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Part I
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
( ) 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Industrial Way West, Eatontown, New Jersey 07724
-----------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (732) 542-0060
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 2003
- --------------------- -----------------------------
Common $.01 par value 7,042,393 shares
Part I
CONTENTS
PAGE
NO.
-----
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets-March 31, 2003 and June 30, 2002 3
Consolidated Statements of Operations-Three Months Ended March
31, 2003 and 2002 and Nine Months Ended March 31, 2003 and
2002 4
Consolidated Statements of Cash Flows-Nine Months Ended
March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION
Item 4. Controls and Procedures 15
Item 6. Exhibits and Reports on Form 8-K 15-16
Signatures 17
Certification 18-19
Additional Exhibits 20
Part I
PVC Container Corporation
Consolidated Balance Sheets
(Unaudited)
MARCH JUNE
31, 2003 30, 2002
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 127,895 $ 657,123
Accounts receivable, net 12,524,574 12,211,388
Inventories 13,381,861 10,935,003
Prepaid expenses and other current assets 2,927,907 1,389,661
Deferred income taxes 1,282,169 1,728,068
-----------------------------
Total current assets 30,244,406 26,921,243
Other assets 384,427 479,536
Goodwill, net of accumulated amortization 3,296,298 3,296,298
Properties, plant and equipment at cost, net 29,598,008 30,557,983
-----------------------------
$ 63,523,139 $ 61,255,060
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,293,948 $ 7,736,570
Accrued expenses 3,558,179 3,443,970
Income taxes payable 329,704 913,548
Current portion of long-term debt 3,367,024 2,992,644
-----------------------------
Total current liabilities 15,548,855 15,086,732
Long-term debt 27,208,898 25,922,049
Interest rate swap 573,068 457,127
Deferred income taxes 1,726,992 1,779,099
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 and outstanding as of
March 31, 2003 and June 30, 2002, respectively 70,446 70,446
Capital in excess of par value 3,810,981 3,810,981
Retained earnings 14,926,804 14,407,697
Accumulated other comprehensive loss (338,110) (274,276)
Treasury stock, at cost (2,262 shares at March 31,
2003 and June 30, 2002) (4,795) (4,795)
-----------------------------
Total stockholders' equity 18,465,326 18,010,053
-----------------------------
$ 63,523,139 $ 61,255,060
=============================
See accompanying notes.
3
Part I
PVC Container Corporation
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------- -------------------------------
2003 2002 2003 2002
------------------------------- -------------------------------
Net sales $ 23,480,297 $ 21,692,023 $ 64,893,806 $ 58,891,904
Cost and expenses:
Cost of goods sold (exclusive of
depreciation and amortization
expense shown separately below) 17,862,512 15,982,788 50,989,366 45,198,809
Selling, general and administrative
expenses 2,589,589 2,739,888 7,210,129 7,608,600
Depreciation and amortization 1,494,152 1,579,280 4,445,765 4,695,921
------------------------------- -------------------------------
21,946,253 20,301,956 62,645,260 57,503,330
------------------------------- -------------------------------
Income from operations 1,534,044 1,390,067 2,248,546 1,388,574
Other income (expense):
Interest expense (487,786) (511,952) (1,448,586) (1,701,996)
Interest income - 5,541 - 25,093
Other income 700 7,650 79,880 63,902
------------------------------- -------------------------------
(487,086) (498,761) (1,368,706) (1,613,001)
------------------------------- -------------------------------
Income (loss) before (provision)
benefit for income taxes 1,046,958 891,306 879,840 (224,427)
(Provision) benefit for income taxes (429,252) (303,045) (360,733) 76,305
------------------------------- -------------------------------
Net income (loss) $ 617,706 $ 588,261 $ 519,107 $ (148,122)
=============================== ===============================
Earnings per share (basic and diluted) $ .09 $ .08 $ .07 $ (.02)
=============================== ===============================
See accompanying notes.
