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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from -------- to ------.
Commission File Number: 33-45897
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PLASTIC CONTAINERS, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 13-3632393
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2515 McKinney Avenue, Suite 850, Dallas, Texas 06856
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(Address of principal executive offices) (Zip Code)
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(214) 303-1825
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes[X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the registrant's voting stock was held by nonaffiliates as of March 23,
1998.
The number of shares outstanding of the registrant's Common Stock ($1.00 par
value) as of March 29, 1999 is 100.
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TABLE OF CONTENTS
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PART NO. ITEM NO. Page No.
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I 1 Business 3
2 Properties 9
3 Legal Proceedings 9
4 Submission of Matters to a Vote
of Security Holders 9
II 5 Market for the Registrant's
Common Equity and Related
Stockholder Matters 9
6 Selected Financial Data 10
7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10
8 Financial Statements and
Supplementary Data 14
9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 14
III 10 Directors and Executive Officers
of the Registrant 14
11 Executive Compensation 16
12 Security Ownership of Certain
Beneficial Owners and Management 17
13 Certain Relationships and
Related Transactions 17
IV 14 Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K 18
Index to Exhibits 65
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PART I
ITEM 1. BUSINESS
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GENERAL DEVELOPMENT OF BUSINESS
Plastic Containers, Inc. (the "Company" or "PCI") was incorporated in
Delaware in October 1991 for the purpose of acquiring Continental Plastic
Containers, Inc. ("CPC") and Continental Caribbean Containers, Inc.
("Caribbean") (collectively, the "Continental Plastic Container Companies").
In November 1991, PCI purchased all of the issued and outstanding capital stock
of the Continental Plastic Container Companies (the "PCI Acquisition").
PCI was originally 50%-owned by Continental Can Company, Inc.
("Continental Can") and 50%-owned by Merrywood, Inc. ("Merrywood"). In
December 1996 Continental Can acquired an additional 34% equity interest in
PCI from Merrywood, thereby increasing its ownership to 84%. On May 29, 1998,
Continental Can was acquired by Suiza Foods Corporation ("Suiza") in a purchase
transaction (the "Suiza Acquisition"). In addition, pursuant to the purchase
agreement, Continental Can increased its ownership of PCI to 100% by acquiring
the remaining 16% equity interest from Merrywood.
NARRATIVE DESCRIPTION OF BUSINESS
The Company is a leader in developing, manufacturing and marketing 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. The Company manufactures single
and multi-layer containers, primarily from high density polyethylene ("HDPE")
and polypropylene ("PP") resins, ranging in size from two ounces to two and
one-half gallons. Management believes that, based on revenues, the Company is
among the largest U.S. manufacturers of extrusion blow-molded plastic containers
for (i) food and juice, (ii) automotive products and motor oil and (iii)
household chemical products.
Based on the nature of the product, the production processes, types of
customers, and methods used to distribute products, the Company operates in
in one reportable segment.
In 1998, PCI sold over 1.5 billion containers, primarily to national
consumer product companies. The Company often is the sole supplier of a
customer's container requirements for specific product categories or for
particular container sizes. The Company has long-standing relationships with
most of its customers and has long-term contractual agreements with remaining
terms of up to five years with customers who represent approximately $206.5
million, or 81%, of the Company's fiscal 1998 dollar sales volume. All of these
contracts provide for changes in raw material prices to be passed through to the
customer. Contracts representing approximately 8% of the Company's 1998 dollar
sales volume are pending renewal in 1999.
The Company's principal executive officers are located at 2515 McKinney
Avenue, Suite 850, Dallas, Texas 75201.
COMPETITIVE STRENGTHS
Management believes that the Company possesses several attributes that
contribute to its position as a leading manufacturer of plastic containers for
food and juice, household chemicals and automotive products and motor oil,
including:
Strong Customer Relationships and Long-Term Production Contracts.
Management believes that the Company's strong and long-standing customer
relationships are due to its nationwide manufacturing facilities, proven ability
to develop and manufacture innovative products, and competitive pricing. The
Company's five largest customers (Procter & Gamble, The Minute Maid Company,
Mobil Oil, Pennzoil and Quaker State) have been customers of the Company for an
average of approximately 17 years.
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Customer-Focused Product Development. PCI works closely with its customers
in all phases of product design and production and, since 1992, has spent
approximately $64 million on research, development and engineering activities.
Examples of the Company's major product innovations include Conolene'TM'
fluorine treated barrier bottles (for use in certain applications where the
contents would otherwise damage an untreated plastic container) and Lamicon'TM'
multi-layer oxygen barrier bottles (for use in certain applications where the
contents would be harmed by prolonged exposure to oxygen). Other PCI innovations
include the first plastic containers for numerous products, such as motor oil,
anti-freeze, maple syrup, edible oil, gasoline additives and herbicides. These
innovations were commercially developed at the Company's Elk Grove, Illinois
technical center, where approximately 80 employees are engaged in research,
development and engineering activities and which management believes provides
the Company with a competitive advantage.
State-of-the-Art Manufacturing Technologies. Management believes that PCI
is among the container industry's technology leaders and as such is able to
improve manufacturing efficiencies and lower unit costs. The Company was among
the first to develop and utilize a "wheel" manufacturing process employing
container molds mounted radially on a wheel. Many of PCI's current wheels
include proprietary improvements which permit them to operate at higher speeds
and to more efficiently manufacture containers with special features such as
multiple layers and in-mold labeling (which allows a customer's label to be
incorporated into the bottle at its formation rather than be attached with
adhesive at a later stage of the manufacturing process, thereby enhancing the
appearance of the label). In addition, major production advances commercially
developed by PCI include the dual parison blow-molding process, which allows up
to four bottles to be made in a single mold, automatic on-line testing
equipment, robotic product handling equipment, sonic welding (a proprietary
technology to place insulated handles on microwavable bottles), custom color
matching and advanced bottle trimming techniques.
Strategically Located Facilities. The Company serves its customers through
a network of 14 plants located in the continental United States and one plant
located in Puerto Rico. In many cases, the Company's facilities are located
adjacent to or in close proximity to its largest customers' manufacturing
operations, thereby creating production and distribution efficiencies.
Management believes that the Company's national network of manufacturing
facilities is an important competitive advantage because of (i) customer
requirements for nationwide production capabilities, (ii) the significance of
transportation costs, and (iii) the importance of frequent, timely product
deliveries to its customers, many of whom have implemented "just-in-time"
inventory management techniques.
BUSINESS STRATEGY
The Company's business strategy is to leverage its core competencies in the
development, manufacture and marketing of extrusion blow-molded containers
through: (i) continued cost reduction and increased productivity; (ii) new
product development focused on the industry trend towards the conversion to
plastic packaging from glass, metal and other materials; and (iii) the
development of strategic partnerships with customers.
Continue Cost Reduction and Increase Productivity. Management continually
seeks opportunities to reduce costs and maintains several technology driven
programs which are dedicated to productivity improvements. As a result of these
improvements, since 1992 the Company has achieved approximately a 23% increase
in productivity, as measured by pounds of resin processed per employee. The
Company has also focused on rigorous control of selling, general and
administrative expenses resulting in a reduction of such expenses to 10.3% of
net sales in the year ended December 31, 1998, from 14.5% in the year ended
December 31, 1992.
Capitalize on Conversion from Glass and Metal Containers. Management
believes that PCI can capitalize on the continuing trend towards the
substitution of plastic for glass and metal containers. This trend is primarily
a function of the greater satisfaction with plastic bottles due to their (i)
lighter weight, (ii) lower susceptibility to breakage in comparison to glass
containers, (iii) special spouts and built-in handles, which increase
"pourability" for larger bottles, and (iv) superior on-shelf product
presentation, which facilitates product differentiation. The Company has
developed a number of products aimed at sectors traditionally served by glass or
metal containers, including one gallon Lamicon'TM' juice containers, plastic
replacements for large cans used in the food service industry, and juice
concentrate bottles used in dispensing machines.
Develop Customer Partnerships. In response to customers' increasing focus
on outsourcing non-core activities, management intends to expand customer
partnerships through vendor management programs. The Company has a vendor
management agreement with Mobil Oil under which the Company supplies 100% of
Mobil Oil's quart
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containers for motor oil and manages related packaging materials. This program
provides comprehensive packaging services to Mobil Oil, including, in addition
to bottle manufacture, the purchase and inventory management of labels, closures
and cartons. The Company also provides technical support for all packaging
components to insure a high level of quality. The Company has since entered into
similar arrangements with other customers.
INDUSTRY OVERVIEW
The extrusion blow-molded plastic bottle segment of the packaging industry
is experiencing continued growth as a result of ongoing customer conversions
from glass, metal and paper packaging to plastic packaging. The industry is
fragmented and regional due to the high cost of transporting empty bottles.
According to published industry statistics there are over 300 plastic bottle
manufacturers in the continental United States. Annual sales of a majority of
these competitors range from a few million dollars to over $500 million.
Consolidation of these manufacturers has been a recent trend, with several
transactions occurring within the past two years. Management believes this
consolidation to be evidence of an industry-wide drive to remove duplicative
costs and increase efficiency.
CUSTOMERS
Substantially all of PCI's sales are made to major consumer products
companies. PCI in many cases is the sole supplier of substantially all of its
customers' container requirements for specific products or particular container
sizes.
In 1998, PCI's ten largest customers, who accounted for approximately 80%
of sales, were (in alphabetical order):
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Clorox Company Procter & Gamble
Campbell Soup Company Quaker State
Coastal Unilube Ross Laboratories
Mobil Oil Company Solaris
Pennzoil The Minute Maid Company
</TABLE>
PCI often has more than one contract with a particular customer. PCI may
have individual contracts for specific products or container sizes or, in
certain circumstances, separate contracts with one or more operating divisions
of a single customer. As a result, PCI currently has 14 contracts with the ten
customers listed above, of which eight contracts are with its three largest
customers, Procter & Gamble, The Minute Maid Company and Mobil Oil (which were
the only customers which accounted for 10% or more of PCI's revenues during
1998); the largest such contract accounted for $34.2 million in net sales in
1998 and expires in 2002.
PRODUCTS
PCI currently manufactures primarily HDPE containers or PP containers. In
1998, HDPE containers accounted for approximately 93% of the total number of
containers manufactured by PCI and PP containers accounted for approximately 6%
of such total. PCI also manufactures, at its plant in Puerto Rico, beverage
bottles made from polyethylene terephthalate ("PET").
HDPE containers are utilized for products such as laundry detergents,
dishwashing liquids, shampoo, automotive motor oil and some food products. They
may consist of a single layer of plastic or up to six layers for specialized
uses. Multi-layer containers may be required in order to include a layer with
barrier properties, to permit the inclusion of recycled materials or to reduce
cost by limiting the use of colorant to the single exterior layer. PCI's
Conolene'TM' brand of HDPE container is a two-layer container. The inner layer
has been exposed to fluorine/nitrogen gas which makes the container suitable for
storing insecticides and chemicals which would otherwise cause a standard HDPE
container to disintegrate. PP containers are typically utilized for food
products, such as maple syrup, ketchup, salad dressing and salsa. PP containers
are usually either single layer non-barrier containers or multi-layer containers
that include a barrier layer.
PCI's Lamicon'TM' brand of HDPE and PP container consists of six layers,
including a barrier layer of ethyl vinyl alcohol which renders the container
oxygen-tight and makes it suitable for use for food products which are subject
to spoiling or deterioration if exposed to oxygen.
PRODUCT MARKETS
Plastic containers manufactured by PCI are utilized for four main product
categories. PCI's sales volume for 1998 in each of these product categories is
as follows:
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Sales
(in millions) Percentage
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Food and juice .............. $101.1 39.4%
Household chemicals ......... 61.0 23.8
Automotive and motor oil..... 59.5 23.2
Other ....................... 34.9 13.6
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Total ................. $256.5 100.0%
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FOOD AND JUICE
The food and juice products for which PCI manufactures containers include
ketchup, maple syrup, edible oil, salsa and fruit juices. Certain of these
products (such as ketchup and salsa) require containers that include an oxygen
resistant barrier layer to prevent spoiling or deterioration. PCI's food and
juice product containers are approximately 56% single layer non-barrier
containers and 44% multi-layer containers with a barrier layer. Because of the
technical requirements involved in barrier packaging for food and juice, this
market is generally characterized by fewer competitors and higher margins than
PCI's other principal product markets.
The packaged food industry has been slow to convert to plastic containers
due to technical requirements relating to product quality, shelf-life and
product handling, and plastic containers currently comprise only a small
percentage of the food container market. However, multi-layer plastic containers
are increasingly accepted for many food products, and management believes that
the food product market presents a substantial opportunity for future sales of
plastic containers. PCI's strategy for the food and juice market is to work with
customers to convert them to plastic containers for products which are now
packaged in glass, metal, paper or multi-material containers.
HOUSEHOLD CHEMICALS
The Company's containers for household chemicals consist almost entirely of
HDPE containers for laundry detergent, dishwashing liquid, bleach and fabric
softeners. PCI's strategy for the household chemicals market is to increase
market share by stressing technological advantages permitting the production of
more containers with custom features, and to lower production costs, thereby
allowing the Company to be price competitive. PCI markets specialized product
features such as in-mold labeling and "window stripe" bottles (with a
see-through stripe permitting visual measurement of the contents). In order to
reduce unit manufacturing costs, PCI employs dual parison production, a process
that allows up to four bottles to be made in a single mold, and automated
packing technology.
AUTOMOTIVE AND MOTOR OIL
Motor oil containers produced by PCI consist primarily of one-quart HDPE
bottles. Virtually all containers for automotive motor oil currently sold at
retail are plastic. As with the household chemicals market, PCI's strategy for
the automotive and motor oil market is to continue to increase its market share
through unit-cost advantages and by emphasizing product features such as "window
stripes" and in-mold labeling.
OTHER PRODUCTS
Hair Care. The Company manufactures containers for shampoos and
conditioners for Procter & Gamble. Management believes that such containers
represent an attractive opportunity for the Company to utilize its advanced
production techniques, as hair care product manufacturers typically have
demanding container specifications.
Industrial and Agricultural. Containers manufactured for use by industrial
and agricultural manufacturers consist of containers for insect repellents and
high strength cleaners packaged for commercial and industrial use. PCI's
corrosion resistant Conolene'TM' containers are a leading product for this
market and PCI's marketing efforts stress the quality of containers produced
with PCI's proprietary Conolene'TM' technology.
