<PAGE>
<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, 1998
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)
<TABLE>
<S> <C>
Delaware 13-3632393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2515 McKinney Ave.
Suite 850
Dallas, Texas 75201
(Address of principal executive offices)
Telephone number (214) 528-9922
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 November 11, 1998, there were 100 shares of the registrant's common stock
outstanding.
<PAGE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Plastic Containers, Inc.
Condensed and Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997.
Condensed and Consolidated Statements of Income for the three months ended
September 30, 1998 and 1997 (unaudited).
Condensed and Consolidated Statements of Income for the period from January 1,
1998 through acquisition date, the period from acquisition date to September 30,
1998, and the nine months ended September 30, 1997 (unaudited).
Condensed and Consolidated Statements of Cash Flows for the period from January
1, 1998 through acquisition date, the period from acquisition date to September
30, 1998, and the nine months ended September 30, 1997 (unaudited).
Notes to Condensed and Consolidated Financial Statements.
Continental Plastic Containers, Inc. (a wholly-owned subsidiary
of Plastic Containers, Inc.)
Condensed Balance Sheets as of September 30, 1998 (unaudited) and December 31,
1997.
Condensed Statements of Income for the three months ended September 30, 1998 and
1997 (unaudited).
Condensed Statements of Income for the period from January 1, 1998 through
acquisition date, the period from acquisition date to September 30, 1998, and
the nine months ended September 30, 1997 (unaudited).
Condensed Statements of Cash Flows for the period from January 1, 1998 through
acquisition date, the period from acquisition date to September 30, 1998, and
the nine months ended September 30, 1997 (unaudited).
Notes to Condensed Financial Statements.
2
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Condensed and Consolidated Balance Sheets
(in thousands, except for share amounts)
<TABLE>
<CAPTION>
Predecessor
-----------
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,713 2,479
Investment securities 10,620 20,385
Accounts receivable, net 21,867 20,258
Inventories 15,791 19,955
Other current assets 4,069 2,850
-------- -------
Total current assets 56,060 65,927
Property, plant and equipment, net 98,101 100,091
Goodwill and other intangible assets 123,772 25,591
Other assets 26,159 13,303
-------- -------
$304,092 204,912
======== =======
Liabilities & Stockholders' Equity
----------------------------------
Current liabilities:
Accounts payable - trade $13,145 18,285
Current portion of long-term obligations 996 996
Other current liabilities 27,558 16,741
-------- -------
Total current liabilities 41,699 36,022
Long-term obligations 140,394 128,007
Other liabilities 22,312 20,764
Stockholders' equity:
Common stock, $1 par value.
Authorized 1,000 shares; 100 shares
issued and outstanding -- --
Additional paid-in capital 136,578 79,833
Retained earnings (deficit) 2,401 (27,529)
-------- -------
138,979 52,304
Less note receivable from stockholder 39,292 32,185
-------- -------
Total stockholders' equity 99,687 20,119
-------- -------
$304,092 204,912
======== =======
</TABLE>
3
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Condensed and Consolidated Statements of Income
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
-----------
Three Three
Months Months
Ended Ended
Sept. 30, Sept. 30,
1998 1997
------ -----
<S> <C> <C>
Net sales $63,466 74,180
Cost of goods sold 51,654 62,415
------ ------
Gross profit 11,812 11,765
Selling, general and administrative expense 6,494 6,924
------ ------
Operating income 5,318 4,841
Other income (expense):
Interest income 242 386
Interest expense (2,907) (3,376)
Loss on disposal of assets -- (23)
------ ------
Total other expense (2,665) (3,013)
------ ------
Income before income taxes 2,653 1,828
Income tax expense 972 9
------ ------
