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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(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, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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COMMISSION FILE NUMBER 0-30067
PVC CONTAINER CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2616435
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(STATE OF OTHER JURISDICTION OF IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER
401 Industrial Way West, Eatontown, New Jersey 07724
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (908) 542-0069
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
None None
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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 average bid and asked prices of such stock as of
August 29, 1995, was $5,444,390.
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 August 29, 1995
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Common Stock, $.01 par value 6,761,913
EXHIBIT INDEX is located at Page 21
Cover Page 2 of 2 Pages
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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 and high-density polyethylene
("HDPE") resins. 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. 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 sold through the
Company's wholly-owned subsidiary, Novatec Plastics & Chemicals Company, 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 recently developed and began to sell several categories of specialty
PVC compounds for non-bottle applications ("specialty compounds") including
extruded profiles for window frames and accessories, furniture, molding and
other indoor fixtures, and a variety of injection molded electrical and
electronic housings (the "Company's targeted markets'"). Sales of specialty
compounds have been encouraging, although no assurance can be given as to their
ultimate market acceptance.
The Company operates its business in one industry segment.
Accordingly, no information is being furnished herein or in the accompanying
financial statements relating to industry segments of the Company. The Company
has not identified in its annual reports to shareholders revenue and income
relating to lines of business because the Company believes it has been engaged
since its inception in one dominant line of business consisting of the
manufacture and sale of plastic containers and compounds used in the
manufacture of containers.
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 commission sales representatives. During
the fiscal year ended June 30, 1995, 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 ounce to two and one-half gallons. The
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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").
Sales of plastic bottles are generally a "regional" business.
The majority of the Company's customers are within a 300 mile radius of the
Company's respective plastic bottle 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.
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
terephathalate resins ("EPET") which are presently semi-commercial. The
equipment is not suitable, however to the manufacture of bottles made from
injection stretch blow molding grades of polyethylene terephthalate ("PET")
which is becoming an increasing threat to the Company in high-volume bottle
markets. See "Competition and Marketing".
The Company operates facilities in Eatontown, New Jersey,
Paris, Illinois and Manchester, Pennsylvania for the manufacturing of plastic
bottles. In August 1989, the Company relocated its existing plastic bottle
business from a leased facility in Eatontown, New Jersey to a newly constructed
plant, also in Eatontown, New Jersey, owned by the Company. This new facility
provided the Company with additional space needed to support manufacturing in
efficiencies and capacity. 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 midwest bottle business. On August 4, 1994, the Company acquired
from Air Products and Chemicals Inc., through its recently incorporated 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.
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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 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 targeted markets. A
description of the Company's compound facility is set forth below in Item 2
entitled "Properties".
The Company is the only manufacturer of plastic bottles that
is vertically integrated in the manufacturing of PVC bottle compounds. The
Company uses its ability to produce specialized plastic bottle compounds to
enhance its technology as a specialty blow molder of plastic bottles. Although
there are derived marketing advantages resulting from this unique integration,
the economic advantage the Company previously enjoyed as a manufacturer of both
plastic bottles and PVC compounds has greatly diminished, because of intense
competition in the supply of PVC bottle compounds.
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. PVC
compounds are the principal raw material used in connection with manufacturing
such 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.
A shortage of petroleum, should it develop, would have an
effect on the availability and the cost of the raw materials used by the
Company in connection with its business. Moreover, certain grades of PVC
resins used in the manufacture of the Company's PVC compounds are made by a
limited number of domestic suppliers of PVC resin. The availability and price
of such PVC resins have a direct effect on the business of the Company.
Although sufficient PVC resin and HDPE 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. Prices for PVC resins
began to increase significantly after January 1994, and are forecasted to
continue to escalate in the near future. Higher prices for PVC resins as well
as HDPE are the result of the supply/demand of plastic resins and ethylene
becoming in balance or in tight supply due to the improving world wide economy
and the lack of new polymer resin capacity being built in time to support
growth of these plastic resins. 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.
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Backlog. The backlog of unfilled orders of the Company as at
June 30, 1995 was approximately $4,400,000; the backlog of unfilled orders as
at June 30, 1994 was approximately $4,000,000. The Company expects that
substantially all of the backlog as at June 30, 1995 will be filled within the
fiscal year ending June 30, 1996.
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 Occidental Chemical Corporation, Geon, Inc., 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, many of which also
manufacture PVC resin.
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 this constitutes one of 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; 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 of PVC
based packaging's ability to cope with solid waste issues. (See item entitled
"Environmental Issues.") Industry demand for PVC bottles and compounds is,
however, currently stable. 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 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
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communications, electronics and appliance markets and extrusion compounds for
use in window frames, indoor furniture and other specialty "profile" markets.
The Company believes its technical, marketing and
manufacturing capability is equal to that of its major competitors in the
plastic bottle market in its region, particularly in the toiletry, cosmetic and
household chemical product segments, and believes its technical and marketing
ability is equal to that of its major competitors in the PVC compound markets
in its region; its manufacturing capability for the PVC compound markets is
limited by its lack of a facility to produce PVC resin.
A shortage of labor in New Jersey has caused the Company to
increase the hourly wages it pays employees and has caused it to experience
increased turnover. This trend has resulted in some difficulty in hiring and
retaining labor for work on swing shifts, weekends and holidays. Since the
Company's business is labor-intensive, the Company believes it will eventually
need to increase automation of its operation, but in the near term may face a
disadvantage relative to competitors in areas with a larger labor pool.
The Company lacks the ability to apply some types of
decorations (such as silk screen printing and hot stamped foils) to plastic
bottles, unlike many leading plastic bottle manufacturers with which it
competes. As a result, the Company must ship its plastic bottles to and from
subcontractors at added freight expense to perform this work. The Company
realizes a small profit by charging a premium for subcontracted decoration.
