<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 September 30, 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 of (I.R.S. Employer
incorporation or organization) Identification 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 September 30, 1998
Common $.01 par value 7,004,705 shares
<PAGE> 2
Part I
CONTENTS
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - September 30, 1998 and
June 30, 1998 3
Consolidated Statements of Operations - Three Months
Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. OTHER INFORMATION 11
<PAGE> 3
Part I
PVC Container Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER JUNE
30, 1998 30, 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 168,432 $ 868,498
Accounts receivable, less allowance of
$380,000 at September 30, 1998 and $412,000
at June 30, 1998 11,222,135 11,091,406
Inventories 10,867,360 10,901,200
Prepaid expenses, taxes and other current assets 906,725 653,326
Deferred income taxes 1,486,033 1,486,033
----------- -----------
Total current assets 24,650,685 25,000,463
Other assets 471,000 426,000
Intangibles, net 4,096,000
Unexpended proceeds from construction loan 7,112,327 8,653,055
Properties and equipment at cost - net of
accumulated depreciation 46,257,856 36,291,600
----------- -----------
$82,587,868 $70,371,118
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,728,161 $ 7,993,694
Accrued expenses 4,977,475 5,806,645
Income taxes payable 238,325
Current portion of long-term debt 3,887,606 2,615,731
----------- -----------
Total current liabilities 16,593,242 16,654,395
Long-term debt 44,630,422 33,309,115
Deferred income taxes 3,117,568 1,680,693
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 September 30, 1998 and
June 30, 1998 70,047 70,047
Capital in excess of par value 3,646,747 3,646,747
Retained earnings 14,529,842 15,010,121
----------- -----------
Total stockholders' equity 18,246,636 18,726,915
----------- -----------
$82,587,868 $70,371,118
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
Part I
PVC Container Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 18,612,677 $ 15,313,084
Cost and expenses:
Cost of goods sold (exclusive of depreciation
and amortization expense shown separately below) 15,429,896 12,018,251
Selling, general and administrative expenses 1,931,266 1,473,604
Depreciation and amortization 1,610,966 798,362
------------ ------------
18,972,128 14,290,217
------------ ------------
(Loss) income from operations (359,451) 1,022,867
Other income (expense):
Interest expense (484,223) (213,334)
Other income 43,395 9,560
------------ ------------
(440,828) (203,774)
------------ ------------
(Loss) income before provision for income taxes (800,279) 819,093
Benefit (provision) for income taxes 320,000 (331,700)
------------ ------------
Net (loss) income $ (480,279) $ 487,393
============ ============
(Net loss) earnings per share (basic and diluted) $ (.07) $ .07
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
Part I
PVC Container Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (480,279) $ 487,393
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,610,966 798,362
Deferred income taxes (113,125) (15,000)
Changes in assets and liabilities:
Accounts receivable, net of allowances 1,192,271 (108,988)
Inventories 540,840 (431,261)
Prepaid expenses, taxes and other current assets (127,399) 85,599
Other assets 253,000
Accounts payable and accrued expenses (2,473,703) 928,555
Income taxes payable (238,325) 206,701
------------ ------------
Net cash provided by operating activities 164,246 1,951,361
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,457,494) (2,190,476)
Purchase of business (12,000,000)
------------ ------------
Net cash used in investing activities (13,457,494) (2,190,476)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 13,300,000 600,000
Payments on indebtedness (706,818) (341,448)
Net cash provided by financing activities 12,593,182 258,552
------------ ------------
Net (decrease) increase in cash and cash equivalents (700,066) 19,437
Cash and cash equivalents at beginning of period 868,498 222,490
------------ ------------
Cash and cash equivalents at end of period $ 168,432 $ 241,927
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 426,173 $ 226,885
============ ============
Income taxes paid $ 34,000 $ 140,000
============ ============
</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 consolidated financial
position as of September 30, 1998, and the consolidated results of
operations and cash flows for the three month periods ended September
30, 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 7,004,705 for the three month periods
ended September 30, 1998 and 1997.
