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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 December 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 0-08791
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 by check mark the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act.)
Yes No X
----- -----
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 December 31, 2003
- -------------------- --------------------------------
Common $.01 par value 7,042,393 shares
Part I
CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets - December 31, 2003 and June 30, 2003 3
Consolidated Statements of Operations - Three and Six Months Ended December 31,
2003 and 2002 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months Ended
December 31, 2003 and 2002 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13-15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16-17
Signatures 18
Exhibits 19-21
Part I
PVC Container Corporation
Consolidated Balance Sheets
(Unaudited)
DECEMBER JUNE
31, 2003 30, 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 252,037 $ 673,055
Accounts receivable, net 9,645,334 12,398,916
Inventories, net 15,554,487 12,525,741
Prepaid expenses and other current assets 2,074,713 1,255,440
Deferred income taxes 1,658,154 1,658,154
------------ ------------
Total current assets 29,184,725 28,511,306
Properties, plant and equipment at cost, net 30,204,299 30,297,375
Goodwill, net of accumulated amortization 3,296,298 3,296,298
Other assets 260,447 339,212
------------ ------------
$ 62,945,769 $ 62,444,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,695,857 $ 8,132,728
Accrued expenses 2,046,856 2,675,908
Current portion of long-term debt 3,978,866 3,351,266
------------ ------------
Total current liabilities 14,721,579 14,159,902
Long-term debt 26,868,816 26,480,888
Interest rate swap 361,767 543,436
Deferred income taxes 2,498,196 2,423,711
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 December 31, 2003 and June 30, 2003 70,446 70,446
Capital in excess of par value 3,810,981 3,810,981
Retained earnings 14,832,222 15,280,249
Accumulated other comprehensive loss (213,443) (320,627)
Treasury stock, at cost (2,262 shares at December 31,
2003 and June 30, 2003) (4,795) (4,795)
------------ ------------
Total stockholders' equity 18,495,411 18,836,254
------------ ------------
$ 62,945,769 $ 62,444,191
============ ============
See accompanying notes.
3
Part I
PVC Container Corporation
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 20,661,549 $ 20,984,155 $ 41,890,897 $ 42,321,151
Cost and expenses:
Cost of goods sold (exclusive of
depreciation and amortization expense
shown separately below) 16,717,401 16,490,927 33,681,131 34,034,496
Selling, general and administrative expenses
2,325,758 2,342,921 4,762,615 4,620,540
Depreciation and amortization 1,583,150 1,490,371 3,097,486 2,951,613
Provision for restructuring 160,214 276,485
------------ ------------ ------------ ------------
20,786,523 20,324,219 41,817,717 41,606,649
------------ ------------ ------------ ------------
(Loss) Income from operations (124,974) 659,936 73,180 714,502
Other income (expense):
Interest expense (488,815) (478,004) (977,047) (960,799)
Other income (expense) 144,500 (7,650) 144,500 79,180
------------ ------------ ------------ ------------
(344,315) (485,654) (832,547) (881,619)
------------ ------------ ------------ ------------
(Loss) income before
benefit (provision) for income taxes (469,289) 174,282 (759,367) (167,117)
Benefit (Provision) benefit for income taxes 192,408 (71,456) 311,340 68,518
------------ ------------ ------------ ------------
Net (loss) income $ (276,881) $ 102,826 $ (448,027) $ (98,599)
============ ============ ============ ============
(Loss) earnings per share (basic and diluted) $ (.04) $ .01 $ (.06) $ (.01)
============ ============ ============ ============
See accompanying notes.