During April 1990 the Company installed a new Therimage decorating line for the
high speed application of heat transfer labels to plastic bottles. This
represented the Company's first entry in decorating activity which has resulted
in added value to the Company's products. During May 1992, the Company started
up its second Therimage decorating line to support additional demand for this
type of decorated bottle. However, the Company believes it will eventually
need to develop additional capabilities to decorate plastic bottles, and in the
near term may face a slight disadvantage relative to some competitors who have
greater decorating capabilities compared to the Company.
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 more than 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. However, 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. Additionally, some
plastic bottle buyers have recently turned to PETG because they believe it is
an environmentally safer alternative to PVC bottles, notwithstanding PETG's
30-50% higher resin price as compared to PVC compound. The Company has the
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ability to manufacture PETG bottles by modifying its equipment, and recently
the Company has manufactured and sold PETG bottles. Also, several new grades
of EPET resins (lower cost than PETG) have recently been introduced that
potentially could displace PVC in some bottle applications. Although there
have been limited commercial successes to date, the Company has initiated a
project to develop the technical know-how to economically manufacture bottles
using EPET on its existing equipment, and is also studying the possibility of
acquiring injection stretch blow molding PET technology. See "Environmental
Regulation" below.
Research and Development. The Company spent approximately
$216,590 during the past fiscal year ended June 30, 1995 and approximately
$197,000 during each of the preceding two fiscal years ended June 30, 1994 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.
Additionally, 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 allegedly
result in hydrochloric acid and dioxin emissions, have also recently 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,
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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, or the threat of further
regulatory action would not have a negative affect on the Company's business.
Employees. As at June 30, 1995, the Company employed a total
of 288 people at its Eatontown facilities, of whom 28 are in executive,
administrative and clerical positions, 10 are engaged in sales activities and
250 are engaged in general manufacturing. The Company employed 97 people at
its new Paris, Illinois Facility as at June 30, 1995. The Company renewed its
collective bargaining agreement with Local 108 of the Retail, Wholesale and
Department Store Union, AFL-CIO, effective September 1, 1994 through August 31,
1997. As of such date Airopak Corporation's employed 64 people. 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 $4,538,000 during the fiscal
year ended June 30, 1995. Net sales to the northeast of the United States
amounted to $24,549,000 during such fiscal year; net sales to the Midwest
amounted to $18,933,000 net sales to the southeast amounted to $3,858,000; and
net sales to other domestic regions amounted to $2,008,000 during such fiscal
year.
Item 2. Properties.
The Company's manufacturing activities with respect to its
continuing businesses are conducted at the six facilities described in the
following table:
Building Area
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Location Purpose of Facility (square feet)
-------- -------------------
Eatontown, New Jersey Plastic Bottle Plant and 102,690(1)
warehousing and Office
Eatontown, New Jersey Plastic Bottle Warehouse and 22,500(2)
property rental
Eatontown, New Jersey Plastic Compounding Plant and 50,162(3)
warehousing and Office
Manchester, Pennsylvania Airopak Corporation Plant and 69,140(4)
warehousing
Manchester, Pennsylvania Airopak Corporation warehousing 25,000(5)
Paris, Illinois Plastic bottles Plant and 62,500(6)
warehousing and office
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1. The Eatontown bottle plant manufacturing facility is
located at 401 Industrial Way West, Eatontown, New Jersey on 8.1 acres of real
property owned by the Company. The Company's principal executive offices are
also located at this location. The building is constructed from concrete
panels, and was completed in June 1989. In connection with the construction
and acquisition of certain equipment for this facility, the Company obtained
financing through the NJEDA. See Note 5 to the Notes to the Consolidated
Financial Statements below.
2. During October 1991, the Company purchased an
existing 22,500 square foot concrete building, located at 435 Industrial Way
West, Eatontown, New Jersey, situated on 4.0 acres of land adjacent to the
Company's plastic bottle facility. A portion of this building is being used as
warehousing for the Company's plastic bottles and the remaining space is leased
to an outside tenant. Financing for the acquisition of this property was
obtained with a mortgage from National Westminster Bank NJ. See Note 5 to the
Notes to the Consolidated Financial Statements below.
3. 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.
In March 1994, the Company completed the construction of an additional 21,000
square feet of warehouse and refinanced the facility with a new term Note and
mortgage from National Westminster Bank, NJ. See Note 5 to the Notes to the
Consolidated Financial Statements below.
4. 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 in a steel building having a total of
69,140 square feet.
5. Airopak corporation also leases 25,000 square feet of
separate warehouse space also in a steel building. The aggregate annual
rental payable with respect to the manufacturing and warehouse space for the
Airopak Corporation detailed above and in Item 4 is $320,136 plus real estate
taxes, utilities and certain other charges payable under net leases which
expire on April 30, 1998 with respect to the manufacturing facility and April
30, 1998 with respect to the warehouse facility. It is believed that these
facilities are large enough to allow for future growth of the business
conducted at these facilities.
6. 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. See Note 5 to the Notes to the Consolidated Financial
Statements below.
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Item 3. Legal Proceedings.
There are no material pending legal proceedings which in the
opinion of management will adversely affect the business or financial condition
of the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
No matters were submitted to a vote of securityholders of the
Company during the fiscal year ended June 30, 1995.
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PART II
Item 5. Market for Registrant's Common Stock
and Related Securityholder Matters.
The principal market in which the Company's common stock is
traded is the over-the-counter market. The closing bid quotation on August 29,
1995 was $2.875. The shares of common stock currently are quoted on NASDAQ and
bear the symbol "PVCC." The high bid and low asked quotations during the
fiscal years ended June 30, 1995 and June 30, 1994 are as follows:
Year Ended June 30, 1995
------------------------ -----------------------------
High Bid Low Asked
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1st Quarter $1.75 $1.87
2nd Quarter 2.00 2.12
3rd Quarter 2.12 2.25
4th Quarter 3.00 3.12
Year Ended June 30, 1994
------------------------
1st Quarter $2.625 $1.25
2nd Quarter 3.125 2.00
3rd Quarter 1.875 1.50
4th Quarter 2.187 1.875
As at August 29, 1995, the number of holders of record of the
issued and outstanding common stock of the Company was approximately 716.