MANUFACTURING AND PRODUCTION PROCESS
PCI serves its customers through a network of 14 plants located in the
continental United States and one plant located in Puerto Rico. See "Properties"
below. In many cases, the Company's facilities are located adjacent to or in
close proximity to its largest customers' manufacturing operations, thereby
creating production and distribution efficiencies. Most of PCI's products are
shipped by common carrier to customers within a 250-300 mile radius of a given
production site.
Four of the Company's plants are dedicated to single customers with whom
PCI has long-standing relationships. The plants have between 2 and 13 production
lines, and individual production lines within a plant are frequently dedicated
to a single customer. Of the 112 production lines operated by PCI, 85 are
currently dedicated to a particular customer's products. The dedication of
production lines is an important factor in obtaining long-term contracts. PCI's
plants (but not every production line within a plant) generally operate 24 hours
a day five days a week.
In the extrusion blow-molding production process, resin pellets are blended
with colorants or other necessary additives and fed into an extrusion machine,
which uses heat and pressure to form the resin into a round hollow tube of
molten plastic called a parison. Bottle molds mounted radially on a wheel
capture the parisons as they leave the
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extruder. Once inside the mold, air pressure is used to blow the parison into
the bottle shape of the mold. Over 60% of PCI's production lines are set up so
that multiple extruders each deposit a separate parison into a single mold, thus
producing a multi-layered bottle. In addition, over 60% of the production lines
include in-mold labeling equipment. The Company was among the first to develop
and utilize a "wheel" manufacturing technology. While certain of PCI's
competitors also use wheel technology in their production lines, PCI has
developed a number of proprietary improvements which management believes permit
the Company's wheels to operate at higher speeds and to manufacture more
efficiently containers with one or more special features, such as multiple
layers and in-mold labeling.
Management believes that capital investment to maintain and upgrade
property, plant and equipment is important to remain competitive. Total capital
expenditures for 1998, 1997 and 1996 were approximately $21.4 million, $11.1
million and $21.2 million, respectively. Capital expenditure levels in both 1998
and 1996 were higher than 1997 due to new production line installations in a
number of locations during 1998 and the addition of the Company's Atlanta
facility in 1996.
SOURCES AND AVAILABILITY OF RAW MATERIALS
All of the raw materials PCI uses have historically been available in
adequate supply from multiple sources. PCI's principal raw materials are HDPE
and PP resins, which are delivered to PCI in pellet form. During periods of
tighter supply, PCI has been able to procure sufficient quantities of resins to
supply all of its customers' needs.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering constitute an important part of PCI's
activities, both for development of new products and product enhancements and
for development of manufacturing technology. These efforts are undertaken by
approximately 80 Company employees principally at PCI's technical center located
in Elk Grove, Illinois. While PCI to a limited extent engages the services of
outside research and development consulting firms to assist on specific
projects, it develops the vast majority of its technical expertise internally.
Company-sponsored research, development and engineering expenditures were
approximately $9.0 million, $8.8 million and $8.3 million for 1998, 1997 and
1996, respectively. Management believes that continuing product and
manufacturing innovations are of major importance to meeting customers' needs
and lowering unit costs, thereby permitting the Company to remain competitive
in the plastic container market.
PCI has a large number of patents that relate to a variety of products and
processes, has pending a number of patent applications, and is licensed under
several patents owned by others. Management does not consider any patent or
group of patents relating to any particular product or process to be of material
importance to its business as a whole.
COMPETITION
PCI faces substantial competition throughout its product lines from a
number of well-established businesses operating nationally, and in certain
limited circumstances, from firms operating regionally. In most instances
regional competitors lack the technological capabilities to service national
consumer product companies. PCI's primary national competitors are
Owens-Brockway (a subsidiary of Owens-Illinois, Inc.), Graham Container
Corporation, Plastipak, Inc. and American National Can, Inc. Management believes
that PCI's long-term success is largely dependent on its ability to continue to
develop product innovations and improve its production technology and expertise
through its applied research and development capability. Other important
competitive factors are rapid delivery of products, production quality, and
price.
MARKETING AND DISTRIBUTION
Substantially all of PCI's sales are made through the direct efforts of its
approximately 15 sales personnel. Sales activities are conducted from PCI's
corporate headquarters in Dallas, Texas and from field sales offices located in
Houston, Texas; Cincinnati, Ohio; Elk Grove, Illinois; Santa Ana, California;
Fort Smith, Arkansas; Fairfield, California; and Lakeland, Florida.
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PCI's products are typically delivered to its customers by truck, at the
expense of the customer. Deliveries are generally made on a daily basis to
comply with its customers' "just-in-time" delivery requirements.
TRADEMARKS
The Company has developed a number of trademarks and patents for use in
its business, and is continually developing new trademarks and patents. The
Company believes that its use of trademarks and patented packaging designs
creates goodwill and results in product differentation and, therefore, is
important to its business.
EMPLOYEES
The Company employed approximately 1,500 persons at December 31, 1998. A
majority of these employees are hourly workers covered by collective bargaining
agreements. PCI has not had any material labor disputes in the past five years
and considers its employee relations to be good.
ENVIRONMENTAL MATTERS
PCI's operations, in common with those of the industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Although compliance with environmental laws
and regulations requires ongoing expenditures and remediation activities,
capital expenditures for property, plant and equipment for environmental control
activities and other expenditures for compliance with environmental laws and
regulations were not material in 1998 and are not expected to be material in
1999. Management believes that PCI is in material compliance with all federal,
state and local environmental laws and regulations and is currently not engaged
in any remediation activities required by governmental regulatory authorities.
A number of states and the federal government have considered or are
expected to consider legislation mandating certain rates of recycling and/or the
use of recycled materials. Some consumer products companies (including certain
customers of PCI), have responded to these governmental initiatives and to
perceived environmental concerns of consumers by using bottles made in whole or
in part of recycled plastic. Approximately 17% of the Company's resin needs for
HDPE containers are currently supplied from recycled containers.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
PCI has no foreign sales, operating income or identifiable assets.
Financial information relating to the Company's domestic sales, operating profit
and identifiable assets is included in Item 8 of this report.
ITEM 2. PROPERTIES
PCI employs various owned and leased properties located throughout the
United States and Puerto Rico for its production facilities, corporate
headquarters, technical center and sales offices. Of the 22 properties owned or
leased as of December 31, 1998, 5 were owned and 17 were leased.
The following table sets forth the location and square footage of PCI's
production facilities:
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Size in
Plant Location Square Feet
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Lakeland, Florida 218,000
Elk Grove, Illinois 183,000
Kansas City, Kansas 173,000
Baltimore, Maryland 151,000
Cincinnati, Ohio 130,000
Lima, Ohio 123,000
DuPage, Illinois 104,000
Santa Ana, California 103,000
Oil City, Pennsylvania 96,000
Atlanta, Georgia 85,000
Houston, Texas 80,000
West Memphis, Arkansas 67,000
Fairfield, California 66,000
Newell, West Virginia 50,000
Caguas, Puerto Rico 47,000
</TABLE>
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PCI owns the facilities in Santa Ana, Fairfield, Oil City, Baltimore and
Puerto Rico; all others are leased. All of the facilities owned by PCI and
substantially all of the equipment owned by PCI (including equipment located at
leased facilities) has been pledged as security for the Company's senior secured
notes. PCI's New Market, New Jersey facility ceased production in March 1997.
The New Market lease expires on June 30, 1999. The Lima, Ohio facility is
expected to cease production by the end of the second quarter of 1999. The lease
on this facility expires on December 31, 2000.
PCI also leases its technical center in Elk Grove, Illinois (79,000 sq.
ft.), its corporate headquarters space in Dallas, Texas (9,000 sq. ft.), its
accounting office space in Omaha, Nebraska (6,000 sq. ft.) and sales offices in
Cincinnati, Ohio (1,000 sq. ft.), Houston, Texas (1000 sq. ft.) and Ft. Smith,
Arkansas (150 sq. ft.). Management believes that each of the Company's
properties is suitable for its current use.
ITEM 3. LEGAL PROCEEDINGS
PCI is a party to various litigation matters arising in the ordinary course
of its business. The ultimate legal and financial liability of PCI with respect
to such litigation cannot be estimated with certainty but management of PCI
believes, based on its examination of such matters, experience to date and
discussions with counsel, that such ultimate liability will not be material to
the financial statements of PCI.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the common stock of PCI.
All of PCI's common stock is owned by Continental Can.
No dividends were paid to the holders of common stock for the years 1998
and 1997.
ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Net sales $ 256,516 $279,565 $267,793 $277,061 $230,480
Gross profit 47,495 45,355 43,004 39,393 37,900
Plant rationalization and
realignment costs (credits) - - 6,500 (98) 855
Income (loss) before extraordinary items
items and accounting changes 6,919 5,905 (3,599) 5 (1,783)
Extraordinary loss - - (7,305) (230) (217)
Effect of accounting change - - - - (525)
Net income (loss) 6,919 5,905 (10,904) (225) (2,525)
Working capital 14,840 29,905 25,302 244 24,184
Total assets 289,894 204,912 205,650 219,612 209,299
Long-term obligations 133,108 128,007 129,002 105,212 105,354
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
Net Sales. Net sales in 1998 decreased $23,049 (8.2%) to $256,516, compared
to 1997 net sales of $279,565. The decrease in sales resulted in part from
decreases in raw material costs that were passed-through to customers in the
form of lower prices. Lower resin prices accounted for lower sales of
approximately $12,000 in 1998 compared to 1997. The remaining sales decrease is
the result of changes in product mix and lower overall unit volumes. Total unit
volume for 1998 decreased 2.4% compared to 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 both the lower raw material costs and
the light-weighting programs result in lower selling prices, there is minimal
impact on margins.
Gross Profit. Gross profit for 1998 was $47,495, an increase of $2,140
(4.7%) over gross profit of $45,355 in 1997. Although unit volumes were lower in
1998, the increase in gross profit was accomplished primarily through
significant performance improvement and increased production efficiencies
achieved at most facilities. The performance improvements resulted in
substantial reductions in manufacturing costs and related overhead. Gross profit
was also positively impacted by changes in product mix. New product
introductions in 1998 generally had higher margins on average compared to
products that experienced unit volume declines.
Gross profit as a percentage of net sales was 18.5% in 1998 compared to
16.2% in 1997. The gross profit percentage in 1998 reflects the increase in
gross profit dollars on lower sales as well as the impact on sales of lower
resin prices. 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 increase in gross profit dollars. Excluding the impact
on sales of lower resin prices, gross profit percentage for 1998 would have been
17.7%.
SG&A. Selling, general and administrative (SG&A) expense in 1998 decreased
$1,396 (5.0%) to $26,376, compared to $27,772 in 1997. The decrease in SG&A
expense in 1998 resulted primarily from cost reductions realized from closing
the corporate headquarters office in Norwalk. In connection with the Continental
Can acquisition, the Norwalk office was consolidated with the corporate office
of Suiza Packaging Group in Dallas during the third quarter of 1998. As part of
the consolidation, certain administrative functions were eliminated and or
absorbed by other areas of the organization. The costs savings was partially
offset by an increase in amortization expense of approximately $900 related to
additional goodwill arising from the acquisition. SG&A expense as a percentage
of net sales was 10.3% in 1998, compared to 9.9 % in 1997. Excluding the impact
of lower resin prices on sales, SG&A as a percentage of net sales in 1998 would
have been 9.8%.
Other Expense. Other expense in 1998 was $11,524, a decrease of $1,115
(8.8%) compared to $12,639 in 1997. This decrease is due primarily to a decrease
in interest expense resulting from a revaluation of long-term obligations in
connection with the Continental Can acquisition.
Income Taxes. Income tax expense was $4,266 for the period from May 30,
1998 through December 31, 1998, reflecting taxes provided on pre-tax income at
PCI's effective tax rate. Income tax benefits of $1,590 and $961 were recognized
for the period from January 1, 1998 through May 29, 1998 and for the year ended
December 31, 1997, respectively. These benefits resulted from a reduction in the
valuation allowance for deferred tax assets. For further discussion of the
Company's accounting for income taxes, see Note 12 of Notes to Consolidated
Financial Statements.
Net Income. Net income for the periods from May 30, 1998 through December
31, 1998 and January 1, 1998 through May 29, 1998 was $5,242 and $1,677,
respectively, compared to net income of $5,905 in 1997. The improvement in net
income is the result of improved operating income and reduced interest expense,
offset by an increase in income tax expense.
10
<PAGE>
<PAGE>
1997 COMPARED WITH 1996
Net Sales. Net sales in 1997 increased $11,772 (4.4%) to $279,565, compared
to 1996 net sales of $267,793. The increase in sales resulted from higher resin
prices that were passed-through to customers and from an increase in unit
volume. Higher resin prices accounted for increased sales of approximately
$14,200 in 1997 compared to 1996. Total unit volume for 1997 increased 1.6%
compared to 1996; however, the impact on sales of this increase was offset by
changes in product mix. The product mix in 1997 is comprised of a larger
percentage of lighter-weight, lower-priced containers compared to the prior
year.
Gross Profit. Gross profit for 1997 was $45,355, an increase of $2,351
(5.5%) over gross profit of $43,004 in 1996. The gross profit increase in 1997
was influenced by a number of factors. Gross profit was positively impacted by a
consolidation of production facilities whereby one facility was closed in
October 1996 and another facility was closed in March 1997. The net cost savings
from the consolidations amounted to approximately $4,000 for 1997 compared to
1996. In addition, a revision in the estimated useful lives of certain machinery
and equipment resulted in a reduction in depreciation expense of $1,696 for
1997. These savings, in addition to improved operating efficiencies, were
partially offset by additional costs related to a new production facility that
began full production in the fourth quarter of 1996 as well as increased
depreciation from capital additions in 1996 and 1997.
Gross profit as a percentage of net sales was 16.2% in 1997 compared to
16.1% in 1996. The gross profit percentage in 1997 reflects the increase in
gross profit dollars discussed above, net of the impact on sales of higher resin
prices. Excluding the impact on sales of higher resin prices, gross profit
percentage for 1997 would have been 17.1%.
