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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO THE SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________.
COMMISSION FILE NUMBER 0-30067
PVC CONTAINER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2616435
(STATE OF OTHER JURISDICTION OF IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER
2 Industrial Way West, Eatontown, New Jersey 07724-2202 0-08791
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 542-0060
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last trade on September 6, 2002, was approximately
$2,079,765.
The number of shares outstanding of the registrant's only class of common stock,
as of the latest practicable date, is as follows:
Class Outstanding as of September 6, 2002
----- -----------------------------------
Common Stock, $.01 par value 7,042,393
EXHIBIT INDEX is located at Page 23
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PART I
Item 1. Description of Business.
General. PVC Container Corporation (the "Company") was incorporated
in Delaware on June 14, 1968. The Company's major business activity consists of
the manufacture and sale of a line of plastic bottles made from polyvinyl
chloride ("PVC") compounds, high-density polyethylene ("HDPE") polyethylene
terephthalate ("PET") resins. The Company sells these bottles through Novapak
Corporation ("Novapak")which is a wholly owned subsidiary of the Company. Some
of the HDPE bottles are fluorinated to improve the chemical resistance and
barrier properties of the containers manufactured by the Company's wholly owned
subsidiary known as Airopak Corporation ("Airopak"). All of these bottles
("plastic bottles") are used primarily for the packaging of cosmetics,
toiletries, foods, household chemicals, lawn and garden and industrial chemical
products.
PVC compounds are used by the Company or sold to other plastic
bottle manufacturers for the production of plastic bottles, which compete with
those, produced by the Company. These PVC compounds are produced and sold
through the Company's wholly owned subsidiary, Novatec Plastics Corporation,
Inc. ("Novatec"). During the last several years, the Company has made some
progress in its efforts to diversify its PVC compound business. For example, the
Company has developed and begun to sell several categories of specialty PVC
compounds for non-bottle applications ("specialty compounds") including extruded
profiles and accessories, furniture, molding and other indoor fixtures, and a
variety of injection molded electrical and electronic housings (the "Company's
targeted markets").
On March 30, 1998, the Company acquired the plastic bottle blow
molding business of McKechnie Investments, Inc., which operates out of a 100,000
square foot facility located in Philmont, New York and is operated by Novapak.
The annual revenues of this business are approximately $14,650,000. The business
serves primarily the toiletries and cosmetics, specialty and household chemical
markets.
On September 3, 1998 the Company acquired all of the issued and
outstanding stock of Marpac Industries,Inc. which was founded in 1967 and has
annual sales of approximately $7,782,000. Marpac Industries, Inc. produces
custom blow molded products including plastic bottles, containers, cartridges,
double-wall cases, flexible spouts and various dispensers. Marpac Industries,
Inc. is known in the market for its technical capabilities, which allow it to
manufacture uniquely configured products within specific tolerances. Its
business is presently operated out of a facility located in Kingston, New York.
Sales. The Company's plastic bottles are sold primarily to
manufacturers of toiletries and cosmetics, food, household chemicals, lawn and
garden and industrial chemical products, private label manufacturers of similar
products, and bottle distributors who sell to such manufacturers. PVC compounds
are sold to the Company and to other manufacturers of plastic bottles, and a
small but increasing amount of specialty compounds are sold to a diverse range
of manufacturers of other products. A limited amount of the Company's total
sales is made through commissioned sales representatives. During the fiscal year
ended June 30, 2002, no one customer accounted for 10% or more of the Company's
net sales.
Sales of the Company's plastic bottles and PVC bottle compounds have
accounted for most of the Company's net income; sales of specialty compounds to
non-bottle customers have accounted for the remainder of the Company's net
income. Plastic bottles are offered in food grade and non-food grade materials,
fluorinated or non-fluorinated, in clear and opaque colors and in a range of
sizes from one to two hundred and twenty five ounces. The Company produces
plastic bottles utilizing its own
molds, in proprietary designs ("stock bottles") which are of its own design and
also produces on a contractual basis plastic bottles in molds owned by the
customer, utilizing their designs and specifications ("custom bottles").
The sale of plastic bottles is generally a "regional" business. The
majority of the Company's customers are within a 300-mile radius of the
Company's manufacturing plants. Freight costs prohibit shipping plastic bottles
long distances due to their bulky nature, except for specialty bottles of a
unique design or fluorinated containers that are not available from local
manufacturers. In contrast, the Company's PVC compounds which are sold in the
form of plastic pellets and are denser than plastic bottles can be shipped
throughout the continental United States and Canada, and tend to be less
regional and more of a "national" business.
The Company's business is usually characterized by low customer
demand during the months of July and August and the last half of December due to
shutdowns of buyers' plants during those periods. Some of the markets the
Company sells to are seasonal, such as lawn, garden and agricultural chemicals,
which Airopak is dependent upon. These markets are characterized by high demand
in the periods of December through June and low demand from July through
November of each year.
Manufacturing Operations. The Company uses extrusion blow molding
equipment to manufacture its PVC plastic bottles. The same equipment is also
used to manufacture fluorinated and non-fluorinated plastic bottles from HDPE
and can also be used with some modifications, to process bottles from other blow
molding polymers, including polypropylene, glycol-modified polyethylene
terephthalate ("PETG") and some new extrusion grade polyethylene terephthalate
resins ("EPET") which are presently semi-commercial. The Company also
manufactures and sells plastic bottles made from injection stretch blow molding
grades of PET as well as PET preforms which can be converted into various sizes
of plastic bottles and which can be economically shipped in their preform state
prior to such conversion.
The Company operates plastic bottle manufacturing and warehousing
facilities in Hazleton, Pennsylvania; Paris, Illinois; Manchester, Pennsylvania;
Walterboro, South Carolina; Philmont, New York; Kingston, New York for the
manufacturing of plastic bottles. During September, 1998 the Company relocated
its existing plastic bottle business from a facility in Eatontown, New Jersey
owned by the Company to a newly constructed facility in Hazleton, Pennsylvania.
This new facility provides the Company with additional space needed to support
manufacturing on a more economical and efficient basis. The Eatontown facility
was sold during December 1999. In April 1993, the Company commenced operations
in a new facility, located in Paris, Illinois, which was added to support growth
of the Company's mid-west bottle business. On August 4, 1994, the Company
acquired from Air Products and Chemicals, Inc., through its wholly owned
subsidiary known as Airopak Corporation, the assets of a specialty container
business. The business is conducted from leased facilities located in
Manchester, Pennsylvania, and relates to the manufacture and sale of AIROPAK(R)
fluorinated HDPE containers. The assets of the business consist of equipment,
machinery and inventory used in connection with the manufacturing of such
containers. A description of the Company's plastic bottle facilities is set
forth below in item 2 entitled "Properties".
The Company manufactures plastic compounds utilizing a two- stage
process consisting of mixing a powder blend of various resins and other
ingredients in an intensive mixer, and subsequently melting the powder in a
compounding extrusion system for pelletizing the final plastic compound
products. Three compounding lines are located in a separate facility in
Eatontown, New Jersey, which began operations during October 1982. The Company
will continue to purchase small amounts of PVC bottle compounds produced by
others for use in the manufacturing of plastic bottles where customers
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specify a competing material. The capacity of the Company's PVC compounding
facility is more than adequate to supply the Company's current requirements for
PVC compound. The Company uses its excess PVC compounding capacity to produce
PVC bottle compounds and specialty compounds for sale to other plastic
processors of PVC bottles and other Company targeted markets. A description of
the Company's compound facility is set forth below in Item 2 entitled
"Properties".
Raw Materials. Since the Company completed and opened its PVC
compounding facility in 1982, the Company has manufactured for its own use most
of the PVC compounds used by it in the manufacture of plastic bottles. The major
ingredients used to manufacture such PVC compounds are PVC resins (approximately
85%) and MBS (methacrylate-butadiene-styrene) impact modifiers (approximately
12%). The balance of such ingredients includes heat stabilizers, lubricants,
processing aids, and toners (pigments), which materials are readily available
from various suppliers. The other raw materials used to manufacture plastic
bottles are primarily HDPE and PET. The Company believes it is not dependent
upon any single supplier for these major raw materials. The Company relies on
multi-year supply contracts for the purchase of these raw materials, and
believes that it will be able to purchase sufficient quantities in the
foreseeable future.
A shortage of petroleum, should it develop, would have a negative
effect on the availability and the cost of the raw materials used by the Company
in connection with its business. The availability and price of resins has a
direct effect on the business of the Company. Although sufficient PVC resin,
HDPE and PET resins are currently available for the Company's operations, no
assurance can be given that adequate supply of plastic resins will be available
to the Company in the future. However, the cost of resin can vary and may have a
material impact on the business of the Company. The Company has in the past been
able to recover the cost of the resin price increase by increasing the sales
price of its plastic bottles and any inability to do so in the future could have
an adverse impact on the Company's financial results. Prices for PVC resins as
well as HDPE and PET resins are mostly dependent upon the supply/demand of
specific plastic resins as well as their monomer and their feedstocks. See
"Competition & Marketing" below.
Inventory. Depending upon the level of demand and scheduling
requirements for the Company's products, the Company maintains on average 4-6
weeks of plastic bottles finished goods inventory and approximately 2-3 weeks of
plastic compound finished goods inventory. From time to time, depending upon the
prices and availability of raw materials (principally PVC resins), the Company
will pre-buy or increase inventory of raw materials from a normal 2-3 week
supply to up to a 2 month supply, in order to offset anticipated price
increases. During peak sales periods, it is sometimes necessary to store
inventory of the Company's products and raw materials in outside warehousing.
Backlog. Generally the Company's backlog of unfilled order ranges
from approximately four to six weeks.
Competition and Marketing. The Company believes it is one of
approximately thirty manufacturers of plastic bottles in the United States, one
of at least five manufacturers of PVC bottle compounds and one of at least five
manufacturers of specialty compounds for use in the Company's targeted markets.
The dominant manufacturers of plastic bottles are Owens-Brockway, Inc. and
Silgan Corp. The dominant manufacturers of PVC bottle compounds and PVC
specialty compounds are Poly-one Corporation, and Georgia Gulf Corporation. The
Company's sales volume, production capacity, and consumption of PVC resin are
small compared to its competitors. The Company's major PVC compound competitors
are large, integrated petrochemical companies with greater financial resources
than the Company, and many of which also manufacture PVC resin.
3
The Company principally competes in the plastic bottle market on the
basis of quality, customer service and product design. The Company believes it
produces a relatively high quality product in a timely manner in accordance with
customer specifications and requirements, with a high level of customer service,
and believes that these constitute the primary areas in which the Company can
compete with others in the same industry.
The Company sometimes purchases its supply of PVC resin from its PVC
compound competitors. This has, at times, caused the Company to have difficulty
obtaining adequate supplies of PVC resin and has permitted its competitors to
increase PVC resin costs charged to the Company, which has resulted in reduced
profit margins on PVC bottle compound. However, profit margins on PVC specialty
compounds remain stronger because the Company faces less price competition.