4
PVC Container Corporation
Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31
-----------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (448,027) $ (98,599)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 3,097,486 2,951,613
Amortization of deferred financing costs 89,917 68,046
Deferred income taxes -- 445,899
Gain on sale of equipment (144,500)
Changes in assets and liabilities:
Accounts receivable - net of allowances 2,753,582 2,709,086
Inventories (3,028,746) (1,153,752)
Prepaid expenses and other current assets (819,273) (434,933)
Other assets 8,848 7,374
Accounts payable and accrued expenses (65,923) 358,595
Income taxes payable -- (913,548)
----------- -----------
Net cash provided by operating activities 1,443,364 3,939,781
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,004,410) (2,890,587)
Proceeds from sale of equipment 144,500
----------- -----------
Net cash used in investing activities (2,859,910) (2,890,587)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from revolving credit line 276,517 (1,532,152)
Payments of indebtedness (1,792,807) (1,575,651)
Proceeds from long-term debt 2,531,818 1,736,000
Deferred financing costs (20,000) (27,000)
----------- -----------
Net cash provided by (used in) financing activities 995,528 (1,398,803)
----------- -----------
Net decrease in cash and cash equivalents (421,018) (349,609)
Cash and cash equivalents at beginning of period 673,055 657,123
----------- -----------
Cash and cash equivalents at end of period $ 252,037 $ 307,514
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 975,033 $ 954,514
=========== ===========
Income taxes paid $ 264,525 $ 942,945
=========== ===========
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. 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
December 31, 2003, and the results of operations and cash flows for the
three and six month periods ended December 31, 2003 and 2002.
6
Note 3 Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
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, 2003.
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:
SIX MONTHS ENDED
DECEMBER 31
------------------------
2003 2002
--------- ---------
Weighed average common shares
outstanding used to calculate
basic earnings (loss) per share 7,042,393 7,042,393
Net effect of dilutive securities
based upon the treasury stock
method using an average market
price -- --
--------- ---------
Weighed average common and dilutive
securities outstanding used to
calculate diluted earnings (loss)
per share 7,042,393 7,042,393
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 inter-company accounts have been eliminated.
Note 4 Stock-Based Compensation
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
7
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 loss and net 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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net loss, as reported $ (276,881) $ 102,826 $ (448,027) $ (98,599)
Add: Stock-based compensation
included in reported net loss, net
of tax
Deduct: Stock-based
compensation expense under
fair value reporting, net of tax $ (6,507) $ (7,129) $ (13,014) (2,679)
Pro forma net loss
$ (283,388) $ 100,697 $ (501,041) $ (101,278)
=========== =========== =========== ===========
Loss per share:
Net loss, as reported:
Basic $ (.04) $ .01 $ (.06) $ (.01)
Diluted $ (.04) $ .01 $ (.06) $ (.01)
Pro forma net loss:
Basic $ (.04) $ .01 $ (.07) $ (.01)
Diluted $ (.04) $ .01 $ (.07) $ (.01)
Note 5 Impact of Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46). FIN 46 is the interpretation
of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", which addresses consolidation by business enterprises of
variable interest entities. FIN 46 is effective immediately for all
variable interest entities created after January 31, 2003 and becomes
effective for the Company in the quarter ended March 31, 2004 for
variable interest entities in which it holds a variable interest that
it acquired before February 1, 2003. The adoption of FIN 46 is expected
to have an impact on the Company's financial position, results of
operations and cash flows.
8
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity" (SFAS 150). SFAS 150 establishes standards for classification
and measurement of certain financial instruments with characteristics
of both liabilities and equity. SFAS 150 was effective for all
financial instruments created or modified after May 31, 2003, and
otherwise effective at the beginning of the first interim period
beginning after June 15, 2003; SFAS 150 has been deferred indefinitely
with respect to mandatorily redeemable non-controlling interests. The
adoption of SFAS 150 is not expected to have any effect on the
Company's financial position or results of operations.
In December of 2003, the FASB revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
Statement retains the disclosure requirements of the original
Statement, which it replaces, and requires additional disclosures about
the assets, obligations, cash flows and net periodic benefit cost of
denied benefit pension plans and other defined benefit postretirement
plans. The interim period disclosures required by the Statement are
effective for the Company for the quarter ended March 31, 2004. The
annual financial statement disclosures are effective for the Company
for the fiscal year ended June 30, 2004.
