<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1998
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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2616435
(STATE OF OTHER JURISDICTION OF IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER
401 Industrial Way West, Eatontown, New Jersey 07724
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 542-0060
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
None None
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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 11, 1998, was approximately $10,766,712.
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 11, 1998
----- ------------------------------------
<S> <C>
Common Stock, $.01 par value 7,004,705
</TABLE>
EXHIBIT INDEX is located at Page 21
2
<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, high-density polyethylene ("HDPE")
polyethylene terephthalate ("PET") resins. The Company sells these bottles
through Novapak which is a wholly-owned subsidiary of the Company. 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 produced and sold through
the Company's wholly-owned subsidiary, Novatec Plastics Corporation, 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
has developed and begun to sell several categories of specialty PVC compounds
for non-bottle applications ("specialty compounds") including extruded profiles
and accessories, furniture, molding and other indoor fixtures, and a variety of
injection molded electrical and electronic housings (the "Company's targeted
markets'").
On March 30, 1998 the Company acquired the plastic bottle blow
molding business of McKechnie Investments, Inc. which operates out of a 100,000
square foot facility located in Philmont, New York and is operated by Novapak.
The annual revenues of the business are approximately $17,000,000. The business
serves primarily the toiletries and cosmetics, specialty and household chemical
markets and is being operated as part of the Company's wholly-owned subsidiary,
Novapak Corporation.
On September 3, 1998 the Company acquired all of the issued
and outstanding stock of Marpac Industries,Inc. which was founded in 1967 and
has annual sales of approximately $10,000,000. Marpac Industries, Inc. produces
custom blow molded products including plastic bottles, containers, cartridges,
double-wall cases, flexible spouts and various dispensers. Marpac
Industries,Inc. is known in the market for its technical capabilities which
allow it to manufacture uniquely configurated products within specific
tolerances. Its business is operated out of two facilities located in Kingston,
New York and Ardmore, Oklahoma.
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 such containers.
<PAGE> 4
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, 1998, 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 to two hundred and twenty five ounces. The Company
produces plastic bottles utilizing its own molds, in proprietary designs ("stock
bottles") which are of its own design and also produces on a contractual basis
plastic bottles in molds owned by the customer, utilizing their designs and
specifications ("custom bottles").
The sale of plastic bottles is 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. Some of the
markets the Company sells to are seasonal, such as lawn, garden and agricultural
chemicals which Airopak is dependant upon. These markets are characterized by
high demand in the periods of December and June and low demand from July through
November of each year.
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 Company also
manufactures and sells plastic bottles made from injection stretch blow molding
grades of PET as well as PET preforms which can be converted into various sizes
of plastic bottles and which can be economically shipped in their pre-form state
prior to such conversion.
The Company operates facilities in Eatontown, New Jersey,
Paris, Illinois. Manchester, Pennsylvania, Walterboro, South Carolina, Philmont,
New York, Kingston, New York and Ardmore, Oklahoma for the manufacturing of
plastic bottles. During September, 1998 the Company relocated its existing
plastic bottle business from a facility in Eatontown, New Jersey owned by the
Company to a newly constructed facility in Hazleton, Pennsylvania; this
relocation is not expected to have any significant impact on the Company's
customer base. See Properties. This new
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facility provides the Company with additional space needed to support
manufacturing on a more economical and efficient basis. The Company is in the
process of selling its plastic bottling facility located in Eatontown. 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 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".
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. 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. The other raw materials used to manufacture plastic
bottles are primarily HDPE and PET. The Company believes it is not dependant
upon any single supplier for these major raw materials. The Company relies on
multi-year supply contracts for the purchase of these raw materials, and
believes that it will be able to purchase sufficient quantities in the
foreseeable future.
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. The availability and price of resins has a
direct effect on the business of the Company. Although sufficient PVC resin,
HDPE and PET 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. However, the cost of resin can vary and may have a
material impact on the business of the Company. The Company has in the past been
able to recover the cost of the resin price increase by increasing the sales
price of its plastic bottles and any inability to do so in the future could have
an adverse impact on the Company's financial results. Prices for PVC resins as
well as HDPE and PET are mostly dependant upon the supply/demand of specific
plastic resins as well as their monomer and their feedstocks. See "Competition &
Marketing" below.
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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.
Backlog. Generally the Company's backlog of unfilled order
ranges from approximately four to six weeks.
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 over the
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.
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<PAGE> 7
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, indoor
molding and other specialty "profile" markets.
The Company believes its technical, marketing and
manufacturing capability in the plastic bottle market is equal to that of its
major competitors in small to midsize volume applications 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
and the resulting increased employed turnover and difficulty in retaining labor
on swing shifts, weekends and holidays influenced the Company's decision to
relocate its New Jersey manufacturing facility to Hazelton, Pennsylvania which
has a large labor pool. Additionally, the Company has been able to improve its
overall costs by expanding and shifting a portion of its business to its lower
cost facilities located in Paris, Illinois and Walterboro, South Carolina, and
as a result also contributes to making the Company more cost competitive. See
"Properties".
As a result of the recent acquisition of the Philmont, New
York facility See "General", "Manufacturing Operations" and "Properties", the
Company has increased its container decorating capabilities to include automatic
silk screen in multiple color applications, pressure sensitive paper and plastic
film labels and thermage heat transfer labeling. The Company believes that to
more effectively compete in the marketplace, it will eventually be required to
establish this capability in some of its other manufacturing facilities.
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. 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. The Company has the ability to manufacture PETG bottles by modifying
its equipment, and the Company now manufactures and sells PETG bottles. As
indicated above, under "Manufacturing Operations", the Company has commenced the
manufacture and sale of PET plastic bottles and pre-forms at its facility in
Paris, Illinois, Walterboro, South Carolina and Hazelton, Pennsylvania as a
defensive and marketing strategy. This new capacity allows the Company to
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<PAGE> 8
compete for PET bottle applications in the plastic bottle market. See
"Environmental Regulation" below.
Research and Development. The Company spent approximately
$240,000 during the past fiscal year ended June 30, 1998 and during the fiscal
year ended June 30, 1997 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
further regulatory, or the threat of further regulatory action would not have a
negative affect on the Company's business.
Employees. As of June 30, 1998 the Company employed 231 people
at its Eatontown, New Jersey facility of whom 32 were in executive,
administrative and clerical positions, 16 were engaged in sales activities and
183 in general manufacturing. As indicated above under "Manufacturing
Operations", the Company relocated in September 1998 its Eatontown, New Jersey
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bottling and manufacturing facility to a new facility located in Hazleton,
Pennsylvania. The executive offices of the Company will remain in Eatontown, New
Jersey until the Eatontown facility is sold and the executive offices will
thereafter be relocated in the Eatontown area. There are currently employed 75
people in the new bottling and manufacturing facility in Hazleton, Pennsylvania.