The market for PVC bottles and PVC bottle compounds has declined
somewhat during the past several years due to industry concern over the ability
to cope with solid waste issues. See item entitled "Environmental Issues."
Industry demand for PVC bottles and compounds are, however, currently stables.
The demand for PVC specialty compounds for use in the Company's targeted markets
is experiencing modest growth which is higher than that of PVC bottle compounds.
Competition in the area of PVC bottle compounds will remain intense during the
foreseeable future because of excess PVC bottle compound manufacturing capacity
and because PVC bottle compound buyers are increasingly concerned about price
and less concerned about quality and service. In this respect, PVC bottle
compound resembles a commodity business. This trend may inhibit the Company from
further expanding its share of the PVC bottle compound market.
In response to these pressures in the PVC bottle compound market,
the Company is continuing in its effort to develop specialty compounds for a
diverse range of Company targeted markets. The Company believes that these
specialty compound markets will be less sensitive to wide swings in the cost of
PVC resin and may be more influenced by the performance, quality, and service
which is characteristic of a specialty type business. In particular, the Company
is marketing injection molding PVC compound for use in the communications,
electronics and appliance markets and extrusion compounds for use in indoor
molding and other specialty "profile" markets.
The Company believes its technical, marketing and manufacturing
capability in the plastic bottle market is equal to that of its major
competitors in small to midsize volume applications in its region, particularly
in the toiletry, cosmetic and household chemical product segments. The Company
further believes its technical and marketing ability is equal to that of its
major competitors in the PVC compound markets in its region. It's manufacturing
capability for the PVC compound markets are limited by its lack of a facility to
produce PVC resin.
A shortage of labor and higher cost of living in New Jersey and the
resulting increased employee turnover and difficulty in retaining labor on swing
shifts, weekends and holidays influenced the Company's decision as described
above to relocate its New Jersey manufacturing facility from Eatontown, New
Jersey to Hazleton, Pennsylvania which has a large labor pool. However, during
the last twelve months, the Company has had difficulty in retaining skilled and
unskilled labor at all its locations due to low unemployment.
As a result of the acquisition of the Philmont, New York facility
see "General", "Manufacturing Operations" and "Properties", the Company has
increased its container decorating capabilities to include automatic silk
screening multiple color applications, pressure sensitive paper and plastic film
labels and therimage heat transfer labeling. While the Company believes that
eventually it
4
will be required to establish this capability in some of its other manufacturing
facilities, it does currently interfere with the Company's ability to compete.
PVC competes with PET and PETG as a material for use in the
manufacture of transparent plastic bottles. Manufacturers of bottles made of PET
have captured a portion of the edible oil, household chemical and medicinal
segments of the plastic bottle market from PVC bottle manufacturers. Because the
price of PET bottles becomes competitive on high volume orders of custom bottles
(i.e., orders of approximately 5 million to 10 millions units), there is a
substantial risk that customers who have large custom bottle requirements may
increasingly consider using PET bottles instead of PVC bottles. Because most of
the Company's custom bottle business consists of low or mid-range volume orders,
the Company's custom bottle business has been less vulnerable to PET. However,
recently several stock PET containers of similar shape and size to some of the
Company's PVC stock bottles are becoming more prevalent in the Company's
markets. Although injection PET tooling is considerably more expensive than PVC
extrusion tooling, some components of PET molds and tooling can be shared over
several custom or stock designs thereby reducing the higher tooling/mold
intensity associated with the injection based PET stock and custom bottle
business. The Company has the ability to manufacture PETG bottles by modifying
its equipment, and the Company now manufactures and sells PETG bottles. The
Company manufactures PET plastic bottles and preforms at its facility in Paris,
Illinois and Hazleton, Pennsylvania as a defensive marketing strategy. This new
capacity allows the Company to compete for PET bottle applications in the
plastic bottle market. See "Environmental Regulation" below.
Research and Development. The Company spent approximately $263,000,
$272,000 and $238,000 for the fiscal years ended June 30, 2002, 2001 and 2000
respectively on research activities relating to the development of new designs
of containers and the production of compounds. The major thrust of the Company's
research and development efforts is currently in the area of new PVC compound
development.
Environmental Regulation. The Company does not believe that
compliance with federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of material into the environment, or
otherwise relating to the protection of the environment, has had or will have
any material effect upon the capital expenditures, earnings or competitive
position of the Company. However, the future of PVC as a material for packaging
foods has been dampened by the Food and Drug Administration's ("FDA's")
unwillingness to implement standards with regard to levels of residual vinyl
chloride monomer ("VCM") acceptable for food packaging. Although the FDA's
proposed levels of VCM are expected to be easily attainable by the Company's
industry, the FDA has been precluded from issuing the standards by the
Environmental Protection Agency ("EPA"). The EPA is insisting that a new
environmental impact statement be developed prior to promulgating new standards.
The EPA's concern is that the adoption of the FDA's new regulations will
stimulate additional demand for PVC bottles and, hence, add to the PVC in the
waste stream. The Society of Plastics Industry ("SPI"), and Vinyl Institute
("VI") which represent the PVC industry on this issue, estimates that it will
take several years to complete an acceptable environmental impact statement.
In addition, as it is now a supplier of a primary raw material, the
Company may have to comply with existing regulations promulgated by the EPA with
respect to the emission of VCM into the environment and regulations promulgated
by the Occupational Safety and Health Administration regarding material safety.
Solid waste disposal and mandatory recycling have become a major
environmental issue with respect to plastic packaging in general. Concerns over
the incineration of PVC compounds, which
5
allegedly result in hydrochloric acid and dioxin emissions, have also been
voiced. Further, the state and national concern over disposal of solid waste has
resulted in several states proposing bans of certain plastics including PVC
packaging materials. Thus far, however, no bans have been implemented that would
affect PVC as a packaging material. The SPI and VI have effectively lobbied
state legislatures, which have enacted legislation supporting the recycling of
plastics. The Company is currently implementing a program that is mandatory in
certain states of placing a recycling code on the bottom of most bottles 8
ounces in capacity or larger. The Company believes, however, that the threat of
further regulatory actions inhibiting the future growth of PVC as a viable
packaging material will be minimal, although no assurances can be given that
further regulatory actions, or the threat of further regulatory action would not
have a negative impact on the Company's business.
Employees. As of June 30, 2002, the Company employed 36 people at
its executive office located at 2 Industrial Way West, Eatontown, New Jersey.
The Company occupies approximately 9,300 square feet of executive offices under
a lease for a term of ten years commencing on January 1, 1999 at a monthly
rental of $15,500 until December 31, 2004 when the monthly rental increases to
$16,275 until December 31, 2006 and thereafter at a monthly rental, of $17,050
until the end of the term. As indicated above under "Manufacturing Operations",
the Company relocated its 401 Industrial Way West, Eatontown, New Jersey
manufacturing facility to a new facility located in Hazleton, Pennsylvania and
its executive offices to the new location described above. On December 22, 1999,
the Company sold its facilities located at 401 Industrial Way West. As of June
30, 2002, the Company employed a total of 55 people at the Novatec facility in
Eatontown, New Jersey; 84 people in the manufacturing facility in Hazleton,
Pennsylvania; 114 people at its Paris, Illinois facility; 2 people at its
Walterboro, S.C. facility; 88 people at Airopak Corporation in its Manchester,
Pennsylvania facility; 146 people at its Philmont, New York facility and a total
of 70 people at Kingston, New York facility. The Company renewed the collective
bargaining agreement with Local 108 of the Retail, Wholesale and Department
Store Union, AFL-CIO, effective September 1, 2000 until August 31, 2003 relating
only to employees of Novatec. The Company considers its relations with its work
force and the union to be good.
Financial Information about Foreign and
Domestic Operations and Export Sales
The Company had export sales of $6,014,000 during the fiscal year
ended June 30, 2002. Net sales to the northeast of the United States amounted to
$32,683,000 during such fiscal year; net sales to the mid-west amounted to
$28,464,000; net sales to the southeast amounted to $12,102,000; and net sales
to other domestic regions amounted to $3,349,000 during such fiscal year.
Item 2. Properties.
The Company's activities with respect to its continuing businesses
are conducted at the nine facilities described in the following table:
Location Purpose of Facility Building Area
- -------- ------------------- -------------
(square feet)
Hazleton, Pennsylvania Plastic Bottle Plant and 160,000(1)
warehousing and Office
Eatontown, New Jersey Plastic Compounding Plant, 50,162(2)
warehouse and Executive offices
6
Manchester, Pennsylvania Airopak Corporation Plant and 145,221(3)
warehousing
Paris, Illinois Plastic bottle Plant and 125,000(4)
warehousing and office
Walterboro, S.C. Plastic bottle Plant warehousing 61,430(5)
and office
Philmont, New York Plastic bottle plant, warehouse and 100,000(6)
office
Kingston, New York Plastic bottling plant, warehouse 34,000(7)
and office
Ardmore, Oklahoma Plastic bottling plant, warehouse 10,000(8)
and office
1. As indicated above, under "Manufacturing Operations" and
"Employees", the Company relocated during September 1998 its Eatontown, New
Jersey manufacturing facilities to a new facility located in Hazleton,
Pennsylvania on 10 acres of real property owned by the Company. The Hazleton
facility is a solid concrete tilt-up facility, sprinklered throughout and
consisting of 160,000 square feet of manufacturing and warehouse space. There
are also ten loading docks and a rail siding at the facility.
2. The Company's PVC compounding manufacturing facility is located
at 275 Industrial Way West, Eatontown, New Jersey on 5.5 acres of real property
owned by the Company. It contains manufacturing, R&D, warehouse, and
administrative offices and is constructed from steel and concrete panels.
3. As described in the section entitled "Manufacturing Operations"
the Company acquired a business located in Manchester, Pennsylvania. The
facilities in Manchester are leased and consist of a manufacturing and warehouse
facility having a total of approximately 145,221 square feet. The aggregate
annual rental payable with respect to the manufacturing and warehouse space for
the Airopak Corporation detailed above and in this Item 3 is $413,928 plus real
estate taxes, utilities and certain other charges payable under a lease which
expires or April 30, 2013 with two additional five year terms. It is believed
that these facilities are large enough to allow for future growth of the
business conducted at these facilities.
4. The Company commenced operations during April, 1993 in a new
62,500 square foot concrete plastic bottle manufacturing facility located in
Paris, Illinois. The Company owns this facility and twenty acres of land on
which it is located. Financing for this facility was obtained from the Edgar
County Bank, the City of Paris, Illinois and the Illinois Small Business
Development Agency. In July 1997, the Company completed the construction of an
additional 62,500 square feet of warehouse and manufacturing space. The Company
through the issuance of Industrial Development Revenue Bonds financed this
expansion by the City of Paris, Illinois, in the amount of $3,700,000.