9
Note 6 Inventories consist of:
DECEMBER JUNE
31, 2003 30, 2003
------------ ------------
Raw materials $ 5,999,420 $ 6,023,810
Finished goods 8,633,266 6,264,247
Reserves (925,627) (1,036,762)
------------ ------------
Total FIFO inventories 13,706,059 11,251,295
Molds for resale, in production 1,340,507 840,605
Supplies 507,921 433,841
------------ ------------
$ 15,554,487 $ 12,525,741
============ ============
Note 7 PNC Bank Agreement
The Company entered into a senior secured credit facility up to
$43,750,000 ("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 December 31, 2003.
The term loan bears interest at LIBOR plus 275 basis points and the
revolving line bears interest at LIBOR plus 225 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 275 basis points. Borrowings under the PNC Bank Agreement
totaled approximately $16.7 million at December 31, 2003.
10
Note 8 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:
SIX MONTHS ENDED
DECEMBER 31
-------------------------------
2003 2002
------------ ------------
Net revenues:
Company total $ 9,639,741 $ 10,825,374
Intersegment revenue - Compound (2,945,874) (3,577,754)
------------ ------------
Revenues from external customers - Compound
6,693,867 7,247,620
Plastic containers 35,197,030 35,073,531
------------ ------------
Total consolidated net revenues $ 41,890,897 $ 42,321,151
============ ============
Net income (loss):
Compound $ 198,221 $ 364,666
Plastic containers (646,248) (463,265)
------------ ------------
Total consolidated net loss $ (448,027) $ (98,599)
============ ============
Total assets:
Compound $ 5,376,499 $ 5,525,826
Plastic containers 57,569,270 53,703,878
------------ ------------
Total consolidated assets $ 62,945,769 $ 59,229,704
============ ============
11
Note 9 Comprehensive Loss
The following table sets forth comprehensive (loss) income for the
three and six month periods ended December 31, 2003 and 2002:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------ -------------------------
2003 2002 2003 2002
--------- -------- --------- ---------
Net (loss) income $(276,881) $102,826 $(448,027) $ (98,599)
Unrealized gain (loss) on interest
rate swap, net of taxes 53,773 17,725 107,184 (87,726)
--------- -------- --------- ---------
Comprehensive (loss) income $(223,108) $120,551 $(340,843) $(186,325)
========= ======== ========= =========
Note 10 Provision for Restructuring
During the quarter ended September 30, 2003, the Company decided to
transfer a majority of the personnel and most of the equipment at its
Marpac Industries subsidiary located in Kingston, NY to its Philmont,
NY plant. The Kingston facility will be converted to a warehouse. The
workforce reduction includes 48 employees of which 19 are direct labor,
27 indirect labor and 2 administrative.
The total restructuring cost is estimated to be $276,000, of which
$116,000 was incurred and recognized during the quarter ended September
30, 2003, which includes $43,000 for severance and other personnel
related costs for 38 employees and $73,000 for equipment relocation and
other transfer costs. During the quarter ended December 31, 2003, the
Company completed the restructuring and recorded $160,000, which
includes $130,000 for severance and other personnel costs and $30,000
for equipment relocation and other transfer costs. These costs are
reflected in our plastic container segment of our business. In
addition, the plastic container segment experienced manufacturing
inefficiencies related to the move. These additional costs are
reflected in cost of goods sold.
12
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 December 31, 2003, was down slightly
to $20,662,000, compared to $20,984,000 for the three-month period ended
December 31, 2002. For the six-month period ended December 31, 2003, sales were
also relatively level, at $41,891,000, compared to $42,321,000 for the six
months ended December 31, 2002. Although total sales volume remained level, our
plastic container segment showed continued growth in certain lines of business.
Sales of PET bottles rose by 26.8%, offset by a 10.8% decrease in general line
HDPE and PVC extrusion blown bottle sales during the six months ended December
31, 2003 compared to the same period in the prior year.
