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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________.
COMMISSION FILE NUMBER 0-30067
PVC CONTAINER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2616435
(STATE OF OTHER JURISDICTION OF IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER
2 Industrial Way West,
Eatontown, New Jersey 07724-2202 07724
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 542-0060
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
None None
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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 last trade on August 31, 1999, was approximately
$13,680,868.
The number of shares outstanding of the registrant's only class of common stock,
as of the latest practicable date, is as follows:
Class Outstanding as of September 11, 1999
----- ------------------------------------
Common Stock, $.01 par value 7,038,705
EXHIBIT INDEX is located at Page 20
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PART I
Item 1. Description of Business.
General. PVC Container Corporation (the "Company") was
incorporated in Delaware on June 14, 1968. The Company's major business activity
consists of the manufacture and sale of a line of plastic bottles made from
polyvinyl chloride ("PVC") compounds, high-density polyethylene ("HDPE") and
polyethylene terephthalate ("PET") resins. The Company sells these bottles
through Novapak Corporation ("Novapak"), which is a wholly-owned subsidiary of
the Company. Some of the HDPE bottles are fluorinated to improve the chemical
resistance and barrier properties of the containers manufactured by the
Company's wholly-owned subsidiary known as Airopak Corporation. All of these
bottles ("plastic bottles") are used primarily for the packaging of cosmetics,
toiletries, foods, household chemicals, lawn and garden and industrial chemical
products.
PVC compounds are used by the Company or sold to other
plastic bottle manufacturers for the production of plastic bottles which compete
with those produced by the Company. These PVC compounds are produced and sold
through the Company's wholly-owned subsidiary, Novatec Plastics Corporation,
Inc. ("Novatec"). The Company also develops, manufactures, and sells a variety
of specalty PVC compounds for non-bottle applications ("speciality compounds")
including extruded profiles and accessories, moldings and other indoor fixtures,
furniture, and a multitude of injection molded parts (the "Company's targeted
markets").
On March 30, 1998, the Company acquired the plastic bottle
blow molding business of McKechnie Investments, Inc., which operates out of a
100,000 square foot facility located in Philmont, New York and is operated by
Novapak. The annual revenues of this business are approximately $17,000,000. The
business serves primarily the toiletries and cosmetics, specialty and household
chemical markets.
On September 3, 1998 the Company acquired all of the issued
and outstanding stock of Marpac Industries, Inc. which was founded in 1967 and
has annual sales of approximately $10,000,000. Marpac Industries, Inc. produces
custom blow molded products including plastic bottles, containers, cartridges,
double-wall cases, flexible spouts and various dispensers. Marpac Industries,
Inc. is known in the market for its technical capabilities which allow it to
manufacture uniquely configurated products within specific tolerances. Its
business is presently operated out of two facilities located in Kingston, New
York and Ardmore, Oklahoma.
Sales. The Company's plastic bottles are sold primarily to
manufacturers of toiletries and cosmetics, food, household chemicals, lawn and
garden and industrial chemical products, private label manufacturers of similar
products, and bottle distributors who sell to such manufacturers. PVC compounds
are sold to the Company and to other manufacturers of plastic bottles, and a
small but increasing amount of specialty compounds are sold to a diverse range
of manufacturers of other products. A limited amount of the Company's total
sales is made through commissioned sales representatives. During the fiscal year
ended June 30, 1999, no one customer accounted for 10% or more of the Company's
net sales.
Plastic bottles are offered in food grade and non-food grade
materials, fluorinated or non-fluorinated, in clear and opaque colors and in a
range of sizes from one to two hundred and twenty five ounces. The Company
produces plastic bottles utilizing its own molds, in proprietary designs ("stock
bottles") which are of its own design and also produces on a contractual basis
plastic bottles in molds owned by the customer, utilizing their designs and
specifications ("custom bottles").
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The sale of plastic bottles is generally a "regional"
business. The majority of the Company's customers are within a 300 mile radius
of the Company's 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. Some of the
markets the Company sells to are seasonal, such as lawn, garden and agricultural
chemicals which Airopak is dependent upon. These markets are characterized by
high demand in the periods of December through June and low demand from July
through November of each year.
Manufacturing Operations. The Company uses extrusion blow
molding equipment to manufacture its PVC plastic bottles. The same equipment is
also used to manufacture fluorinated and non-fluorinated plastic bottles from
HDPE and can also be used with some modifications, to process bottles from other
blow molding polymers, including polypropylene, glycol-modified polyethylene
terephthalate ("PETG") and some new extrusion grade polyethylene terephathalate
resins ("EPET") which are presently semi-commercial. The Company also
manufactures and sells plastic bottles made from injection stretch blow molding
grades of PET as well as PET preforms which can be converted into various sizes
of plastic bottles and which can be economically shipped in their preform state
prior to such conversion.
