<PAGE>
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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 June 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)
Delaware 13-3632393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Merritt 7 Corporate Park
Norwalk, Connecticut 06856
(Address of principal executive offices)
Telephone number (203) 750-5900
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 August 12, 1998, there were 100 shares of the registrant's common stock
outstanding.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIC CONTAINERS, INC.
Condensed and Consolidated Balance Sheets as of June 30, 1998 and December 31,
1997 (unaudited).
Condensed and Consolidated Statements of Income for the period from April 1,
1998 through acquisition date, the period from acquisition date to June 30,
1998, and the three months ended June 30, 1997 (unaudited).
Condensed and Consolidated Statements of Income for the period from January 1,
1998 through acquisition date, the period from acquisition date to June 30,
1998, and the six months ended June 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 June 30,
1998, and the six months ended June 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 June 30, 1998 and December 31, 1997 (unaudited).
Condensed Statements of Income for the period from April 1, 1998 through
acquisition date, the period from acquisition date to June 30, 1998, and the
three months ended June 30, 1997 (unaudited).
Condensed Statements of Income for the period from January 1, 1998 through
acquisition date, the period from acquisition date to June 30, 1998, and the six
months ended June 30, 1997 (unaudited).
Condensed Statements of Cash Flows for the period from January 1, 1998 through
acquisition date, the period from acquisition date to June 30, 1998, and the six
months ended June 30, 1997 (unaudited).
Notes to Condensed Financial Statements.
2
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PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Predecessor
-----------
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 793 2,479
Investment securities 17,009 20,385
Accounts receivable, net 21,442 20,258
Inventories 17,349 19,955
Other current assets 4,176 2,850
-------- --------
Total current assets 60,769 65,927
Property, plant and equipment, net 93,163 100,091
Goodwill and other intangible assets 124,697 25,591
Other assets 27,135 13,303
-------- -------
$305,764 204,912
======== ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable - trade $ 16,179 18,285
Current portion of long-term obligations 996 996
Other current liabilities 23,796 16,741
-------- --------
Total current liabilities 40,971 36,022
Long-term obligations 144,469 128,007
Other liabilities 22,319 20,764
Stockholders' equity:
Common stock, $1 par value. Authorized 1,000
shares; 100 shares issued and outstanding -- --
Additional paid-in capital 135,881 79,833
Retained earnings (deficit) 719 (27,529)
-------- --------
136,600 52,304
Less note receivable from stockholder 38,595 32,185
-------- --------
Total stockholders' equity 98,005 20,119
-------- --------
$305,764 204,912
======== ========
</TABLE>
3
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PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
------------------------
Period from
Period from April 1, Three
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $23,415 44,017 71,374
Cost of goods sold 19,134 37,369 59,675
------ ------ ------
Gross profit 4,281 6,648 11,699
Selling, general and administrative expense 2,370 4,735 6,718
------ ------- -------
Operating income 1,911 1,913 4,981
Other income (expense):
Interest income 95 244 359
Interest expense (788) (2,256) (3,350)
Loss on disposal of assets -- (25) (58)
------ ------ ------
Total other expense (693) (2,037) (3,049)
------- ------ ------
Income (loss) before income taxes 1,218 (124) 1,932
Income tax benefit (expense) (499) 596 (24)
------- ------- ------
Net income $ 719 472 1,908
======= ======= =====
</TABLE>
4
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PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Period from
Period from January 1, Six
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $ 23,415 108,924 136,761
Cost of goods sold 19,134 92,159 114,601
-------- ------- -------
Gross profit 4,281 16,765 22,160
Selling, general and administrative expense 2,370 11,617 13,238
-------- ------- -------
Operating income 1,911 5,148 8,922
Other income (expense):
Interest income 95 604 646
Interest expense (788) (5,643) (6,739)
Loss on disposal of assets -- (22) (56)
-------- ------- -------
Total other expense (693) (5,061) (6,149)
-------- ------- -------
Income before income taxes 1,218 87 2,773
Income tax benefit (expense) (499) 1,590 (24)
-------- ------- -------
Net income $ 719 1,677 2,749
======== ======= =======
</TABLE>
5
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PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
----------------------
Period from
Period from January 1, Six
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 719 1,677 2,749
Adjustments:
Depreciation and amortization 1,198 5,589 6,928
Loss on disposal of assets -- 22 56
Changes in assets and liabilities (7,182) 6,739 5,058
-------- ------- -------
Net cash provided by (used in)
operating activities (5,265) 14,027 14,791
-------- ------- -------
Cash flows from investing activities:
Change in investment securities, net 5,157 (1,781) (16,224)
Loan to stockholder -- (5,300) --
Proceeds from disposal of assets -- 3 104
Purchases of property, plant and equipment (1,327) (6,787) (4,127)
-------- ------- -------
Net cash provided by (used in)
investing activities 3,830 (13,865) (20,247)
-------- ------- -------
Cash flows from financing activities -
Repayments of long-term obligations (69) (344) (413)
-------- ------- -------
Net decrease in cash and cash equivalents (1,504) (182) (5,869)
Cash and cash equivalents - beginning 2,297 2,479 12,178
-------- ------- -------
Cash and cash equivalents - ending $ 793 2,297 6,309
======= ======= =======
</TABLE>
6
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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 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 June 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 income tax and other 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
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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 June 30, 1998 and December 31, 1997 consist
of the following:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 6,951 9,566
Finished goods 8,571 12,223
------- ------
15,522 21,789
LIFO reserve -- (3,578)
------- ------
15,522 18,211
Caribbean 466 554
Repair parts and supplies 1,361 1,190
------- ------
$17,349 19,955
======= ======
</TABLE>
(3) Leases
PCI leases certain facilities and equipment used in connection with its
operations. Rental expense under these operating leases was $3,587 and
$7,041 for the three months and six months ended June 30, 1998,
respectively, and $3,400 and $6,908 for the three months and six months
ended June 30, 1997, respectively.