The Company employs 99 people at is Paris, Illinois facility, 54 people at its
Walterboro, S.C. facility, 75 people at Airopak Corporation in its Manchester,
Pennsylvania facility, 150 people at its Philmont, New York facility and a total
of 85 people at Kingston, New York and the Ardmore, Oklahoma facilities. The
Company renewed its collective bargaining agreement with Local 1008 of the
Retail, Wholesale and Department Store Union, FL-CIO, effective September 1,
1997 until August 31, 2000. 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 $6,920,000 during the fiscal
year ended June 30, 1998. Net sales to the northeast of the United States
amounted to $22,232,000 during such fiscal year; net sales to the Midwest
amounted to $26,339,000; net sales to the southeast amounted to $9,501,000; and
net sales to other domestic regions amounted to $4,737,000 during such fiscal
year.
Item 2. Properties.
The Company's manufacturing activities with respect to its
continuing businesses are conducted at the nine facilities described in the
following table:
<TABLE>
<CAPTION>
Building Area
Location 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 Compounding Plant, 50,162(2)
warehouse and Executive
offices
Manchester, Pennsylvania Airopak Corporation Plant and 69,140(3)
warehousing
Manchester, Pennsylvania Airopak Corporation 25,000(4)
warehousing
Paris, Illinois Plastic bottle Plant and 125,000(5)
warehousing and office
Walterboro, S.C. Plastic bottle Plant 61,430(6)
warehousing and office
Philmont, New York Plastic bottle plant, warehouse
and office 100,000(7)
Kingston, New York Plastic bottling plant, 34,000(8)
warehouse and office
Ardmore, Oklahoma Plastic bottling plant, 10,000(8)
warehouse and office
</TABLE>
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1. The Eatontown bottle plant manufacturing facility has been
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. As indicated above, under
"Manufacturing Operations" and "Employees", the Company relocated during
September 1998 its Eatontown, New Jersey bottling and manufacturing facilities
to a new facility located in Hazleton, Pennsylvania on 10 acres of real property
owned by the Company. The Hazleton facility is a solid concrete tilt-up
facility, sprinklered throughout and consisting of 160,000 square feet of
manufacturing space and 151,800 square feet of warehouse space. There are also
ten loading docks and a rail siding at the facility.
2. 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.
3. 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.
4. 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 and warehouse facility. It is
believed that these facilities are large enough to allow for future growth of
the business conducted at these facilities.
5. 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. In July 1997, the Company completed the construction of an
additional 62,500 square feet of warehouse and manufacturing space. This
expansion was financed by the Company through the issuance of Industrial
Development Revenue Bonds by the City of Paris, Illinois, in the amount of
$3,500,000. See Note 5 to the Notes to the Consolidated Financial Statements
below.
6. In October 1996, the Company completed construction and
began operations in a new plastic bottle manufacturing plant located in
Walterboro, South Carolina. This facility consists of 61,430 square feet of
warehouse and manufacturing space, located on 8.83 acres of real
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<PAGE> 11
property which is owned by the Company. Financing for this facility was obtained
through the South Carolina Economic Development Authority in the amount of
$5,500,000. See Note 5 to the Notes to the Consolidated Financial Statements
below. See Note 5 to the Notes to the Consolidated Financial Statements below.
7. As indicated above under "Manufacturing Operations" the
Company acquired on March 30, 1998 the plastic bottling facilities of McKechnie
Investments Ltd. The facility consists of 100,000 square feet of warehouse and
manufacturing space located on 37_acres of real property owned by the Company.
8. As indicated above under "Manufacturing Operations" the
Company acquired on September 3, 1998 the plastic bottling business of Marpac
Industries located in Kingston, New York and Ardmore, Oklahoma. The Kingston
facility consists of 34,000 square feet of manufacturing, warehouse and office
space. The Ardmore, Oklahoma facility consists of 10,000 square feet of
manufacturing, warehouse and office space. The Kingston facility is located on
approximately 6 acres of real property with 2.4 adjacent acres for expansion and
all of which are owned by the Company.
Item 3. Legal Proceedings.
There are pending two actions and several claims relating to
products of the Company manufactured and sold in the ordinary course of business
and which, in the opinion of management, will not adversely affect the business
or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
None
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PART II
Item 5. Market for Registrant's Common Stock
and Related Securityholder Matters.
The Company's common stock trades on the Nasdaq National Stock
Market under the symbol PVCC. The last trade of the common stock on September
11, 1998 was at a price of $6.625 per share. The following is a summary of the
high and low trade information on the Nasdaq National Stock Market during the
fiscal year of the Company ended June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
Year Ended June 30, 1998
Low High
<S> <C> <C>
1st Quarter $ 3.06 $4.75
2nd Quarter 3.50 4.69
3rd Quarter 4.38 7.25
4th Quarter 6.00 9.75
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
Low High
<S> <C> <C>
1st Quarter $3.14 $3.42
2nd Quarter 3.17 3.46
3rd Quarter 3.86 4.19
4th Quarter 3.38 3.78
</TABLE>
As at September 11, 1998, the number of holders of record of
the issued and outstanding common stock of the Company was approximately 620.
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 $.06 per share payable on September 20,
1996 to shareholders of record as of the close of business on September 13,
1996. No dividends have been declared or paid during the fiscal years ended June
30, 1997 or June 30, 1998.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended June 30
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME
STATEMENT DATA:
----------- ----------- ----------- ----------- -----------
Net Sales $69,728,498 $58,392,310 $57,216,317 $53,886,103 $38,352,843
----------- ----------- ----------- ----------- -----------
Income from operations $ 4,489,406 $ 4,206,218 $ 4,950,200 $ 3,556,095 $ 1,535,767
----------- ----------- ----------- ----------- -----------
Net Income $ 2,087,891 $ 2,250,528 $ 2,552,570 $ 1,610,665 $ 647,260
----------- ----------- ----------- ----------- -----------
Earnings per share:*
Weighted average
shares-diluted 7,064,671 6,989,034 6,841,085 6,964,730 6,931,256
----------- ----------- ----------- ----------- -----------
Net Income $ .30 $ .32 $ .37 $ .23 $ .09
----------- ----------- ----------- ----------- -----------
Cash dividends per share $ -- $ .06 $ -- $ .05 $ .05
----------- ----------- ----------- ----------- -----------
Stock dividends per share $ -- $ -- $ .08 $ -- $ --
----------- ----------- ----------- ----------- -----------
SELECTED BALANCE
SHEET DATA
----------- ----------- ----------- ----------- -----------
Current assets $25,000,463 $20,386,764 $19,274,008 $16,605,173 $14,716,364
----------- ----------- ----------- ----------- -----------
Current liabilities $16,654,395 $11,876,707 $12,299,121 $10,655,197 $10,084,651
----------- ----------- ----------- ----------- -----------
Working capital $ 8,346,068 $ 8,510,057 $ 6,974,887 $ 5,949,976 $ 4,631,713
----------- ----------- ----------- ----------- -----------
Total assets $70,371,118 $46,041,366 $44,181,871 $34,158,390 $32,159,249
----------- ----------- ----------- ----------- -----------
Noncurrent liabilities $34,989,808 $17,525,635 $17,196,372 $11,369,189 $11,213,163
----------- ----------- ----------- ----------- -----------
Stockholders' equity $18,726,915 $16,639,024 $14,686,378 $12,134,004 $10,861,435
----------- ----------- ----------- ----------- -----------
</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.