Net income $ 1,681 1,819
====== ======
4
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Condensed and Consolidated Statements of Income
(Unaudited)
(in thousands)
</TABLE>
<TABLE>
<CAPTION>
Predecessor
------------------------
Period from
Period from January 1, Nine
Acquisition 1998 Months
Date to Through Ended
Sept. 30, Acquisition Sept. 30,
1998 Date 1997
------ ------ -----
<S> <C> <C> <C>
Net sales $86,881 108,924 210,941
Cost of goods sold 70,788 92,159 177,016
------ ------- -------
Gross profit 16,093 16,765 33,925
Selling, general and administrative expense 8,863 11,617 20,162
------ ------- ------
Operating income 7,230 5,148 13,763
Other income (expense):
Interest income 338 604 1,033
Interest expense (3,696) (5,643) (10,116)
Loss on disposal of assets -- (22) (79)
------ ------ ------
Total other expense (3,358) (5,061) (9,162)
------ ------ ------
Income before income taxes 3,872 87 4,601
Income tax benefit (expense) (1,471) 1,590 (33)
------ ------ ------
Net income $ 2,401 1,677 4,568
====== ====== ======
</TABLE>
5
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Condensed and Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
-------------------
Period from
Period from January 1, Nine
Acquisition 1998 Months
Date to Through Ended
Sept. 30, Acquisition Sept. 30,
1998 Date 1997
---- ------ ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,401 1,677 4,568
Adjustments:
Depreciation and amortization 5,011 5,589 10,301
Loss on disposal of assets -- 22 79
Changes in assets and liabilities (4,286) 6,739 8,989
------ ------ ------
Net cash provided by
operating activities 3,126 14,027 23,937
------ ------ -------
Cash flows from investing activities:
Change in investment securities, net 11,546 (1,781) (26,569)
Loan to stockholder -- (5,300) --
Proceeds from disposal of assets -- 3 580
Purchases of property, plant and equipment (9,112) (6,787) (7,112)
------ ------ ------
Net cash provided by (used in)
investing activities 2,434 (13,865) (33,101)
------ ------ ------
Cash flows from financing activities -
Repayments of long-term obligations (4,144) (344) (619)
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 1,416 (182) (9,783)
Cash and cash equivalents - beginning 2,297 2,479 12,178
------ ------ ------
Cash and cash equivalents - ending $ 3,713 2,297 2,395
======= ====== ======
</TABLE>
6
<PAGE>
<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. and its wholly-owned subsidiaries, Continental
Plastic Containers, Inc. ("CPC") and Continental Caribbean Containers, Inc.
("Caribbean"), on a consolidated basis. All significant intercompany
transactions have been eliminated in the consolidated financial statements.
The consolidated entities are referred to as Plastic Containers, Inc. ("PCI"
or "the Company") in the notes to condensed and consolidated financial
statements. PCI is a wholly-owned subsidiary of Continental Can Company,
Inc. ("Continental Can").
On May 29, 1998, Continental Can was acquired by Suiza Foods Corporation
("Suiza") in a purchase transaction. All of the common stock of Continental
Can was converted into common stock of Suiza and Continental Can became a
wholly-owned subsidiary of Suiza. In addition, pursuant to the purchase
agreement, Continental Can purchased the remaining 16% minority interest in
PCI from another stockholder for cash. The value of the Suiza purchase price
allocated to PCI was $83,458. Suiza accounted for its acquisition of
Continental Can as a purchase and purchase accounting adjustments, including
goodwill, have been pushed down and reflected in the consolidated financial
statements of PCI subsequent to May 29, 1998. The consolidated financial
statements of PCI for the periods ended before May 29, 1998, were prepared
using PCI's historical basis of accounting and are designated as
"predecessor". The comparability of the operating results for the
predecessor and the periods encompassing push down accounting are affected
by the purchase accounting adjustments including the amortization of
goodwill over a period of forty years.