The Company operates plastic bottle manufacturing facilities
in Hazleton, Pennsylvania, Paris, Illinois, Manchester, Pennsylvania,
Walterboro, South Carolina, Philmont, New York, Kingston, New York and Ardmore,
Oklahoma for the manufacturing of plastic bottles. During September, 1998 the
Company relocated its existing plastic bottle business from a facility in
Eatontown, New Jersey owned by the Company to a newly constructed facility in
Hazleton, Pennsylvania. See Properties. This new facility provides the Company
with additional space needed to support manufacturing on a more economical and
efficient basis. The Company is in the process of selling its former plastic
bottling facility, located in Eatontown. 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. 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
adequate to supply the Company's current requirements for PVC compound. The
Company uses its excess PVC compounding capacity to produce PVC bottle compounds
and specialty compounds for sale to other plastic processors of PVC bottles and
other Company targeted markets. A description of the Company's compound facility
is set forth below in Item 2 entitled "Properties".
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Raw Materials. Since the Company completed and opened its PVC
compounding facility in 1982, the Company has manufactured for its own use most
of the PVC compounds used by it in the manufacture of plastic bottles. The major
ingredients used to manufacture such PVC compounds are PVC resins (approximately
85%) and MBS (methacrylate-butadiene-styrene) impact modifiers (approximately
12%). The balance of such ingredients includes heat stabilizers, lubricants,
processing aids, and toners (pigments), which materials are readily available
from various suppliers. The other raw materials used to manufacture plastic
bottles are primarily HDPE and PET. The Company believes it is not dependent
upon any single supplier for these major raw materials. The Company relies on
multi-year supply contracts for the purchase of these raw materials, and
believes that it will be able to purchase sufficient quantities in the
foreseeable future.
A shortage of petroleum, should it develop, would have an
effect on the availability and the cost of the raw materials used by the Company
in connection with its business. The availability and price of resins has a
direct effect on the business of the Company. Although sufficient PVC resin,
HDPE and PET resins are currently available for the Company's operations, no
assurance can be given that adequate supply of plastic resins will be available
to the Company in the future. However, the cost of resin can vary and may have a
material impact on the business of the Company. The Company has in the past been
able to recover the cost of the resin price increase by increasing the sales
price of its plastic bottles and any inability to do so in the future could have
an adverse impact on the Company's financial results. Prices for PVC resins as
well as HDPE and PET resins are mostly dependant upon the supply/demand of
specific plastic resins as well as their monomer and their feedstocks. See
"Competition & Marketing" below.
Inventory. Depending upon the level of demand and scheduling
requirements for the Company's products, the Company maintains on average 4-6
weeks of plastic bottles finished goods inventory and approximately 2-3 weeks of
plastic compound finished goods inventory. From time to time, depending upon the
prices and availability of raw materials (principally PVC resins), the Company
will pre-buy or increase inventory of raw materials from a normal 2-3 week
supply to up to a 2 month supply, in order to offset anticipated price
increases. During peak sales periods, it is sometimes necessary to store
inventory of the Company's products and raw materials in outside warehousing.
Backlog. Generally the Company's backlog of unfilled order
ranges from approximately four to six weeks.
Competition and Marketing. The Company believes it is one of
approximately thirty manufacturers of plastic bottles in the United States, one
of at least five manufacturers of PVC bottle compounds and one of at least five
manufacturers of specialty compounds for use in the Company's targeted markets.
The dominant manufacturers of plastic bottles are Owens-Brockway, Inc. and
Silgan Corp. The dominant manufacturers of PVC bottle compounds and PVC
specialty compounds are 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, and many of which also manufacture PVC resin.
The Company principally competes in the plastic bottle market
on the basis of quality, customer service and price. 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.
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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; whereas profit
margins on PVC specialty compounds remain stronger because the Company faces
less price competition.
The market for PVC bottles and PVC bottle compounds has
declined somewhat during the past several years due to industry concern over the
ability to cope with solid waste issues. See item entitled "Environmental
Issues." Industry demand for PVC bottles and compounds 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 Company targeted markets. The Company believes that these
specialty compound markets will be less sensitive to wide swings in the cost of
PVC resin and may be more influenced by the performance, quality, and service
which is characteristic of a specialty type business. In particular, the Company
is marketing injection molding PVC compound for use in the communications,
electronics and appliance markets and extrusion compounds for use in indoor
molding and other specialty "profile" markets.