5. In October 1996, the Company completed construction and began
operations in a new plastic bottle manufacturing plant located in Walterboro,
South Carolina. This facility consists of 61,430 square feet of warehouse and
manufacturing space, located on 8.83 acres of real property, which is owned by
the Company. Financing for this facility was obtained through the South Carolina
Economic Development Authority in the amount of $5,500,000.
6. As indicated above under "Manufacturing Operations" the Company
acquired on March 30, 1998 the plastic bottle manufacturing facilities of
McKechnie Investments, Inc. The facility
7
consists of 100,000 square feet of warehouse and manufacturing space located on
37 acres of real property owned by the Company.
7. and 8. As indicated above under "Manufacturing Operations" the
Company acquired on September 3, 1998 the plastic bottle manufacturing business
of Marpac Industries located in Kingston, New York and Ardmore, Oklahoma. The
Kingston facility consists of 34,000 square feet of manufacturing, warehouse and
office space. The Kingston facility is located on approximately 6 acres of real
property with 2.4 adjacent acres for expansion and all of which are owned by the
Company. The Company discontinued during the fiscal year ended June 30, 2000 its
operations at the Ardmore, Oklahoma facility, which consists of 10,000 square
feet of manufacturing, warehouse and office space. The facility is currently
being offered for sale or lease.
Item 3. Legal Proceedings.
There are no actions or claims pending against the Company, which,
in the opinion of management, would adversely affect the business or financial
condition of the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
None
8
PART II
Item 5. Market for Registrant's Common Stock
and Related Securityholder Matters.
The Company's common stock trades on the over the counter market as
reported on the Nasdaq Bulletin Board under the symbol OTC:PVCC. The last trade
of the common stock on September 6, 2002 was at a price of $ 1.75 per share. The
following is a summary of the high and low trade information during the fiscal
years of the Company ended June 30, 2002 and June 30, 2001:
Year Ended June 30, 2002
Low High
1st Quarter $2.15 $3.20
2nd Quarter 1.61 2.80
3rd Quarter 1.1 2.45
4th Quarter 1.45 2.90
Year Ended June 30, 2001
Low High
1st Quarter $3.88 $4.94
2nd Quarter 3.56 5.00
3rd Quarter 2.66 4.00
4th Quarter 2.00 3.80
As at September 6, 2002, the number of holders of record of the issued
and outstanding common stock of the Company was approximately 555.
9
Item 6. Selected Financial 2002 Data.
The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements,
related notes and other financial information included herein. The
selected consolidated financial data set forth below as of June 30,
2002, 2001 and 2000 and for the years ended June 30, 2002, 2001 and
2000 have been derived from our audited financial statements included
herein. The selected consolidated financial data set forth below as of
June 30, 2000, 1999 and 1998 and for the years ended June 30, 1999 and
1998 have been derived from our audited financial statements that are
not included herein or incorporated by reference herein. Our historical
results are not necessarily indicative of the results that may be
expected for any future period.
Years Ended June 30
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
SELECTED INCOME STATEMENT DATA:
Net Sales $ 82,611,615 $ 87,995,433 $ 92,619,720 $ 85,155,047 $ 69,728,498
Income from operations $ 2,726,128 $ 1,113,966 $ 1,050,599 $ 4,927,689 $ 4,104,406
Net Income (Loss) $ 261,445 $ (1,141,174) $ (1,196,678) $ 1,702,983 $ 1,856,891
Earnings per share: 7,044,379 7,044,655 7,042,254 7,158,741 7,064,671
Weighted average shares
for diluted shares
Income from operations $ .39 $ .16 $ .15 $ .69 $ .58
Net Income (loss) per share $ .04 $ (.16) $ (.17) $ .24 $ .26
SELECTED BALANCE SHEET DATA
Current assets $ 26,921,243 $ 29,266,731 $ 30,547,896 $ 33,771,892 $ 24,615,463
Current liabilities $ 15,086,732 $ 14,845,192 $ 16,186,694 $ 20,358,118 $ 16,654,395
Working capital $ 11,834,511 $ 14,421,539 $ 14,361,202 $ 13,413,774 $ 7,961,068
Total assets $ 61,255,060 $ 68,126,386 $ 70,855,593 $ 83,124,568 $ 69,986,118
Long-term obligations $ 28,158,275 $ 35,428,077 $ 35,500,046 $ 42,425,462 $ 34,835,808
Stockholders' equity $ 18,010,053 $ 17,853,117 $ 19,168,853 $ 20,340,988 $ 18,495,915
10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following information should be read in conjunction with the
Company's consolidated financial statements and notes thereto included
in this report.
Certain statements made herein are forward-looking and are made
pursuant to the safe harbor provisions of the Securities Litigation
Reform Act of 1995. Such statements involve risks and uncertainties
that may cause results to differ materially from those set forth in
these statements. In particular, unanticipated changes in the economic,
competitive, governmental, technological, marketing or other factors
identified herein and in the Company's other filings with the
Securities and Exchange Commission could affect such results.
GENERAL
The preparation of our financial statements requires the Company to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of
contingent liabilities. On a continuous basis, the Company reviews its
estimates including those related to returns, bad debts, inventories
and intangible assets. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable, the results of which form the basis for making judgments
about the carrying values of assets and liabilities. Actual results may
differ from these estimates as conditions may vary.
Critical Accounting Policies
Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make mandatory
payments. If the financial condition of the Company's customers were to
erode, resulting in their inability to make payments, additional
allowances may be required.
Inventory
Inventories are valued at the lower of cost or market, using the
first-in, first-out method. The Company provides reserves for estimated
obsolescence of its inventory equal to the difference between the cost
of inventory and the estimated net realizable value based upon
management's assessment about future demand and market conditions. If
actual market conditions deteriorate, additional inventory reserves may
be required. Any change to the reserve is reflected in cost of sales in
the period the revision is made.
Revenue recognition
We recognize revenue when products are shipped to our customers
pursuant to a purchase order. Sales are shown net of returns, discounts
and sales incentives.
Income Taxes
11
Our income tax policy records the estimated future tax effects of
differences between the tax basis of assets and liabilities and amount
reported in the accompanying consolidated balance sheets, as well as
operating loss carry forwards. We follow very specific guidelines
regarding the recoverability of any tax assets recorded on the balance
sheet and provide any necessary allowances as required.
Results of Operations
FISCAL 2002 AS COMPARED TO FISCAL 2001
The Company's net sales for the fiscal year ended June 30, 2002 reached
a level of $82,612,000, a decrease of approximately 6.1% from the 2001
level of $87,995,000. This decrease in revenue is mainly attributed to
weakness in HDPE and PVC blow molded bottles offset by positive growth
in our PET and technical molded bottles. The PET blow molded bottles
continued to achieve double-digit growth and new capacity expansions
are planned to support this growth.
Cost of goods sold decreased to 76.9% in 2002 from 78.6% in 2001.
Margins in both the bottle and compound segments continued to improve,
mainly attributable to continued emphasis on cost containment and
further reductions in manufacturing overhead and decreases in raw
material costs. Selling, general and administrative expenses (SG&A)
were $9,934,000 or 12.0% of net sales for fiscal year ended June 30,
2002 as compared to $10,934,000 or 12.4% of net sales for the fiscal
year ended June 30, 2001. SG&A expenses have decreased primarily due to
improvements in our collection rates for customer accounts receivable,
decreases in professional fees, outside warehouse requirements and the
reorganization in our Marketing and Administrative function within the
Company. Depreciation and amortization expense for fiscal 2002
decreased $334,000 as compared to fiscal 2001, primarily the effect of
certain manufacturing assets becoming fully depreciated in the current
fiscal year.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased from approximately $8,001,000 in fiscal 2001 to
approximately $9,229,000 in fiscal 2002. Of the $1,228,000 increase in
EBITDA, approximately $617,000 was the result of the performance
improvements in the Company's plastic containers segment with the
remaining $611,000 as the result of the performance of the Novatec
Plastics division.
Income from operations for fiscal year ended June 30, 2002 increased to
$2,726,000 or 3.3% of net sales as compared to $1,114,000 or 1.3% of
net sales in fiscal 2001.
Net interest expense decreased $778,000 during fiscal year ended June
30, 2002 as compared to fiscal 2001. This net decrease is primarily due
to lower interest rates and reduced borrowings for capital equipment
and working capital needs.
Net income (loss) for the year ended June 30, 2002 increased to
$261,000 or $.04 per diluted share as compared to $(1,141,000) or
$(.16) per diluted share for fiscal 2001.
FISCAL 2001 AS COMPARED TO FISCAL 2000
The Company's net sales for the fiscal year ended June 30, 2001 reached
a level of $87,995,000, a decrease of approximately 5% from the 2000
level of $92,620,000. This decrease in revenue as compared to the prior
year is mainly attributed to weaker demand in both of the Company's
plastic container and compound segments.
12
Cost of goods sold decreased to 78.6% in 2002 from 79.8% in fiscal
2000. Margins in both the bottle and compound segments were favorably
affected by increased emphasis on cost containment and reductions in
manufacturing overhead and a decrease in raw material costs. Novatec
Plastic's margins were significantly affected by the steady reduction
in plastic resin prices by approximately 21.8% during the current
fiscal year. Selling, general and administrative expenses (SG&A) were
$10,934,000 or 12.4% of net sales for the fiscal year ended June 30,
2001 as compared to $10,459,000 or 11.3% of net sales for the fiscal
year ended June 30, 2000. SG&A expenses have increased primarily due to
the increase in bad debt reserve based upon the current economic
climate. Additionally, the Company has instituted various cost
reduction programs to anticipate any further degradation of revenue.
Depreciation and amortization expense of fiscal 2001 remained
substantially the same as fiscal 2000.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased from approximately $7,751,000 in fiscal 2000 to
approximately $8,001,000 in fiscal 2001. Of the $250,000 increase in
EBITDA, approximately $485,00 was due to the performance in the
Company's plastic container segment. Fiscal 2000 reflected a
non-recurring asset impairment $400,000 charge relating to the closing
of the Oklahoma manufacturing facility.
Income from operations for the fiscal year ended June 30, 2001
increased to $1,114,000 or 1.3% of net sales compared to $1,051,000 or
1.1% of net sales in fiscal 2000.
Net interest expense increased $199,731 during the fiscal year ended
June 30, 2001 as compared to fiscal 2000. The net increase was
primarily due to additional capital equipment financing.
Net loss for the year ended June 30, 2001 decreased to $(1,141,000) or
$(.16) per share as compared to $(1,197,000) or $(.17) per share for
fiscal 2000.
Liquidity and Capital Resources
Cash flow from operations during fiscal 2002 totaled $9,602,000,
representing an increase of $5,600,000 from the prior year. Cash flow
from operations was favorably impacted by improved inventory and
accounts receivable management and the timing of income tax payments.
The Company received $577,000 in proceeds from long-term debt and
$113,000 from the sale of various capital assets. These funds, combined
with cash flow from operations, were used to acquire $2,729,000 in
capital assets and reduce long-term debt by $7,400,000. As a result of
the repayment of long-term debt, working capital decreased
approximately $2,588,000 to $11,834,000 at June 30, 2002 from
$14,422,000 at June 20, 2001. The current ratio decreased to 1.8 at
June 30, 2002 from 2.0 at June 30, 2001.
