<PAGE> 1
Part I
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from
to
COMMISSION FILE NUMBER 0-30067
PVC CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2616435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Industrial Way West, Eatontown, New Jersey 07724
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (732) 542-0060
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1999
Common $.01 par value 7,004,705 shares
<PAGE> 2
Part I
CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - March 31, 1999 and June 30, 1998 3
Consolidated Statements of Income - Three Months Ended March 31,
1999 and 1998 and Nine Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows - Nine Months Ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations
9-10
PART II. OTHER INFORMATION 11
</TABLE>
<PAGE> 3
Part I
PVC Container Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
MARCH JUNE
31, 1999 30, 1998
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 228,370 $ 868,498
Accounts receivable, less allowance of $518,000 at March 31, 1999
and $412,000 at June 30, 1998 12,276,045 11,091,406
Inventories 12,796,744 10,901,200
Prepaid expenses, taxes and other current assets 1,066,758 653,326
Deferred income taxes 1,486,033 1,486,033
----------------------------
Total current assets 27,853,950 25,000,463
Other assets 428,359 426,000
Intangibles, net 3,903,106
Unexpended proceeds from construction loan 6,084,847 8,653,055
Properties and equipment at cost - net of accumulated depreciation
45,255,049 36,291,600
----------------------------
$83,525,311 $70,371,118
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,180,174 $ 7,993,694
Accrued expenses 4,765,877 5,806,645
Income taxes payable 763,205 238,325
Current portion of long-term debt 4,692,202 2,615,731
----------------------------
Total current liabilities 18,401,458 16,654,395
Long-term debt 42,590,177 33,309,115
Deferred income taxes 3,200,693 1,680,693
Stockholders' equity:
Preferred stock, par value $1.00, authorized 1,000,000 shares, none
issued
Common stock, par value $.01, authorized 10,000,000 shares, 7,004,705 shares
issued and outstanding as of March 31, 1999 and
June 30, 1998 70,047 70,047
Capital in excess of par value 3,646,747 3,646,747
Retained earnings 15,616,189 15,010,121
----------------------------
Total stockholders' equity 19,332,983 18,726,915
----------------------------
$83,525,311 $70,371,118
============================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Part I
PVC Container Corporation
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 23,458,934 $ 17,592,611 $ 60,773,682 $ 47,616,710
Cost and expenses:
Cost of goods sold (exclusive of
depreciation and amortization
expense shown separately below)
16,763,637 13,257,057 46,411,793 36,428,041
Selling, general and administrative
expenses 2,456,180 1,652,655 6,489,560 4,719,962
Depreciation and amortization 1,900,409 964,833 5,328,556 2,645,975
------------------------------------------------------------------
21,120,226 15,874,545 58,229,909 43,793,978
------------------------------------------------------------------
Income from operations 2,338,708 1,718,066 2,543,773 3,822,732
Other income (expense):
Interest expense (646,632) (297,289) (1,828,688) (754,202)
Other income 44,220 44,436 287,783 70,486
------------------------------------------------------------------
(602,412) (252,853) (1,540,905) (683,716)
------------------------------------------------------------------
Income before provision for
income taxes 1,736,296 1,465,213 1,002,868 3,139,016
Provision for income taxes (690,100) (593,055) (396,800) (1,271,255)
------------------------------------------------------------------
Net income $ 1,046,196 $ 872,158 $ 606,068 $ 1,867,761
==================================================================
Earnings per share (basic and diluted)
$ .15 $ .13 $ .09 $ .27
==================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 5
Part I
PVC Container Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
1999 1998
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ 606,068 $ 1,867,761
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 5,328,556 2,645,975
Gain on sale of equipment (107,000)
Deferred income taxes (30,000) (38,000)
Changes in assets and liabilities:
Accounts receivable - net of allowances 138,361 (1,472,649)
Inventories (1,388,544) (1,467,762)
Prepaid expenses, taxes and other current assets (287,432) 13,035
Other assets 295,641
Accounts payable and accrued expenses (2,233,288) 2,087,380
Income taxes payable 524,880 441,969
------------------------------
Net cash provided by operating activities 2,847,242 4,077,709
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of business (12,000,000) (10,209,579)
Capital expenditures (2,951,903) (3,175,375)
Proceeds from sale of equipment 107,000
------------------------------
Net cash used in investing activities (14,844,903) (13,384,954)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (3,042,467) (3,077,044)
Proceeds from long-term debt 14,400,000 12,459,720
------------------------------
Net cash provided by financing activities 11,357,533 9,382,676
------------------------------
Net (decrease) increase in cash and cash equivalents (640,128) 75,431
Cash and cash equivalents at beginning of period 868,498 222,490
------------------------------
Cash and cash equivalents at end of period $ 228,370 $ 297,921
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 1,721,300 $ 756,600
==============================
Income taxes paid $ 111,000 $ 867,000
==============================
</TABLE>
See accompanying notes.
