<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
OR
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 33-45897
PLASTIC CONTAINERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3632393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Aerial Way
Syosset, New York 11791
(Address of principal executive offices)
Telephone number (516) 822-4940
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days:
Yes (X) No ( )
As of October 30, 1996, there were 100 shares of the registrant's common stock
outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
Condensed and Consolidated Balance Sheets as of September 30, 1996 and December
31, 1995 (unaudited).
Condensed and Consolidated Statements of Operations for the three months ended
September 30, 1996 and 1995 (unaudited).
Condensed and Consolidated Statements of Operations for the nine months ended
September 30, 1996 and 1995 (unaudited).
Condensed and Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (unaudited).
Notes to Condensed and Consolidated Financial Statements.
2
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,178 1,428
Accounts receivable, net 31,034 33,068
Inventories (note 3) 22,395 19,987
Other current assets 3,396 3,241
-------- -------
Total current assets 58,003 57,724
Property, plant and equipment, net 142,480 141,214
Intangible assets, net 6,652 9,976
Other assets 13,398 10,698
-------- -------
$220,533 219,612
======== =======
<CAPTION>
Liabilities & Stockholders' Equity
----------------------------------
<S> <C> <C>
Current liabilities:
Notes payable to bank $ 9,820 17,018
Accounts payable - trade 22,567 24,898
Current portion of
long-term obligations 17,667 141
Other current liabilities 21,220 15,423
------- -------
Total current liabilities 71,274 57,480
Long-term obligations 92,363 105,212
Other liabilities 19,919 19,450
------- -------
Total liabilities 183,556 182,142
Stockholders' equity:
Common stock, $1 par value. Authorized 1,000
shares; 100 shares issued and outstanding -- --
Additional paid-in capital 60,000 60,000
Retained earnings (23,023) (22,530)
------- -------
Total stockholders' equity 36,977 37,470
------- -------
$ 220,533 219,612
======= =======
</TABLE>
3
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Net sales $ 69,214 68,847
Cost of goods sold 57,592 60,511
------- ------
Gross profit 11,622 8,336
Selling, general and administrative expense 6,929 7,697
Plant rationalization and realignment (note 4) 400 --
------- ------
Operating income 4,293 639
Other income (expense):
Interest income 20 51
Interest expense (3,155) (2,893)
Loss on disposal of assets (126) (41)
------- ------
Total other income (expense) (3,261) (2,883)
------- ------
Earnings (loss) before income taxes 1,032 (2,244)
Income tax benefit 625 206
------- ------
Net earnings (loss) $ 1,657 (2,038)
======= ======
</TABLE>
4
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Net sales $196,232 213,810
Cost of goods sold 165,777 184,782
------- -------
Gross profit 30,455 29,028
Selling, general and administrative expense 21,670 22,45
------- -------
Plant rationalization and realignment (note 4) 1,500 --
------- -------
Operating income 7,285 6,571
Other income (expense):
Interest income 74 165
Interest expense (9,618) (8,769)
Loss on disposal of assets (125) (81)
------- -------
Total other income (expense) (9,669) (8,685)
------- -------
Loss before income taxes (2,384) (2,114)
Income tax benefit 1,891 298
------- -------
Net loss $ (493) (1,816)
======= =======
</TABLE>
5
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities: $ (493) (1,816)
Net loss
Adjustments:
Depreciation and amortization 17,878 18,165
Loss on disposal of assets 125 81
Changes in assets and liabilities 2,986 11,570
-------- --------
Net cash provided by operating activities 20,496 28,000
-------- --------
Cash flows from investing activities:
Change in investments, net 71 5
Proceeds from disposal of assets 146 341
Purchases of property, plant and equipment (18,442) (24,002)
-------- --------
Net cash used in investing activities (18,225) (23,656)
-------- --------
Cash flows from financing activities:
Repayments of notes payable (7,198) --
Additions to long-term obligations 5,100 --
Repayments of long-term obligations (423) --
-------- --------
Net cash used in financing activities (2,521) --
-------- --------
Net increase (decrease) in cash and cash equivalents (250) 4,344
Cash and cash equivalents - beginning 1,428 2,745
-------- --------
Cash and cash equivalents - ending $ 1,178 7,089
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 6,620 5,868
Income taxes paid 8 285
======== ========
</TABLE>
6
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(all dollars in thousands)
(1) BASIS OF PRESENTATION
The accompanying condensed and consolidated financial statements include
Plastic Containers, Inc. (the "Company" or "PCI") and its wholly-owned
subsidiaries, Continental Plastic Containers, Inc. ("CPC") and Continental
Caribbean Containers, Inc. ("Caribbean") (collectively, the "Continental
Plastic Container Companies"). All significant intercompany transactions
have been eliminated in the consolidated financial statements.