Assets held for sale at June 30, 2002 totaled approximately $500,000.
During fiscal 2002, the Company reduced the carrying value of such
assets to reflect the estimated fair value less disposal costs.
Management expects to sell this facility and receive proceeds, which
will approximate fair value during fiscal 2003.
The Company's short term liquidity and short term capital resources are
projected to be adequate to allow the Company to continue to meet its
financial obligations. The Company believes that the financial
resources available to it, including internally generated funds and
amount under its revolving credit facility would be sufficient to meet
its foreseeable working capital requirements. As at June 30, 2002, the
Company had unused sources of liquidity consisting of cash and cash
equivalents of $657,000 and available unused credit under a revolving
credit facility of $7,727,000.
13
Contractual Obligations and Commercial Commitments
The Company is party to notes payable as well as various operating
leases at June 30, 2002. These contractual obligations are summarized
below. The Company has no other contractual obligations or commercial
commitments at June 30, 2002.
Contractual Obligations Payments Due by Period
Total 2003 2004 2005 2006 2007 Thereafter
----------- ----------- ----------- ----------- ----------- ----------- -----------
Long term notes payable .......... $28,914,693 $ 2,992,644 $ 3,230,623 $ 2,920,137 $12,436,140 $ 869,911 $ 6,465,238
Non-cancelable operating leases .. 7,102,268 1,121,235 1,197,746 776,512 945,097 616,161 2,445,517
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total contractual cash obligations $36,016,961 $ 4,113,879 $ 4,428,369 $ 3,696,649 $13,381,237 $ 1,486,072 $ 8,910,755
=========== =========== =========== =========== =========== =========== ===========
The contractual obligations relate to office and plant facilities, as
well as vehicles and office equipment. It is expected in the normal
course of business, the majority of the leases will be renewed or
replaced by other leases.
Other Commercial Commitments Payments Due by Period
Total 2003 2004 2005 2006 2007
---------- ---------- ---------- ---------- ---------- ----------
Standby letters of credit .. $5,221,211 $ 127,638 $3,845,973 $1,247,600
---------- ---------- ---------- ---------- ---------- ----------
Total commercial commitments $5,221,211 $ 127,638 $ 0 $ 0 $3,845,973 $1,247,600
========== ========== ========== ========== ========== ==========
Other Matters
In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets," effective for
fiscal years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be reviewed for potential impairment
annually or upon the occurrence of an impairment indicator. Other
intangible assets will continue to be amortized over their useful
lives.
Upon adoption in fiscal 2003, the Company anticipates that application
of the non-amortization provisions of the Statement is expected to
result in an increase in net income of approximately $176,000 ($.02 per
share) per year. The Company does not anticipate the earnings and
financial position to be impacted by the required impairment tests of
goodwill.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
The Company is required to adopt this statement effective July 1, 2002.
The Company does not expect that the adoption of SFAS no. 143 will have
a material impact on its financial position, results of operations or
cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes
a single accounting model, based upon the framework established in SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived
14
Assets to be Disposed of," for long-lived assets to be disposed of by
sale and addresses significant implementation issues. The Company is
required to adopt this statement effective July 1, 2002. The Company
does not expect that the adoption of SFAS No. 144 will have a material
impact on its financial position, results of operations or cash flows.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13 and
Technical Corrections (FAS 145). For most companies, FAS 145 will
require gains and losses on extinguishments of debt to be classified as
income or loss from continuing operations rather than as extraordinary
items as previously required under FAS 4. Extraordinary treatment will
be required for certain extinguishments as provided in APB Opinion No.
30. The statement also amended FAS 13 for certain sales-leaseback and
sublease accounting. The Company adopted the provisions of FAS 145
effective May 15, 2002.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This statement supercedes the
guidance provided by the EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. Since this statement only affects
the timing of the recognition of the liabilities to be incurred if an
entity makes a decision to exit or dispose of a particular activity,
the Company does not expect that the adoption of SFAS No. 146 will have
a material impact on its financial position, results of operations or
cash flows.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to our operations result primarily from changes
in interest rates. Interest rate pricing transactions are used only to
the extent considered necessary to meet our objectives. We do not
utilize derivative financial instruments for trading or other
speculative purposes.
Interest Rate Risk
Our interest rate risk management objective is to limit the impact of
interest rate changes on our net income and cash flow and to lower our
overall borrowing cost. We manage our exposure to interest rate
fluctuations in our variable rate swap agreements. These agreements
effectively convert interest rate exposure from variable rates to fixed
rates of interest. We have entered into these agreements with banks
under our senior secured credit facility. You should also read Notes 1
and 5 to our Consolidated Financial Statements included elsewhere in
this Annual Report which outline the principal amounts, interest rates,
fair values and other terms required to evaluate the expected cash
flows from these agreements.
Item 8. Financial Statements and Supplementary Data.
See annexed financial statements.
15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
-None-
16
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth the directors and executive
officers of the Company. Each director holds office until his successor is
elected and qualifies.
Name Age Held Office Since Offices with the Company
- ---- --- ----------------- ------------------------
Phillip L. Friedman 55 1982 President, Chief Executive, and Director
Joel Francis Roberts 60 1989 Senior Vice President Operations
Jeffrey Shapiro 53 2000 Chief Financial Officer
John F. Turben 67 1996 Director
Michael Sherwin 61 1996 Director
George R. Begley 59 1996 Director
John G. Nestor 57 2001 Director
Michael Lynch 54 2002 Director
PHILLIP L. FRIEDMAN was employed by Occidental Chemical
Corporation (formerly Hooker Chemical Corporation), a leading manufacturer and
supplier of PVC resins and compounds from 1969 until December 1981, when he
joined the Company. During his last 5 years with Occidental, Mr. Friedman was
Manager of Business Development and Director of Commercial Development for the
Polyvinyl Chloride Plastics Division. As the Director of Commercial Development,
he was responsible for coordinating and reducing to commercial practice various
research and development projects within the plastics industry. He is a member
of the Executive Committee of the Company.
JOEL FRANCIS ROBERTS, from 1984 to July 1986, was a plant
manager for Technical Plastics Extruders, an extruder of sheet material. During
July 1986 he joined the Company as a plant manager and became a Director of
Operations during 1989. Mr. Roberts became a Senior Vice President of Operations
during November 1989.
JEFFREY SHAPIRO was employed as the Chief Operating Officer of
Universal Process Equipment, a worldwide manufacturer of process equipment,
before joining PVCC in March 2000 as Chief Financial Officer. Mr. Shapiro has
nearly twenty years of experience in the printing and packaging industry and has
held various executive positions from Vice President to Controller to Chief
Financial Officer. Prior companies include Webcraft Technologies and Klearfold
Packaging. Mr. Shapiro is a graduate of Rutgers University and a CPA in New
Jersey. He joined the Company as Chief Financial Officer during its fiscal year
ended June 30, 2000.
GEORGE R. BEGLEY is an independent investment advisor, a
director of North Coast Energy and a member of the audit committee of the
Company.
JOHN G. NESTOR has been a Managing Partner of Kirtland Capital
Partners since March 1986.
MICHAEL SHERWIN is the Vice Chairman of Mid-West Forge
Corporation and Chairman and Chief Executive Officer of Columbiana Boiler
Company. Prior to joining Mid-West Forge
17
Corporation, Mr. Sherwin was the President of National City Venture Corporation
and National City Capital Corporation, both subsidiaries of National City
Corporation.
JOHN F. TURBEN is Chairman of Kirtland Capital Partners and is
a KCP I and KCP II Advisory Board member and serves as Chairman of The Hickory
Group, PVC Container Corporation and Harrington and Richardson 1871, Inc. He is
also Chairman of the Executive Committee of Fairmount Minerals, Ltd. and
Execution Services Inc. He is a director of NACCO Industries, Unifrax
Corporation and TruSeal Technologies Inc. He is Chairman of the Board of the
Company and a member of its Executive Committee.
MICHAEL LYNCH is the Senior Vice President of Oldcastle, Inc.
the U.S. subsidiary of CRH pl. CRH is an international buildings materials
company headquartered in Ireland. Mr. Lynch is also the Chief Executive Officer
of Allied Buildings Products Corp., which is a subsidiary of Oldcastle, Inc. Mr.
Lynch was elected as a Director on August 28, 2002 in order to fill the vacancy
created by the resignation as a director of Jeffery C. Garvey who resigned as a
director on that date.
Item 11. Executive Compensation.
Incorporated by reference from the Company's definitive
information statement to be filed with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Incorporated by reference from the Company's definitive or
information statement to be filed with the Commission.
Item 13. Certain Relationships and Related Transactions.
None.
18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements.
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 2002 and 2001
Consolidated Statements of Operations for the years
ended June 30, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 2002, 2001 and 2000
Consolidated Statements of Cash Flows for the years
ended June 30, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules.
Report of Independent Auditors on Consolidated
Financial Statement Schedules
For the three years ended June 30, 2002
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Certificate of Incorporation of the Company
filed with the Secretary of State of the
State of Delaware (filed as Exhibit 3.1 to
the Company's Form 10-K for the fiscal year
ended June 30, 1988 (the "1988 10-K"), and
incorporated herein by reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2
to the 1988 10-K, and incorporated herein by
reference).
10.1 Deferred Compensation Plan established June
4, 1986 and effective July 1, 1986 (filed as
Exhibit 10.1 to the Company's Form 10-K for
the fiscal year ended June 30, 1987 (the
"1987 10-K"), and incorporated herein by
reference).
10.2 Profit Sharing Savings Plan (Flexinvest
401(k) Plan) effective July 1, 1984 (filed
as Exhibit 10.2 to the 1987 10-K, and
incorporated herein by reference).
19
10.3 1981 Incentive Stock Option Plan filed as an
Exhibit to the Company's Form 10-K for
fiscal 1982 and incorporated herein by
reference (filed as Exhibit 10.3 to the 1987
10-K, and incorporated herein by reference).
10.4 Employment Agreement between the Company and
Phillip L. Friedman dated July 1, 1982 as
amended on June 4, 1986 (filed as Exhibit
10.4 to the 1987 10-K, and incorporated
herein by reference).
10.5 Lease for the Company's container
manufacturing plant dated October 5, 1973
and amended July 2, 1974 between John
Donato, Jr. and the Company (filed as
Exhibit 10.5 to the 1987 10-K, and
incorporated herein by reference).
10.7 Loan and Security Agreement among the
Company, First Jersey National Bank and
Novatec dated June 1, 1984 and modified
March 31, 1986 (filed as Exhibit 10.7 to the
1987 10-K, and incorporated herein by
reference).
10.8 Credit Agreement among the Company, New
Jersey Economic Development Authority,
United Jersey Bank and The First Jersey
National Bank dated as of November 1, 1981
(filed as Exhibit 10.8 to the 1987 10-K, and
incorporated herein by reference).