-11-
<PAGE> 14
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,
1998 reached a level of $69,728,000, an increase of approximately 19.4% over the
1997 level of $58,392,000. The Company's Airopak specialty container division
and its Novatec Plastics division both experienced increased demand; its Novapak
division, which now includes the Charter Supply Co., Inc. acquisition,
registered significant growth in demand for its PET bottles. The overall
increase was primarily a result of higher sales volumes throughout the
Company's bottle manufacturing facilities.
Cost of goods sold (exclusive of depreciation and
amortization) decreased from 78.2% in 1997 to 76.7% in fiscal 1998.
Manufacturing efficiencies and lower raw material prices accounted for this
decrease. Selling, general, and administrative expenses ("SG&A") were
$6,522,000 or 9.4% of net sales for the fiscal year ended June 30, 1998 as
compared to $5,394,000 or 9.2% of net sales for the fiscal year ended June 30,
1997. SG&A expenses have increased to support the Company's expansion and its
entry into the PET market.
The Company recorded a $1,200,000 pretax charge to income for
restructuring relating to the severance and other exit costs associated with
the relocation of its Eatontown, New Jersey manufacturing facility to Hazleton,
Pennsylvania. The Company expects that these costs will be paid primarily in
fiscal 1999.
Income from operations for the fiscal year ended June 30, 1998
increased to $4,489,000, or 6.4% of net sales; before the restructuring charge,
income from operations was $5,689,000, or 8.2% of net sales. For fiscal 1997,
income from operations was $4,206,000 or 7.2% of net sales. Increased revenues
and profit margins more than offset the increase in SG&A and depreciation
expense.
Net interest expense increased $361,000 during the fiscal year
ended June 30, 1998 as compared to fiscal 1997. The net increase was primarily
due to additional borrowings to finance acquisitions.
Net income for the year ended June 30, 1998 decreased to
$2,088,000 or $.30 per share as compared to $2,251,000 or $.32 per share for
fiscal 1997. Prior to the restructuring charge, net income was $2,790,000 or
$.40 per share.
FISCAL 1997 AS COMPARED TO FISCAL 1996
The Company's net sales for the fiscal year ended June 30,
1997 reached a level of $58,392,000, an increase of approximately 2.1% over the
1996 level of $57,216,000. Lower than expected demand for the general line of
plastic bottles was more than offset by increased demand in the Company's
Airopak specialty container division and its Novatec Plastics PVC compound
division. Cost of goods sold decreased marginally from 78.4% of net sales in
1996 to 78.2% for 1997. Selling, general and administrative expenses ("SG&A")
was $5,394,000, or 9.2% of net sales for the fiscal year ended June 30, 1997 as
compared to $4,505,000, or 7.9% of net sales for the fiscal year
-12-
<PAGE> 15
ended June 30, 1996, representing a 19.7% increase over the same period last
year. SG&A expenses have increased to support the anticipated future growth in
revenue that is expected from the Company's expansion in South Carolina and its
entry into the PET market.
Income from operations for the fiscal year ended June 30, 1997
decreased to $4,206,000 or 7.2% of net sales from $4,950,000 or 8.7% of net
sales for the prior fiscal year. Higher sales margins were more than offset by
the higher SG&A expenses referred to in the preceding paragraph. The Company's
share of the operating loss in the Edge Craft USA joint venture, including the
write-off associated with its sale, amounted to $162,000.
Net interest expense increased $35,000 during the fiscal year
ended June 30, 1997, as compared to fiscal 1996. Lower interest rates, offset by
additional borrowings resulted in the slight increase in interest expense.
Net income for the year ended June 30, 1997 decreased $302,000
to $2,251,000 or $.32 per share as compared to $2,553,000 or $.37 per share for
fiscal 1996.
Liquidity and Capital Resources
The Company's liquidity position at June 30, 1998 changed
slightly from the prior year. Working capital decreased approximately $164,000
to $8,346,000 at June 30, 1998 from $8,510,000 at June 30, 1997. The current
ratio decreased to 1.50 at June 30, 1998 from 1.72 at June 30, 1997.
Cash flows from operations for fiscal 1998 totaled
approximately $7,409,000, which represent an increase of $4,465,000 from the
prior year. The most significant factors for the increase are additional
depreciation, improved accounts receivable collections, and better inventory
management.
The Company received $12,460,000 in proceeds from long term
debt, as well as $1,011,000 from the sale of certain equipment. These funds,
combined with the cash flow from operations, were used to finance the
acquisition of Charter Supply Co., Inc., acquire $5,536,000 in capital assets,
and reduce long term debt by $4,489,000.
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, 1998, the
Company had unused sources of liquidity consisting of cash and cash equivalents
of $868,000 and available unused credit under a revolving credit facility of
$3,600,000.
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.
-13-
<PAGE> 16
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 estimated to be completed in calendar
1999 in advance of any potential impact of Year 2000 issues on its present
systems. Approximately $400,000 of capitalized costs related to this program
are included in the Company's June 30, 1998 consolidated balance sheet, and the
Company expects further capitalized costs to total approximattely $600,000.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 vendors 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.
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 51 1982 President, Chief Executive, and
Director
Joel Francis Roberts 54 1989 Vice President Operations
William A. Del Pizzo 40 1996 Vice President, Chief Financial
Officer
John F. Turben 63 1996 Director
Raymond A. Lancaster 52 1996 Director
Michael Sherwin 57 1996 Director
George R. Begley 55 1996 Director
</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. He is a member
of the Executive Committee of the Company.
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.
WILLIAM A. DEL PIZZO, was employed by Price Waterhouse from
1978 to 1980, when he joined Allied Signal Corporation where he held a variety
of accounting and financial positions from 1980 until 1989. He then joined
Ausimont USA, Inc., a manufacturer of fluoropolymers and specialty chemicals,
where he served as Chief Financial Officer until 1996. In October 1996, he
joined the Company as Vice President and Chief Financial Officer.