The condensed and consolidated financial statements are unaudited and
reflect all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for
the interim periods. The condensed and consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto contained in the Company's Form 10-K for the year ended
December 31, 1995.
Separate financial statements of CPC and Caribbean are not included because
both such companies are fully and unconditionally liable as well as jointly
and severally liable with respect to the senior secured notes issued by
PCI, and because aggregate assets, liabilities, earnings and equity of CPC
and Caribbean are substantially equivalent to the assets, liabilities,
earnings and equity of PCI on a consolidated basis.
(2) RECLASSIFICATIONS
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
(3) INVENTORIES
Major classes of inventories at September 30, 1996 and December 31, 1995
consist of the following:
Sept. 30, Dec. 31,
1996 1995
---- ----
Raw materials $10,583 9,339
Finished goods 12,307 10,882
------ ------
22,890 20,221
LIFO reserve (2,025) (2,025)
------ ------
20,865 18,196
Repair parts and supplies 1,530 1,791
------ ------
$22,395 19,987
====== ======
7
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS
(4) PLANT RATIONALIZATION AND REALIGNMENT
The Company recorded charges of $1,100 and $400 in the second and third
quarters of 1996, respectively, in connection with plans to consolidate
certain manufacturing operations, reduce operating costs and better
position itself to achieve its corporate objectives. The charges reflect
primarily severance costs from workforce reductions. The Company expects to
incur additional charges in the fourth quarter resulting from the write-
down of excess equipment, employee relocation costs, and other incremental
cost of transferring production from closing to continuing plants. Although
these costs cannot be reasonably estimated at this time, depending on the
actions ultimately taken, the additional charges could exceed $3,500.
As of September 30, 1996, approximately $700 has been paid in connection
with these actions. The actions are expected to be completed by the end of
the first quarter of 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (DOLLARS IN THOUSANDS)
GENERAL
The Company is a leader in developing, manufacturing and marketing a wide
range of custom extrusion blow-molded plastic containers for the food and
juice, household chemicals, automotive products and motor oil, industrial and
agricultural chemicals, and hair care products. The Company manufactures
single and multi-layer containers, primarily from HDPE and PP resins, ranging
in size from two ounces to two and one-half gallons. Management believes
that the Company is the largest U.S. manufacturer of plastic automotive motor
oil containers, and one of the three largest U.S. manufacturers of plastic
containers for household chemical products.
Approximately 86% of the Company's 1995 sales were made under contracts
with customers with remaining terms of up to six years. In most cases,
contracts are renewed or replaced by new contracts prior to expiration. The
terms of the contracts, including any minimum purchasing requirements and the
customers' ability to cancel, vary greatly with no accepted norm except for
pass-throughs of raw material price increases.
PCI's principal raw materials are HDPE and PP resins, which are delivered
to PCI in pellet form. During periods of tighter supply, PCI is typically
able to procure sufficient quantities of resins to supply all of its
customers' needs. PCI's profit margins are substantially unaffected by
fluctuations in resin prices because changes in resin prices are passed
through to customers by means of corresponding changes in product pricing.
The Company was organized in October 1991 for the purpose of acquiring
the Continental Plastic Container Companies. In November 1991, PCI purchased
all the issued and outstanding capital stock of the Continental Plastic
Container Companies in a transaction involving total consideration of $150.4
million. The Company is currently 50% owned by Continental Can Co., Inc., a
publicly-held company which is principally engaged, through its subsidiaries,
in manufacturing materials and containers used in the packaging industry.