4
Part I
PVC Container Corporation
Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
MARCH 31
2003 2002
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 519,107 $ (148,122)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,445,765 4,695,921
Deferred financing costs 81,835 57,676
Deferred income taxes 445,899 (145,858)
Gain on sale of building - (40,952)
Changes in assets and liabilities:
Accounts receivable-net of allowances (313,186) 1,541,188
Inventories (2,446,858) 1,602,902
Prepaid expenses and other current assets (1,538,246) (662,498)
Other assets 13,274 177,311
Accounts payable and accrued expenses 671,587 (1,179,557)
Income taxes payable (583,844) -
------------------------------
Net cash provided by operating activities 1,295,333 5,898,011
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,485,790) (1,348,273)
Proceeds from sale of building - 112,618
------------------------------
Net cash used in investing activities (3,485,790) (1,235,655)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from revolving credit line 1,298,178 (2,890,755)
Payments of long-term debt (2,385,585) (2,778,784)
Proceeds from long-term debt 2,748,636 578,467
------------------------------
Net cash provided by (used in) financing activities 1,661,229 (5,091,072)
------------------------------
Net decrease in cash and cash equivalents (529,228) (428,716)
Cash and cash equivalents at beginning of period 657,123 501,708
------------------------------
Cash and cash equivalents at end of period $ 127,895 $ 72,992
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 1,449,166 $ 1,791,423
==============================
Income taxes paid $ 944,078 $ 204,027
==============================
See accompanying notes.
5
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements
Note 1 Description of Business
General
PVC Container Corporation (the "Company") was incorporated in Delaware
in 1968. The Company's major business activity consists of the
manufacture and sale of a line of plastic bottles ("bottles") made from
polyvinyl chloride ("PVC") compounds, high-density Polyethylene
("HDPE") and polyethylene terephthalate ("PET') resins. The Company
sells these bottles through Novapak Corporation, which is a
wholly-owned subsidiary. Another wholly-owned subsidiary Airopak
Corporation, produces bottles that are fluorinated to improve the
chemical resistance and barrier properties. All of these bottles are
used primarily for the packaging of cosmetics, toiletries, foods,
household chemicals, lawn and garden and industrial chemical products.
The Company produces and sells PVC compounds through its wholly-owned
subsidiary, Novatec Plastics Corporation, Inc. These compounds are used
by the Company or sold to other plastic bottle manufacturers whose
products compete with those produced by the Company.
During the last several years, the Company has endeavored 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 including extruded profiles and accessories,
furniture, molding and other indoor fixtures, and a variety of
injection molded electrical and electronic housings.
Note 2 Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States for interim financial reporting, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the
opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of
March 31, 2003, and the results of operations and cash flows for the
nine month periods ended March 31, 2003 and 2002.
6
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
While the Company believes that the disclosures presented are adequate
to make the information not misleading, these consolidated financial
statements should be read in conjunction with the financial statements
and the notes included in the Company's annual report on Form 10-K for
the fiscal year ended June 30, 2002.
Diluted earnings per share are based on the average number of common
shares outstanding during each period, assuming exercise of all stock
options having exercise prices less than the average market price of
the common stock using the treasury stock method. The weighted average
number of shares of Common Stock used in computing basic and diluted
earnings (loss) per share were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
--------------------- ---------------------
2003 2002 2003 2002
--------------------- ---------------------
Weighed average common shares
outstanding used to calculate
basic earnings (loss) per share 7,042,393 7,044,655 7,042,393 7,044,655
Net effect of dilutive securities
based upon the treasury stock
method using an average market
price 719 - 313 -
--------------------- ---------------------
Weighed average common and dilutive
securities outstanding used to
calculate diluted earnings (loss)
per share 7,043,112 7,044,655 7,042,706 7,044,655
===================== =====================
The accompanying consolidated financial statements include the accounts
of PVC Container Corporation and its wholly-owned subsidiaries Novapac
Corporation, Novatec Plastics Corporation, Marpac Industries, Inc.,
Airopak Corporation, and PVC Container International Sales Corporation,
a foreign sales company incorporated in the U.S. Virgin Islands in
1993. All intercompany accounts have been eliminated.
Note 3 Impact of Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 adopted this statement effective July 1,
2002. The adoption of SFAS No. 143 did not have a material impact on
the Company's financial position, results of operations, or cash flows.
7
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
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 adopted this statement effective July 1, 2002. The adoption
of SFAS No. 144 did not have a material impact on the Company's
financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13 and
Technical Corrections. For most companies, SFAS 145 requires 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 SFAS 4. Extraordinary treatment is required
for certain extinguishments as provided in APB Opinion No. 30. The
statement also amended SFAS 13 for certain sales-leaseback and sublease
accounting. The Company adopted the provisions of SFAS 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 decides 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.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure." SFAS 148 amends
Statement No. 123, Stock-Based Compensation (SFAS 123) to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, this Statement amends the disclosure requirements of SFAS
123 to require prominent disclosures in both
8
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. The disclosure provisions of SFAS 148 are
effective for periods ending after December 15, 2002 and have been
incorporated as below.