SG&A. Selling, general and administrative (SG&A) expense in 1997 decreased
$1,057 (3.7%) to $27,772, compared to $28,829 in 1996. The decrease in SG&A
expense in 1997 resulted primarily from a reduction in amortization expense
related to noncompete agreements which became fully amortized in the fourth
quarter of 1996. SG&A expense as a percentage of net sales was 9.9% in 1997,
compared to 10.8% in 1996. Excluding the impact of higher resin prices on sales,
SG&A as a percentage of net sales in 1997 would have been 10.5%.
Plant Rationalization and Realignment. Charges of $6,500 were recognized in
1996 in connection with the consolidation of certain manufacturing operations.
Other Expense. Other expense in 1997 was $12,639, a decrease of $511 (3.9%)
compared to $13,150 in 1996. This decrease resulted primarily from a decrease in
net interest expense.
Income Tax Benefit. Income tax benefit was $961 in 1997 compared to $1,876
in 1996. For further discussion of the Company's accounting for income taxes,
see "Utilization of Net Operating Loss Carryforwards" below.
Extraordinary Loss. The Company incurred an extraordinary loss of $7,305 in
the fourth quarter of 1996 related to the purchase and redemption of senior
secured notes.
Net Income. Net income in 1997 was $5,905, compared to a net loss of
$10,904 in 1996. The loss in 1996 was the result of the charges for plant
rationalization and realignment and the extraordinary loss, which combined to
negatively impact net income by $11,578. The increase in 1997 income is the
result of the improvement is gross profit dollars and the reduction in SG&A and
net interest expense, offset by the decrease in the net tax benefit.
CAPITAL REQUIREMENTS
PCI acquired $21,361 in capital assets in 1998, compared to $11,085 in 1997
and $21,240 in 1996. Substantially all of the assets acquired were packaging
equipment for the manufacture of plastic containers or related support
equipment. Capital expenditure levels in both 1998 and 1996 were higher than
1997 due to the installation of new production lines in a number of locations in
1998 and the addition of the Company's Atlanta facility in 1996.
11
<PAGE>
<PAGE>
The capital requirements in 1998 were met with cash generated from
operations and from existing funds. It is anticipated that capital expenditures
in 1999 will also be funded with cash generated from operations and from
existing funds.
LIQUIDITY
The Company's primary sources of liquidity are provided through cash flow
from operations and a revolving credit facility of $50,000. At December 31, 1998
and 1997, the Company had no borrowings outstanding under the revolving credit
facility and had cash and investment securities of approximately $9,200 and
$20,400, respectively. The decrease in cash and investment securities is
primarily the result of increased levels of capital spending, amounts loaned to
stockholder, and severance payments relative to the elimination of corporate
administrative functions.
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 December 31, 1998, the Company had undrawn availability under the
revolving credit facility of approximately $25,000.
The Company's working capital was $14,840 at December 31, 1998, compared to
$29,905 at December 31, 1997. The decrease in working capital is primarily the
result of the capital spending and other payments discussed above. Cash provided
by operating activities was $20,869 in 1998, compared to $21,342 in 1997. Cash
generated from improved operating earnings was offset by a decrease in accounts
payable levels due to a reduction in supplier terms on purchases.
Management believes the funding expected to be generated from operations
and provided by existing credit facilities will be sufficient to service its
indebtedness and meet the Company's 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 arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem is
not corrected, systems that use a date in its prescribed function may fail or
produce erroneous results before, on and after the year 2000.
PCI, along with Suiza, is currently engaged in a comprehensive and
aggressive project to identify and address any Year 2000 issues that may
adversely impact the business. The areas being assessed are: enterprise systems
and related applications; plant floor systems and equipment, personal computers
and related applications; networks and communications; supplier and customer
chains; internal and external Electronic Data Interchange and associated
interfaces; and miscellaneous equipment (time clocks, postage machines,
facsimiles, etc.). These areas relate not only to "information technology" but
also to all segments of PCI's business, finance, sales, marketing, operations,
etc.
12
<PAGE>
<PAGE>
A corporate project team consisting of both PCI and Suiza corporate and
regional employees representing key segments of the business is guiding the
Company's Year 2000 compliance effort. This team has developed a structured
approach that includes detailed specific tasks needed to satisfy Year 2000
compliance. The plan is broken into five phases including awareness,
assessment/inventory, remediation, certification and testing. These phases are
designed to enable us to comprehensively and effectively track all activities.
External consultants are being utilized to assist in compliance efforts.
PCI has completed its assessment of the Company's information systems and
is aggressively proceeding with remediation, testing and implementation
processes using both internal and external resources. For information and
non-information applications that are provided by a third party software vendor,
available upgrades have been identified and are being certified and implemented.
PCI has finalized the inventory and assessment phase for its plant
equipment and is in the process of researching the detailed inventories for
compliance issues. Indicators are showing that there will be minimal impact in
the plant operations area.
A critical step in the Company's strategic plan is the coordination of Year
2000 readiness with third parties. PCI has an aggressive program in effect to
determine the extent to which the Company and any interface systems are
vulnerable if they fail to resolve Year 2000 issues. The program is designed to
insure that the external business contributors (suppliers, vendors and
customers) are pursuing acceptable compliance efforts so that they will have
minimal impact on the Company's business. Contingency plans are being developed
in any areas that pose a possible threat.
Management believes that all Year 2000 remediation efforts for its business
will be completed on time and within budget estimates. Should any critical
service providers, suppliers or customers be unable to achieve timely
compliance, there may be an adverse impact on the Company's operations.
Management's current assessment of risks, based on the most reasonable worst
case scenario, is that there will be no significant adverse impact on the
Company's operations or financial performance. Management believes that if any
disruption to operations does occur, it will be isolated and/or short-term in
duration.
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 has been a significant part of this
development plan. In connection with the development plan, information systems
expenditures have been made in the normal course of business and, through
December 31, 1998, the Company has not made any expenditures solely related to
Year 2000 compliance. The Company expects to spend between $200 and $300 during
1999 for Year 2000 compliance activities.
INFLATION AND CHANGING PRICES
PCI's sales and costs are subject to inflation and price fluctuations.
However, since changes in the cost of plastic resin, PCI's principal raw
material, are passed through to customers, such changes have equal and
offsetting effects on sales and cost of goods sold and therefore, have no
material effect on PCI's earnings and cash flow; such changes can have a
substantial impact on PCI's sales.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this Annual 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
or 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 foward-looking statements made or incorporated
by reference herein speak only as of the date of this Annual 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company listed in the index
appearing under Item 14 (a) (1) and (2) hereof are filed as part of this Annual
Report on Form 10-K and are incorporated by reference in this Item 8. See also
"Index to Financial Statements" on page 17 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective May 29, 1998, in connection with the Suiza Acquisition, the
Company engaged a new independent accountant, Deliotte & Touche LLP, to audit
the Company's financial statements. Deloitte & Touche LLP also serves as
independent accountant for Suiza. There had not been any disagreements with the
Company's former independent accountants, KPMG Peat Marwick LLP, on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
13
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions of the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name and Age Office
- ------------ ------
<S> <C>
Donald J. Bainton (67) Co-Chairman of the Board
Gregg L. Engles (41) Co-Chairman of the Board
Peter M. Bernon (47) Vice Chairman of the Board
William L. Estes (51) President, Chief Executive Officer and Director
Ronald Justice (54) Executive Vice President and Chief Operating Officer
Brian L. Ketcham (38) Vice President, Treasurer and Controller
David M. Stulman (52) Vice President-Human Resources
John S. Roesch (57) Vice President-Sales and Marketing (CPC and Caribbean)
J.A. Zubillaga (65) Vice President and General Manager (Caribbean)
</TABLE>
Donald J. Bainton served as Chairman of the Board and Chief Executive
Officer of the Company between November 1991 and May 1998. He relinquished the
title of Chief Executive Officer in May 1998 in connection with the Suiza
Acquisition. He became Co-Chairman of the Board in May 1998. Between July 1983
and May 1998, he was principally employed as Chairman of the Board and Chief
Executive Officer of Continental Can. In May 1998, he became Co-Chairman of the
Board and Co-Chief Executive Officer of Continental Can. Prior to July 1983, Mr.
Bainton was Executive Vice President and a director of The Continental Group,
Inc. and President of Continental Packaging Co.
On November 15, 1995, Mr. Bainton settled a civil enforcement proceeding
commenced by the Securities and Exchange Commission in the United States
District Court of the Southern District of New York. This proceeding arose out
of the sale by a business associate of Mr. Bainton of the common stock of
Continental Can. Without admitting or denying the Commission's allegations, Mr.
Bainton agreed to pay a civil penalty of $30,000 and consented to the entry of a
final judgment permanently enjoining him from violating the federal securities
laws.
Gregg L. Engles became Co-Chairman of the Board in May 1998, in connection
with the Suiza Acquisition. Mr. Engles joined Suiza in October 1994 as Chairman
of the Board and Chief Executive Officer. Prior to the formation of Suiza, Mr.
Engles served as Chairman of the Board and Chief Executive Officer of Reddy Ice,
Chairman of the Board of Suiza-Puerto Rico, and Chairman of the Board of Velda
Farms. Mr. Engles also serves on the Board of Directors of Evercom, Inc., an
independent provider of inmate telecommunication services.
Peter M. Bernon became Vice Chairman of the Board in May 1998 in connection
with the Suiza Acquisition. Mr. Bernon joined Suiza in July 1997 as Chairman of
Franklin Plastics following Suiza's acquisition of the Garelick Companies and
Franklin Plastics. Prior to that Mr. Bernon was Chairman of the Garelick
Companies (Garelick Farms, Fairdale Farms, Grant's Dairy, and Miscoe Springs)
and Chairman of Franklin Plastics, which he founded.
William L. Estes joined Suiza in February 1998 and was appointed President
and Chief Executive Officer and elected a director of the Company in May 1998 in
connection with the Suiza Acquisition. From November 1996 until February 1998,
Mr. Estes served as President and Chief Operating Officer of McKesson
Corporation's McKesson Carrollton operations. From December 1993 until November
1996, Mr. Estes served in various capacities with Foxmeyer Health Corporation,
most recently as President and Chief Operating Officer. Prior to joining
Foxmeyer, Mr. Estes served as Vice President and Chief Operating Officer of The
Body Shop, Inc. from October 1991 until December
14
<PAGE>
<PAGE>
1993. For the period from 1983 until 1991, Mr. Estes served in various
capacities with PepsiCo, Inc., primarily with its Frito-Lay, Inc. subsidiary.
Ronald Justice joined Suiza in September 1998 and was appointed Executive
Vice President and Chief Operating Officer of the Company. From July 1995 to
September 1998, Mr. Justice served as Senior Vice President of Operations for
the Scotts Company. From July 1992 to July 1995, Mr. Justice served as Corporate
Vice President of Operations for Continental Baking, a division of Ralston
Purina, Inc. Prior to Continental Baking, Mr. Justice served in various
capacities from March 1981 to July 1992 with Frito-Lay, Inc.
Brian L. Ketcham was appointed Vice President and Treasurer in November
1998. Mr. Ketcham has served as Controller since joining the Company in March
1995. Prior to joining the Company, Mr. Ketcham was a Senior Manager with KPMG
Peat Marwick LLP.
David M. Stulman has served as Vice President-Human Resources since
February 1996. Prior to joining the Company, he served as Corporate Director of
Human Resources of Amphenol Corporation (a manufacturer of electronic connectors
and coaxial cables for the cable television, commercial and military/aerospace
markets) from 1988 to June 1993, and as Vice President-Human Resources of
Pirelli Armstrong Tire Corporation from June 1993 to February 1996. He served in
various human resources positions with Continental Can from 1973 through 1987.
John S. Roesch has served as General Manager-Sales of CPC and Caribbean
from May 1992 until June 1993, as Vice President-Sales from June 1993 until July
1996, and thereafter as Vice President-Sales and Marketing. Prior to May 1992,
he served in numerous sales positions since joining CPC in 1975.
J.A. Zubillaga has served as Vice President and General Manager of
Caribbean since October 1981.
All directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified, and all executive
officers hold office at the pleasure of the board of directors.
15
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The table below shows the compensation paid or credited by the Company and
its subsidiaries during the last three fiscal years to the top five executive
officers of the Company whose cash compensation (paid or deferred) in 1998
exceeded $100,000 (the "named executive officers"):
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Annual Compensation
------------------- All Other
Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)(2)
- --------------------------- ---- -------- -------- -------
<S> <C> <C> <C> <C>
William L. Estes 1998 (3)
President and Chief Executive Officer
John S. Roesch 1998 159,250 51,450 4,800
Vice President-Sales and 1997 140,000 98,000 3,214
Marketing (CPC and Caribbean) 1996 123,500 23,100 3,375
David M. Stulman 1998 144,469 46,675 4,800
Vice President-Human Resources 1997 127,000 88,900 3,805
1996 110,000 41,000 3,450
J.A. Zubillaga 1998 101,500 8,325 3,045
Vice President and General Manager 1997 97,500 15,190 2,925
of Caribbean 1996 93,562 9,638 2,716
Brian L. Ketcham 1998 91,800 12,000 3,214
Vice President, Treasurer and 1997 85,500 15,330 2,743
Controller 1996 81,700 5,942 2,451
</TABLE>
(1) All of the compensation paid to or earned by the named executive officers
relates to performance for a single fiscal year. No long term compensation
was paid to any of the named executive officers for any of the past three
fiscal years.
(2) Comprised of contributions by the Company to the accounts of the named
executive officers under the Continental Plastic Containers, Inc. Savings
Plan, a defined contribution plan.
(3) Mr. Estes' compensation in 1998 was paid by Suiza. Beginning January 1,
1999, his salary will be paid by the Company.
COMPENSATION OF DIRECTORS
No compensation is paid to directors of PCI for their services as such.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Continental Plastic Containers, Inc. Management Incentive Compensation
Plan (the "Incentive Plan") is a nonqualified bonus plan in which certain
management level employees are eligible to participate. At the beginning of each
calendar year, a target level is set for its sales and profits for that year and
at the end of that year, the Board determines whether or not the target has been
met. If the target has been met, participants will be paid such portion of their
salary as determined by their compensation class. Bonuses are paid in the year
following the year to which the bonus applies.
SALARIED PENSION PLAN
The Continental Plastic Containers, Inc. Salaried Pension Plan (the
"Pension Plan") is a defined-benefit pension plan available to all non-union
salaried employees of the Company. All contributions to the Pension Plan are
made by, and all costs of the Pension Plan are borne by, the Company.