The excess of the allocated purchase price over the preliminary estimates of
fair value of the assets and liabilities of PCI at the acquisition date was
$108,591 and is reflected as goodwill in the PCI consolidated balance sheet
as of September 30, 1998. In addition, the acquisition of the remaining
minority interest in PCI by Continental Can resulted in additional push down
of goodwill of $13,828. The process of determining the fair value of assets
and liabilities at the merger date is continuing, and the final result
awaits resolution of contingencies and finalization of certain preliminary
estimates. The following table summarizes the preliminary changes made to
the accounts of PCI as of May 29, 1998 as a result of applying push down
accounting:
<TABLE>
<CAPTION>
Adjustments
-----------
<S> <C>
Current assets $ 2,143
Property, plant and equipment (8,014)
Goodwill and other intangible assets 100,219
Other assets 12,964
--------
Total assets $107,312
========
Current liabilities 6,796
Long-term obligations 16,875
Other liabilities 2,851
Stockholders' equity 80,790
--------
Total liabilities and equity $107,312
========
</TABLE>
(Continued)
7
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Notes to Condensed and Consolidated Financial Statements
(1) Continued
Separate financial statements of CPC accompany these consolidated financial
statements, since the issued and outstanding stock of CPC, which is pledged
as security for the Company's 10% Senior Secured Notes due 2006 (the "10%
Notes"), constitutes a substantial portion of the collateral for the 10%
Notes. Separate financial statements for Caribbean are not included herewith
because (i) the issued and outstanding stock of Caribbean, which is also
pledged as security for the Company's 10% Notes, does not constitute a
substantial portion of the collateral for the 10% Notes, and (ii) management
has determined that separate financial statements of Caribbean are not
material to investors. CPC and Caribbean constitute all of PCI's direct and
indirect subsidiaries and have fully and unconditionally guaranteed the 10%
Notes on a joint and several basis. PCI is a holding company with no assets,
operations or cash flows separate from its investments in CPC and Caribbean.
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, 1997.
(2) Inventories
Major classes of inventories at September 30, 1998 and December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
----- -----
<S> <C> <C>
Raw materials $ 6,069 9,566
Finished goods 7,877 12,223
------- ------
13,946 21,789
LIFO reserve -- (3,578)
------- ------
13,946 18,211
Caribbean 484 554
Repair parts and supplies 1,361 1,190
------- ------
$15,791 19,955
======= ======
</TABLE>
(3) Leases
PCI leases certain facilities and equipment used in connection with its
operations. Rental expense under these operating leases was $3,583 and
$10,625 for the three months and nine months ended September 30, 1998,
respectively, and $3,412 and $10,320 for the three months and nine months
ended September 30, 1997, respectively.
(Continued)
8
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Notes to Condensed and Consolidated Financial Statements
(4) Note Receivable from Stockholder
On May 29, 1998, the Company loaned Continental Can $5,300. The loan has a
ten year maturity and accrues interest, payable at maturity, at an annual
rate of 6.9%, compounded semiannually. The note receivable and accrued
interest thereon have been presented as a reduction of stockholders' equity.
On December 17, 1996, the Company loaned Continental Can $30,000 under
similar terms.