GEORGE R. BEGLEY
Mr. Begley is an independent investment advisor, a director of
North Coast Energy and a member of the audit committee of the Company.
-15-
<PAGE> 18
RAYMOND A. LANCASTER
Mr. Lancaster is the Managing Partner of Kirtland Capital
Partners II L.P. (see "Security Ownership of Certain Beneficial Owners and
Management") and was the managing partner of Kirtland Capital Partners from 1995
to 1996 and of Key Corp. from 1990 to 1995. He is a member of the Executive and
Audit Committee of the Company. Currently, Mr. Lancaster is a KCP I and KCP II
Advisory Board member and a member of the Board of Directors of Fairmont
Minerals, Ltd., PVC Container Corporation, R. Tape Corporation, ShoreBridge
Corp., STERIS Corporation, and Unifrax Corporation.
MICHAEL SHERWIN
Mr. Sherwin is the Vice Chairman of Mid-West Forge Corporation
and Chairman and Chief Executive Officer of Columbiana Boiler Company. Prior to
joining Mid-West Forge Corporation, Mr. Sherwin was the President of National
City Venture Corporation and National City Capital Corporation, both
subsidiaries of National City Corporation. He is chairman of the Audit Committee
of the Company.
JOHN F. TURBEN
Mr. Turben is Chairman of Kirtland Capital Partners and is a
KCP I and KCP II Advisory Board member and serves as Chairman of The Hickory
Group, PVC Container Corporation and Harrington and Richardson 1871, Inc. He is
also Chairman of the Executive Committee of Fairmount Minerals, Ltd. and
Execution Services Inc. He is a director of NACCO Industries, Unifrax
Corporation and TruSeal Technologies Inc. He is Chairman of the Board of the
Company and a member of its Executive Committee.
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.
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, 1998 and 1997
Consolidated Statements of Income for the three years ended
June 30, 1998
Consolidated Statements of Stockholders' Equity for the three
years ended June 30, 1998
Consolidated Statements of Cash Flows for the three years
ended June 30, 1998
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, 1998
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).
10.13 Employment Agreement between the Company and Phillip
L. Friedman dated July 1, 1996 (filed as Exhibit 10.2
to the December 12, 1996 8-K, and incorporated herein
by reference).
-18-
<PAGE> 21
10.14 Stock Purchase Agreement among the Company, Kirtland
Capital Partners, and Rimer Anstalt, dated December
3, 1996 (filed as Exhibit 10.1 to the December 12,
1996 8-K and incorporated herein by reference).
10.15 1996 Incentive Stock Option Plan (filed as Exhibit
10.3 to the December 12, 1996 8-K, and incorporated
herein by reference).
10.16 Asset Purchase Agreement dated March 30, 1998 among
the Company, Charter Supply Co.,Inc. and McKechnie
Investments, Inc. (filed as an Exhibit to the April
14, 1998 Report on Form 8-K and incorporated herein
by; reference).
10.17 Loan and Security Agreement among the Company and its
subsidiaries and Fleet Bank, N.A. dated March 30,
1998 relating to the financing of the purchase
described in 10.16 above (filed as an Exhibit to the
April 14, 1998 Report on Form 8-K and incorporated
herein by reference).
10.18 Stock Purchase Agreement dated September 3, 1998
among the Company and the sellers of all the
securities of Marpac Industries,s nc. (filed as an
Exhibit to the September 18, 1998 Report on Form 8-K
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).
22 Subsidiaries of the Company (filed as Exhibit 22 to
the 1987 10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP
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,
1998:
None.
-19-
<PAGE> 22
(c) Exhibits
None.
(d) Financial statement schedules
The financial statement schedules required by Regulation S-X are
submitted as a separate section of this filing.
-20-
<PAGE> 23
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 14, 1998
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.
Signature Title Date
/s/ Phillip L. Friedman Chief Executive September 14, 1998
Phillip L. Friedman Officer and Director
/s/ William A. Del Pizzo Vice President, Chief September 14, 1998
William A. Del Pizzo Financial and Accounting
Officer
/s/ John F. Turben Director September 14, 1998
John F. Turben
/s/Raymond A. Lancaster Director September 14, 1998
Raymond A. Lancaster
/s/ George R. Begley Director September 14, 1998
George R. Begley
/s/ Michael Sherwin Director September 14, 1998
Michael Sherwin
-21-
<PAGE> 24
Consolidated Financial Statements
PVC Container Corporation
June 30, 1998, 1997 and 1996
<PAGE> 25
PVC Container Corporation
Consolidated Financial Statements
June 30, 1998, 1997 and 1996
CONTENTS
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
<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, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1998. 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, 1998 and 1997 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1998 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
August 21, 1998
1
<PAGE> 27
PVC Container Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1998 1997
--------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 868,498 $ 222,490
Accounts receivable, less allowance of $412,000
in 1998 and $243,000 in 1997 11,091,406 9,272,018
Inventories 10,901,200 9,407,146
Prepaid expenses, taxes and other current assets 653,326 538,593
Deferred income taxes 1,486,033 946,517
----------- ----------
Total current assets 25,000,463 20,386,764
Other assets 426,000
Unexpended proceeds from construction loan 8,653,055 4,244,334
Properties, plant and equipment at cost - net of
accumulated depreciation 36,291,600 21,410,268
----------- -----------
$70,371,118 $46,041,366
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,993,694 $6,443,880
Accrued expenses 5,806,645 3,147,719
Income taxes payable 238,325 418,460
Current portion of long-term debt 2,615,731 1,866,648
----------- -----------
Total current liabilities 16,654,395 11,876,707
Long-term debt 33,309,115 16,337,169
Deferred income taxes 1,680,693 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 June 30, 1998 and 1997 70,047 70,047
Capital in excess of par value 3,646,747 3,646,747
Retained earnings 15,010,121 12,922,230
----------- -----------
Total stockholders' equity 18,726,915 16,639,024
----------- -----------
$70,371,118 $46,041,366
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 28
PVC Container Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $69,728,498 $58,392,310 $57,216,317
Cost and expenses:
Cost of goods sold (exclusive of
depreciation and amortization
expense shown separately below) 53,508,548 45,650,484 44,838,971
Selling, general and administrative
expense 6,521,759 5,393,838 4,505,330
Depreciation and amortization expense 4,008,785 2,979,982 2,813,340
Equity in loss of jointly owned company 161,788 108,476
Provision for restructuring 1,200,000
----------- ---------- -----------
65,239,092 54,186,092 52,266,117
----------- ---------- -----------
Income from operations 4,489,406 4,206,218 4,950,200
Other income (expenses):
Interest expense (1,205,477) (834,695) (796,463)