16
<PAGE>
<PAGE>
Plan benefits are based on all years of continuous service and the
employee's average earnings during the highest five continuous years of the last
ten years of employment, minus a profit-sharing annuity. For fiscal years 1994,
1995 and 1996, the compensation amount used in the calculation is limited to
$150,000 per year. Beginning January 1, 1997, the compensation amount used in
the calculation is limited to $160,000 per year. The profit-sharing annuity is
based on the amount of profit-sharing contributions received for 1988 through
1992.
Payments of benefits under the Pension Plan commence on such date after a
terminating employee's 55th birthday as the employee shall elect, and are made
in the form of straight life or joint and survivor annuities.
The following table sets forth estimated annual formula benefits payable
upon retirement at age 65 to persons in specified earnings and years of service
classifications, who have elected to receive payments in the form of straight
life annuities. The amounts shown do not reflect reductions that would be made
to offset the profit sharing annuity.
<TABLE>
<CAPTION>
Highest Years of Continuous Service at Age 65(2)
average ------------------------------------------
earnings(1) 10 15 20 25 30 35 40
- ----------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $15,140 $22,710 $30,280 $37,850 $45,420 $52,990 $60,560
125,000 19,315 28,973 38,630 48,288 57,945 67,603 77,260
150,000 23,490 35,235 46,980 58,725 70,470 82,215 93,960
154,000+ 24,158 36,237 48,316 60,395 72,474 84,553 96,632
</TABLE>
(1) Annual earnings are equal to the sum of salary and bonus shown in the
SUMMARY COMPENSATION TABLE above.
(2) Messrs. Roesch, Stulman, Zubillaga and Ketcham were credited with
23, 2, 17 and 3 years of continuous service as of December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners at February 28, 1999:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
-------------- ------------------- ------------------ ----------------
<S> <C> <C> <C>
Common Stock, Continental Can Co., Inc. 100 shares 100%
$1.00 par value, 2515 McKinney Ave, Suite 850 sole voting and
of Plastic Containers, Inc. Dallas, Texas 75201 investment power
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions with management and others, business
relationships, indebtedness of management or transactions with promoters that
occurred during 1998, nor are any currently proposed for PCI and its
subsidiaries, that are required to be reported under applicable regulations of
the Securities and Exchange Commission.
17
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. See index to financial statements and
financial statement schedule below.
(2) Schedules. See index to financial statements and financial
statement schedule below.
(3) Exhibits. See index to exhibits on page 65.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets ......................................................................... p. 19
Consolidated Statements of Operations ................................................................p. 20
Consolidated Statements of Stockholders' Equity ......................................................p. 21
Consolidated Statements of Cash Flows ................................................................p. 22
Notes to Consolidated Financial Statements ...........................................................p. 23
Independent Auditors' Report of Deloitte & Touche LLP.................................................p. 39
Independent Auditors' Report of KPMG Peat Marwick LLP.................................................p. 40
CONTINENTAL PLASTIC CONTAINERS, INC. (A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
Balance Sheets .......................................................................................p. 41
Statements of Operations .............................................................................p. 42
Statements of Stockholder's Equity ...................................................................p. 43
Statements of Cash Flows .............................................................................p. 44
Notes to Financial Statements ........................................................................p. 45
Independent Auditors' Report of Deloitte & Touche LLP ................................................p. 61
Independent Auditors' Report of KPMG Peat Marwick LLP.................................................p. 62
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation & Qualifying Accounts.......................................................p. 63
</TABLE>
18
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Predecessor
-----------
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 616 2,479
Investment securities 9,216 20,385
Accounts receivable:
Trade 19,951 21,483
Other 45 205
-------- --------
19,996 21,688
Less allowance for doubtful accounts and accrued rebates 1,468 1,430
-------- --------
Net accounts receivable 18,528 20,258
-------- --------
Inventories 18,129 19,955
Deferred income taxes 1,831 2,260
Prepaid expenses 419 590
-------- --------
Total current assets 48,739 65,927
-------- --------
Property, plant and equipment:
Land, building and building improvements 20,471 22,828
Manufacturing machinery and equipment 74,952 142,687
Construction in progress 9,913 6,857
-------- --------
105,336 172,372
Less accumulated depreciation and amortization 6,374 72,281
-------- --------
Net property, plant and equipment 98,962 100,091
-------- --------
Goodwill and other intangible assets 117,742 25,591
Other assets 24,451 13,303
-------- --------
$289,894 204,912
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable - trade $ 13,016 18,285
Current portion of long-term obligations 1,012 996
Other current liabilities 19,871 16,741
-------- --------
Total current liabilities 33,899 36,022
Long-term obligations, excluding current portion 133,108 128,007
Other liabilities 22,359 20,764
Stockholders' equity:
Common stock, $l par value. Authorized 1,000
shares; 100 shares issued and outstanding - -
Additional paid-in capital 137,244 79,833
Retained earnings (deficit) 5,242 (27,529)
-------- --------
142,486 52,304
Less note receivable from stockholder 41,958 32,185
-------- --------
Total stockholders' equity 100,528 20,119
-------- --------
$289,894 204,912
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
---------------------------------
Period from Period from
May 30, January 1,
1998 through 1998 through Years ended
December 31, May 29, December 31,
----------------
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 147,592 108,924 279,565 267,793
Cost of goods sold 116,862 92,159 234,210 224,789
------- -------- ------- -------
Gross profit 30,730 16,765 45,355 43,004
Selling, general and administrative expenses 14,759 11,617 27,772 28,829
Plant rationalization and realignment - - - 6,500
------- -------- ------- -------
Operating income 15,971 5,148 17,583 7,675
------- --------- ------- --------
Other income (expenses):
Interest income 552 604 1,451 102
Interest expense (6,953) (5,643) (13,535) (12,886)
Loss on disposal of assets (62) (22) (555) (366)
------- --------- ------- --------
(6,463) (5,061) (12,639) (13,150)
------- --------- ------- --------
Income (loss) before income taxes
and extraordinary item 9,508 87 4,944 (5,475)
Income tax expense (benefit) 4,266 (1,590) (961) (1,876)
------- --------- ------- --------
Income (loss) before extraordinary item 5,242 1,677 5,905 (3,599)
Extraordinary item - loss on early
extinguishment of debt - - - (7,305)
------- --------- ------- --------
Net income (loss) $ 5,242 1,677 5,905 (10,904)
======= ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THE PERIOD FROM MAY 30, 1998 THROUGH DECEMBER 31, 1998,
THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998, AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Plastic
Containers, Note
Inc. Additional Retained receivable Total
common paid-in earnings from stockholders'
stock capital (deficit) stockholder equity
----- ------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ - 60,000 (22,530) - 37,470
Push-down accounting adjustment - 17,648 - - 17,648
Loan to stockholder - - - (30,000) (30,000)
Accrued interest on note receivable
from stockholder - 74 - (74) -
Net loss - - (10,904) - (10,904)
----- ------- ------- ------- -------
Balances at December 31, 1996 - 77,722 (33,434) (30,074) 14,214
Accrued interest on note receivable
from stockholder - 2,111 - (2,111) -
Net income - - 5,905 - 5,905
----- ------- ------- ------- -------
Balances at December 31, 1997 - 79,833 (27,529) (32,185) 20,119
Loan to stockholder - - - (5,300) (5,300)
Accrued interest on note receivable
from stockholder - 925 - (925) -
Net income - - 1,677 - 1,677
----- ------- ------- ------- -------
Balances at May 29, 1998 - 80,758 (25,852) (38,410) 16,496
Purchase accounting adjustments - 54,938 25,852 - 80,790
Loan to stockholder - - - (2,000) (2,000)
Accrued interest on note receivable
from stockholder - 1,548 - (1,548) -
Net income - - 5,242 - 5,242
----- ------- ------- ------- -------
Balances at December 31, 1998 $ - 137,244 5,242 (41,958) 100,528
===== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
----------------------------
Period from Period from
May 30, January 1, Years ended
1998 through 1998 through December 31,
December 31, May 29, ------------
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) 5,242 1,677 5,905 (10,904)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 8,102 5,589 12,946 21,309
Loss on disposal of assets 62 22 555 366
Deferred income taxes 4,453 (1,600) (1,000) (1,896)
Extraordinary loss on debt extinguishment - - - 7,305
Changes in assets and liabilities:
Accounts receivable, net 2,439 (709) 7,444 5,366
Inventories 1,376 1,370 (553) 585
Prepaid expenses 314 (143) (44) 258
Accounts payable (7,330) 2,061 (1,522) (3,725)
Other current liabilities (7,035) 5,565 (2,263) 3,581
Other assets and liabilities (781) 195 (126) 2,301
-------- -------- ------- --------
Net cash provided by operating activities 6,842 14,027 21,342 24,546
-------- -------- ------- --------
Cash flows from investing activities:
Proceeds from maturity of investment securities 26,740 20,767 25,834 75
Purchase of investment securities (13,790) (22,548) (45,009) (1,000)
Proceeds from disposal of assets 4 3 565 41,654
Purchase of property, plant and equipment (14,574) (6,787) (11,085) (21,240)
Loan to stockholder (2,000) (5,300) - (30,000)
-------- -------- ------- --------
Net cash used in investing activities (3,620) (13,865) (29,695) (10,511)
-------- -------- ------- --------
Cash flows from financing activities:
Net repayments on notes payable to bank - - - (17,018)
Proceeds from long-term obligations - - - 130,100
Repayment of long-term obligations (4,903) (344) (979) (105,471)
Premium on repurchase of bonds - - - (5,382)
Financing fees paid - - (367) (5,514)
-------- -------- ------- --------
Net cash used in financing activities (4,903) (344) (1,346) (3,285)
-------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents (1,681) (182) (9,699) 10,750
Cash and cash equivalents - beginning 2,297 2,479 12,178 1,428
-------- -------- ------- --------
Cash and cash equivalents - ending $ 616 2,297 2,479 12,178
======== ======== ======= ========
Supplemental disclosures of cash flow information:
Interest paid $ 12,227 171 12,541 15,240
Income taxes paid 6 42 523 20
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(1) Organization and Summary of Significant Accounting Policies
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include Plastic Containers, Inc. and
its wholly-owned subsidiaries ("PCI" or "the Company"), Continental Plastic
Containers, Inc. ("CPC") and Continental Caribbean Containers, Inc.
("Caribbean"). All significant intercompany transactions have been
eliminated in consolidation.
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 transaction accounted for as a purchase (the "Suiza
Acquisition"). 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.
PCI develops, manufactures and markets a wide range of custom extrusion
blow-molded plastic containers for food and juice, automotive products and
motor oil, household chemicals, industrial and agricultural chemicals and
hair care products. Based on the nature of the product, the production
processes, types of customers, and methods used to distribute products,
the Company operates in one reportable segment.
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 senior secured notes, constitutes a
substantial portion of the collateral for the notes. Separate financial
statements of Caribbean are not included herewith because (i) the issued and
outstanding stock of Caribbean, which is also pledged as security for the
Company's senior secured notes, does not constitute a substantial portion of
the collateral for the 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 senior secured notes on a
joint and several basis. PCI is a holding company with no assets, operations
or cash flow separate from its investments in CPC and Caribbean.
CASH EQUIVALENTS
Marketable securities that are highly liquid and have maturities of three
months or less at date of purchase are classified as cash equivalents.
INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997 consist of
available-for-sale U.S. government obligations, certificates of deposit,
Eurodollar deposits, and highly rated commercial paper, all of which are due
within one year. The fair value of investment securities approximates their
amortized cost.
(Continued)
23
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1), Continued
INVENTORIES
CPC's manufacturing inventories are stated at cost using the last-in,
first-out (LIFO) method, which is not in excess of market. All repair parts,
supplies inventories and Caribbean's inventories are stated at the lower of
cost, applied on the first-in, first-out (FIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
principally on a straight-line basis over estimated useful lives of the
assets, which range from three to thirty-five years. Plant and equipment
held under capital leases and leasehold improvements are amortized
straight-line over the shorter of the lease term or estimated useful life of
the asset.
Effective January 1, 1997, the Company revised its estimates of the useful
lives of certain machinery and equipment. These changes were made to better
reflect the estimated periods during which these assets remain in service.
For the year ended December 31, 1997, the change had the effect of
decreasing depreciation expense by $1,696, and after adjusting for an
assumed tax rate of 38%, increasing net income by $1,052.
INSURANCE
PCI purchases commercial insurance policies, but remains self-insured in
certain states for the purposes of providing workers' compensation, general
liability and property and casualty insurance coverages up to varying
deductible amounts. Self-insurance liabilities are based on claims filed and
estimates for claims incurred but not reported and are included in other
liabilities on the consolidated balance sheets. Costs charged to operations
for self-insurance for the years ended December 31, 1998, 1997 and 1996 were
$513, $1,784 and $2,629, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING
Expenditures for research, development and engineering are expensed as
incurred. Costs charged to operations for research, development and
engineering for the years ended December 31, 1998, 1997 and 1996 were
$9,017, $8,825 and $8,318, respectively.
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Goodwill and other identifiable intangible assets are stated on the basis of
cost. Goodwill is being amortized on a straight-line basis over 40 years.
Prior to being eliminated in purchase accounting, customer contracts were
being amortized on a straight-line basis over 10 years and finance costs
were being amortized using the effective interest method over periods
ranging from 6 to 10 years.
(Continued)
24
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1), Continued
IMPAIRMENT OF LONG-LIVED ASSETS, GOODWILL AND CERTAIN IDENTIFIABLE
INTANGIBLE ASSETS
Long-lived assets, including goodwill and certain identifiable intangible
assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash
flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Beginning in 1997 the Company filed a consolidated Federal income tax return
with Continental Can and, subsequent to May 29, 1998, will file a
consolidated return with Suiza. Income taxes have been provided as if the
Company files a separate return.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and actions
it may undertake in the future, actual results could differ from the
estimates.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform to the current year's
presentation.