The Company continues to expand its market share in the PET bottle line of
business. However, the Company's technical and specialty bottle group
experienced a 4.6% decline during the six-month period ended December 31, 2003,
compared to the same period a year ago. Our plastic compound segment experienced
a decrease of 7.6% in sales volume from the same period last year due to an
overall weaker demand for rigid PVC compounds.
Cost of goods sold for the three months ended December 31, 2003, was
$16,717,000, or 80.9% of net sales, compared to $16,491,000, or 78.6% of net
sales, for the three months ended December 31, 2002. For the six months ended
December 31, 2003, cost of goods sold was $33,681,000, or 80.4% of net sales,
compared to $34,034,000 equal to the same percentage of net sales for the six
month period ended December 31, 2002. The recent increase in cost of goods sold
was caused primarily by increased raw material costs and unabsorbed factory
overhead and direct labor. With other cost increases anticipated, we are
dedicated to increased emphasis on cost containment, reductions in manufacturing
overhead, and better manufacturing yield.
Selling, general and administrative ("SG&A") expenses decreased by $17,200 for
the three-month period ended December 31, 2003. During that quarter, SG&A
expenses were $2,326,000, or 11.3% of net sales, compared to $2,343,000, or
11.2% of sales, for the quarter ended December 31, 2002. For the six months
ended December 31, 2003, SG&A expenses were $4,763,000, or 11.4% of net sales,
compared to $4,621,000, or 10.9% of net sales for the same six months in 2002.
This increase is mainly attributable to increased computer services and
personnel costs and related benefits in both our marketing and administrative
functions.
Depreciation and amortization expense increased to $1,583,000 for the three
months ended December 31, 2003, compared to $1,490,000 for the three months
ended December 31, 2002. For the six-month period ended December 31, 2003,
depreciation and amortization expenses were $3,097,000, compared to $2,952,000
for the six months ended December 31, 2002. The primary cause for this increase
is the additional depreciation associated with the new capacity in our PET
bottle line.
13
The Company recorded a $160,000 pre-tax charge for restructuring during the
quarter ended December 31, 2003. The restructuring involved the transfer of most
of the personnel and equipment from the Kingston, New York facility to the
Philmont, New York plant and the conversion of the Kingston facility to a
warehouse. Management believes this restructuring has been completed at December
31, 2003.
For the three-month period ended December 31, 2003, loss from operations was
$125,000, or 0.6% of net sales, compared to income from operations of $660,000
or 31.4% of net sales for the same period a year ago. Income from operations for
the six months ended December 31, 2003 decreased to $73,000, compared to income
from operations of $715,000 for the six-month period ended December 31, 2002.
This decrease in operating income is the result of increased depreciation, SG&A
expenses, restructuring charges, and increases in raw material costs.
Net interest expense increased $11,000 for the quarter ended December 31, 2003,
to $489,000, compared to $478,000 for the three-month period ended December 31,
2002. For the six months ended December 31, 2003, interest expense was $977,000,
compared to $961,000 for the six-month period ended December 31, 2002. This
increase is attributed to increased borrowing for working capital requirements.
Net loss for the quarter ended December 31, 2003, was $277,000, or $.04 on a
diluted earnings per share basis, compared to a net profit of $103,000, or $.01
on a diluted earnings per share basis, for the same period a year ago. For the
six months ended December 31, 2003, the net loss was $448,000, or $.06 on a
diluted earnings per share basis, compared to a net loss of $99,000, or $.01 on
a diluted earnings per share basis, for the six-month period ended December 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 remained adequate for the
six-month period ended December 31, 2003. Net working capital as at December 31,
2003, increased by $112,000 to $14,463,000 from $14,351,000 as at June 30, 2003.
The current ratio of assets to liabilities was 2.0 at both December 31, 2003,
and June 30, 2003.