Interest income 13,451 4,093 1,346
Other income 144,018 250,261 139,284
----------- ---------- -----------
(1,048,008) (580,341) (655,833)
----------- ---------- -----------
Income before provision for income taxes 3,441,398 3,625,877 4,294,367
Provision for income taxes 1,353,507 1,375,349 1,741,797
----------- ---------- -----------
Net income $ 2,087,891 $2,250,528 $2,552,570
=========== ========== ===========
Earnings per share (basic and diluted) $.30 $.32 $.37
Cash dividends per share .06
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
OUTSTANDING CAPITAL IN TOTAL
------------------------------ EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income 2,250,528 2,250,528
Cash dividends (417,882) (417,882)
Issuance of common stock 40,000 400 119,600 120,000
---------------------------------------------------------------------------------------
Balance, June 30, 1997 7,004,705 70,047 3,646,747 12,922,230 16,639,024
Net income 2,087,891 2,087,891
Balance, June 30, 1998 7,004,705 $ 70,047 $3,646,747 $ 15,010,121 $18,726,915
=======================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 30
PVC Container Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,087,891 $ 2,250,528 $ 2,552,570
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,008,785 2,979,982 2,813,340
Equity in loss of jointly owned company 161,788 108,476
Deferred income taxes (47,289) (93,528) (275,577)
Gain on sale of building and equipment (167,250)
Changes in assets and liabilities:
Accounts receivable 450,247 (408,574) (657,711)
Inventories (387,327) (1,043,624) (1,928,514)
Prepaid expenses, taxes and other current assets (93,788) (246,383) 33,682
Other assets (426,000)
Accounts payable and accrued expenses 1,996,779 (75,172) 1,712,530
Income taxes payable (180,135) (413,490) 491,459
------------ ----------- -----------
Net cash provided by operating activities 7,409,163 2,944,277 4,850,255
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,535,987) (3,103,208) (4,376,787)
Investment in (proceeds from) jointly
owned company 291,199 (399,675)
Proceeds from sale of building and equipment 1,011,382 2,759,167
Purchase of business (10,209,579)
------------ ----------- -----------
Net cash used in investing activities (14,734,184) (52,842) (4,776,462)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 12,459,720 1,151,583 2,175,000
Payments on indebtedness (4,488,691) (4,461,812) (2,360,568)
Dividends paid (417,882) (196)
------------ ----------- -----------
Net cash provided by (used in) financing activities 7,971,029 (3,728,111) (185,764)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents 646,008 (836,676) (111,971)
Cash and cash equivalents, beginning of year 222,490 1,059,166 1,171,137
------------ ----------- -----------
Cash and cash equivalents, end of year $ 868,498 $ 222,490 $ 1,059,166
============ =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 31
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 1998, 1997 and 1996
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 Corporation,
Novapak Corporation, 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.
STOCK PURCHASE AGREEMENT
Pursuant to a stock purchase agreement dated December 3, 1996, and executed on
December 12, 1996, approximately 4.37 million shares of the Company's common
stock was purchased by Kirtland Capital Partners II LP and an affiliate, from
Rimer Anstalt (former majority shareholder) and certain other shareholders of
the Company.
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.
DEPRECIATION
Depreciation is provided for financial reporting purposes on a straight-line
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.
6
<PAGE> 32
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $257,000, $240,000, and $252,000 in 1998, 1997 and 1996,
respectively.
INTEREST-RATE PROTECTION AGREEMENTS
The Company enters into monthly Interest-Rate Protection Agreements ("IRPAs") to
modify the interest characteristics of certain outstanding debt. Each IRPA is
designated for all or a portion of the principal balance and term of a specific
debt obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the life
of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related to
the debt. The fair values of IRPAs are not recognized in the financial
statements. Gains and losses on terminations of IRPAs would be deferred as an
adjustment to the carrying amount of the outstanding debt and amortized as an
adjustment to interest expense related to the debt over the remaining term of
the original contract life of the IRPAs. In the event of the early
extinguishment of the designated debt obligation, any realized or unrealized
gain or loss from the IRPA would be recognized in income coincident with the
extinguishment. The Company does not enter into any IRPAs that are not
designated with outstanding debt or which have notional amounts (or durations)
in excess of the principal amounts (or maturities) of the underlying debt.
STOCK-BASED COMPENSATION
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
(FASB 123), the Company has elected to follow Accounting Principles Board
Opinion
7
<PAGE> 33
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock option plans. Under APB 25,
compensation expense is calculated at the time of option grant based upon the
difference between the exercise price of the option and the fair market value of
the Company's common stock at the date of grant, recognized over the vesting
period.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of 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 appropriate, restated to conform to the Statement 128 requirements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 established standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Statement 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Statement 130 is effective
for fiscal years beginning after December 15, 1997. The Company does not expect
to be significantly impacted by the adoption of Statement 130.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
established standards for related disclosures about products and services,
geographic areas and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997 and, therefore,
the Company will adopt the new requirements retroactively in fiscal year 1999.
Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments.
8
<PAGE> 34
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new statement will have a significant effect on earnings or the financial
position of the Company.
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.
RECLASSIFICATION
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Raw materials $ 3,355,086 $3,227,543
Finished goods 6,634,135 5,546,262
------------ ----------
Total LIFO inventories 9,989,221 8,773,805
Molds for resale, in production 539,635 278,800
Supplies 372,344 354,541
------------ ----------
Total $ 10,901,200 $9,407,146
============ ==========
</TABLE>
The excess of inventory valued at LIFO cost over FIFO basis which approximates
replacement cost at June 30, 1998 was approximately $385,000. Replacement cost
exceeded LIFO cost by approximately $2,000 at June 30, 1997.