RESULTS OF OPERATIONS
Third Quarter of 1996 Compared to Third Quarter of 1995
Net Sales. Net sales for the third quarter of 1996 increased $367 (0.5%)
to $69,214, compared to $68,847 for the third quarter of 1995. The increase
in sales was the result of an increase in unit volume of 5.6% which was
offset by a decline in raw material costs that were passed on to customers in
the form of lower prices. Lower resin prices accounted for lower sales of
approximately $2,100 in the third quarter of 1996 compared to the third
quarter of 1995.
9
<PAGE>
Gross Profit. Gross profit for the third quarter of 1996 was $11,622, an
increase of $3,286 (39.4%) over gross profit of $8,336 for the third quarter
of 1995. This increase resulted from the increase in sales volume, an
increase in resin-adjusted margins, and a reduction in manufacturing costs.
Higher than normal manufacturing costs in the third quarter of 1995 were due
to start-up expenses and inefficiencies associated with a large number of
capital projects that took place during the first nine months of 1995. These
projects impacted performance at the majority of PCI's manufacturing
locations. PCI had been awarded contracts with a number of its major
customers that required new installations and changes to many of its existing
lines. These awards were a result of PCI's successful sales and marketing
efforts to increase volume, but unfortunately all occurred during a
relatively short period of time. Technical and engineering resources were not
available to simultaneously handle all of the installations. Abnormal levels
of installation-related expenses for hiring and training hundreds of new
employees and the resulting learning curve costs and general inefficiencies
continued through the last six months of 1995. The assimilation of the new
product lines was substantially completed by the end of 1995. This, coupled
with a number of other productivity enhancements implemented during 1996,
resulted in the significant year-to-year improvement.
Gross profit percentage for the third quarter of 1996 was 16.8%, compared
to 12.1% for the third quarter of 1995. The increase in gross profit
percentage was the result of the increase in resin-adjusted margins and lower
manufacturing costs as well as the impact of lower raw material costs. As
discussed above, the decrease in sales attributed to decreases in resin
prices are a direct pass through of raw material cost decreases and do not
result in a corresponding decrease in gross profit dollars. Excluding the
impact on sales of lower resin prices, gross profit percentage for the third
quarter of 1996 would be 16.3%
SG&A. Selling, general and administrative (SG&A) expense for the third
quarter of 1996 decreased $768 (10.0%) to $6,929, compared to $7,697 for the
third quarter of 1995. Third quarter 1995 expense levels were higher in part
because of spending necessary to support the increased business activity
discussed above. In addition, the decrease in third quarter 1996 expense
reflects the Company's efforts to reduce SG&A spending in several areas. SG&A
expense as a percentage of net sales for the third quarter of 1996 was 10.0%
compared to 11.2% for the third quarter of 1995. The decrease in the
percentage was the result of the reduction in expense which was partially
offset by the impact on sales of the lower material costs. Excluding the
impact on sales of lower material costs, SG&A as a percentage of net sales
for the third quarter of 1996 would have been 9.7%.
Plant Rationalization and Realignment. In the third quarter of 1996, the
Company recorded a charge of $400 for plant rationalization and realignment
in connection with plans to consolidate certain manufacturing operations. The
charge reflects primarily severance costs from workforce reductions. The
consolidation is expected to result in higher equipment utilization, improved
productivity and lower operating costs. Management expects the Company to
incur additional charges in the fourth quarter resulting from the write-down
of excess equipment, employee relocation costs, and other incremental cost of
transferring production to continuing plants. Although these costs cannot be
reasonably estimated at this time, depending on the actions ultimately taken,
the additional charges could exceed $3,500. The actions are expected to be
completed by the end of the first quarter of 1997.
Other Expense. Other expense for the third quarter of 1996 was $3,261,
an increase of $378 (13.1%) compared to $2,883 for the third quarter of 1995.
This increase results primarily from an increase in interest expense due to
additional short-term borrowings outstanding during 1996.
Income Tax Benefit. An income tax benefit for the third quarter of 1996
of $625 results primarily from a decrease in the valuation reserve for
deferred tax assets.