9
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Condensed Balance Sheets
(in thousands, except for share amounts)
<TABLE>
<CAPTION>
Predecessor
-----------
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,934 1,164
Investment securities 10,455 20,214
Accounts receivable, net 21,022 20,080
Inventories 15,307 19,401
Other current assets 4,069 2,850
-------- -------
Total current assets 53,787 63,709
Property, plant and equipment, net 94,297 95,894
Goodwill and other intangible assets 123,772 25,591
Other assets 26,155 13,303
-------- -------
$298,011 198,497
======== =======
Liabilities & Stockholder's Equity
----------------------------------
Current liabilities:
Accounts payable - trade $ 13,022 17,852
Current portion of long-term obligations 996 996
Other current liabilities 27,273 16,484
-------- -------
Total current liabilities 41,291 35,332
Long-term obligations 140,394 128,007
Other liabilities 22,294 20,741
Stockholder's equity:
Common stock, $1 par value. Authorized 25,000
shares; 10,000 shares issued and outstanding 10 10
Additional paid-in capital 130,897 74,175
Retained earnings (deficit) 2,417 (27,583)
-------- -------
133,324 46,602
Less note receivable from stockholder of parent 39,292 32,185
-------- -------
Total stockholder's equity 94,032 14,417
-------- -------
$298,011 198,497
======== =======
</TABLE>
10
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Condensed Statements of Income
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
-----------
Three Three
Months Months
Ended Ended
Sept. 30, Sept. 30,
1998 1997
---- ----
<S> <C> <C>
Net sales $62,135 72,255
Cost of goods sold 50,326 60,584
------ ------
Gross profit 11,809 11,671
Selling, general and administrative expense 6,486 6,915
------ ------
Operating income 5,323 4,756
Other income (expense):
Interest income 234 381
Interest expense (2,907) (3,376)
Loss on disposal of assets -- (332)
------ ------
Total other expense (2,673) (3,327)
------ ------
Income before income taxes 2,650 1,429
Income tax expense 946 --
------ ------
Net income $ 1,704 1,429
====== ======
</TABLE>
11
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Condensed Statements of Income
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
----------------------
Period from
Period from January 1, Nine
Acquisition 1998 Months
Date to Through Ended
Sept. 30, Acquisition Sept. 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $85,070 105,832 206,353
Cost of goods sold 68,988 89,273 172,540
------ ------ -------
Gross profit 16,082 16,559 33,813
Selling, general and administrative expense 8,853 11,590 20,134
------- ------ -------
Operating income 7,229 4,969 13,679
Other income (expense):
Interest income 327 588 988
Interest expense (3,696) (5,643) (10,115)
Loss on disposal of assets -- (22) (388)
------- ------ -------
Total other expense (3,369) (5,077) (9,515)
------- ------ -------
Income (loss) before income taxes 3,860 (108) 4,164
Income tax benefit (expense) (1,443) 1,600 --
------- ------- -------
Net income $ 2,417 1,492 4,164
======= ======= =======
</TABLE>
12
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Predecessor
----------------------
Period from
Period from January 1, Nine
Acquisition 1998 Months
Date to Through Ended
Sept. 30, Acquisition Sept. 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,417 1,492 4,164
Adjustments:
Depreciation and amortization 4,937 5,400 9,987
Loss on disposal of assets -- 22 388
Changes in assets and liabilities (4,640) 7,927 9,581
----- ------- -------
Net cash provided by (used in)
operating activities 2,714 14,841 24,120
----- ------ -------
Cash flows from investing activities:
Change in investment securities, net 11,542 (1,783) (26,605)
Loan to stockholder of parent -- (5,300) --
Proceeds from disposal of assets -- 3 844
Purchases of property, plant and equipment (9,066) (6,693) (6,256)
----- ------ -------
Net cash provided by (used in)
investing activities 2,476 (13,773) (32,017)
----- ------ -------
Cash flows from financing activities -
Repayments of long-term obligations (4,144) (344) (619)
------ -------- -------
Net increase (decrease) in cash and cash equivalents 1,046 724 (8,516)
Cash and cash equivalents - beginning 1,888 1,164 10,522
------ ------- -------
Cash and cash equivalents - ending $ 2,934 1,888 2,006
====== ======= =======
</TABLE>
13
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Notes to Condensed Financial Statements
(unaudited)
(all dollars in thousands)
(1) Basis of Presentation
Continental Plastic Containers, Inc. ("CPC") develops, manufactures and
markets a wide range of custom extrusion blow-molded plastic containers for
food and juice, household chemicals, automotive products and motor oil,
industrial and agricultural chemicals, and hair care products.
CPC is a wholly-owned subsidiary of Plastic Containers, Inc. ("PCI"). PCI
was organized in October 1991 for the purpose of acquiring CPC and
Continental Caribbean Containers, Inc. ("Caribbean"). PCI is a holding
company with no assets, operations and cash flows separate from its
investment in CPC and Caribbean and is dependent upon funding provided by
CPC to service its debt. PCI is a wholly-owned subsidiary of Continental
Can Company, Inc. ("Continental Can").