(Continued)
25
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Purchase Accounting
In connection with the Suiza Acquisition, 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 total purchase price
allocated to PCI was $97,286. The excess of the allocated purchase price
over the estimated fair value of the assets and liabilities of PCI at the
acquisition date was $119,460, and is reflected as goodwill in the PCI
consolidated balance sheet. 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 changes made to
the accounts of PCI as of May 29, 1998 as a result of the acquisition and
application of push down accounting:
<TABLE>
<CAPTION>
Purchase Accounting
Adjustments
-----------
<S> <C>
Current assets $ 2,319
Property, plant and equipment (10,600)
Goodwill 119,460
Pre-acquisition goodwill and intangibles (24,819)
Other assets 12,245
Current liabilities (4,600)
Long-term obligations (10,364)
Other liabilities (2,851)
---------
80,790
Original net book value of PCI 16,496
---------
Total purchase price allocated to PCI $ 97,286
=========
</TABLE>
The following is a summary of unaudited pro forma results of operations
assuming the Suiza Acquisition had occurred at the beginning of the periods
presented:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 256,516 279,565
Operating income 20,636 16,426
Income before income taxes 9,668 5,069
Income taxes 4,799 3,059
Net income 4,896 2,010
</TABLE>
(Continued)
26
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Inventories
Major classes of inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 7,305 9,566
Finished goods 9,133 11,835
-------- ------
16,438 21,401
LIFO reserve - (3,578)
-------- ------
16,438 17,823
Continental Caribbean Containers, Inc. 416 554
Repair parts and supplies 1,275 1,578
-------- ------
$ 18,129 19,955
======== ======
</TABLE>
(4) Goodwill and Other Intangible Assets
Goodwill and other intangible assets at December 31 consist of
the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill $119,460 17,648
Customer contracts - 7,630
Financing and acquisition costs - 6,228
-------- ------
119,460 31,506
Less accumulated amortization 1,718 5,915
-------- ------
$117,742 25,591
======== ======
</TABLE>
(5) Other Assets
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred income taxes $ 23,937 7,614
Prefunded pension asset - 5,028
Other 514 661
-------- ------
$ 24,451 13,303
======== ======
</TABLE>
(Continued)
27
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Notes Payable to Bank
PCI has a $50,000 revolving credit facility with a commercial bank with
interest on individual borrowings based on the bank's prime rate or LIBOR,
at the Company's option. Borrowings are secured by accounts receivable and
inventories. At December 31, 1998, there were no borrowings outstanding
under this facility. The Company is required to pay an annual commitment fee
of 1/4% on the unused facility up to $25,000 and 1/2% on the unused amount
in excess of $25,000. Commitment fees for the years ended December 31, 1998,
1997 and 1996 were $167, $167 and $104, respectively.
The facility contains certain restrictive covenants, including the
maintenance of minimum levels of net worth, fixed charge coverage and
interest coverage, limitations on capital expenditures and additional
indebtedness, and restrictions on the payment of dividends. At December 31,
1998, the Company was in compliance with these covenants.
The facility also provides for the issuance of letters of credit by the bank
on the Company's behalf. At December 31, 1998, letters of credit amounting
to $3,714 had been issued to guarantee obligations carried on the
consolidated balance sheet.
(7) Other Current Liabilities
Other current liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accrual for open credits $ 1,357 1,658
Employee compensation and benefits 6,187 6,994
Accrued real estate and
personal property taxes 1,430 1,493
Accrual for plant and office closings 3,585 -
Plant rationalization reserve 984 1,290
Other 6,328 5,306
------- ------
$19,871 16,741
======= ======
</TABLE>
(Continued)
28
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Long-term Obligations
Long-term obligations at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Senior Secured Notes, due 2006, stated interest
at 10%, effective interest at 8.574%, payable
semiannually on June 15 and December 15 $ 131,114 125,000
Capital lease obligations 3,006 4,003
--------- -------
Total long-term obligations 134,120 129,003
Less current portion 1,012 996
--------- -------
Long-term obligations,
excluding current portion $ 133,108 128,007
========= =======
</TABLE>
The Senior Secured Notes have an original face value of $125,000. In
connection with the Suiza Acquisition, the notes were revalued to fair value
using a market rate of 8.574%, resulting in a premium of $10,364 at May 29,
1998. This premium is being amortized as an adjustment to interest expense
over the life of the notes.
The Senior Secured Notes are redeemable, in whole or in part, at the option
of PCI, beginning December 16, 2001, at an initial price of 105% of par
value, declining ratably each year to par value on December 15, 2004. In
addition, the indenture requires PCI to offer to redeem the notes at a
redemption price of 101% of par value in the event of a change in control,
and at 100% of par value upon the occurrence of certain other events. PCI's
offer to redeem the notes in connection with the Suiza Acquisition resulted
in the redemption of $3,750 of these notes.
The Senior Secured Notes are collateralized by all the issued and
outstanding stock of CPC and Caribbean and substantially all of the assets
and properties owned by PCI other than inventories, accounts receivable and
certain equipment securing capital lease obligations. The indenture also
places certain restrictions on payment of dividends, additional liens,
disposition of the proceeds from asset sales, sale-leaseback transactions
and additional borrowings. At December 31, 1998, PCI was in compliance with
these restrictions.
The Company is obligated under capital leases for a manufacturing facility
and certain machinery and equipment. The manufacturing facility has a cost
of $319 and $1,152, and accumulated amortization of $72 and $782 at December
31, 1998 and 1997, respectively. The facility lease agreement expires on
December 31, 2000 and has an interest rate of 9.364%.
(Continued)
29
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8), Continued
The equipment lease arrangement commenced on April 1, 1996 in connection
with the issuance of tax-exempt industrial development revenue bonds bearing
interest at 5.8%. Principal and interest are payable monthly through April
2002. The equipment has a cost of $4,230 and $5,100, and has accumulated
depreciation of $231 and $665 at December 31, 1998 and 1997, respectively.
Future minimum lease payments under the capital leases are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999 $ 1,172
2000 919
2001 871
2002 349
-------
Total future minimum lease payments 3,311
Less portion representing interest 305
-------
Net minimum lease payments $ 3,006
=======
</TABLE>
(9) Leases
PCI rents certain property and equipment used in connection with its
operations under noncancellable operating leases. Rental expense under
these leases was $13,826, $13,773 and $8,054 for the years ended
December 31, 1998, 1997 and 1996, respectively. On December 17, 1996,
CPC completed a sale to General Electric Capital Corporation and certain
other financial institutions, and the leaseback to CPC, of certain
equipment located in five of its facilities. The proceeds to the Company
from the sale/leaseback were $40,566, which approximated the book value
of the equipment.
Substantially all of the operating leases require PCI to pay taxes,
maintenance, insurance and certain operating expenses applicable to the
lease. The Company plans to renew or replace many of these leases as
they expire.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999 $ 13,346
2000 12,751
2001 12,228
2002 10,312
2003 8,731
Thereafter 12,283
--------
Total future minimum lease payments $ 69,651
========
</TABLE>
(Continued)
30
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Other Liabilities
Other liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Insurance reserves $ 9,316 8,896
Postretirement benefits accrued 5,980 6,346
Accrued pension liability 2,480 -
Other 4,583 5,522
------- ------
$22,359 20,764
======= ======
</TABLE>
(11) Note Receivable from Stockholder
On December 17, 1996, the Company loaned Continental Can $30,000. The
Company loaned Continental Can additional amounts of $5,300 and $2,000 on
May 29, 1998 and December 31, 1998, respectively. The note matures June 15,
2007 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.
Proceeds from the $30,000 loan were used by Continental Can to acquire an
additional 34 shares of the Company's common stock from another
stockholder, increasing their ownership in PCI at that time to 84%. The
acquisition was accounted for by Continental Can under the purchase method
of accounting and resulted in the "push down" of goodwill and additional
paid-in capital of $17,648 in the accompanying consolidated financial
statements of PCI.
(12) Income Taxes
Total income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
Period from Period from
May 30, 1998 to January 1, 1998 to
December 31, 1998 May 29, 1998 1997 1996
----------------- ------------------ ------------------- ---------------------
Federal State Total Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ - 34 34 - 10 10 - 39 39 - 20 20
Deferred 3,787 445 4,232 (1,432) (168) (1,600) (900) (100) (1,000) (1,746) (150) (1,896)
------ --- ----- ------ ----- ----- ---- ---- ----- ----- --- -----
$3,787 479 4,266 (1,432) (158) (1,590) (900) (61) (961) (1,746) (130) (1,876)
====== === ===== ====== ===== ===== ==== ==== ===== ===== === =====
</TABLE>
(Continued)
31
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12), Continued
The income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 differed from the "expected" income tax expense (benefit)
computed by applying the Federal income tax rate to income (loss) before
income taxes and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
Period from Period from
May 30, January 1,
1998 to 1998 to
December 31, May 29,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed "expected" income tax expense (benefit) $ 3,233 30 1,681 (1,862)
Additional expense (benefit) resulting from:
Change in valuation allowance allocated to
continuing operations - (1,573) (2,745) 243
State and local income taxes, net of
Federal income tax benefit 380 3 (40) (86)
Tax effect of nondeductible goodwill 653 63 - -
Other - (113) 143 (171)
------ ------ ------ ------
Income tax expense (benefit) $ 4,266 (1,590) (961) (1,876)
====== ====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 18,022 18,811
Vacation and incentive pay reserves 961 934
Self-insurance reserves 3,890 3,730
Plant rationalization reserve 1,736 758
Postretirement benefit reserves 2,592 2,659
Premium on long-term obligations 3,748 -
Deferred financing fees 1,826 -
Pension liability 781 -
Other 2,966 3,005
-------- -------
Total gross deferred tax assets 36,522 29,897
Less valuation allowance - 5,049
-------- -------
Net deferred tax assets 36,522 24,848
-------- -------
Deferred tax liabilities:
Book over tax basis of principally fixed assets 10,754 13,067
Prefunded pension - 1,907
-------- -------
Total gross deferred tax liabilities 10,754 14,974
-------- -------
Net deferred tax assets $ 25,768 9,874
======== =======
</TABLE>
(Continued)
32
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12), Continued
Net deferred tax assets are classified in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current - deferred income taxes $ 1,831 2,260
Long-term - other assets 23,937 7,614
------ -----
$25,768 9,874
====== =====
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was
$7,794. The net change in the total valuation allowance for the period from
January 1, 1998 to May 29, 1998 and for the year ended December 31, 1997
was a decrease of $1,573 and $2,745, respectively. The remaining valuation
allowance at May 29, 1998 was eliminated in the fair valuation of assets
and liabilities in connection with the Suiza Acquisition. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers projected future taxable income, the scheduled reversal of
deferred tax liabilities and tax-planning strategies in making this
assessment. Based upon this assessment, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences at December 31, 1998.
At December 31, 1998, PCI has operating loss carry forwards for Federal
income tax purposes of approximately $47,000, which are available to offset
future Federal taxable income. The carry forward periods extend from 2007
through 2010. In addition, the Company has alternative minimum tax credit
carry forwards of approximately $132 which are available to reduce future
Federal regular income taxes over an indefinite period and research and
experimentation credits of approximately $480 available to reduce future
Federal income taxes through 2010.
(Continued)
33
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Employee Benefits
PENSION PLANS
PCI maintains a defined benefit pension plan for substantially all salaried
employees hired prior to August 1, 1997. Plan benefits are based on all
years of continuous service and the employee's compensation during the
highest five continuous years of the last ten years of employment, minus a
profit-sharing annuity. The profit-sharing annuity is based on the amount
of profit-sharing contributions received for 1988 through 1992. Any
employee who terminated employment prior to August 31, 1993 is governed by
the terms of the plan in effect at the time the termination occurred. In
addition, PCI maintains a benefit equalization plan for salaried employees
hired prior to August 1, 1997 whose compensation level exceeds the limits
within the defined benefit pension plan.
PCI maintains a noncontributory defined benefit pension plan for
substantially all hourly workers hired prior to August 1, 1997 who have
attained 21 years of age. Plan benefits are variable by location/contract
but are based primarily on years of service and the employee's highest wage
classification for twelve consecutive months in the five years prior to
retirement. Normal retirement is at age 65, with at least five years of
continuous service. However, employees may retire as early as age 55 and
receive reduced benefits.
Subject to the limitation on deductibility imposed by Federal income tax
laws, PCI's policy has been to contribute funds to the plans annually in
amounts required to maintain sufficient plan assets to provide for accrued
benefits. Plan assets are held in a master trust and are comprised
primarily of common stock, corporate bonds and U.S. Government and
government agency obligations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PCI provides certain health care and life insurance benefits for retired
PCI employees. Certain of PCI's hourly and salaried employees became
eligible for these benefits when they became eligible for an immediate
pension under a formal company pension plan. In 1993, the plan was amended
to eliminate health care benefits for employees hired after January 1,
1993. PCI's policy is to fund the cost of medical benefits as claims are
incurred.
At May 29, 1998, as part of the purchase accounting adjustments in
connection with the Suiza Acquisition, the accrued pension liability was
adjusted to recognize all previously unrecognized gains or losses arising
from past experience different from that assumed, the effects of changes in
assumptions, all unrecognized prior service costs and the remainder of
unrecognized assets.
(Continued)
34
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13), Continued
The following table provides a reconciliation of the benefit obligation,
plan assets and funded status of the pension and postretirement benefit
plans:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $61,173 56,582 5,259 5,107
Service cost 1,363 1,208 88 83
Interest cost 4,607 4,246 369 380
Amendment - 207 - -
Actuarial loss (gain) 3,331 2,781 567 51
Business combinations 8,620 - - -
Curtailment (142) - - -
Benefits paid (4,082) (3,850) (366) (362)
------- ------ ------- ------
Benefit obligation at December 31 74,870 61,174 5,917 5,259
Change in plan assets:
Fair value of plan assets at January 1 62,787 58,899 - -
Actual return on plan assets 5,235 7,283 - -
Employer contribution 1,166 455 366 362
Business combinations 3,532 - - -
Participant contributions - - 176 177
Benefits paid (4,082) (3,850) (542) (539)
------- ------ ------- ------
Fair value of plan assets at December 31 68,638 62,787 - -
Funded status (6,232) 1,613 (5,917) (5,259)
Unrecognized actuarial loss (gain) 3,752 3,474 (63) (723)
Unrecognized prior service cost - (59) - (364)
------- ------ ------- ------
Prepaid (accrued) benefit cost $(2,480) 5,028 (5,980) (6,346)
======= ====== ======= ======
Weighted average assumptions
as of December 31:
Discount rate 6.50% 7.35% 6.50% 7.35%
Expected asset return 9.00% 9.50% 9.00% 9.50%
Rate of compensation increase 5.00% 5.00%
</TABLE>
(Continued)
35
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13),Continued
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
Period from Period from
May 30, January 1,
1998 through 1998 through
December 31, May 29,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pension benefits:
Service cost $ 865 498 1,208 1,362
Interest cost 2,741 1,866 4,246 4,001
Expected return on plan assets (3,412) (2,330) (5,259) (4,910)
Amortization of prior service cost - 61 108 125
Recognized net actuarial loss - 8 94 177
-------- ------ ------ ------
Net periodic benefit cost $ 194 103 397 755
======== ====== ====== ======
Other postretirement benefits:
Service cost $ 49 39 83 87
Interest cost 215 154 380 447
Amortization of prior service cost - (14) (34) (34)
Recognized net actuarial gain - (5) (19) -
-------- ------ ------ ------
Net periodic benefit cost $ 264 174 410 500
======== ====== ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Effect on total of service and
interest cost components $ 37 39 (32) (34)
Effect on postretirement benefit
obligation 535 416 (483) (376)
</TABLE>
RETIREMENT THRIFT PLAN
PCI maintains a defined contribution plan which covers substantially all
hourly employees who meet eligibility requirements. Provisions regarding
employee and employer contributions and the benefits provided under the
plan vary between PCI's manufacturing facilities. PCI's defined
contribution plan's expense was $297, $302 and $303 for the years ended
December 31, 1998, 1997 and 1996, respectively.