Note 2 The accompanying financial statements include the accounts of PVC
Container Corporation and its wholly-owned subsidiaries, Novatec
Plastics Corporation, Marpac Industries, Inc., 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 three
months ended September 30, 1998 and 1997 was the effect of certain
noncash financing activities related to the $2.5 million and $7.3
million loans obtained by the Company from GE Capital in March 1998 and
June 1998, respectively, the $3.5 million loan from GE Capital obtained
by the Company in April 1997 and
6
<PAGE> 7
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements
the $5.5 million South Carolina EDA loan obtained by the Company in
April 1996. Capital expenditures in connection with these agreements
totaled approximately $1,540,000 and $498,000 for the three months ended
September 30, 1998 and 1997, respectively.
The purchase price for the business acquired (Note 5) in September 1998
is preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair market values as follows:
<TABLE>
<S> <C>
Fair value of assets acquired:
Accounts receivable, net $ 1,323,000
Inventory, net 507,000
Other current assets 126,000
Property, plant and equipment 8,579,000
Goodwill and other noncurrent assets 4,394,000
Less liabilities assumed:
Accounts payable and accrued expenses (1,379,000)
Deferred income taxes (1,550,000)
------------
Net cash paid $ 12,000,000
============
</TABLE>
The purchase price for the business acquired (Note 5) in March 1998 was
allocated to the assets acquired and liabilities assumed based on their
estimated fair market values as follows:
<TABLE>
<S> <C>
Fair value of assets acquired:
Accounts receivable, net $ 2,270,000
Inventory, net 1,107,000
Prepaid expenses and other current assets 21,000
Property, plant and equipment 9,024,000
Less liabilities assumed:
Accounts payable and accrued expenses (2,212,000)
------------
Net cash paid $ 10,210,000
============
</TABLE>
Note 4 Inventories consist of:
<TABLE>
<CAPTION>
SEPTEMBER JUNE
30, 1998 30, 1998
----------- -----------
<S> <C> <C>
Raw materials $ 3,777,034 $ 3,355,086
Finished goods and supplies 6,080,962 6,634,135
----------- -----------
Total LIFO inventories 9,857,996 9,989,221
Molds for resale in production 595,262 539,635
Supplies 414,102 372,344
----------- -----------
$10,867,360 $10,901,200
=========== ===========
</TABLE>
7
<PAGE> 8
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements
Note 5 On September 3, 1998 pursuant to a Purchase Agreement, the Company
acquired, in consideration for the payment of a purchase price of
$12,000,000, all of the issued and outstanding shares of Marpac
Industries, Inc. together with certain real property owned by the
sellers. The consideration was provided by Fleet Bank, N.A. pursuant to
a Loan and Security Agreement among the Company and its wholly-owned
subsidiaries and Fleet Bank, N.A., dated as of September 3, 1998 in the
amount of $12,000,000. Marpac Industries, Inc. is a technical blow
molding operation that produces bottles, containers, cartridges and
various dispensers for domestic and international customers including
office equipment, food and industrial products. Marpac Industries, Inc.
has its principal operation in Kingston, New York and also has a
facility located in Ardmore, Oklahoma.
The acquisition has been accounted for as a purchase and, accordingly,
the results of the operations have been included in the Company's
results of operations from the acquisition date. The purchase price has
been preliminary allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the acquisition date.
The excess of purchase price over net assets of the business acquired is
amortized on a straight-line basis over fifteen years.
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 Company accounted for the acquisition
as a purchase. Accordingly, the acquired assets and liabilities assumed
were recorded at their estimated fair values at the date of acquisition.
8
<PAGE> 9
Part I
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 September 30, 1998 were $18,613,000
as compared to $15,313,000 for the three month period ended September 30, 1997,
representing approximately a 21.6% increase. The increase in revenue during the
current three month period was due primarily to the inclusion of two recent
acquisitions in the September 30, 1998 results.
Cost of goods sold for the three months ended September 30, 1998 was
$15,430,000 or 82.9% of net sales as compared to $12,018,000 or 78.5% of net
sales for the three months ended September 30, 1997. The increase relates
primarily to the underabsorption of overhead, the relocation of a major
manufacturing facility and related transition costs, and developing new bottle
market opportunities in PET.