As permitted by SFAS 123, the Company has elected to follow the
intrinsic value method under Accounting Principle 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, no compensation expense is recognized at the time of
option grant when the exercise price of the Company's employee stock
options equals the fair market value of the underlying common stock on
the date of grant.
The following table illustrates the effect on net income (loss) and net
income (loss) per common share as if the Company had applied the fair
value method to measure stock-based compensation, required under the
disclosure provisions of SFAS 123:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------- ---------------------
2003 2002 2003 2002
------------------- ---------------------
Net income (loss), as reported $617,706 $588,261 $519,107 $(148,122)
Stock-based compensation expense
under fair value reporting, net
of tax (796) (4,448) (3,475) (31,658)
---------------------------------------------
Pro forma net income (loss) 616,910 583,813 515,632 (179,780)
Income (loss) per share:
Net income (loss), as reported:
Basic $ .09 $ .08 $ .07 $ (.02)
Diluted $ .09 $ .08 $ .07 $ (.02)
Pro forma net income (loss):
Basic $ .09 $ .08 $ .07 $ (.02)
Diluted $ .09 $ .08 $ .07 $ (.02)
Note 4 In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives and requires that
these assets be reviewed for impairment within one year of adoption and
at least annually thereafter. The Company, as required, adopted SFAS
No. 142 beginning July 1, 2002. If the Company had adopted SFAS No. 142
in the beginning of fiscal 2002, net loss for the nine month period
ended March 31, 2002 would have decreased by approximately $129,638
($.02 per share-basic and diluted). Such amortization expense totaled
$290,000 in fiscal 2002. The Company is testing goodwill for
9
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
impairment using the two-step process prescribed in SFAS No. 142. The
first step is a screen for potential impairment, while the second step
measures the amount of impairment. The Company completed the first step
of the initial required impairment tests in the first half of fiscal
2003 of goodwill and determined that no impairment of goodwill exists
as of the transition testing date.
Note 5 Inventories consist of:
MARCH JUNE
31, 2003 30, 2002
----------------------------
Raw materials $ 5,768,525 $ 5,452,207
Finished goods 6,870,459 5,341,191
Reserves (1,035,865) (1,154,962)
----------------------------
Total FIFO inventories 11,603,119 9,638,436
Molds for resale, in production 1,294,221 834,621
Supplies 484,521 461,946
----------------------------
$ 13,381,861 $ 10,935,003
============================
Note 6 PNC Bank Agreement
The Company entered into a $43,750,000 senior secured credit facility
("PNC Bank Agreement") 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 with which the Company was in
compliance at March 31, 2003.
The term loan bears interest at LIBOR plus 300 basis points and the
revolving line bears interest at LIBOR plus 250 basis points. The
Company entered into interest-rate swap agreements to effectively
convert a portion of the floating term loan debt interest to a fixed
rate. The $2 million capital expenditure line of credit bears interest
at LIBOR plus 300 basis points. Borrowings under the PNC Bank Agreement
totaled approximately $17.8 million at March 31, 2003.
10
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Note 7 The Company currently has two reportable segments identified by product
type: 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 and sale to external customers.
The reportable segments are each managed separately due to their
different manufacturing processes and the different strategic markets
in which each 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 for the Company. Intersegment sales and transfers are recorded
at market prices.
Information on segments and a reconciliation to consolidated totals are
as follows:
NINE MONTHS ENDED
MARCH 31
----------------------------
2003 2002
----------------------------
Net revenues:
Company total $15,742,183 $14,785,842
Intersegment revenue - Compound (5,045,019) (4,069,842)
----------------------------
Revenues from external customers - Compound
10,697,164 10,716,000
Plastic containers 54,196,642 48,175,904
----------------------------
Total consolidated net revenues $64,893,806 $58,891,904
============================
Net income (loss):
Compound $ 470,868 $ 795,359
Plastic containers 48,239 (943,481)
----------------------------
Total consolidated net income (loss) $ 519,107 $ (148,122)
============================
Total assets:
Compound $ 5,793,960 $ 6,771,125
Plastic containers 57,729,179 55,038,552
----------------------------
Total consolidated assets $63,523,139 $61,809,677
============================
11
Part I
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
Note 8 Comprehensive Income (Loss)
The following table sets forth comprehensive income (loss) for the
three and nine month periods ended March 31, 2003 and 2002:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------- ---------------------
2003 2002 2003 2002
------------------- ---------------------
Net income (loss) $617,706 $588,261 $519,107 $(148,122)
Unrealized gain (loss) on interest
rate swap, net of taxes 23,892 61,877 (63,834) (6,873)
------------------- ---------------------
Comprehensive income (loss) $641,598 $650,138 $455,273 $(154,995)
=================== =====================
12
Part I
PVC CONTAINER CORPORATION
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales for the three month period ended March 31, 2003, increased by 8.2% to
$23,480,000, compared to $21,692,000 for the three month period ended March 31,
2002. For the nine month period ended March 31, 2003, sales increased by 10.2%
to $64,894,000 compared to $58,892,000 for the nine month period ended March 31,
2002. The increase in revenue reflects the strong growth in PET bottles, a line
of business that the Company continues to expand its market share. General line
HDPE and PVC extrusion blown bottles sales were slightly higher than last year.