On May 29, 1998, Continental Can was acquired by Suiza Foods Corporation
("Suiza") in a purchase transaction and became a wholly-owned subsidiary of
Suiza. In addition, pursuant to the purchase agreement, Continental Can
purchased the remaining 16% minority interest in PCI from another
stockholder for cash. The value of the Suiza purchase price allocated to CPC
was $77,571. Suiza accounted for its acquisition of Continental Can as a
purchase and purchase accounting adjustments, including goodwill, have been
pushed down and reflected in the financial statements of CPC subsequent to
May 29, 1998. The financial statements of CPC for the periods ended before
May 29, 1998, were prepared using CPC's historical basis of accounting and
are designated as "predecessor". The comparability of the operating results
for the predecessor and the periods encompassing push down accounting are
affected by the purchase accounting adjustments including the amortization
of goodwill over a period of forty years.
The excess of the allocated purchase price over the preliminary estimates of
fair value of the assets and liabilities of CPC at the acquisition date was
$108,591 and is reflected as goodwill in the CPC balance sheet as of
September 30, 1998. In addition, the acquisition of the remaining minority
interest in PCI by Continental Can resulted in additional push down of
goodwill to CPC of $13,828. The process of determining the fair value of
assets and liabilities at the merger date is continuing, and the final
result awaits resolution of contingencies and finalization of certain
preliminary estimates. The following table summarizes the preliminary
changes made to the accounts of CPC as of May 29, 1998 as a result of
applying push down accounting:
<TABLE>
<CAPTION>
Adjustments
-----------
<S> <C>
Current assets $ 2,143
Property, plant and equipment (8,014)
Goodwill and other intangible assets 100,219
Other assets 12,964
--------
Total assets $107,312
========
Current liabilities 6,796
Long-term obligations 16,875
Other liabilities 2,851
Stockholders' equity 80,790
--------
Total liabilities and equity $107,312
========
</TABLE>
(Continued)
14
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(a wholly-owned subsidiary of Plastic Containers, Inc.)
Notes to Condensed Financial Statements
(1) Continued
The condensed 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 financial statements should be read in
conjunction with the financial statements and notes thereto contained in
PCI's Form 10-K for the year ended December 31, 1997.
(2) Inventories
Major classes of inventories at September 30, 1998 and December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 6,069 9,566
Finished goods 7,877 12,223
------- ------
13,946 21,789
LIFO reserve -- (3,578)
------ -------
13,946 18,211
Repair parts and supplies 1,361 1,190
------- -------
$ 15,307 19,401
======= =======
(3) Leases
CPC leases certain facilities and equipment used in connection with its
operations. Rental expense under these operating leases was $3,583 and
$10,624 for the three months and nine months ended September 30, 1998,
respectively, and $3,412 and $10,320 for the three months and nine months
ended September 30, 1997, respectively.
(4) Note Receivable from Stockholder of Parent
On May 29, 1998, the Company through PCI loaned Continental Can $5,300. The
loan has a ten year maturity and accrues interest, payable at maturity, at
an annual rate of 6.9%, compounded semiannually. The note receivable and
accrued interest thereon have been presented as a reduction of stockholder's
equity. On December 17, 1996, the Company loaned Continental Can $30,000
under similar terms.
15
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All Dollars in Thousands).
Continental Can Acquisition
On May 29, 1998, Continental Can Company, Inc. ("Continental Can"),
parent company of Plastic Containers, Inc. ("PCI"), was acquired by Suiza
Foods Corporation ("Suiza") in a purchase transaction. All of the common
stock of Continental Can was converted into common stock of Suiza and
Continental Can became a wholly-owned subsidiary of Suiza. In addition,
pursuant to the purchase agreement, Continental Can purchased the remaining
16% minority interest in PCI from another stockholder for cash.