The Company believes its technical, marketing and
manufacturing capability in the plastic bottle market is equal to that of its
major competitors in small to midsize volume applications in its region,
particularly in the toiletry, cosmetic and household chemical product segments,
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 and higher cost of living in New Jersey
and the resulting increased employee turnover and difficulty in retaining labor
on swing shifts, weekends and holidays influenced the Company's decision as
described above to relocate its New Jersey manufacturing facility from
Eatontown, New Jersey to Hazleton, Pennsylvania which has a large labor pool.
Additionally, the Company has been able to improve its overall costs by
expanding and shifting a portion of its business to its lower cost facilities
located in Paris, Illinois and Walterboro, South Carolina, and as a result also
contributes to making the Company more cost competitive. See "Properties".
As a result of the recent acquisition of the Philmont, New
York facility see "General", "Manufacturing Operations" and "Properties", the
Company has increased its container decorating capabilities to include automatic
silk screening multiple color applications, pressure sensitive paper and plastic
film labels and therimage heat transfer labeling. While the Company believes
that eventually it will be required to establish this capability in some of its
other manufacturing facilities, it does currently interfere with the Company's
ability to compete.
PVC competes with PET and PETG as a material for use in the
manufacture of transparent plastic bottles. Manufacturers of bottles made of PET
have captured a portion of the edible oil, household chemical and medicinal
segments of the plastic bottle market from PVC bottle manufacturers. Because the
price of PET bottles becomes competitive on high volume orders of custom
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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.
Because most of the Company's custom bottle business consists of low or
mid-range volume orders, the Company's custom bottle business has been less
vulnerable to PET. However, recently several stock PET containers of similar
shape and size to some of the Company's PVC stock bottles are becoming more
prevalent in the Company's markets. Although injection PET tooling is
considerably more expensive than PVC extrusion tooling, some components of PET
molds and tooling can be shared over several custom or stock designs thereby
reducing the higher tooling/mold intensity associated with the injection based
PET stock and custom bottle business. The Company has the ability to manufacture
PETG bottles by modifying its equipment, and the Company now manufactures and
sells PETG bottles. The Company has commenced the manufacture and sale of PET
plastic bottles and preforms at its facility in Paris, Illinois, Walterboro,
South Carolina and Hazleton, Pennsylvania as a defensive marketing strategy.
This new capacity allows the Company to compete for PET bottle applications in
the plastic bottle market. See "Environmental Regulation" below.
Research and Development. The Company spent approximately
$222,000, $257,000 and $240,000 for the fiscal years ended June 30, 1999, 1998
and 1997, respectively on research activities relating to the development of new
designs of containers and the production of compounds. The major thrust of the
Company's research and development efforts is currently in the area of new PVC
compound development.
Environmental Regulation. The Company does not believe that
compliance with federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of material into the environment, or
otherwise relating to the protection of the environment, has had or will have
any material effect upon the capital expenditures, earnings or competitive
position of the Company. However, the future of PVC as a material for packaging
foods has been dampened by the Food and Drug Administration's ("FDA's")
unwillingness to implement standards with regard to levels of residual vinyl
chloride monomer ("VCM") acceptable for food packaging. Although the FDA's
proposed levels of VCM are expected to be easily attainable by the Company's
industry, the FDA has been precluded from issuing the standards by the
Environmental Protection Agency ("EPA"). The EPA is insisting that a new
environmental impact statement be developed prior to promulgating new standards.
The EPA's concern is that the adoption of the FDA's new regulations will
stimulate additional demand for PVC bottles and, hence, add to the PVC in the
waste stream. The Society of Plastics Industry ("SPI"), and Vinyl Institute
("VI") which represent the PVC industry on this issue, estimates that it will
take several years to complete an acceptable environmental impact statement.
In addition, as it is now a supplier of a primary raw
material, the Company may have to comply with existing regulations promulgated
by the EPA with respect to the emission of VCM into the environment and
regulations promulgated by the Occupational Safety and Health Administration
regarding material safety.
Solid waste disposal and mandatory recycling have become a
major environmental issue with respect to plastic packaging in general. Concerns
over the incineration of PVC compounds, which 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, however, that the threat of further regulatory actions
inhibiting the future growth of PVC as a viable packaging material will be
minimal,
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although no assurances can be given that further regulatory actions, or
the threat of further regulatory action would not have a negative impact on the
Company's business.