9
<PAGE> 35
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
3. PROPERTIES, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
1998 1997 LIFE IN
YEARS
----------- ----------- --------
<S> <C> <C> <C>
Land $ 450,686 $ 250,686
Building and improvements 18,330,991 13,071,247 20-25
Machinery and equipment 37,045,029 26,096,983 7-10
Molds 4,650,585 3,088,678 3- 5
Office furniture and equipment 2,035,304 1,171,927 5-l0
Motor vehicles 74,959 34,447 3- 5
Leasehold improvements 13,521 13,521
----------- -----------
62,601,075 43,727,489
Less accumulated depreciation 26,309,475 22,317,221
----------- -----------
$36,291,600 $21,410,268
=========== ===========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Accrued payroll $ 819,063 $ 475,866
Accrued vacation 709,261 615,210
Accrued employee incentives 2,123,408 1,387,857
Accrued restructuring charge 1,200,000
Other accrued expenses 954,913 668,786
---------- ----------
$5,806,645 $3,147,719
========== ==========
</TABLE>
10
<PAGE> 36
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Notes payable:
South Carolina Economic Development
Authority:
Loan $ 3,700,000 $ 5,500,000
New Jersey Economic Development Authority:
Series D Note 3,150,000 3,400,000
GE Capital Public Finance:
Equipment loans 7,714,415 2,261,667
Building loan 5,129,412 1,189,916
Fleet Bank of New Jersey:
Term notes 13,557,778 4,541,111
Revolving line of credit 1,400,000
Edgar County Bank Construction Loan 500,038 534,374
City of Paris:
Community Development Assistance Loan 349,894 380,335
Revolving Loan Fund 105,143 114,240
Illinois Small Business Development Loan 262,625 282,174
Obligations under capital leases 55,541
----------- -----------
35,924,846 18,203,817
Less current portion (2,615,731) (1,866,648)
----------- -----------
$33,309,115 $16,337,169
=========== ===========
</TABLE>
Maturities of long-term debt are as follows: 1999 - $2,615,731; 2000 -
$3,292,696; 2001 - $3,999,465; 2002 - $2,641,142; 2003 - $2,633,020; and 2004 to
2016 - $20,772,792. Interest paid amounted to $1,174,899, $837,461 and $749,327
in 1998, 1997 and 1996, respectively.
NOTE PAYABLE - SOUTH CAROLINA ECONOMIC DEVELOPMENT AUTHORITY "S.C. EDA"
This note was obtained to finance the construction of the Company's South
Carolina manufacturing facility and is due 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% and 3.8% in 1998 and 1997, respectively.
11
<PAGE> 37
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
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.
The Company has unused letters of credit amounting to $3,852,000 in conjunction
with this note.
NOTE PAYABLE - NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY "N.J. EDA"
SERIES D NOTE
This note is due October 3l, 2006 and is payable as follows: $250,000 due on
October l, each year through October l, 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 3.6% in 1998 and 1997, 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.
The Company has unused letters of credit amounting to $3,230,000 in conjunction
with this note.
GE CAPITAL PUBLIC FINANCE BUILDING AND EQUIPMENT LOANS
During fiscal year 1998, the Hazleton Area Industrial Development Authority
approved $7,250,000 tax-exempt Industrial Development Bonds. The Bonds were
purchased and are held by GE Capital Public Finance, Inc., who is financing a
loan to the Company in conjunction with the Company's construction of its
Hazleton, Pennsylvania manufacturing facility. The loan is payable in 144
decreasing monthly installments at an
12
<PAGE> 38
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
interest rate of 5.15% with a final lump sum payment of $1,860,530 on June 15,
2010. The loan may be prepaid in whole or in part subject to certain
requirements stated in the loan agreement. The loan is collateralized by the
property.
During fiscal year 1998, the City of Paris, Illinois approved $2,500,000 Series
1997C Industrial Development Revenue bonds. The Bonds were purchased and are
held by GE Capital Public Finance, Inc., who is financing a loan to the Company
in conjunction with the Company's expansion of its Paris, Illinois manufacturing
facility. The loan is payable in 120 decreasing monthly installments at an
interest rate of 5.45% through March 16, 2008. The loan may be prepaid in whole
or in part subject to certain requirements stated in the loan agreement. The
loan is collateralized by the property and the equipment.
During fiscal year 1997, the City of Paris, Illinois approved $1,200,000 Series
1997A and $2,300,000 Series 1997B Industrial Development Revenue Bonds. The
Bonds were purchased and are held by GE Capital Public Finance, Inc., who is
financing a loan to the Company in conjunction with the Company's expansion of
its Paris, Illinois manufacturing facility. The loan is payable in 120
decreasing monthly installments at an interest rate of 5.90% with a final lump
sum payment of $602,952 on April 1, 2007. The loan may be prepaid in whole or in
part subject to certain requirements stated in the loan agreement. The loan is
collateralized by the property and the equipment. The Company has unused letters
of credit amounting to $1,247,600 in conjunction with this loan.
The agreements contain provisions which require the funds to be held in trust
(the "Trust") by a third-party financial institution until such time that
building, construction or equipment purchases are made. The funds are invested
at rates of return comparable to the interest rate paid by the Company on the
obligation. Purchases in connection with this agreement are paid directly from
the Trust.
The bonds issued by the City of Paris to fund the debt are tax-exempt bonds.
Should the tax-exempt status of these bonds be negated, the rate of interest of
this note would be retroactively adjusted.
TERM NOTES
During fiscal year 1998, the Company obtained a $10.0 million loan from Fleet
Bank ("Fleet") to finance the March 30, 1998 acquisition of Charter Supply Co.,
Inc. The loan principal is payable in 72 monthly installments of $83,333
beginning on April 1, 1999 with a final lump sum payment of $4.0 million on
March 1, 2005. The Company
13
<PAGE> 39
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
participates in an interest rate protection agreement ("SWAP") whereby the
Company has assumed a fixed rate of interest on $5.0 million of the principal at
7.35% and Fleet has assumed the variable rate assigned to the loan (LIBOR plus
125 basis points). Pursuant to the SWAP agreement, the Company agrees to
exchange with Fleet, on a monthly basis, the difference between the fixed rate
in the SWAP agreement and the LIBOR floating rate applied to the notional
principal amount. Interest on the remaining $5.0 million of principal is payable
monthly beginning on April 1, 1998 at LIBOR plus 125 basis points through the
loan's maturity on March 1, 2005. The loan is collateralized by the property and
equipment purchased. The Company has unused letters of credit amounting to
$4,508,000 in conjunction with this loan.
During fiscal year 1997, the Company consolidated various equipment and term
notes through a $2,530,000 term loan with Fleet Bank. The loan provides for
monthly payments of $70,278, including principal and interest, matures on April
1, 2000 and is collateralized by the equipment. The Company participates in an
interest rate protection agreement ("SWAP"), whereby the Company has assumed a
fixed rate of interest on the remaining principal at 7.72% and Fleet has assumed
the variable rate assigned to the loan (LIBOR plus 125 basis points). Pursuant
to the SWAP agreement, the Company agrees to exchange with Fleet, on a monthly
basis, the difference between the fixed rate in the SWAP agreement and the LIBOR
floating rate applied to the notional principal amount. The Company may prepay
this note in whole or in part subject to certain requirements stated in the loan
agreement.