Suiza accounted for its acquisition of Continental Can as a purchase and
push down accounting has been applied, with the result that purchase
accounting adjustments have been reflected in the financial statements of
PCI and its subsidiaries for all periods subsequent to May 29, 1998.
Financial statements for periods prior to that date were prepared using
PCI's historical basis of accounting and are designated as "predecessor".
For purposes of the discussion of quarterly and year-to-date operating
results provided herein, the financial information of the predecessor for
the 1998 periods prior to the acquisition date have been combined with the
post-acquisition financial information. The business operations of PCI were
not significantly changed as a result of the acquisition, and
post-acquisition and pre-acquisition operating results, except as noted, are
comparable.
Results of Operations
Net Sales. Net sales for the third quarter and first nine months of 1998
were $63,466 and $195,805, respectively, compared to $74,180 and $210,941
for the corresponding periods of 1997. The decrease in sales was due in part
to decreases 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 $4,400 and $7,600 for the third quarter and first nine months
of 1998, respectively. The remaining sales decrease is the result of changes
in product mix and lower overall unit volumes. Total unit volume for the
third quarter and first nine months of 1998 decreased 6.4% and 1.9%,
respectively, compared to the corresponding periods in 1997. In addition,
the product mix in 1998 is comprised of a larger percentage of
lighter-weight, lower-priced containers compared to the prior year as a
result of container light-weighting programs with several customers.
Although the light-weighting programs result in a reduction in selling
prices, there is minimal impact on margins.
Gross Profit. Gross profit for the third quarter and first nine months
of 1998 was $11,812 and $32,858, respectively, an increase of $47 (0.4%) and
a decrease of $1,067 (3.1%), respectively, over the corresponding periods of
1997. The increase in gross profit in the third quarter, in spite of lower
unit volume sales, was accomplished primarily through cost reduction
measures implemented at all manufacturing facilities and improved production
efficiencies. Additionally, as discussed above, the decrease in sales
attributed to resin prices are a direct pass through of raw material cost
decreases and do not result in a corresponding decrease in gross profit
dollars. Contributing to the decrease in gross profit for the first nine
months of 1998 were additional manufacturing overhead costs incurred in
the first six months related to specific customer projects. Gross profit
percentage for the third quarter and first nine months of 1998 was 18.6%
and 16.8%, respectively, compared to 15.9% and 16.1% for the corresponding
periods of 1997.
16
<PAGE>
<PAGE>
SG&A. Selling, general and administrative (SG&A) expense for the third
quarter and first nine months of 1998 decreased $430 (6.2%) and increased
$318 (1.6%), respectively, compared to the corresponding periods of 1997.
The decrease in SG&A expense in the third quarter of 1998 is the result of
cost savings from closing the corporate headquarters office in Norwalk and
a continuing focus on spending reductions, offset by an increase in
amortization of approximately $600 from additional goodwill related to the
Continental Can acquisition. In connection with the acquisition, the
Norwalk office was consolidated with the Suiza Packaging Group corporate
office in Dallas during the third quarter of 1998. The increase in SG&A
expense for the first nine months of 1998 is due primarily to an increase in
amortization expense of approximately $800 offset by spending reductions
referred to above. SG&A expense as a percentage of net sales for the third
quarter and first nine months of 1998 was 10.2% and 10.5%, respectively,
compared to 9.3% and 9.6% for the corresponding periods of 1997. Excluding
the impact on sales of lower resin prices and the effect of the additional
amortization, the SG&A percentage for the third quarter and first nine
months of 1998 would have been 8.7% and 9.7%, respectively.
Other Expense. Other expense for the third quarter and first nine months
of 1998 was $2,665 and $8,419, respectively, compared to $3,013 and $9,162,
respectively, for the corresponding periods of 1997. This decrease results
from a decrease in interest expense resulting from a revaluation of
long-term obligations in connection with the Continental Can acquisition.