10.9 Bond Financing Agreement among the Company,
New Jersey Economic Development Authority,
United Jersey Bank and The First Jersey
National Bank dated November 27, 1984 (filed
as Exhibit 10.9 to the 1987 10-K, and
incorporated herein by reference).
10.10 Collective Bargaining Agreement dated
September 1, 1988 between the Company and
Local 108, Retail, Wholesale and Department
Store Union, AFL-CIO (filed as Exhibit 10.10
to the 1988 10-K, and incorporated herein by
reference).
10.11 Third Amendment to Employment Agreement
between Phillip L. Friedman and the Company
dated November 29, 1989 (filed as Exhibit
10.11 to 1990 10-K and incorporated herein
by reference).
10.12 Asset Purchase Agreement between Airopak
Corporation and Air Products and Chemicals,
Inc. dated 8/4/94 (filed as Exhibit 10 to
the report on Form 8-K filed on August 8,
1994 and incorporated herein by reference).
10.13 Employment Agreement between the Company and
Phillip L. Friedman dated July 1, 1996
(filed as Exhibit 10.2 to the December 12,
1996 8-K, and incorporated herein by
reference).
20
10.14 Stock Purchase Agreement among the Company,
Kirtland Capital Partners, and Rimer
Anstalt, dated December 3, 1996 (filed as
Exhibit 10.1 to the December 12, 1996 8-K
and incorporated herein by reference).
10.15 1996 Incentive Stock Option Plan (filed as
Exhibit 10.3 to the December 12, 1996 8-K,
and incorporated herein by reference).
10.16 Asset Purchase Agreement dated March 30,
1998 among the Company, Charter Supply Co.,
Inc. and McKechnie Investments, Inc. (filed
as an Exhibit to the April 14, 1998 Report
on Form 8-K and incorporated herein by;
reference).
10.17 Loan and Security Agreement among the
Company and its subsidiaries and Fleet Bank,
NA dated March 30, 1998 relating to the
financing of the purchase described in 10.16
above (filed as an Exhibit to the April 14,
1998 Report on Form 8-K and incorporated
herein by reference).
10.18 Stock Purchase Agreement dated September 3,
1998 among the Company and the sellers of
all the securities of Marpac Industries,
Inc. (filed as an Exhibit to the September
18, 1998 Report on Form 8-K and incorporated
herein by reference).
10.19 Revolving Credit, Term Loan and Security
Agreement among PNC Bank, NA (As Lender and
As Agent) and PVC Container Corporation and
it's Subsidiaries dated August 31, 2000.
16 Letter dated March 1, 1989 from Gassman,
Rebhun & Co., P.C. regarding resignation as
certifying accountant for the Company (filed
as Exhibit 16 to the February 28, 1989 8-K,
and incorporated herein by reference).
18 Preference Letter re: Change in Accounting
Principles re: LIFO to FIFO.
22 Subsidiaries of the Company (filed as
Exhibit 22 to the 1987 10-K, and
incorporated herein by reference).
23 Consent of Ernst & Young LLP
99.1 Second Amendment to the PVC Container
Corporation 1981 Incentive Stock Option
Plan, dated July 6, 1989, with the unanimous
written consent of Directors of the Company
(filed as Exhibit 28.1 to 1990 10-K and
incorporated herein by reference.
99.2 Letter dated September 22, 1989 from Phillip
L. Friedman to Bidyuk AG regarding the
termination of their Option Agreement dated
December 14, 1987 (filed as Exhibit 28.2 to
1990 10-K and incorporated herein by
reference).
21
Exhibits filed herewith:
None.
(b) Reports on Form 8-K filed during last quarter of the year ended June
30, 2001:
None.
(c) Exhibits
None.
(d) Financial statement schedules
The financial statement schedules required by Regulation S-X are
submitted as a separate section of this filing.
22
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Certificate of Incorporation of the Company filed
with the Secretary of State of the State of Delaware
(filed as Exhibit 3.1 to the Company's Form 10-K for
the fiscal year ended June 30, 1988 (the "1988
10-K"), and incorporated herein by reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2 to the
1988 10-K, and incorporated herein by reference).
10.1 Deferred Compensation Plan established June 4, 1986
and effective July 1, 1986 (filed as Exhibit 10.1 to
the Company's Form 10-K for the fiscal year ended
June 30, 1987 (the "1987 10-K"), and incorporated
herein by reference).
10.2 Profit Sharing Savings Plan Flexinvest 401(k) Plan)
effective July 1, 1984 (filed as Exhibit 10.2 to the
1987 10-K, and incorporated herein by reference).
10.3 1981 Incentive Stock Option Plan filed as an Exhibit
to the Company's Form 10-K for fiscal 1982 and
incorporated herein by reference (filed as Exhibit
10.3 to the 1987 10-K, and incorporated herein by
reference).
10.4 Employment Agreement between the Company and Phillip
L. Friedman dated July 1, 1982 as amended on June 4,
1986 (filed as Exhibit 10.4 to the 1987 10-K, and
incorporated herein by reference).
10.5 Lease for the Company's container manufacturing plant
dated October 5, 1973 and amended July 2, 1974
between John Donato, Jr. and the Company (filed as
Exhibit 10.5 to the 1987 10-K, and incorporated
herein by reference).
10.7 Loan and Security Agreement among the Company, First
Jersey National Bank and Novatec dated June 1, 1984
and modified March 31, 1986 (filed as Exhibit 10.7 to
the 1987 10-K, and incorporated herein by reference).
10.8 Credit Agreement among the Company, New Jersey
Economic Development Authority, United Jersey Bank
and The First Jersey National Bank dated as of
November 1, 1981 (filed as Exhibit 10.8 to the 1987
10-K, and incorporated herein by reference).
10.9 Bond Financing Agreement among the Company, New
Jersey Economic Development Authority, United Jersey
Bank and The First Jersey National Bank dated
November 27, 1984 (filed as Exhibit 10.9 to the 1987
10-K, and incorporated herein by reference).
23
10.10 Collective Bargaining Agreement dated September 1,
1988 between the Company and Local 108, Retail,
Wholesale and Department Store Union, AFL-CIO (filed
as Exhibit 10.10 to the 1988 10-K, and incorporated
herein by reference).
10.11 Third Amendment to Employment Agreement between
Phillip L. Friedman and the Company dated November
29, 1989 and incorporated herein by reference.
10.12 Asset Purchase Agreement between Airopak Corporation
and Air Products and Chemicals, Inc. dated August 4,
1994 (filed as Exhibit 10 to the report on Form 8-K
filed on August 8, 1994 and incorporated herein by
reference).
10.13 Employment Agreement between the Company and Phillip
L. Friedman dated July 1, 1996 (filed as Exhibit 10.2
to the December 12, 1996 8-K, and incorporated herein
by reference)
10.14 Stock Purchase Agreement among the Company, Kirtland
Capital Partners, and Rimer Anstalt, dated December
3, 1996 (filed as Exhibit 10.1 to the December 12,
1996 8-K and incorporated herein by reference).
10.15 1996 Incentive Stock Option Plan (filed as Exhibit
10.3 to the December 12, 1996 8-K, and incorporated
herein by reference).
10.16 Asset Purchase Agreement dated March 30, 1998 among
the Company, Charter Supply Co.,Inc. and McKechnie
Investments, Inc. (filed as an Exhibit to the April
14, 1998 Report on Form 8-K and incorporated herein
by; reference).
10.17 Loan and Security Agreement among the Company and its
subsidiaries and Fleet Bank, NA dated March 30, 1998
relating to the financing of the purchase described
in 10.16 above (filed as an Exhibit to the April 14,
1998 Report on Form 8-K and incorporated herein by
reference).
10.18 Stock Purchase Agreement dated September 3, 1998
among the Company and the sellers of all the
securities of Marpac Industries, Inc. (filed as an
Exhibit to the September 18, 1998 Report on Form 8-K
and incorporated herein by reference).
10.19 Revolving Credit, Term Loan and Security Agreement
among PNC Bank, NA (As Lender and As Agent) and PVC
Container Corporation and it's Subsidiaries dated
August 31, 2000.
16 Letter dated March 1, 1989 from Gassman, Rebhun &
Co., P.C. regarding resignation as certifying
accountant for the Company (filed as Exhibit 16 to
the February 28, 1989 8-K, and incorporated herein by
reference).
18 Preference Letter re: Change in Accounting
Principles re: LIFO to FIFO (and incorporated herein
by reference).
22 Subsidiaries of the Company (filed as Exhibit 22 to
the 1987 10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP.
24
99.1 Second Amendment to the PVC Container Corporation
1981 Incentive Stock Option Plan, dated July 6, 1989,
with the unanimous written consent of Directors of
the Company and incorporated herein by reference.
99.2 Letter dated September 22, 1989 from Phillip L.
Friedman to Bidyuk AG regarding the termination of
their Option Agreement dated December 14, 1987 and
incorporated herein by reference.
25
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 on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
PVC CONTAINER CORPORATION
(Registrant)
By: /s/ Phillip L. Friedman
--------------------------------------
Phillip L. Friedman
President and Chief Executive Officer
Date: October 8, 2002
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.
Signature Title Date
--------- ----- ----
/s/ Phillip L. Friedman Chief Executive Officer and Director October 8, 2002
- -----------------------------
Phillip L. Friedman
/s/ Jeffrey Shapiro Chief Financial and Accounting October 8, 2002
- ----------------------------- Officer
Jeffrey Shapiro
/s/ John F. Turben Director October 8, 2002
- -----------------------------
John F. Turben
/s/ George R. Begley Director October 8, 2002
- -----------------------------
George R. Begley
/s/ John G. Nestor Director October 8, 2002
- -----------------------------
John G. Nestor
/s/ Michael Sherwin Director October 8, 2002
- -----------------------------
Michael Sherwin
/s/ Michael Lynch Director October 8, 2002
- -----------------------------
Michael Lynch
PVC CONTAINER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K
JUNE 30, 2002
CONSOLIDATED FINANCIAL STATEMENTS
PVC Container Corporation
June 30, 2002, 2001 and 2000
PVC Container Corporation
Consolidated Financial Statements
June 30, 2002, 2001 and 2000
CONTENTS
Report of Independent Auditors............................................ F-1
Consolidated Balance Sheets............................................... F-2
Consolidated Statements of Operations..................................... F-3
Consolidated Statements of Stockholders' Equity........................... F-4
Consolidated Statements of Cash Flows..................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Report of Independent Auditors
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the accompanying consolidated balance sheets of PVC Container
Corporation as of June 30, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 2002. Our audit also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of PVC
Container Corporation as of June 30, 2002 and 2001 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2002 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
MetroPark, New Jersey
September 24, 2002
F-1
PVC Container Corporation
Consolidated Balance Sheets
JUNE 30
2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 657,123 $ 501,708
Accounts receivable, net of allowance of $970,382 and
$2,012,376 at June 30, 2002 and 2001, respectively 12,211,388 12,339,146
Inventories, net 10,935,003 12,332,083
Prepaid expenses and other current assets 1,389,661 2,183,724
Deferred income taxes 1,728,068 1,910,070
------------ ------------
Total current assets 26,921,243 29,266,731
Properties, plant and equipment at cost, net 30,557,983 34,038,512
Goodwill, net of accumulated amortization of $1,098,183
and $805,215 at June 30, 2002 and 2001, respectively 3,296,298 3,589,266
Other assets 479,536 1,231,877
------------ ------------
$ 61,255,060 $ 68,126,386
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,736,570 $ 7,174,657
Accrued expenses 3,443,970 4,146,300
Income taxes payable 913,548
Current portion of long-term debt 2,992,644 3,524,235
------------ ------------
Total current liabilities 15,086,732 14,845,192
Long-term debt 25,922,049 32,215,570
Interest rate swap 457,127 290,937
Deferred income taxes 1,779,099 2,921,570
Stockholders' equity:
Preferred stock, par value $1.00, authorized 1,000,000
shares, none issued
Common stock, par value $.01, authorized 10,000,000 shares,
7,044,655 shares issued as of June 30, 2002 and 2001 70,446 70,446
Capital in excess of par value 3,810,981 3,810,981
Retained earnings 14,407,697 14,146,252
Accumulated other comprehensive loss (274,276) (174,562)
Treasury stock, at cost (2,262 shares at June 30, 2002) (4,795)
------------ ------------
Total stockholders' equity 18,010,053 17,853,117
------------ ------------
$ 61,255,060 $ 68,126,386
============ ============
See accompanying notes.