During fiscal year 1997, the Company obtained a $1.2 million loan from Fleet
Bank to finance the expansion of its New Jersey manufacturing facility. The loan
is payable in 180 monthly payments of $6,667 including principal and interest,
through the note's maturity in November 2011. The Company participates in an
interest rate protection agreement ("SWAP") whereby the Company has assumed a
fixed rate of interest on the remaining principal at 9.35% and Fleet has assumed
the variable rate assigned to the loan (LIBOR plus 225 basis points). Pursuant
to the SWAP agreement, the Company agrees to exchange with Fleet, on a monthly
basis, the difference between the fixed rate in the SWAP agreement and the LIBOR
floating rate applied to the notional principal amount. The note is
collateralized by the building.
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, July 1, 1999,
14
<PAGE> 40
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
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.
REVOLVING LINE OF CREDIT
On April 1, 1997, the Company entered into a new $5,000,000 line of credit
agreement with Fleet Bank. Borrowings under this line bear interest payable
monthly at the prime rate (8.5% at June 30, 1998), and principal borrowings are
due in full on October 31, 1999. The Company was in compliance with all
covenants of this loan agreement at June 30, 1998.
EDGAR COUNTY BANK CONSTRUCTION LOAN
During fiscal year 1998, the Company refinanced $495,000 of their loan obtained
for real estate improvements for a manufacturing plant in Paris, Illinois. The
loan is payable in fifty-nine monthly principal payments of $2,750 and a final
lump sum payment of $332,750 on August 30, 2003 plus interest at 7.75%. 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% through April 1, 2008. 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 installments of $1,033 including interest at 3% through
April 1, 2008. The loan is
15
<PAGE> 41
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
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 in August 2008. 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.
The carrying amounts of the aforementioned debt agreements approximate fair
value.
6. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------
<S> <C>
1999 $ 961,077
2000 940,758
2001 837,388
2002 809,002
2003 798,304
Thereafter 4,403,369
</TABLE>
Rental expense for operating leases amounted to $810,824, $681,924 and $555,091
in 1998, 1997 and 1996, 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
16
<PAGE> 42
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>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Normal service cost $ 63,693 $55,439 $55,513
Interest on projected benefit obligation 63,336 49,946 43,376
Gain on return of plan assets (42,589) (35,312) (27,862)
Amortization cost 15,738 12,039 14,532
-------- ------- -------
Net periodic pension cost $100,178 $82,112 $85,559
======== ======= =======
</TABLE>
The reconciliation of the funded status of the Plan to the amount on the
Company's balance sheet is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 911,066 $ 719,960
--------- ---------
Accumulated benefits $ 959,833 $ 761,667
======== =========
Actuarial present value of projected benefit obligation $(959,833 $(761,667)
Market value of plan assets 706,409 565,503
--------- ---------
Accumulated benefit obligation in excess of plan assets (253,424) (196,164)
Unrecognized net obligation existing at transition 111,205 123,561
Unrecognized prior service cost 82,322
Unrecognized net loss 172,708 156,046
Adjustment required to recognize minimum liability (366,235) (279,607)
-------- ---------
Accrued pension liability $ 253,424 $ 196,164
========= =========
</TABLE>
The assumptions used in determining the funded status of the Plan are as
follows: (i) discount rate - 7.5% in 1998 and 1997, and (ii) expected rate of
return on assets of 8.5% for 1998 and 1997.
The Company maintains a voluntary salary reduction 40l(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 $391,081, $282,991 and $520,123
in 1998, 1997 and 1996, respectively.
17
<PAGE> 43
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK
The Company's Board of Directors approved and ratified on January 16, 1997, an
incentive stock option plan pursuant to which options to purchase an aggregate
of 600,000 shares of the common stock of the Company may be granted. Such plan
conforms to the requirements of Rule 16B-3 of the Securities Exchange Act of
1934. The options granted are exercisable to the extent of 20-25% per year on a
cumulative basis through their expiration on January 16, 2007.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FASB 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997, respectively: risk-free interest rates of between
6.23% and 7%; expected volatility of 0.3%; expected option life equal to the
vesting period, and an expected dividend yield of 0.0%.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the equity
awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Pro forma net income $2,080,883 $2,247,316
Pro forma net income per share of common stock .30 .32
</TABLE>
18
<PAGE> 44
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- ---------
<S> <C> <C>
Outstanding at June 30, 1996 - $ -
Granted 374,000 4.29
Forfeited - -
Exercised - -
------- --------
Outstanding at June 30, 1997 374,000 4.29
Granted - -
Forfeited - -
Exercised - -
------- --------
Outstanding at June 30, 1998 374,000 $ 4.29
======= ========
Exercisable at June 30, 1997 79,250 $ 4.28
======= ========
Exercisable at June 30, 1998 158,500 $ 4.28
======= ========
</TABLE>
Exercise prices for options outstanding as of June 30, 1998 ranged from $4.13 to
$4.50 per share. The weighted average remaining contractual life of these
options is 8.6 years.
The Company contributed 40,000 shares of common stock to its Employee Stock
Option Plan ("ESOP") on November 21, 1996. The value of the shares at the date
of grant in fiscal 1996 was $120,000 which was included in selling, general and
administrative expenses in fiscal year 1996.
The Company paid cash dividends per share of $.06 in the year ended June 30,
1997. The Company has no intention to pay cash dividends in the future.
19
<PAGE> 45
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal $1,065,700 $ 1,125,441 $1,595,679
State 335,096 343,436 421,695
---------- ----------- ----------
1,400,796 1,468,877 2,017,374
Deferred:
Federal (36,649) (72,485) (229,015)
State (10,640) (21,043) (46,562)
---------- ----------- ----------
(47,289) (93,528) (275,577)
---------- ----------- ----------
Total provision $1,353,507 $ 1,375,349 $1,741,797
========== =========== ==========
</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, 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $1,680,693 $1,188,466
---------- ----------
Total deferred tax liabilities 1,680,693 1,188,466
Deferred tax assets:
Bad debt reserves 164,077 97,077
Inventory reserves 220,800 214,387
Accrued liabilities and other 1,101,156 635,053
---------- ----------
Total deferred tax assets 1,486,033 946,517
---------- ----------
Net deferred tax liabilities $ 194,660 $ 241,949
========== ==========
</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>
1998 1997 1996
---- ---- ----
<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 6
Foreign operations (1) (1) (1)
Other (1) 1
-- -- --
Effective income tax rate 39% 38% 40%
== == ==
</TABLE>
20
<PAGE> 46
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Income taxes paid amounted to $1,571,000, $1,812,000 and $1,462,000 in 1998,
1997 and 1996, respectively.
10. ACQUISITION
On March 30, 1998, the Company acquired from McKechnie Investments, Inc.,
certain assets and liabilities from its wholly-owned subsidiary known as Charter
Supply Co., Inc. for $10.21 million.