5
<PAGE> 6
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements
Note 1 In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 1999, and the results of
operations and cash flows for the nine month periods ended March 31,
1999 and 1998.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these condensed financial statements be read in conjunction with the
financial statements and the notes included in the Company's latest
annual report on Form 10-K.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement
128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
Diluted earnings per share are based on the average number of common
shares outstanding during each period, assuming exercise of all stock
options having exercise prices less than the average market price of
the common stock using the treasury stock method. Common stock and
common stock equivalents amounted to 7,164,547 and 7,078,565 in the
third quarter of 1999 and 1998, respectively, and 7,166,873 and
7,018,535 for the nine month periods ended March 31, 1999 and 1998,
respectively.
Note 2 The accompanying financial statements include the accounts of PVC
Container Corporation and its wholly-owned subsidiaries, Novatec
Plastics Corporation, Marpac Industries, Inc., Airopak Corporation
and PVC Container International Sales Corporation, a foreign sales
company incorporated in the U.S. Virgin Islands on March 1, 1993. All
intercompany accounts have been eliminated.
Note 3 Excluded from the consolidated statements of cash flows for the nine
months ended March 31, 1999 and 1998 was the effect of certain
noncash financing activities related to the $2.5 million and $7.3
million loans obtained by the
6
<PAGE> 7
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Company from GE Capital in March 1998 and June 1998, respectively,
the $3.5 million loan from GE Capital obtained by the Company in
April 1997 and the $5.5 million South Carolina EDA loan obtained by
the Company in April 1996. Capital expenditures in connection with
these agreements totaled approximately $2,630,000 and $3,482,000 for
the nine months ended March 31, 1999 and 1998, respectively.
The purchase price for the business acquired (Note 5) in September
1998 is preliminarily allocated to the assets acquired and
liabilities assumed based on their estimated fair market values as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired:
Accounts receivable, net $ 1,323,000
Inventory, net 507,000
Other current assets 126,000
Property, plant and equipment 8,579,000
Goodwill and other noncurrent assets 4,394,000
Less liabilities assumed:
Accounts payable and accrued expenses (1,379,000)
Deferred income taxes (1,550,000)
-----------
Net cash paid $12,000,000
===========
</TABLE>
The purchase price for the business acquired (Note 5) in March 1998
was allocated to the assets acquired and liabilities assumed based on
their estimated fair market values as follows:
<TABLE>
<S> <C>
Fair value of assets acquired:
Accounts receivable, net $ 2,270,000
Inventory, net 1,107,000
Prepaid expenses and other current assets 21,000
Property, plant and equipment 9,024,000
Less liabilities assumed:
Accounts payable and accrued expenses (2,212,000)
-----------
Net cash paid $10,210,000
===========
</TABLE>
7
<PAGE> 8
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Note 4 Inventories consist of:
<TABLE>
<CAPTION>
MARCH JUNE
31, 1999 30, 1998
---------------------------
<S> <C> <C>
Raw materials $4,690,791 $3,355,086
Finished goods and supplies 6,599,495 6,634,135
---------------------------
Total LIFO inventories 11,290,286 9,989,221
Molds for resale in production 937,626 539,635
Supplies 568,832 372,344
---------------------------
$12,796,744 $10,901,200
===========================
</TABLE>
Note 5 On September 3, 1998 pursuant to a Purchase Agreement, the Company
acquired, in consideration for the payment of a purchase price of
$12,000,000, all of the issued and outstanding shares of Marpac
Industries, Inc. together with certain real property owned by the
sellers. The consideration was provided by Fleet Bank, N.A. pursuant to
a Loan and Security Agreement among the Company and its wholly-owned
subsidiaries and Fleet Bank, N.A., dated as of September 3, 1998 in the
amount of $12,000,000. Marpac Industries, Inc. is a technical blow
molding operation that produces bottles, containers, cartridges and
various dispensers for domestic and international customers including
office equipment, food and industrial products. Marpac Industries, Inc.
has its principal operation in Kingston, New York and also has a
facility located in Ardmore, Oklahoma.
The acquisition has been accounted for as a purchase and,
accordingly, the results of the operations have been included in the
Company's results of operations from the acquisition date. The
purchase price has been preliminary allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the
acquisition date. The excess of purchase price over net assets of the
business acquired is amortized on a straight-line basis over fifteen
years.
On March 30, 1998 the Company acquired from McKechnie Investments,
Inc., its wholly-owned subsidiary known as Charter Supply Co., Inc.
for approximately $10.2 million. The Company accounted for the
acquisition as a purchase. Accordingly, the acquired assets and
liabilities assumed were recorded at their estimated fair values at
the date of acquisition.
8
<PAGE> 9
Part I
PVC CONTAINER CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Net sales for the three month period ended March 31, 1999 increased by 33.3% to
$23,459,000 as compared to $17,593,000 for the three month period ended March
31, 1998. For the nine months ended March 31, 1999, sales increased by 27.6% to
$60,774,000 compared to $47,617,000 for the nine month period ended March 31,
1998. The increases in revenues are primarily due to the inclusion of two recent
acquisitions in the March 31, 1999 results.