Additionally, the Company's technical and specialty bottle group experienced
moderate growth during the nine month period ended March 31, 2003 as compared to
the same period a year ago. Our Novatec plastic compound segment achieved the
same sales volume for the nine month period ended March 31, 2003 as it achieved
during the same period last year.
Cost of goods sold for the three months ended March 31, 2003, was $17,863,000,
or 76.1% of net sales, as compared to $15,983,000, or 73.7% of net sales, for
the three months ended March 31, 2002. For the nine months ended March 31, 2003,
cost of goods sold was $50,989,000, or 78.6% of net sales, compared to
$45,199,000, or 76.7% of net sales for the nine months ended March 31, 2002.
This increase is mainly attributable to start-up expenses associated with the
addition of new capacity in our PET bottle line along with increased material
costs.
Selling, general and administrative expenses ("SG&A") decreased by $150,000 for
the three month period ended March 31, 2003, and by $399,000 for the nine month
period ended March 31, 2003, compared to the same periods a year ago. For the
quarter ended March 31, 2003, SG&A expenses were $2,590,000, or 11.0% of net
sales, compared to $2,740,000, or 12.6% of net sales, for the quarter ended
March 31, 2002. For the nine months ended March 31, 2003, SG&A expenses were
$7,210,000, or 11.1% of net sales, compared to $7,609,000, or 12.9% of net sales
for the nine month period ended March 31, 2002. This decrease is mainly
attributable to a reorganization of our marketing and administration functions,
which reduced personnel costs in both areas along with a reduction to our
provision for bad debts.
Depreciation and amortization expenses decreased to $1,494,000 for the three
months ended March 31, 2003, compared to $1,579,000 for the three months ended
March 31, 2002. For the nine month period ended March 31, 2003, depreciation and
amortization expenses were $4,446,000, compared to $4,696,000 for the nine month
period ended March 31, 2002, a decrease of $250,000. This decrease was primarily
due to certain manufacturing assets that became fully depreciated in the current
fiscal year.
Income from operations increased $144,000 during the three month period ended
March 31, 2003, compared to the same period a year ago. For the three month
period ended March 31, 2003, income from operations was $1,534,000, or 6.5% of
net sales, compared to $1,390,000, or 6.4% of net sales for the three months
ended March 31, 2002. Income from operations for the nine month period ended
March 31, 2003, increased to $2,249,000, or 3.5% of net sales compared to
$1,389,000 or 2.4% of net sales for the nine month period ended March 31, 2002.
This increase in operating income is principally the result of reduced
depreciation and SG&A expenses along with continued emphasis on containing cost
and reducing manufacturing overhead.
13
Net interest expense decreased $18,000 for the quarter ended March 31, 2003,
compared to the same quarter in the prior year. For the three months ended March
31, 2003, net interest expense was $488,000, compared to $506,000 for the three
month period ended March 31, 2002. For the nine months ended March 31, 2003, net
interest expense was $1,449,000 compared to $1,677,000 for the nine month period
ended March 31, 2002, a decrease of $228,000. This decrease is attributable to
lower interest rates and reduced borrowings for working capital requirements.
Net income for the quarter ended March 31, 2003 increased to $618,000, or $.09
on a basic and diluted earnings per share basis compared to $588,000 or $.08 on
a diluted earnings per share basis for the same period a year ago. For the nine
months ended March 31, 2003, net income was $519,000 or $.07 on a basic and
diluted earnings per share basis compared to a net loss of $148,000 or $.02 on a
basic diluted earnings per share basis for the nine month period ended March 31,
2002.
LIQUIDITY AND CAPITAL RESOURCES
Because management generally does not monitor liquidity and capital resources on
a segment basis, this discussion is presented on a consolidated basis.