The Company on December 20, 1991 paid to shareholders its
first dividend of $.05 per share of common stock, and a second, third and
fourth dividend in the same amount was paid on December 18, 1992 December 8,
1993 and January 18, 1995.
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Item 6. Selected Financial Data.
Years Ended June 30,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SELECTED INCOME
STATEMENT DATA:
Net Sales $53,886,103 $38,352,843 $37,036,068 $34,011,098 $29,458,162
----------- ----------- ----------- ----------- -----------
Income from operations $ 3,556,095 $ 1,535,767 $ 2,587,080 $ 2,681,523 $ 2,288,759
----------- ----------- ----------- ----------- -----------
Net Income $ 1,610,665 $ 647,260 $ 1,398,453 $ 1,280,385 $ 1,115,579
----------- ----------- ----------- ----------- -----------
Earnings per share:*
Average number of common
shares and equivalents
outstanding 6,761,913 6,728,439 6,702,866 6,574,706 6,761,813
----------- ----------- ----------- ----------- -----------
Income from operations $ .53 $ .23 $ .39 $ .41 $ .34
----------- ----------- ----------- ----------- -----------
Net Income $ .24 $ .10 $ .21 $ .19 $ .16
----------- ----------- ----------- ----------- -----------
Dividends per share $ .05 $ .05 $ .05 $ .05 $ .00
SELECTED BALANCE
SHEET DATA
Current assets $16,605,173 $14,716,364 $13,931,064 $10,255,858 $ 8,555,058
Current Liabilities $10,655,197 $10,084,651 $ 9,598,949 $ 5,698,869 $ 5,065,019
----------- ----------- ----------- ----------- -----------
Working capital $ 5,949,976 $ 4,631,713 $ 4,332,115 $ 4,556,989 $ 3,490,039
Total assets $34,158,390 $32,159,249 $30,597,507 $22,360,608 $19,883,819
Noncurrent liabilities $11,369,189 $11,213,163 $10,596,293 $ 7,391,868 $ 6,518,880
Stockholders' equity $12,134,004 $10,861,435 $10,402,265 $ 9,269,871 $ 8,299,920
* Earnings per share calculations are based on the weighted average number of
shares of common stock and common stock equivalents outstanding.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
FISCAL 1995 AS COMPARED TO FISCAL 1994
The Company's net sales for the fiscal year ended June 30,
1995 of $53,886,000 increased by approximately 40.5% over the 1994 amount of
$38,353,000. The increase in sales was the result of a general increase in the
demand for plastic bottles and compounds throughout the Company's lines of
business, in addition to the added sales from the Company's newly acquired,
wholly- owned subsidiary, Airopak Corporation.
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The cost of goods sold increased approximately 39.9% to a
level of $43,621,000, or 81.0% of net sales for the fiscal year ended June 30,
1995 as compared to $31,187,000, or 81.3% of net sales for the fiscal year
ended June 30, 1994. The increase in cost of goods sold was primarily due to
higher units sales volume and increased resin costs. Depreciation expense
increased by approximately $276,000 for the year ended June 30, 1995, as
compared to the prior period. The increase was primarily the result of the
added depreciation associated with the Company's newly purchased Airopak
Corporation, as well as new capital equipment employed at the Company's other
manufacturing sites.
Selling, general and administrative expenses ("SG&A") was
$3,996,000, or 7.4% of net sales for the fiscal year ended June 30, 1995 as
compared to $3,193,000, or 8.3% of net sales for the fiscal year ended June 30,
1994, representing a 25.1% increase over the same period last year. The
increase in SG&A was due to the associated higher marketing, selling and
administrative expenditures associated with the increased level of sales
volume, as well as the addition of Airopak.
Income from operations for the fiscal year ended June 30, 1995
was $3,556,000, or 6.6% of net sales as compared to $1,536,000, or 4.0% of net
sales for fiscal 1994. Higher operating income was the result of increased
sales volume across the entire Company's product mix, the Airopak acquisition,
and higher operating utilization in the Company's manufacturing plants.
Net Interest expense increased $236,000 during the twelve
month period ended June 30, 1995, as compared to the same period in 1994.
Higher interest expenses primarily reflect the additional financing incurred
with the acquisition of the Airopak Corporation and the warehouse addition at
our compound facility.
Net income for the year ended June 30, 1995 increased
approximately $964,000 to $1,611,000, or $.24 per share as compared to
$647,000, or $.10 per share for fiscal 1994.
FISCAL 1994 AS COMPARED TO FISCAL 1993
The Company's net sales for the fiscal year ended June 30,
1994 of $38,353,000 increased by approximately 3.6% over the 1993 amount of
$37,036,000. The increase in sales was primarily the result of improved sales
volume of the Company's PVC Compounds. Sales of plastic bottles remained
stable due in part to a decrease in demand, particularly in the first half of
the fiscal year, for some of the Company's stock and custom plastic bottle
business.
The cost of goods sold increased approximately 5.3% to a level
of $31,187,000, or 81.3% of net sales for the fiscal year ended June 30, 1994
as compared to $29,617,000, or 80.0% of net sales for the fiscal year ended
June 30, 1993. The increase in cost of goods sold reflects the increased
expenses associated with the new plastic bottle manufacturing plant in Paris,
Illinois. The higher fixed costs associated with this new facility
-12-
15
were not sufficiently offset by increased sales volume which had a negative
impact on operating margins. Additionally, higher raw material costs,
principally PVC resin, a major ingredient in the Company's plastic compounds,
resulted in an increase in the cost of goods sold. The price of PVC resin
which escalated significantly during the latter six months of the Company's
fiscal year could not be compensated sufficiently with price increases to
maintain the margins for the Company's plastic bottles and compounds. While
the Company believes that it will be able to eventually pass through raw
material cost increases with price increases for its products, the Company
expects that margins could continue to erode somewhat during the next fiscal
year if resin prices continue to escalate. Plastic resin price escalation is
still prevalent because of a world-wide improvement in the supply/demand of
most petrochemicals, and raw material price stability is not expected until
sometime in 1995.