(Continued)
8
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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
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CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Predecessor
------------
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 488 1,164
Investment securities 16,842 20,214
Accounts receivable, net 20,239 20,080
Inventories 16,883 19,401
Other current assets 4,176 2,850
--------- ---------
Total current assets 58,628 63,709
Property, plant and equipment, net 89,091 95,894
Goodwill and other intangible assets 124,697 25,591
Other assets 27,124 13,303
-------- --------
$299,540 198,497
======== ========
Liabilities & Stockholder's Equity
Current liabilities:
Accounts payable - trade $ 16,121 17,852
Current portion of long-term obligations 996 996
Other current liabilities 23,538 16,484
-------- --------
Total current liabilities 40,655 35,332
Long-term obligations 144,469 128,007
Other liabilities 22,298 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 129,984 74,175
Retained earnings (deficit) 719 (27,583)
-------- -------
130,713 46,602
Less note receivable from stockholder of parent 38,595 32,185
-------- --------
Total stockholder's equity 92,118 14,417
-------- --------
$299,540 198,497
======== ========
</TABLE>
10
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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 April 1, Three
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $22,935 42,780 69,822
Cost of goods sold 18,654 36,245 58,183
------ ------ ------
Gross profit 4,281 6,535 11,639
Selling, general and administrative expense 2,367 4,731 6,709
------ ------- -------
Operating income 1,914 1,804 4,930
Other income (expense):
Interest income 92 239 342
Interest expense (788) (2,256) (3,350)
Loss on disposal of assets -- (24) (58)
------ ------- ------
Total other expense (696) (2,041) (3,066)
------ ------- ------
Income (loss) before income taxes 1,218 (237) 1,864
Income tax benefit (expense) (499) 600 --
------- ------- -------
Net income $ 719 363 1,864
======= ======= ======
</TABLE>
11
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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, Six
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $22,935 105,832 134,098
Cost of goods sold 18,654 89,273 111,957
------- ------- -------
Gross profit 4,281 16,559 22,141
Selling, general and administrative expense 2,367 11,590 13,218
------- ------- -------
Operating income 1,914 4,969 8,923
Other income (expense):
Interest income 92 588 607
Interest expense (788) (5,643) (6,739)
Loss on disposal of assets -- (22) (56)
------- ------- -------
Total other expense (696) (5,077) (6,188)
------- ------- -------
Income (loss) before income taxes 1,218 (108) 2,735
Income tax benefit (expense) (499) 1,600 --
------- ------- -------
Net income $ 719 1,492 2,735
======= ======= =======
</TABLE>
12
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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, Six
Acquisition 1998 Months
Date to Through Ended
June 30, Acquisition June 30,
1998 Date 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 719 1,492 2,735
Adjustments:
Depreciation and amortization 1,161 5,400 6,735
Loss on disposal of assets -- 22 56
Changes in assets and liabilities (7,058) 7,927 5,173
------- ------- -------
Net cash provided by (used in)
operating activities (5,178) 14,841 14,699
------- ------- -------
Cash flows from investing activities:
Change in investment securities, net 5,155 (1,783) (16,259)
Loan to stockholder of parent -- (5,300) --
Proceeds from disposal of assets -- 3 104
Purchases of property, plant and equipment (1,308) (6,693) (3,702)
------- ------- -------
Net cash provided by (used in)
investing activities 3,847 (13,773) (19,857)
------- ------- -------
Cash flows from financing activities -
Repayments of long-term obligations (69) (344) (413)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents (1,400) 724 (5,571)
Cash and cash equivalents - beginning 1,888 1,164 10,522
------- ------- -------
Cash and cash equivalents - ending $ 488 1,888 4,951
======= ======= =======
</TABLE>
13
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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 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
June 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 income tax and other 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
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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 June 30, 1998 and December 31, 1997 consist
of the following:
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 6,951 9,566
Finished goods 8,571 12,223
------- ------
15,522 27,789
LIFO reserve -- (3,578)
------- -------
15,522 18,211
Repair parts and supplies 1,361 1,190
------- -------
$16,883 19,401
======= ======
</TABLE>
(3) Leases
CPC leases certain facilities and equipment used in connection with its
operations. Rental expense under these operating leases was $3,587 and
$7,041 for the three months and six months ended June 30, 1998,
respectively, and $3,400 and $6,908 for the three months and six months
ended June 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
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<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 second quarter and first six months of 1998
were $67,432 and $132,339, respectively, compared to $71,374 and $136,761 for
the corresponding periods of 1997. The decrease in sales was primarily the
result of a decrease 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 $2,500 and $3,200 for the second quarter and first six months of
1998, respectively. The remaining sales decrease is the result of changes in
product mix and competitive pricing pressures. Total unit volume for the second
quarter and first six months of 1998 increased 1.9% and 0.6%, respectively,
compared to the corresponding periods in 1997; however, the product mix in 1998
is comprised of a larger percentage of lighter-weight, lower-priced containers
compared to the prior year.