Income Taxes. Income taxes for the third quarter and first nine months
of 1998 were expense of $972 and a benefit of $119, respectively, compared
to expense of $9 and $33, respectively for the corresponding periods of
1997. Prior to the acquisition on May 29, 1998, income tax expense had been
offset by reductions in the valuation reserve for deferred tax assets. In
periods subsequent to May 29, 1998, income tax expense will be recognized at
an average effective tax rate of approximately 38% applied to pre-tax
earnings.
Net Income. Net income for third quarter of 1998 was $1,681, compared to
$1,819 for the third quarter of 1997. This reflects an improvement in
operating income and interest expense which is offset by higher income
taxes. Net income for the period from January 1, 1998 through acquisition
date and for the period from acquisition date to September 30, 1998 was
$1,677 and $2,401, respectively, compared to $4,568 for the nine months
ended September 30, 1997.
Capital Requirements
PCI acquired $15,899 in capital assets in the first nine months of 1998,
compared to $7,112 in the first nine months of 1997. Substantially all of
the assets acquired were packaging equipment for the manufacture of plastic
containers or related support equipment. Capital expenditure levels in 1998
were higher due to the installation of new production lines that will
service new business. The capital requirements in the first nine months of
1998 were met with cash generated by operations and from existing funds.
Liquidity
The Company's primary sources of liquidity are provided through a
revolving credit facility of up to $50,000 and cash flows from operations.
At September 30, 1998, the Company had no borrowings outstanding under the
revolving credit facility and had invested cash and cash equivalents of
approximately $14,300.
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. The amount of availability under the revolving credit
facility is subject to borrowing base limitations based on inventory and
receivables. At September 30, 1998, the Company had undrawn availability
of approximately $27,400.
Working capital was $14,361 at September 30, 1998, compared to $29,905
at December 31, 1997. The decrease is due to increased capital spending
levels, repayment of long-term obligations in
17
<PAGE>
<PAGE>
the third quarter, a loan of $5,300 made to Continental Can in the second
quarter, and the impact of purchase accounting adjustments. Cash flows from
operating activities were $17,153 for the first nine months of 1998,
compared to $23,937 for the first nine months of 1997. The decrease is due
primarily to a difference in cash collected on receivables.
Management believes that existing funds and the funds expected to be
generated from operations and provided by existing credit facilities will be
sufficient to meet working capital and capital investment needs for the
foreseeable future.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 problem. The Year
2000 problem is rooted in the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If not
corrected, this problem may cause systems to fail or produce erroneous
results on or before the year 2000.
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000
problem. Suiza is currently engaged in a comprehensive project to address
its Year 2000 issues in the following areas for all of its subsidiaries
(including the Company): enterprise systems and applications; plant floor
systems; personal computers and applications; networks and communications;
supply chain; EDI and miscellaneous equipment. These areas encompass both
information technology systems (such as enterprise systems, networks and
communications, and EDI) and non-IT systems (such as plant floor systems).
Each functional area plan details specific tasks needed to identify and
inventory Year 2000 issues, taking them through assessment, renovation and
conversion, validation and conversion, and implementation. Suiza has
appointed a project manager to lead the Year 2000 compliance project for
all of its subsidiaries and has adopted a structured approach, which
includes communicating with and following corporate standards. In addition,
Suiza has engaged an outside firm to consult with it on Year 2000 issues.
Suiza is currently engaged in the assessment phase relative to the
Company, which management expects to be completed in early 1999. The
renovation and conversion processes are expected to be complete by
mid-1999. Suiza is using both internal and external resources to reprogram,
or replace where necessary, and to test modification. For those
applications that are provided by a third party software vendor, available
upgrades are being implemented. The Company has received assurances from
these vendors that these systems are already Year 2000 compliant or that
timely updates will be made available for purchased software. Projects are
in various stages of completion.