The Company's liquidity position and working capital remain adequate for the
nine month period ended March 31, 2003. Working capital at March 31, 2003,
increased by $2,861,000 to $14,695,000, compared to $11,834,000 as of June 30,
2002. The current ratio of assets to liabilities increased from 1.78 at June 30,
2002 to 1.95 at March 31, 2003, and is primarily attributed to increased
inventory and prepaid equipment security deposits.
For the nine month period ended March 31, 2003, the Company generated $1,295,000
net cash from operating activities and $4,047,000 from proceeds from our
revolving credit line and additional long term debt. These funds were primarily
used to acquire capital assets of $3,486,000, and to reduce long term debt by
$2,386,000.
Cash used for inventories during the nine month period ended March 31, 2003, was
$2,447,000, an increase of $4,050,000 from the corresponding period of the prior
year. The Company increased production, and thus spent more to generate
inventories, in the first nine months of fiscal 2003 because management
anticipates increased sales in the fourth quarter and prefers to avoid shipping
delays.
Cash used for prepaid expenses (primarily equipment security deposits) during
the nine month period ended March 31, 2003 was $1,538,000, an increase of
$876,000 from the corresponding period of the prior year. The Company has placed
orders for additional capital equipment for PET production which will be placed
in service during the first quarter of fiscal 2004.
Cash provided from accounts payable and accrued expenses during the nine month
period ended March 31, 2003, was $672,000, an increase of $1,851,000 from the
corresponding period of the prior year. This increase is primarily related to
the increased inventory discussed above.
Cash used for income taxes during the nine month period ended March 31, 2003,
was $584,000, representing the Company's provision for estimated tax payments
for fiscal 2003.
Net assets held for sale 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 the Ardmore, Oklahoma
facility and receive proceeds that will approximate the carrying value during
fiscal 2003.
14
The Company's short term liquidity and short term capital resources are adequate
for timely payment to trade and other creditors. The Company's sources of credit
are sufficient to meet its working capital and capital needs in the foreseeable
future. At March 31, 2003, the Company had unused sources of liquidity
consisting of cash and cash equivalents of $128,000 and unused credit under a
revolving credit facility of $7,166,000.
The Company utilizes its revolving loan facilities for seasonal working capital
needs and for other general corporate purposes. Amounts available under the
Company's revolving loan facilities in excess of its seasonal working capital
needs are available to the Company to pursue its growth strategy and for other
permitted purposes.
Item 3: 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.
Our interest rate risk management objective is to limit the impact of interest
rate changes on our net income and cash flow and to reduce our overall borrowing
cost. We use variable rate swap agreements to manage our exposure to interest
rate fluctuations. These agreements effectively convert variable interest rates
to fixed rates, enabling the Company to predict interest expense and avoid the
risk of dramatic rate fluctuations. We have entered into these agreements with
banks under our senior secured credit facility.
PART II - OTHER INFORMATION
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has evaluated the effectiveness of its disclosure controls and
procedures, as defined in Rule 13a-14 under the Securities Exchange Act of 1934,
as of a date (the "evaluation date") within ninety (90) days prior to the filing
date of this report. Based upon that evaluation, the Company, as of the
evaluation date, believes disclosure controls and procedures were effective in
ensuring that all material information relating to the Company, including its
consolidated subsidiaries, required to be filed in this quarterly report has
been made known in a timely manner.
Changes in Internal Controls
There have been no significant changes made in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the evaluation date.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Phillip L. Friedman, President, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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99.2 Certification of Jeffrey A. Shapiro, Senior Vice President, Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Report on Form 8-K was filed by the Registrant during the three months ended
September 30, 2002: Certification of the Chief Executive Officer and the
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 96 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registgrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2003 PVC Container Corporation
/s/ Phillip L. Friedman
Phillip L. Friedman
President and Chief Executive Officer
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CERTIFICATIONS
Certification of Principal Executive Officer
I, Phillip L. Friedman, President, Chief Executive Officer of PVC Container
Corporation, certify that:
1) I have reviewed this quarterly report on Form 10-Q of PVC Container
Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Phillip L. Friedman
Name: Phillip L. Friedman
Title: President and Chief Executive Officer
Date: May 15, 2003
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CERTIFICATIONS
Certification of Financial Officer
I, Jeffrey A. Shapiro, Senior Vice President and Chief Financial Officer of
PVC Container Corporation, certify that:
6) I have reviewed this quarterly report on Form 10-Q of PVC Container
Corporation;
7) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
8) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
9) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
10) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function);
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and d) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
11) The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Jeffrey A. Shapiro
Name: Jeffrey A. Shapiro
Title: Senior Vice President and Chief Financial Officer
Date: May 15 , 2003
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