Selling, General and Administrative expenses ("SG&A") increased by $457,000 in
the first quarter of fiscal 1999 compared to the same period in the prior year.
For the quarter ended September 30, 1998, SG&A expenses were $1,931,000 or
10.4% of net sales, as compared to $1,474,000 or 9.6% of net sales for the
quarter ended September 30, 1997. SG&A expenses increased due to the recent
acquisitions, added marketing efforts to develop entry into the PET market and
increased personnel necessary to support the Company's desire to grow its
business.
Depreciation expense increased to a level of $1,611,000 for the three months
ended September 30, 1998 as compared to $798,000 for the three month period
ended September 30, 1997. This increase is attributed primarily to the recent
acquisitions, as well as higher depreciation expense on the Company's new
capital equipment employed for the manufacture of PET bottles.
Income from Operations decreased $1,382,000 during the three month period ended
September 30, 1998 as compared to the same period a year ago. For the three
month period ended September 30, 1998, Income (loss) from Operations was
$(359,000) or (1.9%) of net sales, as compared to $1,023,000 or 6.7% of net
sales for the three month period ended September 30, 1997. The decrease in
operating income is principally the result of a delay in the start-up of the
Company's new manufacturing facility in Hazelton, PA, as well as higher than
anticipated start-up expenses at that location.
Net income (loss) for the quarter ended September 30, 1998 was $(480,000) or
$(.07) per share as compared to $487,000 or $0.7 per share for the quarter
ended September 30, 1997.
9
<PAGE> 10
PVC CONTAINER CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and working capital marginally decreased, and remained
adequate for the three month period ended September 30, 1998. Working capital at
September 30, 1998 decreased $289,000 to $8,057,000 compared to $8,346,000 as of
June 30, 1998. The current ratio of assets to liabilities remained constant at
1.5.
During the three month period ended September 30, 1998, the Company generated
cash from operations of $164,000 and proceeds from long term debt totalled
approximately $13,300,000. These funds were used to finance the acquisition of
Marpac Industries, Inc. for $12,000,000, acquire capital assets of $1,457,000,
and reduce long term debt by $707,000.
The Company's short term liquidity and short term capital resources are adequate
for timely payment to trade and other creditors. The Company's sources of credit
are sufficient to meet its working capital and capital needs in the foreseeable
future. At September 30, 1998, the Company had unused sources of liquidity
consisting of cash and cash equivalents of $168,000 and the availability of the
unused credit under a revolving credit facility of $2,300,000.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During fiscal 1998, the Company began a program to upgrade its computer software
and hardware which is expected to be completed in calendar 1999, prior to any
anticipated impact on its operating systems. A significant portion of the costs
related to this program are included in the June 30, 1998 audited financial
statements. The Company believes that with these upgrades for its computer
systems, the Year 2000 issue will not pose significant operational problems.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company is continuing to contact all of its significant suppliers and large
customers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. There can be no guarantee that the systems of other companies on which
the company's systems rely will be timely converted and will not have a material
adverse effect on the Company's systems.
10
<PAGE> 11
Part II
PVC Container Corporation
Other Information
Item 6 - Exhibits and Reports on Form 8-K:
(b) Reports on Form 8-K - There was a report on Form 8-K filed for the
three months ended September 30, 1998.
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: November 16, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 168,432
<SECURITIES> 0
<RECEIVABLES> 11,602,135
<ALLOWANCES> 380,000
<INVENTORY> 10,867,360
<CURRENT-ASSETS> 24,650,685
<PP&E> 79,546,101
<DEPRECIATION> 33,288,245
<TOTAL-ASSETS> 82,587,868
<CURRENT-LIABILITIES> 16,593,242
<BONDS> 47,747,990
0
0
<COMMON> 70,047
<OTHER-SE> 18,176,589
<TOTAL-LIABILITY-AND-EQUITY> 82,587,868
<SALES> 18,612,677
<TOTAL-REVENUES> 18,656,072
<CGS> 15,429,896
<TOTAL-COSTS> 18,972,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 484,223
<INCOME-PRETAX> (800,279)
<INCOME-TAX> 320,000
<INCOME-CONTINUING> 480,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480,279)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