F-2
PVC Container Corporation
Consolidated Statements of Operations
FISCAL YEAR ENDED JUNE 30
2002 2001 2000
---- ---- ----
Net sales $ 82,611,615 $ 87,995,433 $ 92,619,720
Cost and expenses:
Cost of goods sold (exclusive of depreciation
and amortization expense shown separately below) 63,520,524 69,182,250 73,911,809
Selling, general and administrative expense 9,933,612 10,934,108 10,458,510
Depreciation and amortization expense 6,431,351 6,765,109 6,798,802
Asset impairment 400,000
------------ ------------ ------------
79,885,487 86,881,467 91,569,121
------------ ------------ ------------
Income from operations 2,726,128 1,113,966 1,050,599
Other expenses:
Interest expense (2,214,658) (2,994,589) (2,811,973)
Interest income 27,721 29,980 47,095
Other income (expense) 71,552 121,591 (98,870)
------------ ------------ ------------
(2,115,385) (2,843,018) (2,863,748)
------------ ------------ ------------
Income (loss) before provision (benefit) for
income taxes 610,743 (1,729,052) (1,813,149)
Provision (benefit) for income taxes 349,298 (587,878) (616,471)
------------ ------------ ------------
Net income (loss) $ 261,445 $ (1,141,174) $ (1,196,678)
============ ============ ============
Earnings (loss) per share:
Basic $ .04 $ (.16) $ (.17)
Diluted $ .04 $ (.16) $ (.17)
See accompanying notes.
F-3
PVC Container Corporation
Consolidated Statements of Stockholders' Equity
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER TOTAL
------------ EXCESS OF RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS LOSS STOCK EQUITY
------ ------ --------- -------- ---- ----- ------
Balance, June 30, 1999 7,038,705 $ 70,387 $ 3,786,497 $ 16,484,104 $ -- $ -- $ 20,340,988
Net loss (1,196,678) (1,196,678)
Exercise of stock options 5,950 59 24,484 24,543
---------- ------------ ----------- ------------ ------------ ---------- ------------
Balance, June 30, 2000 7,044,655 70,446 3,810,981 15,287,426 -- -- 19,168,853
Comprehensive loss:
Net loss (1,141,174) (1,141,174)
Unrealized loss on interest
rate swap, net of taxes of
$116,375 (174,562) (174,562)
---------- ------------ ----------- ------------ ------------ ---------- ------------
Total comprehensive loss -- -- -- (1,141,174) (174,562) -- (1,315,736)
---------- ------------ ----------- ------------ ------------ ---------- ------------
Balance, June 30, 2001 7,044,655 70,446 3,810,981 14,146,252 (174,562) -- 17,853,117
Comprehensive income:
Net income 261,445 261,445
Unrealized loss on interest
rate swap, net of taxes
of $66,476 (99,714) (99,714)
---------- ------------ ----------- ------------ ------------ ---------- ------------
Total comprehensive income 261,445 (99,714) 161,731
---------- ------------ ----------- ------------ ------------ ---------- ------------
Repurchase of common stock (2,262) -- -- -- -- (4,795) (4,795)
---------- ------------ ----------- ------------ ------------ ---------- ------------
Balance, June 30, 2002 7,042,393 $ 70,446 $ 3,810,981 $ 14,407,697 $ (274,276) $ (4,795) $ 18,010,053
========== ============ =========== ============ ============ ========== ============
See accompanying notes.
F-4
PVC Container Corporation
Consolidated Statements of Cash Flows
FISCAL YEAR ENDED JUNE 30
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 261,445 $ (1,141,174) $(1,196,678)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,431,351 6,765,109 6,798,802
Amortization of deferred financing costs 96,385
Deferred income taxes (893,993) (296,876) (70,322)
Gain on sale of equipment (34,250) (17,541)
Gain on sale of building (40,952) 173,818
Changes in assets and liabilities:
Accounts receivable 127,758 1,633,723 (1,064,017)
Inventories 1,397,080 (659,850) 1,485,827
Prepaid expenses and other current assets 794,063 (488,501) 135,576
Other assets 655,956 (681,398) 156,949
Accounts payable and accrued expenses (140,417) (910,330) (2,229,674)
Income taxes payable 913,548 (184,380) (1,244,111)
----------- ------------ -----------
Net cash provided by operating activities 9,602,224 4,002,073 2,928,629
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,729,520) (4,251,517) (2,382,677)
Proceeds from sale of equipment 79,700 23,000
Proceeds from sale of building 112,618 4,262,286
----------- ------------ -----------
Net cash (used in) provided by investing activities (2,616,902) (4,171,817) 1,902,609
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury shares purchased (4,795)
Issuance of common stock 24,543
Proceeds from long-term debt 576,893 27,577,806 3,924,841
Payments on indebtedness (7,402,005) (27,463,250) (8,476,169)
Deferred financing costs (531,644)
----------- ------------ -----------
Net cash used in financing activities (6,829,907) (417,088) (4,526,785)
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 155,415 (586,832) 304,453
Cash and cash equivalents, beginning of year 501,708 1,088,540 784,087
----------- ------------ -----------
Cash and cash equivalents, end of year $ 657,123 $ 501,708 $ 1,088,540
=========== ============ ===========
See accompanying notes.
F-5
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 2002, 2001 and 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
PVC Container Corporation (the "Company") was incorporated in Delaware on June
14, 1968. The Company's major business activity primarily consists of the
manufacture and sale of a line of plastic bottles made from polyvinyl chloride
compounds, high density polyethylene resins and polyethylene terephthalate
(PET). These bottles are used primarily for the packaging of cosmetics,
toiletries, foods, household chemicals, lawn and garden, and industrial chemical
products.
CONSOLIDATION
The accompanying financial statements include the accounts of PVC Container
Corporation and its wholly-owned subsidiaries, Novatec Plastics Corporation,
Novapak Corporation, Airopak Corporation, Marpac Industries Inc., Marpac
Southwest Inc. and PVC Container International Sales Corporation, a foreign
sales company incorporated in the U.S. Virgin Islands on March 1, 1993. All
intercompany accounts have been eliminated.
CASH EQUIVALENTS
The Company considers investments with maturities of three months or less when
acquired to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
under the first-in, first-out ("FIFO") method.
DEPRECIATION
Depreciation is provided for financial reporting purposes on a straight-line
method over the estimated useful lives of the related assets. Maintenance and
repairs are charged to operations as incurred. Major renewals and betterments
are capitalized.
F-6
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET ASSETS HELD FOR DISPOSITION
Certain facilities held for disposition included in prepaid expenses and other
current assets, reflect management's intention to sell such assets. During 2002,
the Company reduced the carrying value of such assets by $185,000 to $500,000 to
reflect the estimated fair value less disposal costs. The net assets held for
disposition at June 30, 2002 are included in the Plastic Containers segment and
are expected to be sold or leased in fiscal 2003.
INTANGIBLES
The excess of purchase price over net assets of the businesses acquired is
amortized on a straight-line basis over fifteen years. Amortization expense
totaled approximately $293,000, $230,000 and $287,000 for the years ended June
30, 2002, 2001 and 2000, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax basis of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
REVENUE RECOGNITION
Revenue is recognized upon shipment of the product.
SHIPPING COSTS
The Company's shipping and handling costs are included as an offset to sales for
all periods presented.
F-7
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred and
amounted to $263,000, $272,000 and $238,000 in 2002, 2001 and 2000,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations or
expected to be disposed when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
STOCK-BASED COMPENSATION
As permitted by Financial Accounting Standards Board ("FASB") Statement No. 123,
Accounting for Stock-Based Compensation (FASB 123), the Company has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) and related interpretations in accounting for its employee
stock option plans. Under APB 25, compensation expense is calculated at the time
of option grant based upon the difference between the exercise price of the
option and the fair market value of the Company's common stock at the date of
grant, recognized over the vesting period.
PER SHARE INFORMATION
Per share information is presented in accordance with SFAS No. 128, Earnings Per
Share. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share includes the
dilutive effect of all such securities.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of July 1, 2000, the Company adopted FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires the Company to
recognize all of its derivative instruments as either assets or liabilities in
the balance sheets at fair value. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging
F-8
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
relationship and further, on the type of hedging relationship. For those
derivative instruments that are designated and qualify as hedging instruments, a
company must designate the hedging instrument, based upon the exposure being
hedged, as either a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation.
For a derivative instrument that is designated and qualifies as a cash flow
hedge (i.e., hedging the exposure to variability on expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change.
At June 30, 2002, the Company had interest-rate swap agreements, designated as
cash flow hedges, that effectively convert a portion of its floating-rate debt
to a fixed-rate basis through 2005 on approximately $9,288,000 of notional
amount of indebtedness. The interest rate swap agreements hedge the floating
interest rate associated with the debt by reducing the impact of interest rate
charges on future interest expense. The fair value of the interest-rate swap at
June 30, 2002 totaled approximately $457,000 and is included in the accompanying
consolidated balance sheet. The reclassification of losses that are reported in
accumulated other comprehensive loss, that are expected to be reclassified into
earnings in the next twelve months, totals approximately $150,000 before taxes.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
reviewed for potential impairment annually or upon the occurrence of an
impairment indicator. Other intangible assets will continue to be amortized over
their useful lives.
Upon adoption in fiscal 2003 the Company anticipates that application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $176,000 ($.02 per share) per year. The Company
does not anticipate the earnings and financial position to be impacted by the
required impairment tests of goodwill.
