONTAINER CORPORATION
By /s/ Phillip Friedman
-------------------------------
Phillip Friedman, President and
Principal Financial Officer
Date: May 14, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 297,921
<SECURITIES> 0
<RECEIVABLES> 13,408,735
<ALLOWANCES> 394,433
<INVENTORY> 11,981,635
<CURRENT-ASSETS> 26,786,878
<PP&E> 59,392,800
<DEPRECIATION> 24,946,667
<TOTAL-ASSETS> 61,995,213
<CURRENT-LIABILITIES> 16,379,099
<BONDS> 27,109,229
0
0
<COMMON> 70,047
<OTHER-SE> 18,436,838
<TOTAL-LIABILITY-AND-EQUITY> 61,995,213
<SALES> 47,616,710
<TOTAL-REVENUES> 47,687,196
<CGS> 36,428,041
<TOTAL-COSTS> 43,793,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 754,202
<INCOME-PRETAX> 3,139,016
<INCOME-TAX> 1,271,255
<INCOME-CONTINUING> 1,867,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,867,761
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