10
<PAGE>
Net Earnings. Net earnings for the third quarter of 1996 were $1,657,
compared to a net loss of $2,038 for the third quarter of 1995. The increase
in third quarter earnings of $3,695 is the result of the increase in sales
and corresponding margin dollars, the decreases in manufacturing costs and
SG&A expenses, and the increase in income tax benefit. Excluding the charge
for plant rationalization and realignment, net earnings for the third quarter
of 1996 would have been $2,057.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995
Net Sales. Net sales for the first nine months of 1996 decreased $17,578
(8.2%) to $196,232, compared to $213,810 for the first nine months of 1995.
The decrease in sales is due primarily to lower raw material costs that are
passed on to customers in the form of lower prices. Lower resin prices
accounted for approximately $13,500 of the decline in sales for the first
nine months of 1996. The additional decline in sales is the result of changes
in product mix. Total unit volume for the first nine months of 1996 increased
2.1% compared to the first nine months of 1995. However, the increase in unit
volume was comprised of an increase in unit volume of smaller, lower-priced
containers for the automotive and motor oil market while a decline in unit
volume was experienced in larger, higher-priced bottles in the food and
beverage market.
Gross Profit. Gross profit for the first nine months of 1996 was
$30,455, an increase of $1,427 (4.9%) over gross profit of $29,028 for the
first nine months of 1995. The increase in gross profit in 1996 compared to
1995 results from an increase in resin-adjusted margins as well as the
reduction in manufacturing costs discussed above.
Gross profit percentage for the first nine months of 1996 was 15.5%,
compared to 13.6% for the first nine months of 1995. The increase in gross
profit percentage was the result of the decrease in sales associated with
lower resin prices as well as an increase in resin-adjusted margins and a
reduction in manufacturing costs. Excluding the impact of lower resin prices
on sales, gross profit percentage for the first nine months of 1996 would be
14.5%.
SG&A. Selling, general and administrative (SG&A) expense for the first
nine months of 1996 decreased $787 (3.5%) to $21,670, compared to $22,457 for
the first nine months of 1995. The decrease reflects higher levels of
spending in the third quarter of 1995 to support an increase in new business
as well as the Company's efforts in 1996 to reduce SG&A expense in several
areas. SG&A expense as a percentage of net sales for the first nine months
of 1996 was 11.0% compared to 10.5% for the first nine months of 1995. The
increase in the percentage was due to the decrease in sales resulting from
lower material costs, offset by lower SG&A expense in 1996. Excluding the
impact on sales of lower material costs, SG&A as a percentage of net sales
for the first nine months of 1996 would have been 10.3%.
Plant Rationalization and Realignment. Through the first nine months of
1996 the Company recorded charges of $1,500 for plant rationalization and
realignment in connection with a plan to consolidate certain manufacturing
operations. The charges reflect primarily severance costs from workforce
reductions.
Other Expense. Other expense for the first nine months of 1996 was
$9,669, an increase of $984 (11.3%) compared to $8,685 for the first nine
months of 1995. This increase resulted primarily from an increase in interest
expense due to additional short-term borrowings outstanding during 1996.
Income Tax Benefit. An income tax benefit for the first nine months of
1996 of $1,891 results primarily from a decrease in the valuation reserve for
deferred tax assets.
11
<PAGE>
Net Loss. Net loss for the first nine months of 1996 was $493, compared
to a net loss of $1,816 for the first nine months of 1995. The decrease in
loss for the first nine months of 1996 of $1,323 was primarily the result of
an increase in gross profit dollars and the increase in tax benefit, offset
by higher interest costs and the charges for plant rationalization and
realignment. Excluding the charges for plant rationalization and
realignment, the Company would have had net earnings of $1,007 for the first
nine months of 1996.
CAPITAL REQUIREMENTS
PCI acquired $18,442 in capital assets in the first nine months of 1996,
compared to $24,002 in the first nine months of 1995. Substantially all of
the assets acquired were packaging equipment for the manufacture of plastic
containers or related support equipment. Capital expenditure levels in both
1996 and 1995 are higher than normal levels due to the addition of the
Atlanta facility in 1996 and plant expansions in several locations in 1995.