F-9
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Company is required to adopt this
statement effective July 1, 2002. The Company does not expect that the adoption
of SFAS No. 143 will have a material impact on its financial position, results
of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 establishes a single accounting
model, based upon the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
for long-lived assets to be disposed of by sale and addresses significant
implementation issues. The Company is required to adopt this statement effective
July 1, 2002. The Company does not expect that the adoption of SFAS No. 144 will
have a material impact on its financial position, results of operations or cash
flows.
In April 2002, the FASB issued Statement No. 145, Rescission of FASB Statements
No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections
(FAS 145). For most companies, FAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under FAS
4. Extraordinary treatment will be required for certain extinguishments as
provided in APB Opinion No. 30. The statement also amended FAS 13 for certain
sales-leaseback and sublease accounting. The Company adopted the provisions of
FAS 145 effective May 15, 2002.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This statement
supersedes the guidance provided by the EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This statement
is to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. Since this statement only affects the timing of the
recognition of the liabilities to be incurred if an entity makes a decision to
exit or dispose of a particular activity, the Company does not expect that the
adoption of SFAS No. 146 will have a material impact on its financial position,
results of operations or cash flows.
F-10
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates that affect the financial statements include, but are not
limited to, recoverability of inventories, collectibility of accounts
receivable, returns, useful lives and amortization periods and recoverability of
long-lived assets.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. INVENTORIES
Inventories consist of the following:
2002 2001
---- ----
Raw materials $ 5,452,207 $ 4,628,108
Finished goods 5,341,191 7,117,517
Reserves (1,154,962) (709,535)
------------ ------------
9,638,436 11,036,090
Molds for resale, in production 834,621 909,168
Supplies 461,946 386,825
------------ ------------
Total inventories $ 10,935,003 $ 12,332,083
============ ============
3. PROPERTIES, PLANT AND EQUIPMENT
ESTIMATED
USEFUL LIFE
2002 2001 IN YEARS
---- ---- --------
Land $ 686,343 $ 686,343
Building and improvements 16,215,800 16,302,400 20-25
Machinery and equipment 51,326,146 49,167,697 7-10
Molds 4,980,605 4,480,826 3-5
Office furniture and equipment 3,649,772 3,548,944 5-10
Motor vehicles 141,335 141,335 3-5
Leasehold improvements 24,845 24,845 12
----------- -----------
77,024,846 74,352,390
Less accumulated depreciation 46,466,863 40,313,878
----------- -----------
$30,557,983 $34,038,512
=========== ===========
F-11
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
4. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
2002 2001
---- ----
Accrued payroll $ 534,403 $ 525,499
Accrued vacation 733,653 760,257
Accrued employee benefits 624,162 1,061,984
Other accrued expenses 1,551,752 1,798,560
---------- ----------
$3,443,970 $4,146,300
========== ==========
5. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
2002 2001
---- ----
Notes payable:
South Carolina Economic Development Authority:
Loan $ 3,596,384 $ 3,597,958
Pennsylvania Industrial Development Authority:
Loan 771,870 845,043
GE Capital Public Finance:
Equipment loans 1,946,665 3,107,441
Building loan 3,589,661 3,916,920
PNC Bank:
Term notes 10,535,636 12,030,505
Revolving line of credit 7,514,889 11,281,916
Other 959,588 960,022
------------ ------------
28,914,693 35,739,805
Less current portion (2,992,644) (3,524,235)
------------ ------------
$ 25,922,049 $ 32,215,570
============ ============
Maturities of long-term debt are as follows: 2003 - $2,992,644; 2004 -
$3,230,623; 2005 - $2,920,137; 2006 - $12,436,140; 2007 - $869,911 and 2008 to
2016 - $6,465,238. Interest paid amounted to $2,358,089, $3,027,737 and
$2,756,980 in 2002, 2001 and 2000, respectively.
F-12
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
PNC AGREEMENT
The Company entered into a $43,750,000 senior secured credit facility with PNC
Bank in August 2000. The credit facility is structured as a five year
$25,000,000 senior revolving credit facility, a five year $12,183,000 senior
term loan, a five year $4,192,000 standby letter of credit and a $2,000,000
capital expenditure line. The credit facility contains annual minimum equity and
fixed charge coverage covenants which the Company was in compliance with at June
30, 2002.
The Term Notes bear interest at LIBOR plus 300 basis points and the revolving
line bears interest at LIBOR plus 250 basis points. The effective interest rate
of the term loan and revolver was 5.29% and 4.77%, respectively, in fiscal 2002.
The Company entered into interest-rate swap agreements (Note 1) to effectively
convert a portion of the floating Term Note debt interest to a fixed rate.
The PNC Bank Agreement also includes a $2 million capital expenditure line of
credit which bears interest at LIBOR plus 300 basis points. Borrowings against
this line totaled approximately $1.4 million at June 30, 2002.
NOTE PAYABLE - SOUTH CAROLINA ECONOMIC DEVELOPMENT AUTHORITY "S.C. EDA"
This note was obtained to finance the construction of the Company's South
Carolina manufacturing facility and is due April 1, 2016. Prepayments may be
made without penalty. This note is subject to prior mortgages in favor of the
PNC Bank. The effective interest rate on this obligation was 1.9% in 2002 and
3.9% in 2001.
The agreement contains certain provisions which require the funds to be held in
trust (the "Trust") by a third-party financial institution until such time that
equipment purchases are made. The funds are invested at rates of return
comparable to the interest rate paid by the Company on the obligation. Equipment
purchases in connection with this agreement are paid directly from the Trust.
S.C. EDA has issued tax exempt bonds to fund the debt. Should the tax exempt
status of this bond issue be negated, the rate of interest of this note would be
retroactively adjusted.
The Company has unused letters of credit amounting to approximately $3.7 million
in conjunction with this note.
F-13
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
NOTE PAYABLE - PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY-"PIDA"
During fiscal year 1999, the Company obtained a $1.0 million loan from the
Pennsylvania Industrial Development Authority ("PIDA") to assist in financing
the construction of its Hazleton, Pennsylvania manufacturing facility. The loan
is payable in 145 equal monthly installments of $8,634 at an interest rate of
3.75% with a maturity date of March 1, 2011. The loan may be prepaid in whole or
in part subject to certain requirements stated in the loan agreement. The loan
is collateralized by the property.
GE CAPITAL PUBLIC FINANCE BUILDING AND EQUIPMENT LOANS
During fiscal year 1998, the Hazleton Area Industrial Development Authority
approved $7,250,000 tax-exempt Industrial Development Bonds. The Bonds were
purchased and are held by GE Capital Public Finance, Inc., who is financing a
loan to the Company in conjunction with the Company's Hazleton, Pennsylvania
manufacturing facility. The loan is payable in 144 decreasing monthly
installments at an interest rate of 5.15% with a final lump sum payment of
$1,860,530 on June 15, 2010. The loan may be prepaid in whole or in part subject
to certain requirements stated in the loan agreement. The loan is collateralized
by the property. The Company has unused letters of credit amounting to
approximately $119,000 in conjunction with this note.
During fiscal year 1998, the City of Paris, Illinois approved $2,500,000 Series
1997C Industrial Development Revenue bonds. The Bonds were purchased and are
held by GE Capital Public Finance, Inc., who is financing a loan to the Company
in conjunction with the Company's expansion of its Paris, Illinois manufacturing
facility. The loan is payable in 120 decreasing monthly installments at an
interest rate of 5.45% through March 16, 2008. The loan may be prepaid in whole
or in part subject to certain requirements stated in the loan agreement. The
loan is collateralized by the property and the equipment.
During fiscal year 1997, the City of Paris, Illinois approved $1,200,000 Series
1997A and $2,300,000 Series 1997B Industrial Development Revenue Bonds. The
Bonds were purchased and are held by GE Capital Public Finance, Inc., who is
financing a loan to the Company in conjunction with the Company's expansion of
its Paris, Illinois manufacturing facility. The loan is payable in 120
decreasing monthly installments at an interest rate of 5.90% with a final lump
sum payment of $602,952 on April 1, 2007. The loan may be prepaid in whole or in
part subject to certain requirements stated in the loan agreement. The loan is
collateralized by the property and the equipment. The Company has unused letters
of credit amounting to approximately $1.2 million in conjunction with this loan.
F-14
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
The agreements contain provisions which require the funds to be held in trust
(the "Trust") by a third-party financial institution until such time that
building, construction or equipment purchases are made. The funds are invested
at rates of return comparable to the interest rate paid by the Company on the
obligation. Purchases in connection with this agreement are paid directly from
the Trust.
The bonds issued by the City of Paris to fund the debt are tax-exempt bonds.
Should the tax-exempt status of these bonds be negated, the rate of interest of
this note would be retroactively adjusted.
OTHER
Other loans consist of notes payable to various banks for real estate
improvements and development and expansion of the Company's manufacturing
plants. The notes bear interest at rates ranging from 3% to 7.75% and are
payable in monthly installments through 2008. The loans are collateralized by
the Company's land and buildings.
The carrying amounts of the aforementioned debt agreements approximate fair
value.
6. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as
follows:
YEAR AMOUNT
---- ------
2003 $1,121,235
2004 1,197,746
2005 776,512
2006 945,097
2007 616,161
Thereafter 2,445,517
Rental expense for operating leases amounted to $1,134,309, $1,124,857 and
$1,179,929 in 2002, 2001 and 2000, respectively.
F-15
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. PENSION PLAN
On September 1, 1990, the Company instituted a non-contributory defined benefit
pension plan (the Plan) for all eligible full-time union employees. Benefits are
based on years of service. The Company contributes to the Plan amounts,
actuarially determined by the Unit Credit Actuarial Cost Method, which provides
the Plan with sufficient assets to meet future benefit payment requirements. The
assets of the Plan are invested principally in short-term investments. The
following table sets forth the Plan's funded status and the amount recognized in
the Company's consolidated balance sheet:
2002 2001
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 917,868 $ 895,967
Service cost 8,132 8,063
Interest cost 65,465 64,421
Actuarial gain (29,701) (23,445)
Benefits paid (28,488) (27,138)
----------- ---------
Benefit obligation at end of year $ 933,276 $ 917,868
=========== =========
Change in plan assets:
Fair value of plan assets at beginning of year $ 990,167 $ 870,366
Actual return on plan assets 38,947 59,877
Employer contribution 17,116 100,000
Benefits paid, including expenses (28,488) (40,076)
----------- ---------
Fair value of plan assets at end of year $ 1,017,742 $ 990,167
=========== =========
Funded status $ 84,466 $ 72,299
Unrecognized net actuarial loss 238,030 231,178
Unrecognized prior service cost 13,405 15,080
Unrecognized transition obligation 15,087 18,105
----------- ---------
Pension asset $ 350,988 $ 336,662
=========== =========
F-16
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
2002 2001
---- ----
Weighted-average assumptions at year-end:
Discount rate 7.5% 7.5%
Expected return on plan assets 8.5 8.5
Components of net periodic benefit cost:
Service cost $ 8,132 $ 8,063
Interest cost 65,465 64,421
Expected return on plan assets (83,382) (77,078)
Amortization of transition obligation 3,018 3,018
Amortization of prior service cost 1,675 1,675
Recognized net actuarial loss 7,882 8,753
-------- --------
Net periodic benefit cost $ 2,790 $ 8,852
======== ========
The Company maintains a voluntary salary reduction 40l(k) plan covering all
non-union and union employees with more than one year of service. Eligible
employees may elect to contribute up to 15% of their salaries on a pre-tax basis
and an additional 10% of their salaries on an after-tax basis up to ERISA's
maximum annual level. The Company contributes an amount equal to 25% on the
first 6% of the non-union employee's pre-tax contribution and 10% on the first
6% of the union employee's pre-tax contribution and, at its discretion, may make
additional contributions to the plan based on earnings. The Company contributed
$136,340, $148,255 and $158,926 in 2002, 2001 and 2000, respectively.