(Continued)
36
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13),Continued
SAVINGS PLAN
PCI maintains a contributory defined contribution 401(k) savings plan which
covers substantially all nonorganized salaried employees. Employees may
contribute up to 12% and 8% of pay on a pretax and after-tax basis,
respectively. However, the total employee contribution rate may not exceed
15% of pay. PCI matches up to 3% of employees' pretax contributions.
Employees vest in PCI's contributions at 25% per year, becoming fully
vested after four years of employment. Employees may make withdrawals from
the plan prior to attaining age 59-1/2, subject to certain penalties. PCI's
savings plan expense was $564, $560 and $553 for the years ended December
31, 1998, 1997 and 1996, respectively.
UNION BENEFIT PLANS
PCI contributes to various union pension plans pursuant to its labor
agreements. Union benefit plan expense was $992, $1,013 and $1,083 for the
years ended December 31, 1998, 1997 and 1996, respectively.
POSTEMPLOYMENT BENEFITS
PCI provides certain postemployment benefits to former and inactive
employees, their beneficiaries and covered dependents. These benefits
include disability related benefits, continuation of health care benefits
and life insurance coverage. Additional costs charged to operations for
postemployment benefits in 1998, 1997 and 1996 were $36, $57 and $38,
respectively.
(14) Major Customers
Sales to one customer represented approximately 30%, 31% and 29% of net
sales for the years ended December 31, 1998, 1997 and 1996, respectively.
Included in accounts receivable are receivables from this customer of
$8,590 and $8,332 at December 31, 1998 and 1997, respectively. A second
customer represented approximately 17%, 15% and 13% of net sales for each
of the years ended December 31, 1998, 1997 and 1996, respectively, and
$1,205 and $1,131 of receivables from this customer are included in
accounts receivable at December 31, 1998 and 1997, respectively. A third
customer represented approximately 11%, 10%, and 10% of net sales for the
years ended December 31, 1998, 1997 and 1996, respectively, and $237 and
$860 of receivables from this customer are included in accounts receivable
at December 31, 1998 and 1997, respectively.
(Continued)
37
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Plant Closings
In connection with the Suiza Acquisition, a liability of $2,200 was
recognized relative to a plan to close the Company's Lima, Ohio facility.
The liability includes approximately $800 for employee severance costs and
approximately $1,400 for noncancellable lease obligations and related
facility closing costs. Employee severance costs relate to approximately
100 employees, including production, supervisory and administrative
personnel located at the facility. The Company remains obligated under the
facility lease through December 2000. In addition, the allocation of
purchase price to fixed assets included a reduction of approximately $5,700
of carrying cost related to the estimate of fair value of assets at the
Lima facility. The facility is expected to close by the end of the second
quarter of 1999.
In 1996, PCI recorded charges amounting to $6,500 for plant rationalization
and realignment in connection with a plan to consolidate certain
manufacturing operations. The Company closed one plant in 1996 and another
plant in 1997. The Company remains obligated under a noncancellable
operating lease at one of the facilities through June 1999. Payments made
in 1998 against the accrued liability amounted to approximately $300.
(16) Extraordinary Item
In 1996, PCI incurred an extraordinary loss of $7,305 related to the
purchase and redemption of senior secured notes.
(17) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management and legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial statements.
(18) Fair Value of Financial Instruments
Financial Accounting Standards Board's Statement No. 107, Disclosures about
Fair Value of Financial Instruments, defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Except for the senior
secured notes at December 31, 1998, the carrying amount approximates
fair value for financial instruments included in the accompanying
consolidated balance sheets at December 31, 1998 and 1997.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable - trade and other current liabilities approximate fair
value because of the short maturity of those instruments. The fair value of
investment securities are based on the quoted market prices at the
reporting date for those or similar investments. The carrying value and
fair value of the senior secured notes at December 31, 1998 was $131,114
and $127,470, respectively. The fair value is estimated based on quoted
market prices for the notes.
38
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Plastic Containers, Inc.:
We have audited the accompanying consolidated balance sheet of Plastic
Containers, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the period from January 1, 1998 through May 29, 1998, and the period from
May 30, 1998 through December 31, 1998. Our audit also included the financial
statement schedule listed in the Index at Item 14(a)(2) for the year ended
December 31, 1998. These consolidated financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audit. The
consolidated financial statements of the Company for the years ended
ecember 31, 1997 and 1996 were audited by other auditors whose report, dated
February 6, 1998, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 consolidated financial statements present fairly, in
all material respects, the financial position of Plastic Containers, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the period from January 1, 1998 through May 29, 1998, and
the period from May 30, 1998 through December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 9, 1999
39
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Plastic Containers, Inc.:
We have audited the accompanying consolidated balance sheet of Plastic
Containers, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1997. We also have
audited the consolidated financial statement Schedule for the two-year period
ended December 31, 1997. These consolidated financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Plastic Containers,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
February 6, 1998
40
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Predecessor
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 110 1,164
Investment securities 9,053 20,214
Accounts receivable:
Trade 19,228 20,713
Other 47 783
--------- ----------
19,275 21,496
Less allowance for doubtful accounts and accrued rebates 1,452 1,416
--------- ---------
Net accounts receivable 17,823 20,080
-------- --------
Inventories 17,713 19,401
Deferred income taxes 1,831 2,260
Prepaid expenses 419 590
-------- --------
Total current assets 46,949 63,709
-------- --------
Property, plant and equipment:
Land, building and building improvements 18,895 20,889
Manufacturing machinery and equipment 72,610 136,748
Construction in progress 9,903 6,792
--------- ---------
101,408 164,429
Less accumulated depreciation and amortization 6,164 68,535
--------- --------
Net property, plant and equipment 95,244 95,894
--------- --------
Goodwill and other intangible assets 117,742 25,591
Other assets 24,447 13,303
--------- --------
$ 284,382 198,497
========= =======
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable - trade $ 12,934 17,852
Current portion of long-term obligations 1,012 996
Other current liabilities 19,931 16,484
--------- --------
Total current liabilities 33,877 35,332
Long-term obligations, excluding current portion 133,108 128,007
Other liabilities 22,340 20,741
Stockholder's equity:
Common stock, $l par value. Authorized 25,000
shares; 10,000 shares issued and outstanding 10 10
Additional paid-in capital 131,562 74,175
Retained earnings (deficit) 5,443 (27,583)
--------- -------
137,015 46,602
Less note receivable from stockholder of parent 41,958 32,185
--------- -------
Total stockholder's equity 95,057 14,417
--------- -------
$ 284,382 198,497
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
--------------------------------
Period from Period from
May 30, January 1, Years ended
1998 through 1998 through December 31,
December 31, May 29, -----------------
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 144,692 105,832 273,189 262,200
Cost of goods sold 113,789 89,316 228,042 219,210
------- -------- ------- -------
Gross profit 30,903 16,516 45,147 42,990
Selling, general and administrative expenses 14,741 11,590 27,737 28,794
Plant rationalization and realignment - - - 6,500
-------- --------- -------- ---------
Operating income 16,162 4,926 17,410 7,696
-------- --------- -------- ---------
Other income (expenses):
Interest income 528 588 1,396 21
Interest expense (6,953) (5,643) (13,535) (12,886)
Loss on disposal of assets (62) (22) (864) (366)
-------- --------- ------- --------
(6,487) (5,077) (13,003) (13,231)
-------- --------- ------- --------
Income (loss) before income taxes
and extraordinary item 9,675 (151) 4,407 (5,535)
Income tax expense (benefit) 4,232 (1,600) (1,000) (1,896)
--------- --------- -------- --------
Income (loss) before extraordinary item 5,443 1,449 5,407 (3,639)
Extraordinary item - loss on early
extinguishment of debt - - - (7,305)
--------- --------- -------- --------
Net income (loss) $ 5,443 1,449 5,407 (10,944)
========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY
THE PERIOD FROM MAY 30, 1998 THROUGH DECEMBER 31, 1998,
THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 29, 1998, AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Continental
Plastic Note
Containers, receivable
Inc. Additional Retained from Total
common paid-in earnings stockholder stockholder's
stock capital (deficit) of parent equity
----- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 10 53,392 (22,046) - 31,356
Push-down accounting adjustment - 17,648 - - 17,648
Loan to stockholder of parent - - - (30,000) (30,000)
Accrued interest on note receivable
from stockholder of parent - 74 - (74) -
Net loss - - (10,944) - (10,944)
------ ------- ------- ------ ------
Balances at December 31, 1996 10 71,114 (32,990) (30,074) 8,060
Accrued interest on note receivable
from stockholder of parent - 2,111 - (2,111) -
Capital contributed by parent - 950 - - 950
Net income - - 5,407 - 5,407
------ ------- ------- ------ ------
Balances at December 31, 1997 10 74,175 (27,583) (32,185) 14,417
Loan to stockholder of parent - - - (5,300) (5,300)
Accrued interest on note receivable
from stockholder of parent - 925 - (925) -
Net income - - 1,449 - 1,449
------ ------- ------- ------ ------
Balances at May 29, 1998 10 75,100 (26,134) (38,410) 10,566
Purchase accounting adjustments - 54,914 26,134 - 81,048
Loan to stockholder of parent - - - (2,000) (2,000)
Accrued interest on note receivable
from stockholder of parent - 1,548 - (1,548) -
Net income - - 5,443 - 5,443
------ ------- ------- ------ ------
Balances at December 31, 1998 $ 10 131,562 5,443 (41,958) 95,057
====== ======= ======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
-----------------------------
Period from Period from
May 30, January 1, Years ended
1998 through 1998 through December 31,
December 31, May 29, ----------------
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,443 1,449 5,407 (10,944)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 7,893 5,443 12,481 20,950
Loss on disposal of assets 62 22 864 366
Deferred income taxes 4,453 (1,600) (1,000) (1,896)
Extraordinary loss on debt extinguishment - - - 7,305
Changes in assets and liabilities:
Accounts receivable, net 2,419 (162) 7,035 5,644
Inventories 1,325 1,283 (674) 590
Prepaid expenses 314 (143) (44) 225
Accounts payable (7,290) 2,373 (1,737) (3,969)
Other current liabilities (7,136) 5,983 (2,329) 3,575
Other assets and liabilities (771) 193 (121) 2,300
-------- -------- ------- -------
Net cash provided by operating activities 6,712 14,841 19,882 24,146
-------- ------ ------ ------
Cash flows from investing activities:
Proceeds from maturity of investment securities 26,734 20,764 25,795 -
Purchase of investment securities (13,790) (22,547) (45,009) (1,000)
Proceeds from disposal of assets 4 3 827 41,626
Purchase of property, plant and equipment (14,536) (6,692) (10,457) (20,965)
Loan to stockholder (2,000) (5,300) - (30,000)
-------- ------- ------- -------
Net cash used in investing activities (3,588) (13,772) (28,844) (10,339)
-------- ------- ------- -------
Cash flows from financing activities:
Net repayments on notes payable to bank - - - (17,018)
Proceeds from long-term obligations - - - 130,100
Repayment of long-term obligations (4,903) (344) (979) (105,471)
Capital contributed by parent - - 950 -
Premium on repurchase of bonds - - - (5,382)
Financing fees paid - - (367) (5,514)
--------- ------- ------- -------
Net cash used in financing activities (4,903) (344) (396) (3,285)
--------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (1,779) 725 (9,358) 10,522
Cash and cash equivalents - beginning 1,889 1,164 10,522 -
--------- -------- ------ -------
Cash and cash equivalents - ending $ 110 1,889 1,164 10,522
========= ======== ======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 12,227 171 12,541 15,240
Income taxes paid - 4 523 20
========= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PLASTIC CONTAINERS, INC.)
NOTES TO FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(1) Organization and Summary of Significant Accounting Policies
ORGANIZATION AND BASIS OF PRESENTATION
Continental Plastic Containers, Inc. ("CPC" or "the Company") develops,
manufactures and markets a wide range of custom extrusion blow-molded
plastic containers for food and juice, automotive products and motor oil,
household chemicals, industrial and agricultural chemicals and hair care
products. Based on the nature of the product, the production processes,
types of customers, and methods used to distribute products, the Company
operates in one reportable segment.
CPC is a wholly-owned subsidiary of Plastic Containers, Inc. ("PCI"). 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 transaction accounted for as a purchase (the "Suiza
Acquisition"). Purchase acccounting adjustments, including debt, 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.
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 flow separate from
its investment in CPC and Caribbean and is dependent upon funding from
CPC to service its debt. Accordingly, the accompanying predecessor
financial statements of CPC reflect various push down accounting
adjustments to reflect debt and other purchase adjustments recorded
in connection with the 1991 acquisition by PCI.
CASH EQUIVALENTS
Marketable securities that are highly liquid and have maturities of three
months or less at date of purchase are classified as cash equivalents.
INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997 consist of
available-for-sale U.S. government obligations, certificates of deposit,
Eurodollar deposits, and highly rated commercial paper, all of which are due
within one year. The fair value of investment securities approximates their
amortized cost.