Selling, general and administrative expenses ("SG&A")
increased approximately $391,000 in fiscal 1994 to a level of $3,193,000, or
8.3% of sales as compared to $2,802,000, or 7.6% of sales for fiscal 1993. The
increase in SG&A expense was mostly the result of taking a $364,000 charge
against earnings for bad debts.
Depreciation expense increased by approximately $408,000 for
the year ended June 30, 1994, as compared to the prior period. Higher
depreciation expense was primarily the result of additional investments
associated with the new plastic bottle manufacturing facility in Paris,
Illinois, which now absorbs a full year's depreciation expense against prior
invested capital.
Income from operations for the fiscal year ended June 30, 1994
was approximately $1,536,000, or 4.0% of net sales as compared to approximately
$2,587,000, or 7.0% of net sales for fiscal 1993. Operating income and margins
declined due to the reasons cited above. Interest expense for fiscal 1994
increased approximately $212,000 to $662,000 compared to approximately $450,000
for fiscal 1993. Higher interest expense resulted from the increased debt
associated with the additional investments in plant and equipment incurred by
the Company during the past fiscal year.
Net income for the year ended June 30, 1994 decreased
approximately $751,000 to $647,000 or $.10 per share as compared to $1,398,000
or $.21 per share for fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position at June 30, 1995 improved
from the prior year. Working capital increased approximately $1,318,000 to
$5,950,000 at June 30, 1995 from $4,632,000 at June 30, 1994. The current
ratio was 1.56 at June 30, 1995 and 1.46 at June 30, 1994.
During the twelve month period ended June 30, 1995, the
Company generated cash from operations of $3,247,000 and received $3,270,000 in
proceeds from long term debt, which was utilized to acquire $1,874,000 in
capital assets, acquire the Airopak Corporation utilizing $1,070,000, reduce
long term debt by $2,582,000 and to pay a cash dividend of $338,000 ($.05 per
share).
-13-
16
On August 4, 1994, the Company acquired from Air Products And
Chemicals Inc. through its recently incorporated wholly owned subsidiary known
as Airopak Corporation, the assets of a specialty plastic container business.
The purchase price of the assets was $1.57MM (of which $950,000 was for
equipment and $620,000 was for inventory). The Company has borrowed $950,000
to cover the purchase of the equipment and has entered into a 1 year letter of
credit with Air Products and Chemicals Co. in the amount of $500,000 for the
purchase of inventory, with the balance of the funds required for the
acquisition coming from cash flow. On July 28, 1995, the Company paid out of
cash flow $500,000 to Air Products and Chemicals, Inc. satisfying the terms of
the letter of credit.
The Company's short term liquidity and short term capital
resources are projected to be adequate to allow the Company to continue to make
timely payments to trade and other creditors. The Company believes that the
financial resources available to it, including internally generated funds and
amounts available under its revolving credit facility would be sufficient to
meet its foreseeable working capital requirements. As at June 30, 1995, the
Company had unused sources of liquidity consisting of cash and cash equivalents
of $1,171,000 and available under the unused credit revolving credit facility
of $3,000,000.
Item 8. Financial Statements and Supplementary Data.
See annexed financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
-None-
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 48 1982 President, Chief Executive, Financial
and Accounting Officer and Director
John C. D'Avella 47 1978 Executive Vice President of Sales,
Secretary and Director
Bertram D. Berkowitz 57 1989 Vice President Finance & Treasurer
Joel Francis Roberts 53 1989 Vice President Operations
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
-14-
17
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.
JOHN C. D'AVELLA, from June 1973 to July 1974, was an employee
of Cosmetics Unlimited, Bogota, New Jersey in the area of purchasing and
inventory control. From July 1974 to September 1975 he was employed as the
General Manager in charge of purchasing and sales at D'Avella's Pharmacy in
Newark, New Jersey. Mr. D'Avella was employed from September 1975 to 1978 as
Sales Manager of the Company. In 1978 he became Vice President in Charge of
Sales and Secretary of the Company.
BERTRAM D. BERKOWITZ has been actively employed by the Company
since May 1983. He became a Vice President of Finance and Treasurer during
November 1989.
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. He became a Vice President for Operations during
November 1989.
Item 11. Executive Compensation.
Incorporated by reference from the Company's definitive
information statement to be filed with the Commission not later than 120 days
following the end of the Company's fiscal year.
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 not later than 120 days
following the end of the Company's fiscal year.
Item 13. Certain Relationships and Related Transactions.
None.
-15-
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, 1995 and 1994
Consolidated Statements of Income for the three years ended
June 30, 1994
Consolidated Statements of Stockholders' Equity for the three
years ended June 30, 1995
Consolidated Statements of Cash Flows for the three years ended
June 30, 1995
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, 1995
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).
-16-
19
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).
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).
-17-
20
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).
21 Subsidiaries of the Company (filed as Exhibit 22 to
the 1987 10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP
28.1 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.
28.2 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).
Exhibits filed herewith:
None.
(b) Reports on Form 8-K filed during last quarter of the year ended June
30, 1994:
None.
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are submitted as a
separate section of this filing.
(d) Financial statement schedules
The financial statement schedules required by Regulation S-X are
submitted as a separate section of this filing.