Over the past several years the Company has had an ongoing
information systems development plan with scheduled replacements of systems
throughout the organization. Year 2000 compliance is a part of this
development plan. Information systems expenditures have been made in the
normal course of business and to date the Company has not made any
expenditures solely related to Year 2000 compliance. Future expenditures
related to Year 2000 compliance for software and hardware are not expected
to be significant. As part of Suiza's company-wide assessment the Company
will be doing further testing and cannot predict at this point what costs
Suiza may allocate to the Company.
A critical step in the Company's strategic plan is the coordination
of Year 2000 readiness with third parties. The Company is communicating
with its significant suppliers and customers to determine the extent to
which the Company and its interface systems are vulnerable if the customer,
supplier or a third party fails to resolve their Year 2000 issues. The
Company will continue to work with all of its major trading partners to
understand the associated risks and plan for contingencies. There can be no
guarantee that the systems of other companies on which the Company's
systems and operations rely will be timely converted or that the failure of
these systems would not have an adverse effect on the Company's systems.
Management believes that necessary modifications and replacements of
the Company's critical IT and non-IT systems will be completed timely. If
for any reason, critical service providers, suppliers or customers are
unable to resolve their Year 2000 issues in a timely manner, such matters
could have a material adverse impact on the Company's results of
operations. Specifically, the lack of Year 2000 readiness by raw material
suppliers could impact the availability and expected cost of raw materials
and, therefore, production. The Company's current assessment of risks based
on the most reasonable worst case scenario, however, is that there will be
no material adverse impact on the Company's operations or financial
performance, because management believes that if any disruption to
operations does occur, it will be isolated and or short-term in duration.
Development of contingency plans is underway. Such plans will address
actions necessary to mitigate the impact of third party disruptions.
18
<PAGE>
<PAGE>
Cautionary Statement
Certain statements and information in this Quarterly Report
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may be
indicated by phrases such as "believes," "anticipates," "expects,"
"intends," "foresees," "projects," "forecasts" or words of similar meaning
or import. Such statements are subject to certain risks, uncertainties, or
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those set forth in applicable
forward-looking statements. Among the key factors that may have a direct
bearing on the Company's results and financial condition are (i) risks
associated with intense competition in the Company's industry, (ii) the
impact of governmental regulations, and (iii) risks associated with
volatility in the costs of raw goods. Any forward-looking statements made
or incorporated by reference herein speak only as of the date of this
Quarterly Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any such
statements, to reflect any change in its expectations with regard thereto
or any change in events, conditions, or circumstances on which any such
statement is based. Additional information concerning these and other risk
factors is contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, a copy of which may be obtained from
the Company upon request.
19
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule p. 21
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
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/ Barry Fromberg
---------------------
Barry Fromberg
Principal Financial and
Accounting Officer on behalf
of the registrant
Dated this 11th day of November, 1998.
20
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 4-MOS 5-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUN-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 MAY-31-1998
<CASH> 3,713 0
<SECURITIES> 10,620 0
<RECEIVABLES> 23,570 0
<ALLOWANCES> 1,703 0
<INVENTORY> 15,791 0
<CURRENT-ASSETS> 56,060 0
<PP&E> 101,848 0
<DEPRECIATION> 3,747 0
<TOTAL-ASSETS> 304,092 0
<CURRENT-LIABILITIES> 41,699 0
<BONDS> 140,394 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 99,687 0
<TOTAL-LIABILITY-AND-EQUITY> 304,092 0
<SALES> 86,881 108,924
<TOTAL-REVENUES> 86,881 108,924
<CGS> 70,788 92,159
<TOTAL-COSTS> 79,651 103,776
<OTHER-EXPENSES> 3,358 5,061
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,696 5,643
<INCOME-PRETAX> 3,872 87
<INCOME-TAX> 1,471 (1,590)
<INCOME-CONTINUING> 2,401 1,677
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,401 1,677
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