(Continued)
45
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1), Continued
INVENTORIES
CPC's manufacturing inventories are stated at cost using the last-in,
first-out (LIFO) method, which is not in excess of market. All repair parts
and supplies inventories are stated at the lower of cost, applied on the
first-in, first-out (FIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
principally on a straight-line basis over estimated useful lives of the
assets, which range from three to thirty-five years. Plant and equipment
held under capital leases and leasehold improvements are amortized
straight-line over the shorter of the lease term or estimated useful life of
the asset.
Effective January 1, 1997, the Company revised its estimates of the useful
lives of certain machinery and equipment. These changes were made to better
reflect the estimated periods during which these assets remain in service.
For the year ended December 31, 1997, the change had the effect of
decreasing depreciation expense by $1,696, and after adjusting for an
assumed tax rate of 38%, increasing net income by $1,052.
INSURANCE
CPC purchases commercial insurance policies, but remains self-insured in
certain states for the purposes of providing workers' compensation, general
liability and property and casualty insurance coverages up to varying
deductible amounts. Self-insurance liabilities are based on claims filed and
estimates for claims incurred but not reported and are included in other
liabilities on the consolidated balance sheets. Costs charged to operations
for self-insurance for the years ended December 31, 1998, 1997 and 1996 were
$513, $1,784 and $2,629, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING
Expenditures for research, development and engineering are expensed as
incurred. Costs charged to operations for research, development and
engineering for the years ended December 31, 1998, 1997 and 1996 were
$9,017, $8,825 and $8,318, respectively.
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
Goodwill and other identifiable intangible assets are stated on the basis of
cost. Goodwill is being amortized on a straight-line basis over 40 years.
Prior to being eliminated in purchase accounting, customer contracts were
being amortized on a straight-line basis over 10 years and finance costs
were being amortized using the effective interest method over periods
ranging from 6 to 10 years.
(Continued)
46
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1), Continued
IMPAIRMENT OF LONG-LIVED ASSETS, GOODWILL AND CERTAIN IDENTIFIABLE
INTANGIBLE ASSETS
Long-lived assets, including goodwill and certain identifiable intangible
assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash
flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company files a consolidated tax return with PCI and Continental Can,
and beginning March 29, 1998, with Suiza. Income taxes have been provided
as if the Company files a separate return.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and actions
it may undertake in the future, actual results could differ from the
estimates.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform to the current year's
presentation.
(Continued)
47
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(2) Purchase Accounting
In connection with the Suiza Acquisition, 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 total purchase price
allocated to CPC was $91,614. The excess of the allocated purchase price
over the estimated fair value of the assets and liabilities of CPC at the
acquisition date was $119,460, and is reflected as goodwill in the CPC
balance sheet. 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 changes made to the accounts
of CPC as of May 29, 1998 as a result of the acquisition and application of
push down accounting:
<TABLE>
<CAPTION>
Purchase Accounting
Adjustments
-----------
<S> <C>
Current assets $ 2,319
Property, plant and equipment (10,342)
Goodwill 119,460
Pre-acquisition goodwill and intangibles (24,819)
Other assets 12,245
Current liabilities (4,600)
Long-term obligations (10,364)
Other liabilities (2,851)
--------
81,048
Original net book value of CPC 10,566
---------
Total purchase price allocated to CPC $ 91,614
=========
</TABLE>
The following is a summary of unaudited pro forma results of operations
assuming the Suiza Acquisition had occurred at the beginning of the periods
presented:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 250,524 273,189
Operating income 20,605 16,253
Income before income taxes 9,597 4,532
Income taxes 4,755 3,020
Net income 4,842 1,512
</TABLE>
(Continued)
48
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(3) Inventories
Major classes of inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 7,305 9,566
Finished goods 9,133 11,835
------- ------
16,438 21,401
LIFO reserve - (3,578)
------- ------
16,438 17,823
Repair parts and supplies 1,275 1,578
------- -------
$ 17,713 19,401
====== ======
</TABLE>
(4) Goodwill and Other Intangible Assets
Goodwill and other intangible assets at December 31 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill $ 119,460 17,648
Customer contracts - 7,630
Financing and acquisition costs - 6,228
--------- -------
119,460 31,506
Less accumulated amortization 1,718 5,915
--------- -------
$ 117,742 25,591
======= ======
</TABLE>
(5) Other Assets
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred income taxes $ 23,937 7,614
Prefunded pension asset - 5,028
Other 510 661
-------- --------
$ 24,447 13,303
====== ======
</TABLE>
(Continued)
49
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(6) Notes Payable to Bank
Through PCI, the Company has a $50,000 revolving credit facility with a
commercial bank with interest on individual borrowings based on the bank's
prime rate or LIBOR, at the Company's option. Borrowings are secured by
accounts receivable and inventories. At December 31, 1998, there were no
borrowings outstanding under this facility. The Company is required to pay
an annual commitment fee of 1/4% on the unused facility up to $25,000 and
1/2% on the unused amount in excess of $25,000. Commitment fees for the
years ended December 31, 1998, 1997 and 1996 were $167, $167 and $104,
respectively.
The facility contains certain restrictive covenants, including the
maintenance of minimum levels of net worth, fixed charge coverage and
interest coverage, limitations on capital expenditures and additional
indebtedness, and restrictions on the payment of dividends. At December 31,
1998, the Company was in compliance with these covenants.
The facility also provides for the issuance of letters of credit by the bank
on the Company's behalf. At December 31, 1998, letters of credit amounting
to $3,714 had been issued to guarantee obligations carried on the
consolidated balance sheet.
(7) Other Current Liabilities
Other current liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accrual for open credits $ 1,357 1,653
Employee compensation and benefits 6,058 6,877
Accrued real estate and
personal property taxes 1,395 1,458
Accrual for plant and office closings 3,585 -
Plant rationalization reserve 984 1,290
Other 6,552 5,206
------- -------
$ 19,931 16,484
====== ======
</TABLE>
(Continued)
50
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(8) Long-term Obligations
Long-term obligations at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Senior Secured Notes of PCI, due 2006, stated
interest at 10%, effective interest at 8.574%,
payable semiannually on June 15 and December 15 $ 131,114 125,000
Capital lease obligations 3,006 4,003
-------- -------
Total long-term obligations 134,120 129,003
Less current portion 1,012 996
-------- -------
Long-term obligations,
excluding current portion $ 133,108 128,007
======= =======
</TABLE>
The Senior Secured Notes have an original face value of $125,000. In
connection with the Suiza Acquisition, the notes were revalued to fair value
using a market rate of 8.574%, resulting in a premium of $10,364 at May 29,
1998. This premium is being amortized as an adjustment to interest expense
over the life of the notes.
The Senior Secured Notes are redeemable, in whole or in part, at the option
of PCI, beginning December 16, 2001, at an initial price of 105% of par
value, declining ratably each year to par value on December 15, 2004. In
addition, the indenture requires PCI to offer to redeem the notes at a
redemption price of 101% of par value in the event of a change in control,
and at 100% of par value upon the occurrence of certain other events. PCI's
offer to redeem the notes in connection with the Suiza Acquisition resulted
in the redemption of $3,750 of these notes.
The Senior Secured Notes are collateralized by all the issued and
outstanding stock of CPC and Caribbean and substantially all of the assets
and properties owned by PCI other than inventories, accounts receivable and
certain equipment securing capital lease obligations. The indenture also
places certain restrictions on payment of dividends, additional liens,
disposition of the proceeds from asset sales, sale-leaseback transactions
and additional borrowings. At December 31, 1998, PCI was in compliance with
these restrictions.
The Company is obligated under capital leases for a manufacturing facility
and certain machinery and equipment. The manufacturing facility has a cost
of $319 and $1,152, and accumulated amortization of $72 and $782 at December
31, 1998 and 1997, respectively. The facility lease agreement expires on
December 31, 2000 and has an interest rate of 9.364%.
(Continued)
51
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(8), Continued
The equipment lease arrangement commenced on April 1, 1996 in connection
with the issuance of tax-exempt industrial development revenue bonds bearing
interest at 5.8%. Principal and interest are payable monthly through April
2002. The equipment has a cost of $4,230 and $5,100, and has accumulated
depreciation of $231 and $665 at December 31, 1998 and 1997, respectively.
Future minimum lease payments under the capital leases are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999 $ 1,172
2000 919
2001 871
2002 349
------
Total future minimum lease payments 3,311
Less portion representing interest 305
------
Net minimum lease payments $ 3,006
=====
</TABLE>
(9) Leases
CPC rents certain property and equipment used in connection with its
operations under noncancellable operating leases. Rental expense under these
leases was $13,826, $13,773 and $8,054 for the years ended December 31,
1998, 1997 and 1996, respectively. On December 17, 1996, CPC completed a
sale to General Electric Capital Corporation and certain other financial
institutions, and the leaseback to CPC, of certain equipment located in
five of its facilities. The proceeds to the Company from the sale/leaseback
were $40,566, which approximated the book value of the equipment.
Substantially all of the operating leases require CPC to pay taxes,
maintenance, insurance and certain operating expenses applicable to the
lease. The Company plans to renew or replace many of these leases as they
expire.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
-----------
<S> <C>
1999 $ 13,346
2000 12,751
2001 12,228
2002 10,312
2003 8,731
Thereafter 12,283
------
Total future minimum lease payments $ 69,651
======
</TABLE>
(Continued)
52
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(10) Other Liabilities
Other liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Insurance reserves $ 9,316 8,896
Postretirement benefits accrued 5,980 6,346
Accrued pension liability 2,480 -
Other 4,564 5,499
------- ------
$ 22,340 20,741
======= ======
</TABLE>
(11) Note Receivable from Stockholder
On December 17, 1996, the Company through PCI, loaned Continental Can
$30,000. The Company loaned Continental Can additional amounts of $5,300
and $2,000 on May 29, 1998 and December 31, 1998, respectively. The note
matures June 15, 2007 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.
Proceeds from the $30,000 loan were used by Continental Can to acquire an
additional 34 shares of the PCI's common stock from another stockholder,
increasing their ownership in PCI at that time to 84%. The acquisition was
accounted for by Continental Can under the purchase method of accounting
and resulted in the "push down" of goodwill and additional paid-in capital
of $17,648 in the financial statements of PCI and in the accompanying
financial statements of CPC.
(12) Income Taxes
Total income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
Period from Period from
May 30, 1998 to January 1, 1998 to
December 31, 1998 May 29, 1998 1997 1996
-------------------- -------------------- --------------------- --------------------
Federal State Total Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $ - - - - - - - - - - - -
Deferred 3,787 445 4,232 (1,432) (168) (1,600) (900) (100) (1,000) (1,746) (150) (1,896)
------- --- ----- ------ ---- ------ ---- ---- ------ ------ ---- ------
$ 3,787 445 4,232 (1,432) (168) (1,600) (900) (100) (1,000) (1,746) (150) (1,896)
======= === ===== ====== ==== ====== ==== ==== ====== ====== ==== ======
</TABLE>
(Continued)
53
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(12), Continued
The income tax expense (benefit) for the years ended December 31, 1998,
1997 and 1996 differed from the "expected" income tax expense (benefit)
computed by applying the Federal income tax rate to income (loss) before
income taxes and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
Period from Period from
May 30, January 1,
1998 to 1998 to
December 31, May 29,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed "expected" income tax expense (benefit) $3,290 (51) 1,498 (1,882)
Additional expense (benefit) resulting from:
Change in valuation allowance allocated to
continuing operations - (1,573) (2,745) 243
State and local income taxes, net of
Federal income tax benefit 289 (4) (66) (99)
Tax effect of nondeductible goodwill 653 63 - -
Other - (35) 313 (158)
----- ----- ------ -----
Income tax expense (benefit) $4,232 (1,600) (1,000) (1,896)
===== ===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 18,022 18,811
Vacation and incentive pay reserves 961 934
Self-insurance reserves 3,890 3,730
Plant rationalization reserve 1,736 758
Postretirement benefit reserves 2,592 2,659
Premium on long-term obligations 3,748 -
Deferred financing fees 1,826 -
Pension liability 781 -
Other 2,966 3,005
------ -------
Total gross deferred tax assets 36,522 29,897
Less valuation allowance - 5,049
------- -------
Net deferred tax assets 36,522 24,848
------- -------
Deferred tax liabilities:
Book over tax basis of principally fixed assets 10,754 13,067
Prefunded pension - 1,907
-------- -------
Total gross deferred tax liabilities 10,754 14,974
-------- -------
Net deferred tax assets $ 25,768 9,874
======== =======
</TABLE>
(Continued)
54
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(12), Continued
Net deferred tax assets are classified in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current - deferred income taxes $ 1,831 2,260
Long-term - other assets 23,937 7,614
------ -----
$ 25,768 9,874
====== =====
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was
$7,794. The net change in the total valuation allowance for the period from
January 1, 1998 to May 29, 1998 and for the year ended December 31, 1997
was a decrease of $1,573 and $2,745, respectively. The remaining valuation
allowance at May 29, 1998 was eliminated in the fair valuation of assets
and liabilities in connection with the Suiza Acquisition. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers projected future taxable income, the scheduled reversal of
deferred tax liabilities and tax-planning strategies in making this
assessment. Based upon this assessment, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences at December 31, 1998.
At December 31, 1998, CPC has operating loss carry forwards for Federal
income tax purposes of approximately $47,000, which are available to offset
future Federal taxable income. The carry forward periods extend from 2007
through 2010. In addition, the Company has alternative minimum tax credit
carry forwards of approximately $132 which are available to reduce future
Federal regular income taxes over an indefinite period and research and
experimentation credits of approximately $480 available to reduce future
Federal income taxes through 2010.
(Continued)
55
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(13) Employee Benefits
PENSION PLANS
CPC maintains a defined benefit pension plan for substantially all salaried
employees hired prior to August 1, 1997. Plan benefits are based on all
years of continuous service and the employee's compensation during the
highest five continuous years of the last ten years of employment, minus a
profit-sharing annuity. The profit-sharing annuity is based on the amount
of profit-sharing contributions received for 1988 through 1992. Any
employee who terminated employment prior to August 31, 1993 is governed by
the terms of the plan in effect at the time the termination occurred. In
addition, CPC maintains a benefit equalization plan for salaried employees
hired prior to August 1, 1997 whose compensation level exceeds the limits
within the defined benefit pension plan.
CPC maintains a noncontributory defined benefit pension plan for
substantially all hourly workers hired prior to August 1, 1997 who have
attained 21 years of age. Plan benefits are variable by location/contract
but are based primarily on years of service and the employee's highest wage
classification for twelve consecutive months in the five years prior to
retirement. Normal retirement is at age 65, with at least five years of
continuous service. However, employees may retire as early as age 55 and
receive reduced benefits.