During the six-month period ended December 31, 2003, the Company generated net
cash from operating activities of $1,443,000, and proceeds from its revolving
credit line and additional long term debt of $2,808,000. These funds were used
primarily to acquire capital assets of $3,004,000 and to reduce long term debt
by $1,793,000.
Cash used for inventories during the six-month period ended December 31, 2003,
was $3,029,000, an increase of $1,850,000 from the corresponding period of the
prior year. The Company increased
14
production and spent more to generate inventories in the first half of fiscal
2004 for two reasons. First, management anticipates increased sales in future
periods and prefers to avoid shipping delays. Second, the Company purchased a
large quantity of PET compound to hedge against future price increases. We also
placed more emphasis on our stock bottle program so there would be more
inventory readily available to meet customer short term demand.
Cash used for capital assets during the six-month period ended December 31,
2003, increased $113,000 over the same period a year ago. This increase is
attributable to continued additional capacity to support our PET bottle line.
Assets held for sale at December 31, 2003, consisting of the Company's Ardmore,
Oklahoma facility, totaled approximately $262,000. which represents the
estimated fair value, less disposition costs. Management expects to sell these
assets and receive proceeds that will approximate fair value during fiscal 2004.
However, there can be no assurance that we will be able to sell these assets on
favorable terms, if at all.
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 the financial resources available to it,
including internally generated funds and borrowing under our revolving credit
facility, will be sufficient to meet foreseeable working capital requirements.
At December 31, 2003, the Company had unused sources of liquidity consisting of
cash and cash equivalents of $252,000 and availability under a revolving credit
facility of $5,090,000.
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 seasonal working capital needs
may be used to pursue the Company's 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.
As of December 31, 2003, the Company had a total outstanding indebtedness of
$30,800,000. Of this amount, the total indebtedness subject to variable interest
rates was approximately $21,600,000.
15
Based in the Company's December 31, 2003 variable debt level, a -1/4% increase
or decrease in interest rates would have had a $13,500 impact on the Company's
interest expense for the quarter ended December 31, 2003.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the
Company's principal executive officer and principal financial officer, the
Company has evaluated the effectiveness of its disclosure controls and
procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities
Exchange Act of 1934, as of the end of the period covered by this Quarterly
Report. Based upon that evaluation, the Company's principal executive officer
and principal financial officer, as of the end of the period covered by this
Quarterly Report, 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 the reports the Company files
with the Security and Exchange Commission has been made known in a timely
manner.
There were no significant changes made in the Company's internal control over
financial reporting during the period covered by this Quarterly Report that have
materially affected, or are reasonably likely to materially affect the Company's
internal control over financial reporting.
PART II INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
RIDER #16
The Company held its Annual Meeting of Stockholders on December 4,
2004. The stockholders took the following actions:
(1) elected all Director nominees designated in the Information
Statement dated October 28, 2003; and
(2) approved the selection of the independent auditors of the Company
for the year ending June 30, 2004.
The Directors were elected pursuant to the following vote:
NOMINEE FOR WITHHELD BROKER NON-VOTE
Phillip L. Friedman 4,928,956 -0- --
Michael Sherwin 4,928,956 -0- --
John F. Turben 4,928,956 -0- --
Michael Lynch 4,928,956 -0- --
John G. Nestor 4,928,956 -0- --
16
The approval of the selection of Ernst & Young LLP as independent
auditor to the Company for the year ending June 30, 2003 was approved by the
following vote.
FOR AGAINST ABSTAIN BROKER NON-VOTE
4,928,956 -0- -0- --
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Phillip L. Friedman, President, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Jeffrey A. Shapiro, Senior Vice President, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification of Phillip L. Friedman, Chief Executive Officer, and Jeffrey
Shapiro, 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:
None
17
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 23, 2004 PVC Container Corporation
/s/ Phillip L. Friedman
Phillip L. Friedman
President and Chief Executive Officer
Date: February 23, 2004 PVC Container Corporation
/s/ Jeffrey Shapiro
Jeffrey Shapiro
Chief Financial Officer
18