The capital requirements in the first nine months of 1996 were met with
cash generated by operations, from existing funds and from borrowings under
existing credit facilities. Management estimates that the minimum capital
expenditure which would be required to maintain PCI's current facilities
averages less than $5 million per annum.
LIQUIDITY
The Company's primary sources of credit and liquidity are provided
through a revolving credit facility of $50,000 and 10.75% senior secured
notes in an aggregate principal amount of $104,700.
The revolving credit facility has a term of seven years expiring October
31, 2002. Interest is based on the bank's prime rate or LIBOR, at the
Company's option. At September 30, 1996, there were $9,820 in borrowings
outstanding under the revolving credit facility, substantially all of which
were at LIBOR-based rates of 6.91%. Prime-based rates were 8.50%.
With regard to the 10.75% senior secured notes, the Company is required
to make four annual sinking fund payments of $22,000 each, commencing April
1, 1997 and continuing through April 1, 2000, and a final principal payment
of $22,000 is due April 1, 2001. The first sinking fund payment will be
reduced by an amount equal to any early repurchases made before the payment
date ($5,300 at June 30, 1996). Interest on the notes is payable
semiannually on April 1 and October 1.
During the second quarter of 1996, tax-exempt industrial development
revenue bonds of $5,100 were issued on behalf of the Company to finance
equipment purchases in conjunction with the opening of a new manufacturing
facility. Under a capital lease arrangement, principal and interest at 5.80%
is payable monthly through April 2002.
Working capital decreased $13,515 during the first nine months of 1996,
from $244 at December 31, 1995 to a negative $13,271 at September 30, 1996.
The decrease is due to the classification of the first sinking fund payment
of $16,700 on April 1, 1997 as a current liability. Excluding the effect of
the sinking fund payment classification, working capital increased $3,185
during the first nine months of 1996. This increase was due primarily to a
reduction in the level of short-term borrowings by $7,198, offset by the
accrual for the plant rationalization and realignment charge and other
accrued expenses. Management expects that the Company's working capital
position will improve during the balance of 1996.
12
<PAGE>
The Company is currently engaged in a plan to refinance its debt,
including a tender offer to purchase the 10.75% senior secured notes from
existing holders and a new offering of senior secured notes. Upon completion
of the tender offer and the redemption of the 10.75% senior secured notes, it
is estimated that the Company will incur an extraordinary charge from debt
extinguishment of approximately $7,000. This includes a purchase premium and
the write-off of unamortized fees relating to the 10.75% senior secured
notes. Management expects the Company to complete the refinancing in the
fourth quarter of 1996. Upon consummation of the refinancing, Management
anticipates that the Company will have approximately $30 million of undrawn
availability under the revolving credit facility.
Management believes the funding expected to be generated from operations
and provided by existing credit facilities and the refinancing will be
sufficient to meet working capital and capital investment needs for the
balance of 1996.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits
(27) Financial Data Schedule, Page 15
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
SIGNATURE
---------
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 authorized.
PLASTIC CONTAINERS, INC.
By: /s/ Abdo Yazgi
--------------------------
Abdo Yazgi
Principal Financial and
Accounting Officer on behalf
of the registrant
Dated this 30th day of October, 1996.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,178
<SECURITIES> 0
<RECEIVABLES> 32,910
<ALLOWANCES> 1,876
<INVENTORY> 22,395
<CURRENT-ASSETS> 58,003
<PP&E> 240,744
<DEPRECIATION> 98,264
<TOTAL-ASSETS> 220,533
<CURRENT-LIABILITIES> 71,274
<BONDS> 92,363
0
0
<COMMON> 0
<OTHER-SE> 36,977
<TOTAL-LIABILITY-AND-EQUITY> 220,533
<SALES> 196,232
<TOTAL-REVENUES> 196,232
<CGS> 165,777
<TOTAL-COSTS> 188,947
<OTHER-EXPENSES> 9,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,544
<INCOME-PRETAX> (2,384)
<INCOME-TAX> (1,891)
<INCOME-CONTINUING> (493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (493)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