The Company accounted for the acquisition as a purchase. Accordingly, the
acquired assets and liabilities assumed 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 unaudited pro forma results as if the
acquisition had occurred on July 1, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $81,773,000 $74,167,000
Net income 2,008,000 1,570,000
Net income per diluted share
.28 .22
</TABLE>
The pro forma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented nor are they intended to be indicative of
results that may occur in the future.
11. EARNINGS PER SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating basic and diluted earnings per share for the years
ended June 30, 1998, 1997 and 1996. Income available to common stockholders for
both basic and diluted earnings per share is the same as net income presented in
the statements of income for the years ended June 30, 1998, 1997 and 1996.
21
<PAGE> 47
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
11. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted-average shares for basic earnings
per share 7,004,705 6,989,034 6,841,085
Effect of dilutive securities:
Employee stock options 59,966 - -
--------- --------- ---------
Adjusted weighted-average shares for
diluted earnings per share 7,064,671 6,989,034 6,841,085
========= ========= =========
</TABLE>
12. PROVISION FOR RESTRUCTURING
During the fourth quarter of 1998, the Company recorded a $1.2 million charge
for restructuring relating to the relocation of its Eatontown, New Jersey
manufacturing facility to Hazleton, Pennsylvania. Principal items included in
the charge are severance for workforce reductions of approximately 114 union
employees totaling approximately $500,000, with the remainder of the charge
relating to pension costs and other exit costs. The majority of these
liabilities should be paid or settled during 1999.
13. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
As more fully described in Note 10, the Company acquired certain assets from
McKechnie Investments, Inc. on March 30, 1998. The purchase price was allocated
to the assets based on their estimated market values as follows:
<TABLE>
<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>
Excluded from the consolidated statements of cash flows in 1998 and 1997 was the
effect of certain noncash financing activities related to the $2.5 million loan
and the $7.3 million loan 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
22
<PAGE> 48
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
13. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES (CONTINUED)
1997 and the $5.5 million South Carolina EDA loan obtained by the Company in
April 1996. Capital expenditures in connection with these agreements totaled
approximately $3.5 million and $4.5 million in 1998 and 1997, respectively. The
Company retired $1.8 million of South Carolina EDA bonds in 1998.
14. SUBSEQUENT EVENT (UNAUDITED)
On September 3, 1998, the Company acquired all of the issued and outstanding
shares of Marpac Industries, Inc. ("Marpac"). The Company obtained approximately
$12 million of financing in order to fund the acquisition. Marpac produces
custom technical blow molded products including bottles, containers, cartridges,
double-wall cases, flexible spouts and various dispensers.
23
<PAGE> 49
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
BEGINNING COSTS AND ACCOUNTS AGAINST BALANCE
DESCRIPTION OF YEAR EXPENSES (DESCRIBED) RESERVE END OF YEAR
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Valuation accounts
deducted from
assets to which
they apply:
June 30, 1998:
Accounts receivable $242,692 $ 2,000 $167,033 (A) $411,725
Inventory 222,000 180,000 150,000 (A) 552,000
June 30, 1997:
Accounts receivable 242,692 141,000 - $141,000 242,692
Inventory 70,000 152,000 - - 222,000
June 30, 1996:
Accounts receivable 242,692 - - - 242,692
Inventory 50,000 70,000 - 50,000 70,000
</TABLE>
(A) Acquired in conjunction with acquisition of Charter Supply Co., Inc.
<PAGE> 50
Report of Independent Auditors
on Consolidated Schedules
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the consolidated financial statements of PVC Container
Corporation as of June 30, 1998 and 1997, and for each of the three years in the
period ended June 30, 1998, and have issued our report thereon dated August 21,
1998 (included elsewhere in this Form 10-K). Our audits also included the
financial statement schedule listed in Item 14(a) of this Form 10-K. These
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
August 21, 1998
<PAGE> 51
INDEX TO EXHIBITS
Exhibit
Number
Description of Exhibit
Page
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,
-22-
<PAGE> 52
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 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).
10.13 Employment Agreement between the Company and Phillip
L. Friedman dated July 1, 1996 (filed as Exhibit
10.2 to the December 12, 1996 8-K, and incorporated
herein by reference)
10.14 Stock Purchase Agreement among the Company, Kirtland
Capital Partners, and Rimer Anstalt, dated December
3, 1996 (filed as Exhibit 10.1 to the December 12,
1996 8-K and incorporated herein by reference).
-23-
<PAGE> 53
10.15 1996 Incentive Stock Option Plan (filed as Exhibit
10.3 to the December 12, 1996 8-K, and incorporated
herein by reference).
10.16 Asset Purchase Agreement dated March 30, 1998 among
the Company, Charter Supply Co.,Inc. and McKechnie
Investments, Inc. (filed as an Exhibit to the April
14, 1998 Report on Form 8-K and incorporated herein
by; reference).
10.17 Loan and Security Agreement among the Company and
its subsidiaries and Fleet Bank, N.A. dated March
30, 1998 relating to the financing of the purchase
described in 10.16 above (filed as an Exhibit to the
April 14, 1998 Report on Form 8-K and incorporated
herein by reference).
10.18 Stock Purchase Agreement dated September 3, 1998
among the Company and the sellers of all the
securities of Marpac Industries,s nc. (filed as an
Exhibit to the September 18, 1998 Report on Form 8-K
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).
22 Subsidiaries of the Company (filed as Exhibit 22 to
the 1987 10-K, and incorporated herein by
reference).
23 Consent of Ernst & Young LLP.
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.
-24-
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-26041) pertaining to the PVC Container Corporation 1996 Incentive
Stock Option Plan and in the related Prospectus of our report dated August 21,
1998, 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, 1998.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 868,498
<SECURITIES> 0
<RECEIVABLES> 11,503,406
<ALLOWANCES> 412,000
<INVENTORY> 10,901,200
<CURRENT-ASSETS> 24,873,463
<PP&E> 62,601,075
<DEPRECIATION> 26,309,475
<TOTAL-ASSETS> 70,244,118
<CURRENT-LIABILITIES> 16,654,395
<BONDS> 34,862,808
0
0
<COMMON> 70,047
<OTHER-SE> 18,656,868
<TOTAL-LIABILITY-AND-EQUITY> 70,244,118
<SALES> 69,728,498
<TOTAL-REVENUES> 69,885,967
<CGS> 53,508,548
<TOTAL-COSTS> 65,239,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,205,477
<INCOME-PRETAX> 3,441,398
<INCOME-TAX> 1,353,507
<INCOME-CONTINUING> 2,087,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,087,891
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