-18-
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PVC CONTAINER CORPORATION
-------------------------
(Registrant)
By: /s/ Phillip L. Friedman
---------------------------------------
Phillip L. Friedman,
President and Chief Executive Officer
Date: September 14, 1995
--------------------------
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, September 14, 1995
Phillip L. Freidman Financial and Accounting
Officer, and Director
/s/ John C. D'Avella
-------------------------- Director September 14, 1995
John C. D'Avella
-19-
22
Report of Independent Auditors
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the consolidated financial statements of PVC Container
Corporation listed in the accompanying index to financial statements (Item
14(a)(1)). Our audits also included the financial statement schedules listed in
the Index at Item 14(a)(2). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to
financial statements (Item 14(a)(1)) present fairly, in all material respects,
the consolidated financial position of PVC Container Corporation at June 30,
1995 and 1994 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended June 30, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
MetroPark, New Jersey
August 1, 1995
23
PVC Container Corporation
Consolidated Balance Sheets
JUNE 30
1995 1994
---------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,171,137 $ 517,681
Accounts receivable, less allowance of $243,000 in 1995
and 1994 8,205,733 7,252,500
Inventories 6,435,008 6,094,269
Prepaid expenses, taxes and other current assets 325,892 192,433
Deferred taxes 467,403 659,481
---------------------------
Total current assets 16,605,173 14,716,364
Properties, plant and equipment at cost - net of
accumulated depreciation 17,553,217 17,442,885
---------------------------
$34,158,390 $32,159,249
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,633,003 $ 6,867,429
Accrued expenses 2,321,238 1,630,637
Income taxes payable 340,491 181,518
Current portion of long-term debt 2,360,465 1,405,067
---------------------------
Total current liabilities 10,655,197 10,084,651
Long-term debt 10,290,732 10,057,972
Deferred taxes 1,078,457 1,155,191
Commitments and contingencies
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,
6,761,913 shares issued and outstanding as of
June 30, 1995 and 1994 67,618 67,618
Capital in excess of par value 2,971,498 2,971,498
Retained earnings 9,094,888 7,822,319
---------------------------
Total stockholders' equity 12,134,004 10,861,435
---------------------------
$34,158,390 $32,159,249
===========================
See accompanying notes.
2
24
PVC Container Corporation
Consolidated Statements of Income
FISCAL YEAR ENDED JUNE 30
1995 1994 1993
------------------------------------------------
Net sales $ 53,886,103 $ 38,352,843 $ 37,036,068
Cost and expenses:
Cost of goods sold (exclusive of depreciation and
amortization expense shown separately below) 43,620,839 31,186,619 29,617,344
Selling, general and administrative expenses 3,995,793 3,192,661 2,801,535
Depreciation and amortization expense 2,713,376 2,437,796 2,030,109
------------------------------------------------
50,330,008 36,817,076 34,448,988
------------------------------------------------
Income from operations 3,556,095 1,535,767 2,587,080
Other income (expenses):
Interest expense (897,765) (662,004) (449,669)
Interest income 298 167 1,711
Other income 96,034 161,773 80,500
------------------------------------------------
(801,433) (500,064) (367,458)
------------------------------------------------
Income before provision for income taxes 2,754,662 1,035,703 2,219,622
Provision for income taxes 1,143,997 388,443 821,169
------------------------------------------------
Net income $ 1,610,665 $ 647,260 $ 1,398,453
================================================
Earnings per share $ .24 $ .10 $ .21
Dividends per share .05 .05 .05
See accompanying notes.
3
25
PVC Container Corporation
Consolidated Statements of Stockholders' Equity
COMMON STOCK
ISSUED AND OUTSTANDING CAPITAL IN TOTAL
---------------------- EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
-----------------------------------------------------------------------
Balance, June 30, 1992 6,349,313 $63,493 $2,768,592 $ 6,437,786 $ 9,269,871
Net income 1,398,453 1,398,453
Dividends (323,090) (323,090)
Issuance of common stock 112,500 1,125 55,906 57,031
-----------------------------------------------------------------------
Balance, June 30, 1993 6,461,813 64,610 2,824,498 7,513,149 10,402,265
Net income 647,260 647,260
Dividends (338,090) (338,090)
Issuance of common stock 300,000 3,000 147,000 150,000
-----------------------------------------------------------------------
Balance, June 30, 1994 6,761,813 67,618 2,971,498 7,822,319 10,861,435
Net income 1,610,665 1,610,665
Dividends (338,096) (338,096)
-----------------------------------------------------------------------
Balance, June 30, 1995 6,761,813 $67,618 $2,971,498 $ 9,094,888 $ 12,134,004
=======================================================================
See accompanying notes.
4
26
PVC Container Corporation
Consolidated Statements of Cash Flows
FISCAL YEAR ENDED JUNE 30
1995 1994 1993
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,610,665 $ 647,260 $ 1,398,453
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,713,376 2,437,796 2,030,109
Deferred income taxes 115,344 (75,439) (189,299)
Gain on sale of equipment (54,282)
Changes in assets and liabilities:
Accounts receivable (953,233) (585,792) (588,162)
Inventories 279,434 (252,096) (2,615,007)
Prepaid expenses, taxes and other current assets (133,459) 86,983 (81,756)
Accounts payable and accrued expenses (543,825) 535,630 3,197,912
Income taxes payable 158,973 17,346 (83,110)
---------------------------------------------
Net cash provided by operating activities 3,247,275 2,757,406 3,069,140
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,873,708) (3,261,612) (6,591,802)
Proceeds from sale of equipment 101,656
Purchase of business (1,070,173)
---------------------------------------------
Net cash used in investing activities (2,943,881) (3,159,956) (6,591,802)
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued in
connection with stock options 150,000 57,031
Proceeds from long-term debt 3,270,000 2,150,000 4,425,000
Payments on indebtedness (2,581,842) (1,692,590) (737,854)
Dividends paid (338,096) (338,090) (323,090)
---------------------------------------------
Net cash provided by financing activities 350,062 269,320 3,421,087
---------------------------------------------
Net increase (decrease) in cash and cash equivalents 653,456 (133,230) (101,575)
Cash and cash equivalents, beginning of year 517,681 650,911 752,486
---------------------------------------------
Cash and cash equivalents, end of year $ 1,171,137 $ 517,681 $ 650,911
=============================================
See accompanying notes.
5
27
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying financial statements include the accounts of PVC Container
Corporation and its wholly-owned subsidiaries, Novatec Plastics & Chemicals Co.,
Inc., Airopak Corporation 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.