8. COMMON STOCK
The Company's Board of Directors approved and ratified on January 16, 1997, an
incentive stock option plan pursuant to which options to purchase an aggregate
of 600,000 shares of the common stock of the Company may be granted, through the
plan's expiration on January 16, 2007. Such plan conforms to the requirements of
Rule 16B-3 of the Securities Exchange Act of 1934. The options granted are
exercisable to the extent of 20-25% per year on a cumulative basis.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FASB 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model
F-17
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK (CONTINUED)
with the following weighted average assumptions for 2002, 2001 and 2000,
respectively: risk-free interest rates of approximately 4.1%, 5.5% and 5.5%;
expected volatility of 0.4, 0.3 and 0.3; expected option life equal to the
vesting period, and an expected dividend yield of 0.0%.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options. All options have been granted at fair
market value.
For purposes of pro forma disclosures, the estimated fair value of the equity
awards is amortized to expense over the options vesting period. The Company's
pro forma information is as follows:
2002 2001
---- ----
Pro forma net income (loss) $ 215,528 $ (1,191,757)
Pro forma net income (loss) per share of common stock $ .03 $ (.17)
F-18
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK (CONTINUED)
A summary of stock option activity follows:
WEIGHTED-
AVERAGE
EXERCISE
OPTIONS PRICE
------- -----
Outstanding at June 30, 1999 407,000 $ 4.92
Granted -- --
Forfeited (32,250) 5.73
Exercised (5,950) 4.13
------- ---------
Outstanding at June 30, 2000 368,800 4.87
Granted 30,000 4.25
Forfeited (30,000) 5.03
Exercised -- --
------- ---------
Outstanding at June 30, 2001 368,800 $ 4.46
Granted 191,000 2.82
Forfeited (15,000) 4.96
Exercised -- --
------- ---------
Outstanding at June 30, 2002 544,800 $ 4.10
======= =========
Exercisable at June 30, 2000 281,300 $ 4.68
======= =========
Exercisable at June 30, 2001 325,550 $ 4.74
======= =========
Exercisable at June 30, 2002 415,300 $ 4.50
======= =========
Exercise prices for options outstanding as of June 30, 2002 ranged from $2.25 to
$6.38 per share. The weighted-average remaining contractual life of these
options is 7.95 years.
F-19
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES
The provision (benefit) for income taxes consists of:
2002 2001 2000
---- ---- ----
Current:
Federal $ 897,168 $(109,189) $(604,149)
State 274,947 51,000 58,000
----------- --------- ---------
1,172,115 (58,189) (546,149)
Deferred:
Federal (637,683) (411,157) 82,423
State (185,134) (118,532) (152,745)
----------- --------- ---------
(822,817) (529,689) (70,322)
----------- --------- ---------
Total provision (benefit) $ 349,298 $(587,878) $(616,471)
=========== ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of June 30 are as follows:
2002 2001
---- ----
Deferred tax liabilities:
Long-lived assets and other $1,779,099 $2,921,570
---------- ----------
Total deferred tax liabilities 1,779,099 2,921,570
Deferred tax assets:
Bad debt reserves 488,502 704,800
Inventory reserves 321,985 533,600
Accrued liabilities and other 917,581 671,670
---------- ----------
Total deferred tax assets 1,728,068 1,910,070
---------- ----------
Net deferred tax liabilities $ 51,031 $1,011,500
========== ==========
A reconciliation of the income tax provision and the amount computed by applying
the statutory federal income tax rate to earnings before income taxes is as
follows:
2002 2001 2000
---- ---- ----
Federal tax at statutory rate 34% 34% 34%
Effect of:
State income taxes, net of federal income tax benefit 9 2 4
Goodwill amortization 16 (5) (5)
Foreign operations (7) 2 2
Other 5 1 (1)
---- ---- ----
Effective income tax rate 57% 34% 34%
==== ==== ====
F-20
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Income taxes paid amounted to $244,000, $163,000 and $153,000 in 2002, 2001 and
2000, respectively.
10. EARNINGS PER SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating basic and diluted earnings per share for the years
ended June 30, 2002, 2001 and 2000. Income available to common stockholders for
both basic and diluted earnings per share is the same as net income presented in
the statements of income for the years ended June 30, 2002, 2001 and 2000.
2002 2001 2000
---- ---- ----
Weighted-average shares for basic earnings
per share 7,044,379 7,044,655 7,042,254
Effect of dilutive securities:
Employee stock options -- -- --
--------- --------- ---------
Adjusted weighted-average shares for diluted
earnings per share 7,044,379 7,044,655 7,042,254
========= ========= =========
11. SEGMENTS
The Company identifies its segments based upon differences in the types of
products it sells. The Company currently has two reportable segments: Plastic
Containers and Compound. The Plastic Containers segment manufactures custom
designed PET, HDPE and PVC containers mainly for cosmetics, toiletries, foods,
household chemicals, lawn and garden and industrial chemical products. The
Compound segment manufactures PVC compound for use by the Company as well as
external customers. The external use of the PVC compound is for extruded
profiles and accessories, furniture, molding and other indoor fixtures, and
molded electrical and electronic housings. Both of the Company's segments sell
products to customers located primarily in the United States.
The reportable segments are each managed separately due to the different
manufacturing processes used and the different markets in which each segment
operates. The Company evaluates each segment's performance based on profit or
loss from operations before income taxes. The accounting policies for the
reportable segments are the same as those
F-21
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
11. SEGMENTS (CONTINUED)
for the Company (described in Note 1). Intersegment sales and transfers are
recorded at market prices. Information on segments and a reconciliation to
consolidated total are as follows:
2002 2001 2000
---- ---- ----
Net revenues:
Compound total $ 20,924,408 $ 23,002,044 $ 26,411,741
Intersegment revenue - Compound (5,971,921) (7,051,553) (7,492,056)
------------ ------------ ------------
Revenues from external customers -
Compound 14,952,487 15,950,491 18,919,685
Plastic Containers 67,659,128 72,044,942 73,700,035
------------ ------------ ------------
Total consolidated net revenues $ 82,611,615 $ 87,995,433 $ 92,619,720
============ ============ ============
Depreciation and amortization expense:
Compound $ 367,316 $ 365,659 $ 374,963
Plastic Containers 6,064,035 6,399,450 6,423,839
------------ ------------ ------------
Total consolidated depreciation and
amortization expense $ 6,431,351 $ 6,765,109 $ 6,798,802
============ ============ ============
Interest expense:
Compound $ 107,055 $ 145,720 $ 138,417
Plastic Containers 2,107,603 2,848,869 2,673,556
------------ ------------ ------------
Total consolidated interest expense $ 2,214,658 $ 2,994,589 $ 2,811,973
============ ============ ============
Net income (loss):
Compound $ 905,606 $ 565,607 $ 243,613
Plastic Containers (644,161) (1,706,781) (1,440,291)
------------ ------------ ------------
Total consolidated net income (loss) $ 261,445 $ (1,141,174) $ (1,196,678)
============ ============ ============
Total assets:
Compound $ 6,612,289 $ 8,041,676 $ 8,114,167
Plastic Containers 54,642,771 60,084,710 62,741,426
------------ ------------ ------------
Total consolidated assets $ 61,255,060 $ 68,126,386 $ 70,855,593
============ ============ ============
Capital expenditures:
Compound $ 190,708 $ 483,093 $ 337,954
Plastic Containers 2,538,812 3,768,424 2,044,723
------------ ------------ ------------
Total consolidated capital expenditures $ 2,729,520 $ 4,251,517 $ 2,382,677
============ ============ ============
F-22
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected financial data by quarter for the years
ended June 30, 2002 and 2001:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2002
Net sales $ 19,410,048 $ 17,789,833 $21,692,023 $ 23,719,711
Cost of goods sold (exclusive of depreciation
and amortization) 15,596,074 13,619,947 15,982,788 18,321,715
Selling, general and administrative expenses 2,388,805 2,479,907 2,739,888 2,325,012
Depreciation and amortization 1,554,425 1,562,216 1,579,280 1,735,430
Net (loss) earnings (483,630) (252,753) 588,261 409,567
(Loss) earnings per share of common stock:
Basic:
Net (loss) earnings $ (0.07) $ (0.04) $ 0.08 $ 0.07
Diluted:
Net (loss) earnings $ (0.07) $ (0.04) $ 0.08 $ 0.07
2001
Net sales $ 20,734,946 $ 20,640,586 $23,289,062 $ 23,330,839
Cost of goods sold (exclusive of depreciation
and amortization) 16,997,571 16,060,945 18,060,400 18,063,334
Selling, general and administrative expenses 2,452,916 2,560,438 2,678,604 3,242,150
Depreciation and amortization 1,647,371 1,724,835 1,648,396 1,744,507
Net (loss) earnings (716,328) (313,186) 101,109 (212,769)
(Loss) earnings per share of common stock:
Basic:
Net (loss) earnings $ (0.10) $ (0.04) $ 0.01 $ (0.03)
Diluted:
Net (loss) earnings $ (0.10) $ (0.04) $ 0.01 $ (0.03)
F-23
PVC Container Corporation
Schedule II - Valuation and Qualifying Accounts
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
------------------------- AMOUNT
CHARGED TO WRITTEN
BALANCE CHARGED TO OTHER OFF BALANCE
BEGINNING COSTS AND ACCOUNTS AGAINST END OF
DESCRIPTION OF YEAR EXPENSES (DESCRIBED) RESERVE YEAR
----------- ------- -------- ----------- ------- ----
Valuation accounts deducted
from assets to which they
apply:
June 30, 2002:
Accounts receivable $2,012,000 $ 874,000 $1,916,000 $ 970,000
Inventory 710,000 1,137,000 692,000 1,155,000
June 30, 2001:
Accounts receivable 1,010,000 1,135,000 133,000 2,012,000
Inventory 587,000 909,000 786,000 710,000
June 30, 2000:
Accounts receivable 956,000 860,000 806,000 1,010,000
Inventory 442,000 585,000 440,000 587,000