Gross Profit. Gross profit for the second quarter and first six months of
1998 was $10,929 and $21,046, respectively, a decrease of $770 (6.6%) and $1,114
(5.0%), respectively, over the corresponding periods of 1997. This decrease
resulted from additional manufacturing overhead costs incurred related to
specific customer projects and from margin losses related to pricing
adjustments. Gross profit percentage for the second quarter and first six months
of 1998 was 16.2% and 15.9%, respectively, compared to 16.4% and 16.2% for the
corresponding periods of 1997. 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.
Excluding the impact on sales of lower resin prices, gross profit percentage for
the second quarter and first six months of 1998 would have been 15.6% and 15.5%,
respectively.
SG&A. Selling, general and administrative (SG&A) expense for the second
quarter and first six months of 1998 increased $387 (5.8%) and $749 (5.7%),
respectively, compared to the
16
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<PAGE>
corresponding periods of 1997. The increase in SG&A expense results primarily
from an increase in engineering and development activity related to new product
introductions and from expense related to employee relocations. In addition,
SG&A expense for the second quarter of 1998 includes additional amortization
expense of approximately $190 resulting from additional goodwill related to the
Continental Can acquisition. SG&A expense as a percentage of net sales for the
second quarter and first six months of 1998 was 10.5% and 10.6%, respectively,
compared to 9.4% and 9.7% for the corresponding periods of 1997. Excluding the
impact on sales of lower resin prices, the SG&A percentage for the second
quarter and first six months of 1998 would have been 10.2% and 10.3%,
respectively.
Other Expense. Other expense for the second quarter and first six months of
1998 was $2,730 and $5,754, respectively, compared to $3,049 and $6,149,
respectively, for the corresponding periods of 1997. This decrease results from
a decrease in interest expense of approximately $300 resulting from a
revaluation of long-term obligations in connection with the Continental Can
acquisition.
Income Taxes. Income taxes for the second quarter and first six months of
1998 were a benefit of $97 and $1,091, respectively, compared to expense of $24
for the second quarter and first six months 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 effective tax rate of 41% applied to
pre-tax earnings.
Net Income. Net income for the period from April 1, 1998 through
acquisition date and for the period from acquisition date to June 30, 1998 was
$472 and $719, respectively compared to $1,908 for the second quarter of 1997.
Net income for the period from January 1, 1998 through acquisition date and for
the period from acquisition date to June 30, 1998 was $1,677 and $719,
respectively, compared to $2,749 for the six months ended June 30, 1997. The
decrease in net income in 1998 results from the net impact of the changes
discussed above.
CAPITAL REQUIREMENTS
PCI acquired $8,114 in capital assets in the first six months of 1998,
compared to $4,127 in the first six 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 six 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 $50,000 and cash flows from operations. At June 30, 1998, the
Company had no borrowings outstanding under the revolving credit facility and
had invested cash and cash equivalents of approximately $17,800.
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 June 30, 1998, the Company had undrawn availability under the
revolving credit facility of approximately $30,300.
Working capital was $19,798 at June 30, 1998, compared to $29,905 at
December 31, 1997. The decrease is due primarily to a loan of $5,300 made to
Continental Can in the second quarter of 1998 and the impact of purchase
accounting adjustments. Cash flows from operating activities were
17
<PAGE>
<PAGE>
$8,762 for the first six months of 1998, compared to $14,791 for the first six
months of 1997. The decrease is due primarily to a difference in cash collected
on receivables of approximately $4,700 and lower pre-tax income in 1998.
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
PCI has a plan in place to address the impact of Year 2000 issues on its
computer systems and applications and is in the process of converting its
computer systems to be Year 2000 compliant. The plan provides for the conversion
efforts to be completed by the end of 1998. The Year 2000 issues are the result
of computer programs being written using two digits rather than four to define
the applicable year. Expenditures in 1998 related to the completion of the
conversion are not expected to be significant. PCI is also dependent upon
customers and suppliers to have their computer systems Year 2000 compliant.
18
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule p. 20
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 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/ Abdo Yazgi
---------------------------
Abdo Yazgi
Principal Financial and
Accounting Officer on behalf
of the registrant
Dated this 12th day of August, 1998.
19
<PAGE>
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