ACQUISITION
On August 4, 1994, the Company acquired certain assets from Air Products and
Chemicals, Inc., for its recently incorporated wholly-owned subsidiary known as
Airopak Corporation for $1.57 million.
The Company accounted for the acquisition as a purchase. Accordingly, the
acquired assets have been recorded at their estimated fair values at the date of
acquisition. The results of operations of the acquired business is included in
the accompanying consolidated statement of income from the date of acquisition.
The pro forma results of operations for the period July 1, 1994 to August 4,
1994 have not been presented as such amounts are not material.
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. Substantially all
of the inventories are being valued under the LIFO method.
DEPRECIATION
Depreciation is provided for financial reporting purposes on a straight-line or
double declining balance 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.
6
28
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective July 1, 1993, the Company changed its method of accounting for income
taxes as required by SFAS No. 109, Accounting for Income Taxes. SFAS No. 109
provides for the liability method of accounting for income taxes, such that
deferred tax assets or liabilities are recorded for the tax effect of
differences between the tax basis of assets and liabilities and their respective
basis for financial reporting purposes. As permitted under the new rules, prior
years' financial statements have not been restated.
The cumulative effect of adopting SFAS No. 109 at July 1, 1993 was not material.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred and
amounted to $216,590, $196,000 and $220,000 in 1995, 1994 and 1993,
respectively.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares of common
stock and common stock equivalents outstanding of 6,761,913, 6,728,439 and
6,702,866 shares for the years ended June 30, 1995, 1994 and 1993, respectively.
RECLASSIFICATIONS
Certain 1994 balances have been reclassified to conform to 1995 presentation.
2. INVENTORIES
Inventories consist of the following:
1995 1994
-------------------------
Raw materials $2,089,192 $2,871,471
Finished goods 3,761,231 2,862,697
-------------------------
Total LIFO inventories 5,850,423 5,734,168
Molds for resale, in production 232,901 224,657
Supplies 351,684 135,444
-------------------------
Total $6,435,008 $6,094,269
=========================
7
29
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
2. INVENTORIES (CONTINUED)
The excess of inventory valued on FIFO basis which approximates replacement cost
over LIFO cost at June 30, 1995 was approximately $648,000. Replacement cost
exceeded LIFO cost by approximately $385,000 at June 30, 1994.
3. PROPERTIES, PLANT AND EQUIPMENT
ESTIMATED
USEFUL LIFE IN
1995 1994 YEARS
-----------------------------------------------
Land $ 653,965 $ 653,965
Building and improvements 9,876,365 9,817,498 20-25
Machinery and equipment 20,801,806 18,357,479 7-10
Molds 2,197,281 1,964,247 3- 5
Office furniture and equipment 925,499 843,323 5-l0
Motor vehicles 34,447 50,155 3- 5
Leasehold improvements 5,300
-----------------------------
34,494,663 31,686,667
Less accumulated depreciation 16,941,446 14,243,782
-----------------------------
$17,553,217 $17,442,885
=============================
4. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
1995 1994
---------------------------
Accrued payroll $ 368,722 $ 190,046
Accrued vacation 524,492 429,974
Accrued employee incentives 830,597 556,913
Other accrued expenses 597,427 453,704
---------------------------
$2,321,238 $1,630,637
===========================
8
30
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
1995 1994
------------------------------
Notes payable:
New Jersey Economic Development Authority:
Series D Note $ 3,900,000 $ 4,150,000
National Westminster Bank of New Jersey:
435 Industrial Way Mortgage 750,000 795,000
Equipment Notes 2,091,360 1,022,727
Term notes 3,764,520 3,565,000
Edgar County Bank Construction Loan 601,875 635,625
City of Paris:
Community Development Assistance Loan 438,548 466,372
Revolving Loan Fund 131,636 139,951
Air Products note payable 496,556
Illinois Small Business Development Loan 318,463 336,658
Metropolitan Life note payable 117,768 247,480
Obligations under capital leases 40,471 104,226
------------------------------
12,651,197 11,463,039
Less current portion (2,360,465) (1,405,067)
------------------------------
$ 10,290,732 $ 10,057,972
==============================
Maturities of long-term debt are as follows: 1996 - $2,360,465; 1997 -
$2,340,400; 1998 - $1,996,254; 1999 - $2,081,874; 2000 - $820,810 and 2001 to
2009 - $3,051,794. Interest paid amounted to $881,021, $650,929 and $439,196 in
1995, 1994 and 1993, respectively.
NOTES PAYABLE - NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY "EDA"
SERIES D NOTE
This note is due October 3l, 2006 and is payable as follows: $250,000 due on
October l, each year through October l, 2006 and $900,000 due on October 31,
2006. Prepayments may be made without penalty. This note is subject to prior
mortgages in favor of the National Westminster Bank of New Jersey. The effective
interest rate on this obligation was 3.8% and 2.5% in 1995 and 1994,
respectively.
9
31
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
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.
435 INDUSTRIAL WAY MORTGAGE
During fiscal year 1992, the Company financed $900,000 for the purchase of a
building adjacent to its property. The mortgage is payable in 59 monthly
principal installments of $3,750 and a final lump sum payment for the remaining
balance on March 1, 1997, plus interest at 8.53%. The mortgage is collateralized
by the building.
EQUIPMENT NOTES
During fiscal year 1995, the Company received a second draw down on its
$2,300,000 equipment loan from National Westminster Bank, amounting to
$1,260,000. The note requires principal payments of $21,355 and interest at
9.31% on the first of every month through the note's maturity in March 1999, at
which time the full unpaid principal and interest are due. The first draw down
note provides for the monthly payment of interest at 7.82% through and including
May 1, 1995. Principal payments of $10,000 and interest are due thereafter on
the first of every month through the note's maturity in March 1999, at which
time the full unpaid principal and interest are due. The borrower may prepay
this note in whole or in part in accordance with the loan agreement. The notes
are collateralized by the equipment.