Subject to the limitation on deductibility imposed by Federal income tax
laws, CPC's policy has been to contribute funds to the plans annually in
amounts required to maintain sufficient plan assets to provide for accrued
benefits. Plan assets are held in a master trust and are comprised
primarily of common stock, corporate bonds and U.S. Government and
government agency obligations.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
CPC provides certain health care and life insurance benefits for retired
CPC employees. Certain of CPC's hourly and salaried employees became
eligible for these benefits when they became eligible for an immediate
pension under a formal company pension plan. In 1993, the plan was amended
to eliminate health care benefits for employees hired after January 1,
1993. CPC's policy is to fund the cost of medical benefits as claims are
incurred.
At May 29, 1998, as part of the purchase accounting adjustments in
connection with the Suiza Acquisition, the accrued pension liability was
adjusted to recognize all previously unrecognized gains or losses arising
from past experience different from that assumed, the effects of changes in
assumptions, all unrecognized prior service costs and the remainder of
unrecognized assets.
(Continued)
56
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(13), Continued
The following table provides a reconciliation of the benefit obligation,
plan assets and funded status of the pension and postretirement benefit
plans:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 $61,173 56,582 5,259 5,107
Service cost 1,363 1,208 88 83
Interest cost 4,607 4,246 369 380
Amendment - 207 - -
Actuarial loss (gain) 3,331 2,781 567 51
Business combinations 8,620 - - -
Curtailment (142) - - -
Benefits paid (4,082) (3,850) (366) (362)
------- ------- ------ ------
Benefit obligation at December 31 74,870 61,174 5,917 5,259
Change in plan assets:
Fair value of plan assets at
January 1 62,787 58,899 - -
Actual return on plan assets 5,235 7,283 - -
Employer contribution 1,166 455 366 362
Business combinations 3,532 - - -
Participant contributions - - 176 177
Benefits paid (4,082) (3,850) (542) (539)
------- ------- ------ ------
Fair value of plan assets at
December 31 68,638 62,787 - -
Funded status (6,232) 1,613 (5,917) (5,259)
Unrecognized actuarial loss (gain) 3,752 3,474 (63) (723)
Unrecognized prior service cost - (59) - (364)
------- ------ ------- ------
Prepaid (accrued) benefit cost $(2,480) 5,028 (5,980) (6,346)
======= ====== ======= ======
Weighted average assumptions as of
December 31:
Discount rate 6.50% 7.35% 6.50% 7.35%
Expected asset return 9.00% 9.50% 9.00% 9.50%
Rate of compensation increase 5.00% 5.00%
</TABLE>
(Continued)
57
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(13), Continued
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
Period from Period from
May 30, January 1,
1998 through 1998 through
December 31, May 29,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pension benefits:
Service cost $ 865 498 1,208 1,362
Interest cost 2,741 1,866 4,246 4,001
Expected return on plan assets (3,412) (2,330) (5,259) (4,910)
Amortization of prior service cost - 61 108 125
Recognized net actuarial loss - 8 94 177
-------- ------ ------ -------
Net periodic benefit cost $ 194 103 397 755
======== ====== ====== ======
Other postretirement benefits:
Service cost $ 49 39 83 87
Interest cost 215 154 380 447
Amortization of prior service cost - (14) (34) (34)
Recognized net actuarial gain - (5) (19) -
-------- ------ ----- ----
Net periodic benefit cost $ 264 174 410 500
======== ====== ===== ====
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Effect on total of service and
interest cost components $ 37 39 (32) (34)
Effect on postretirement benefit
obligation 535 416 (483) (376)
</TABLE>
RETIREMENT THRIFT PLAN
CPC maintains a defined contribution plan which covers substantially all
hourly employees who meet eligibility requirements. Provisions regarding
employee and employer contributions and the benefits provided under the
plan vary between CPC's manufacturing facilities. CPC's defined
contribution plan's expense was $297, $302 and $303 for the years ended
December 31, 1998, 1997 and 1996, respectively.
(Continued)
58
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(13), Continued
SAVINGS PLAN
CPC maintains a contributory defined contribution 401(k) savings plan which
covers substantially all nonorganized salaried employees. Employees may
contribute up to 12% and 8% of pay on a pretax and after-tax basis,
respectively. However, the total employee contribution rate may not exceed
15% of pay. CPC matches up to 3% of employees' pretax contributions.
Employees vest in CPC's contributions at 25% per year, becoming fully
vested after four years of employment. Employees may make withdrawals from
the plan prior to attaining age 59-1/2, subject to certain penalties. CPC's
savings plan expense was $564, $560 and $553 for the years ended December
31, 1998, 1997 and 1996, respectively.
UNION BENEFIT PLANS
CPC contributes to various union pension plans pursuant to its labor
agreements. Union benefit plan expense was $992, $1,013 and $1,083 for the
years ended December 31, 1998, 1997 and 1996, respectively.
POSTEMPLOYMENT BENEFITS
CPC provides certain postemployment benefits to former and inactive
employees, their beneficiaries and covered dependents. These benefits
include disability related benefits, continuation of health care benefits
and life insurance coverage. Additional costs charged to operations for
postemployment benefits in 1998, 1997 and 1996 were $36, $57 and $38,
respectively.
(14) Major Customers
Sales to one customer represented approximately 31%, 31% and 30% of net
sales for the years ended December 31, 1998, 1997 and 1996, respectively.
Included in accounts receivable are receivables from this customer of
$8,590 and $8,332 at December 31, 1998 and 1997, respectively. A second
customer represented approximately 18%, 15% and 13% of net sales for each
of the years ended December 31, 1998, 1997 and 1996, respectively, and
$1,205 and $1,131 of receivables from this customer are included in
accounts receivable at December 31, 1998 and 1997, respectively. A third
customer represented approximately 11%, 10%, and 10% of net sales for the
years ended December 31, 1998, 1997 and 1996, respectively, and $237 and
$860 of receivables from this customer are included in accounts receivable
at December 31, 1998 and 1997, respectively.
(Continued)
59
<PAGE>
<PAGE>
CONTINENTAL PLASTIC CONTAINERS, INC.
NOTES TO FINANCIAL STATEMENTS
(15) Plant Closings
In connection with the Suiza Acquisition, a liability of $2,200 was
recognized relative to a plan to close the Company's Lima, Ohio facility.
The liability includes approximately $800 for employee severance costs and
approximately $1,400 for noncancellable lease obligations and related
facility closing costs. Employee severance costs relate to approximately
100 employees, including production, supervisory and administrative
personnel located at the facility. The Company remains obligated under the
facility lease through December 2000. In addition, the allocation of
purchase price to fixed assets included a reduction of approximately $5,700
of carrying cost related to the estimate of fair value of assets at the
Lima facility. The facility is expected to close by the end of the second
quarter of 1999.
In 1996, CPC recorded charges amounting to $6,500 for plant rationalization
and realignment in connection with a plan to consolidate certain
manufacturing operations. The Company closed one plant in 1996 and another
plant in 1997. The Company remains obligated under a noncancellable
operating lease at one of the facilities through June 1999. Payments made
in 1998 against the accrued liability amounted to approximately $300.
(16) Extraordinary Item
In 1996, CPC incurred an extraordinary loss of $7,305 related to the
purchase and redemption of senior secured notes.
(17) Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management and legal
counsel, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial statements.
(18) Fair Value of Financial Instruments
Financial Accounting Standards Board's Statement No. 107, Disclosures about
Fair Value of Financial Instruments, defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Except for the senior secured
notes at December 31, 1998, the carrying amount approximates fair value
for financial instruments included in the accompanying consolidated balance
sheets at December 31, 1998 and 1997.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable - trade and other current liabilities approximate fair
value because of the short maturity of those instruments. The fair value of
investment securities are based on the quoted market prices at the
reporting date for those or similar investments. The carrying value and
fair value of the senior secured notes at December 31, 1998 was $131,114
and $127,470, respectively. The fair value is estimated based on quoted
market prices for the notes.
60
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Continental Plastic Containers, Inc.:
We have audited the accompanying balance sheet of Continental Plastic
Containers, Inc. as of December 31, 1998, and the related statements of
operations, stockholder's equity and cash flows for the period from
January 1, 1998 through May 29, 1998, and the period from May 30, 1998 through
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the Company
for the years ended December 31, 1997 and 1996 were audited by other auditors
whose report, dated February 6, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all material
respects, the financial position of Continental Plastic Containers, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from January 1, 1998 through May 29, 1998, and the period from
May 30, 1998 through December 31, 1998, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 9, 1999
61
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Continental Plastic Containers, Inc.:
We have audited the accompanying balance sheet of Continental Plastic
Containers, Inc. as of December 31, 1997, and the related statements of
operations, stockholder's equity and cash flows for each of the years in the
two-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Continental Plastic Containers,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
February 6, 1998
62
<PAGE>
<PAGE>
PLASTIC CONTAINERS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(000'S OMITTED)
<TABLE>
<CAPTION>
Balance at Balance
beginning at end
Description of period Additions Deductions of period
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996:
LIFO reserve $ 2,025 2,298 (1) 76 (2) 4,247
===== ===== ======= =====
Allowance for doubtful accounts 725 (4)
and accrued rebates $ 1,502 1,664 (3) 903 (5) 1,538
===== ===== ====== =====
December 31, 1997:
LIFO reserve $ 4,247 - 669 (1) 3,578
===== ====== ====== =====
Allowance for doubtful accounts 990 (4)
and accrued rebates $ 1,538 945 (3) 63 (5) 1,430
===== ======= ====== =====
December 31, 1998:
LIFO reserve $ 3,578 - 3,578 (6) -
===== ======= ===== =======
Allowance for doubtful accounts 1,049 (4)
and accrued rebates $ 1,430 1,485 (3) 398 (5) 1,468
===== ======= ===== =====
</TABLE>
- ------------------------------------------------------------
(1) Charged/credited to costs - inventory repricing.
(2) Credited to cost of sales - reduction in inventory quantities.
(3) Charged to expense - accruals for customer rebates and doubtful
receivables.
(4) Payments to customers.
(5) Specific write-off of receivable or recovery of previously doubtful
receivable.
(6) Purchase accounting adjustment.
63
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLASTIC CONTAINERS, INC.
<TABLE>
<S> <C>
By /s/ Brian L. Ketcham Date: March 30, 1999
------------------------------------ -----------------------
Brian L. Ketcham, Vice President, Treasurer
and Controller (Principal Financial and
Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ William L. Estes Date: March 30, 1999
- ------------------------------------------ -----------------------
William L. Estes, President,
Chief Executive Officer (Principal
Executive Officer) and Director
Date:
- ------------------------------------------ -----------------------
Donald J. Bainton, Co-Chairman
of the Board
/s/ Gregg L. Engles Date: March 30, 1999
- ------------------------------------------- ------------------------
Gregg L. Engles, Co-Chairman
of the Board
/s/ Peter M. Bernon Date: March 30, 1999
- ------------------------------------------ -----------------------
Peter M. Bernon, Vice Chairman
of the Board
</TABLE>
64
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of PCI, filed
as Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1, Registration No. 33-45879 (the "S-1 Registration
Statement"), and incorporated herein by reference.
3.2 Amended and Restated By-Laws of PCI, filed as Exhibit 3.2 to the
S-1 Registration Statement and incorporated herein by reference.
4.1 Indenture dated as of December 17, 1996, among PCI, as Issuer,
CPC and Caribbean, as Guarantors, and United States Trust Company
of New York, as Trustee, providing for 10% Senior Secured Notes
due 2006, Series A and B, filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4, Registration No.
333-19999 (the "S-4 Registration Statement"), and incorporated
herein by reference.
10.1 Amended and Restated Financing Agreement dated December 17, 1996,
between The CIT Group/Business Credit, Inc. (as Lender) and PCI
(as Borrower), filed as Exhibit 10.1 to the S-4 Registration
Statement and incorporated herein by reference.
10.2 Master Lease Agreement, dated as of May 20, 1994, between General
Electric Capital Corporation and CPC, filed as Exhibit 10.2 to
the S-4 Registration Statement and incorporated herein by
reference.
10.3 Schedules A-1 through A-6, each dated December 17, 1996, to the
Master Lease Agreement (Exhibit 10.2), filed as Exhibit 10.3 to
the S-4 Registration Statement and incorporated herein by
reference.
10.4 Corporate Guaranty dated May 20, 1994, from PCI to General
Electric Capital Corporation, and Amendments Nos. 1 and 2
thereto, both made as of December 17, 1996, filed as Exhibit 10.4
to the S-4 Registration Statement and incorporated herein by
reference.
10.5 Stock Purchase Agreement dated as of October 22, 1996, by and
among Continental Can Company, Inc., PCI, Merrywood, Inc. and
Plaza Limited, filed as Exhibit 10.5 to the S-4 Registration
Statement and incorporated herein by reference.
21 Subsidiaries of the Registrant, filed as Exhibit 21 to the S-4
Registration Statement and incorporated herein by reference.
23.1 Independent Auditors' Report................................p. 39
27 Financial Data Schedule (EDGAR filing only).................p. 66
</TABLE>
65
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................. 'TM'
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 7-MOS 5-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUN-01-1998 JAN-01-1998
<PERIOD-END> DEC-31-1998 MAY-31-1998
<CASH> 616 0
<SECURITIES> 9,216 0
<RECEIVABLES> 19,996 0
<ALLOWANCES> 1,468 0
<INVENTORY> 18,129 0
<CURRENT-ASSETS> 48,739 0
<PP&E> 105,336 0
<DEPRECIATION> 6,374 0
<TOTAL-ASSETS> 289,894 0
<CURRENT-LIABILITIES> 33,899 0
<BONDS> 133,108 0
<COMMON> 0 0
0 0
0 0
<OTHER-SE> 100,528 0
<TOTAL-LIABILITY-AND-EQUITY> 289,894 0
<SALES> 147,592 108,924
<TOTAL-REVENUES> 147,592 108,924
<CGS> 116,862 92,159
<TOTAL-COSTS> 131,621 103,776
<OTHER-EXPENSES> 6,463 5,061
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,953 5,643
<INCOME-PRETAX> 9,508 87
<INCOME-TAX> 4,266 (1,590)
<INCOME-CONTINUING> 5,242 1,677
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,242 1,677
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