Cost of goods sold for the three months ended March 31, 1999 was $16,764,000 or
71.5% of net sales as compared to $13,257,000 or 75.4% of net sales for the
three months ended March 31, 1998. The Company benefited from increased
efficiencies as a result of higher production and sales volumes. For the nine
months ended March 31, 1999, cost of goods sold was $46,412,000 or 76.4% of net
sales as compared to $36,428,000 or 76.5% for the nine months ended March 31,
1998.
For the quarter ended March 31, 1999, Selling, General and Administrative
("SG&A") expenses were $2,456,000 or 10.5% of net sales, as compared to
$1,653,000 or 9.4 % of net sales for the quarter ended March 31, 1998. For the
nine months ended March 31, 1999, SG&A expenses were $ 6,490,000 or 10.7% of net
sales as compared to $4,720,000 or 9.9% of net sales for the nine month period
ended March 31, 1998. SG&A expenses increased due to the recent acquisitions as
well as increased personnel expenses necessary to support the Company's desire
to grow its business.
Depreciation and amortization expenses increased to a level of $1,900,000 for
the three months ended March 31, 1999 as compared to $965,000 for the three
months ended March 31, 1998. For the nine month period ended March 31, 1999,
depreciation and amortization expenses were $5,329,000 as compared to $2,646,000
for the nine month period ended March 31, 1998. The increases are attributable
to the depreciation expense on fixed assets related to the recent acquisitions
as well as amortization expense on the goodwill generated from the Marpac
acquisition.
Income from Operations increased by $621,000 during the three month period ended
March 31, 1999 as compared to the same period a year ago. For the three month
period ended March 31, 1999, Income from Operations was $2,339,000 or 10.0% of
net sales, as compared to $1,718,000 or 9.8% of net sales for the three months
ended March 31, 1998. Income from Operations for the nine month period ended
March 31, 1999 decreased to $2,544 ,000 or 4.2% of net sales as compared to
$3,823,000 or 8.0% of net sales for the nine month period ended March 31, 1998.
The decrease in Operating Income is principally the result of a delay in the
start-up of the Company's new manufacturing facility in Hazleton, PA, as well as
higher than anticipated start-up expenses at that location.
Net income for the quarter ended March 31, 1999 increased to $1,046,000 or $.15
on a diluted earnings per share basis as compared to $872,000 or $.13 on a
diluted earnings per share basis for the same period a year ago. For the nine
months ended March 31, 1999, net income decreased to $606,000 or $.09 on a
diluted earnings per share basis as compared to $1,868,000 or $.27 on a diluted
earnings per share basis for the nine month period ended March 31, 1998.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position and working capital increased during the nine
month period ended March 31, 1999. Net working capital as at March 31, 1999 was
$9,452,000 compared to $8,346,000 as of June 30, 1998. The current ratio of
assets to liabilities remained unchanged at 1.5 at March 31, 1999.
During the nine month period ended March 31, 1999, the Company generated cash
from operations of $2,847,000 and received proceeds from long term debt in the
amount of $14,400,000. These funds were used to acquire certain properties and
all of the issued and outstanding shares of Marpac Industries, Inc. for
$12,000,000, reduce long term debt by $3,042,000, and acquire capital assets of
$2,952,000.
The Company's short term liquidity and short term capital resources are adequate
for timely payment to trade and other creditors. The Company's sources of credit
are sufficient to meet its working capital and capital needs in the foreseeable
future. At March 31, 1999, the Company had unused sources of liquidity
consisting of cash and cash equivalents of $228,000 and the availability of the
unused credit under a revolving credit facility of $2,800,000.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During fiscal 1998, the Company began a program to upgrade its computer software
and hardware which is expected to be completed in calendar 1999. A significant
portion of the costs related to this program are included in the June 30, 1998
audited financial statements. The Company believes that with these upgrades for
its computer systems, the Year 2000 issue will not pose significant operational
problems. However, if such modifications and conversions are not made, or are
not completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company is continuing to contact all of its significant suppliers and large
customers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. There can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted and will not have a material
adverse effect on the Company's systems.
10
<PAGE> 11
Part II
PVC Container Corporation
Other Information
Item 6 - Exhibits and Reports on Form 8-K:
---------------------------------
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended March 31, 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PVC CONTAINER CORPORATION
By /s/ Phillip Friedman
-----------------------------------
Phillip Friedman, President and
Principal Financial Officer
Date: May 14, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 228,370
<SECURITIES> 0
<RECEIVABLES> 12,794,045
<ALLOWANCES> 518,000
<INVENTORY> 12,796,744
<CURRENT-ASSETS> 27,853,950
<PP&E> 81,720,183
<DEPRECIATION> 36,465,134
<TOTAL-ASSETS> 83,525,311
<CURRENT-LIABILITIES> 18,401,458
<BONDS> 45,790,870
0
0
<COMMON> 70,047
<OTHER-SE> 19,262,936
<TOTAL-LIABILITY-AND-EQUITY> 83,525,311
<SALES> 60,773,682
<TOTAL-REVENUES> 61,061,465
<CGS> 46,411,793
<TOTAL-COSTS> 58,229,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,828,688
<INCOME-PRETAX> 1,002,868
<INCOME-TAX> 396,800
<INCOME-CONTINUING> 606,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606,868
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