During fiscal year 1995, the Company obtained a $950,000 equipment loan from
National Westminster Bank for its newly acquired Airopak division. The note is
payable in eighty-four monthly payments of $11,310, plus interest at 9.19%. The
note is collateralized by the equipment.
During fiscal year 1992, the Company purchased $750,000 of equipment which was
financed by National Westminster Bank. The notes are payable in sixty monthly
payments of $12,501, plus interest at prime plus 1/2% (the effective rate is
equal to 7.75% in 1994 and 6.5% in 1993). The notes are collateralized by the
equipment.
TERM NOTES
During fiscal year 1994, the Company purchased $1,200,000 of property and
equipment which was financed through a term note with National Westminster Bank.
The note
10
32
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
provides for principal payments of $5,000 and interest due monthly through the
note's maturity, March 1, 1999, when the full amount of unpaid principal and
interest is due. The note may be prepaid in whole or in part subject to certain
requirements stated in the loan agreement. The note is collateralized by the
property and equipment purchased.
During fiscal year 1993, the Company purchased $3,000,000 of equipment which was
financed through three term notes with National Westminster Bank. The notes,
with original principal balances of $1,500,000, $900,000 and $600,000 are each
payable in sixty monthly payments of $50,000 plus interest at 7.29%, 6.8% and
6.69%, respectively. The notes are collateralized by the equipment.
AIR PRODUCTS LOAN
During fiscal year 1995, the Company purchased inventory for its Airopak
division which was financed by a note payable of $500,000 to Air Products and
Chemicals, Inc. which is recorded net of imputed interest at 9%. The entire
balance on the note is due August 5, 1995. The note is collateralized by a
letter of credit with National Westminster Bank.
EDGAR COUNTY BANK CONSTRUCTION LOAN
During fiscal year 1993, the Company financed $675,000 for real estate
improvements for a manufacturing plant in Paris, Illinois. The loan is payable
in sixty monthly principal payments of $2,813 and a final lump sum payment of
$506,250 on April 30, 1998, plus interest at 6.75%. The loan is collateralized
by a shared first lien interest for the land and building in Paris, Illinois in
conjunction with an inter creditor agreement between the bank and the City of
Paris.
COMMUNITY DEVELOPMENT ASSISTANCE LOAN
In fiscal year 1993, the Illinois Department of Commerce and Community Affairs
approved a loan with the City of Paris for development of a manufacturing plant
in Illinois for $500,000 which will be payable in 180 monthly installments of
$3,453 including interest at 3%. The loan is collateralized by a shared first
lien interest for the land and building in Paris, Illinois in conjunction with
an inter creditor agreement between the City of Paris and Edgar County Bank.
11
33
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
REVOLVING LOAN FUND
The Illinois Department of Commerce and Community Affairs also approved a
revolving loan fund from the City of Paris to assist in the development of the
manufacturing plant in Illinois for $150,000 in fiscal year 1993. The loan is
payable in 180 monthly installments of $1,033 including interest at 3%. The loan
is collateralized by a subordinate lien interest for the land and building in
Paris, Illinois in conjunction with an inter creditor agreement between the City
of Paris and Edgar County Bank.
ILLINOIS SMALL BUSINESS DEVELOPMENT LOAN
In fiscal year 1994, the Illinois Department of Commerce and Community Affairs
approved a loan with the City of Paris for the expansion of the Company's
manufacturing plant in Illinois for $350,000 which is payable in 180 monthly
installments of $2,767 including interest at 5% and a final payment to satisfy
the conditions of the loan. The loan can be prepaid in whole or in part without
penalty. The loan is collateralized by the property and improvements thereafter
as well as the rent issues and profits of the premises.
METROPOLITAN LIFE CAPITAL CREDIT CORPORATION
This note is payable in equal monthly installments of $12,290 including interest
at 9.4% over a 60-month period. The note is collateralized by equipment.
OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment which have been capitalized
in the accompanying financial statements. The Company amortizes the leases over
the estimated useful lives of the equipment using the straight line method.
Amortization expense related to these leases is included in depreciation and
amortization expense.
Machinery and equipment financed under capital leases have a cost basis of
$275,975 and accumulated amortization of $235,404 at June 30, 1995. At the end
of the lease term, or at the anniversary date of the lease, the Company has an
option to purchase the equipment for $1. Future minimum lease payments under
capital lease obligations and the present value of the minimum lease payments
are as follows:
12
34
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
YEAR AMOUNT
---- -------
1996 $41,984
-------
Net minimum lease payments 41,984
Less amount representing interest 1,513
-------
Present value of net minimum lease payments $40,471
=======
6. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as
follows:
YEAR AMOUNT
--------------------
1996 $88,497
1997 82,394
1998 45,860
1999 33,083
2000 18,946
Rental expense for operating leases amounted to $142,179, $102,947 and $111,526
in 1995, 1994 and 1993, respectively.
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. Net
pension cost consists of the following components:
1995 1994 1993
------------------------------------
Normal service cost $ 52,085 $ 45,088 $ 40,434
Interest on projected benefit obligation 37,729 31,275 25,669
Gain on return of plan assets (18,837) (12,456) (8,175)
Amortization cost 12,537 9,720 10,411
------------------------------------
Net periodic pension cost $ 83,514 $ 73,627 $ 68,339
====================================
13
35
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
The reconciliation of the funded status of the Plan to the amount on the
Company's balance sheet is as follows:
1995 1994
------------------------
Actuarial present value of:
Vested benefits $ 519,552 $ 446,750
========================
Accumulated benefits $ 582,850 $ 505,759
========================
Actuarial present value of projected benefit obligation $(582,850) $(505,759)
Market value of plan assets 314,607 250,719
------------------------
Projected benefit obligation in excess of plan assets (268,243) (255,040)
Unrecognized net obligation existing at transition 148,273 160,629
Unrecognized net loss 125,538 108,919
Adjustment required to recognize minimum liability (273,811) (269,548)
------------------------
Accrued pension liability $ 268,243 $ 255,040
========================
The assumptions used in determining the funded status of the Plan are as
follows: (i) discount rate - 7.5% and 8% in 1995 and 1994, respectively, and
(ii) expected rate of return on assets of 8.5% for 1995 and 1994.
The Company maintains a voluntary salary reduction 40l(k) plan covering all
non-union employees with more than one year of service. Eligible employees may
elect to contribute up to 6% of their salaries up to ERISA's maximum annual
level. The Company contributes an amount equal to 25% of the employee's
contribution and, at its discretion, may make additional contributions to the
plan based on earnings. The Company contributed $337,534, $124,448 and $256,924
in 1995, 1994 and 1993, respectively.
8. EMPLOYEES' INCENTIVE STOCK OPTION PLAN
The Company maintains an Incentive Stock Option Plan. Under the plan, the
Company may grant options for the purchase of up to an aggregate of 1,080,000
shares of its common stock. The options granted are exercisable to the extent of
20% per year on a cumulative basis through expiration. At June 30, 1995, 282,000
shares of common stock were reserved for issuance.
14
36
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEES' INCENTIVE STOCK OPTION PLAN (CONTINUED)
A summary of stock option activity relating to the Company's stock option plan
is as follows:
AVERAGE NUMBER OF
PRICE SHARES
------- ---------
Outstanding, June 30, 1992 $ .50 412,500
Exercised .51 (112,500)
--------
Outstanding, June 30, 1993 .50 300,000
Exercised .50 (300,000)
--------
Outstanding, June 30, 1994 .50 --
Exercised --
--------
Outstanding, June 30, 1995 --
========
9. INCOME TAXES
The provision for income taxes consists of:
1995 1994 1993
---------------------------------------------
Current:
Federal $ 827,256 $ 415,470 $ 799,542
State 201,397 48,412 210,926
---------------------------------------------
1,028,653 463,882 1,010,468
Deferred:
Federal 112,526 (101,440) (191,773)
State 2,818 26,001 2,474
---------------------------------------------
115,344 (75,439) (189,299)
---------------------------------------------
Total provision $ 1,143,997 $ 388,443 $ 821,169
=============================================
The provision (benefit) for deferred income taxes arises from the differences
between the book and tax bases of the following:
1995 1994 1993
--------------------------------------
Accelerated depreciation $ 15,084 $ 92,186 $ (14,147)
Inventory reserves (24,475) 71,225 (78,023)
Accrued liabilities and other 124,735 (47,850) (37,973)
Tax credits and carryforwards (191,000)
Other temporary differences (59,156)
--------------------------------------
Deferred tax (benefit) expense $ 115,344 $(75,439) $(189,299)
======================================
15
37
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
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, 1995 are as
follows:
1995 1994
-------------------------
Deferred tax liabilities:
Fixed assets $1,061,820 $1,046,736
Other 16,637 108,455
-------------------------
Total deferred tax liabilities 1,078,457 1,155,191
Deferred tax assets:
Bad debt reserves 97,077 97,077
Inventory reserves 104,448 79,974
Tax credits and carryforwards 191,000
Accrued liabilities and other 265,878 291,430
-------------------------
Total deferred tax assets 467,403 659,481
-------------------------
Net deferred tax liabilities $ 611,054 $ 495,710
=========================
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:
1995 1994 1993
------------------------
Federal tax at statutory rate 34% 34% 34%
Effect of:
State income taxes, net of federal income tax
benefit
6 5 6
Foreign operations (2) (3)
Other 3 2 (3)
------------------------
Effective income tax rate 41% 38% 37%
========================
Income taxes paid amounted to $871,000, $432,000 and $1,093,600 in 1995, 1994
and 1993, respectively.
16
38
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation in the ordinary course of business and it
is the opinion of management that the outcome of these proceedings will not have
a material adverse impact on the accompanying consolidated financial statements.
11. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
As more fully described in Note 1, the Company acquired certain assets from Air
Products and Chemicals, Inc. on August 4, 1994. The purchase price was allocated
to the assets based on their estimated market values as follows:
Inventory $ 620,173
Fixed assets 950,000
Notes payable (500,000)
-----------
Net cash paid $ 1,070,173
===========
17
39
PVC Container Corporation
Consolidated Schedules
June 30, 1995
40
Report of Independent Auditors
on Consolidated Schedules
The Board of Directors and Stockholders
PVC Container Corporation
In connection with our audits of the consolidated financial statements of PVC
Container Corporation as of June 30, 1995 and 1994, and for each of the three
years in the period ended June 30, 1995, we have also audited the consolidated
schedules included in this annual report on this Form l0-K as listed in Item
l4(a)(2).
In our opinion, the consolidated schedules referred to above present fairly, in
all material respects, the information required to be stated therein.
ERNST & YOUNG LLP
MetroPark, New Jersey
August 1, 1995
41
PVC Container Corporation
Schedule II - Valuation and Qualifying Accounts
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------- ---------- --------------------------- -------- -----------
ADDITIONS
--------------------------- AMOUNT
CHARGED WRITTEN
BALANCE CHARGED TO TO OTHER OFF
BEGINNING COSTS AND ACCOUNTS AGAINST BALANCE END
DESCRIPTION OF YEAR EXPENSES (DESCRIBED) RESERVE OF YEAR
--------------------------- --------- ---------- ----------- -------- -----------
Valuation accounts
deducted from assets to
which they apply:
June 30, 1995:
Accounts receivable $242,692 $ -- $-- $-- $242,692
Inventory -- 50,000 -- -- 50,000
June 30, 1994:
Accounts receivable 242,692 -- -- -- 242,692
June 30, 1993:
Accounts receivable 242,692 -- -- -- 242,692
42
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page
------ ----------------------
Certificate of Incorporation of the Company filed with the
3.1 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).
43
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 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).
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).
21 Subsidiaries of the Company (filed as Exhibit 22 to the 1987
10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP.
28.1 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.
28.2 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.