Employees. As of June 30, 1999 the Company employed 45 people
at its new executive office located at 2 Industrial Way West, Eatontown, New
Jersey. The Company employs a total of 60 people at the Novatec facility in
Eatontown, New Jersey. There are currently employed 99 people in the new
manufacturing facility in Hazleton, Pennsylvania. The Company employs 123 people
at its Paris, Illinois facility, 66 people at its Walterboro, S.C. facility, 70
people at Airopak Corporation in its Manchester, Pennsylvania facility, 164
people at its Philmont, New York facility and a total of 87 people at Kingston,
New York and the Ardmore, Oklahoma facilities. The Company renewed its
collective bargaining agreement with Local 108 of the Retail, Wholesale and
Department Store Union, AFL-CIO, effective September 1, 1997 until August 31,
2000. 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 $4,073,000 during the fiscal
year ended June 30, 1999. Net sales to the northeast of the United States
amounted to $36,939,000 during such fiscal year; net sales to the Midwest
amounted to $26,095,000; net sales to the southeast amounted to $13,735,000; and
net sales to other domestic regions amounted to $4,313,000 during such fiscal
year.
Item 2. Properties.
The Company's manufacturing activities with respect to its
continuing businesses are conducted at the nine facilities described in the
following table:
Location Purpose of Facility Building Area
(square feet)
Hazleton, Pennsylvania Plastic Bottle Plant and 160,000(1)
warehousing and Office
Eatontown, New Jersey Plastic Compounding Plant, 50,162(2)
warehouse and offices
Executive offices 9,300(9)
Manchester, Pennsylvania Airopak Corporation Plant and 145,221(3)
warehousing
Paris, Illinois Plastic bottle Plant and 125,000(4)
warehousing and office
Walterboro, S.C. Plastic bottle Plant warehousing 61,430(5)
and office
Philmont, New York Plastic bottle plant, warehouse and 100,000(6)
office
Kingston, New York Plastic bottling plant, warehouse 34,000(7)
and office
Ardmore, Oklahoma Plastic bottling plant, warehouse 10,000(8)
and office
1. As indicated above, under "Manufacturing Operations" and
"Employees", the Company relocated during September 1998 its Eatontown, New
Jersey manufacturing facilities to a new
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facility located in Hazleton, Pennsylvania on 10 acres of real property owned by
the Company. The Hazleton facility is a solid concrete tilt-up facility,
sprinklered throughout and consisting of 160,000 square feet of manufacturing
and warehouse space. There are also ten loading docks and a rail siding at the
facility.
2. The Company's PVC Compounding manufacturing facility is
located at 275 Industrial Way West, Eatontown, New Jersey on 5.5 acres of real
property owned by the Company. It contains manufacturing, R&D, warehouse, and
administrative offices and is constructed from steel and concrete panels. 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.
3. As described in the section entitled "Manufacturing
Operations" the Company acquired a business located in Manchester, Pennsylvania.
The facilities in Manchester are leased and consist of a manufacturing and
warehouse facility having a total of approximately 145,221 square feet. The
aggregate annual rental payable with respect to the manufacturing and warehouse
space for the Airopak Corporation detailed above and in this Item 3 is $413,928
plus real estate taxes, utilities and certain other charges payable under a
lease which expires or April 30, 2013 with two additional five year terms. It is
believed that these facilities are large enough to allow for future growth of
the business conducted at these facilities.
4. The Company commenced operations during April, 1993 in a
new 62,500 square foot concrete plastic bottle manufacturing facility located in
Paris, Illinois. The Company owns this facility and twenty acres of land on
which it is located. Financing for this facility was obtained from the Edgar
County Bank, the City of Paris, Illinois and the Illinois Small Business
Development Agency. In July 1997, the Company completed the construction of an
additional 62,500 square feet of warehouse and manufacturing space. This
expansion was financed by the Company through the issuance of Industrial
Development Revenue Bonds by the City of Paris, Illinois, in the amount of
$3,500,000. See Note 5 to the Notes to the Consolidated Financial Statements
below.
5. In October 1996, the Company completed construction and
began operations in a new plastic bottle manufacturing plant located in
Walterboro, South Carolina. This facility consists of 61,430 square feet of
warehouse and manufacturing space, located on 8.83 acres of real property which
is owned by the Company. Financing for this facility was obtained through the
South Carolina Economic Development Authority in the amount of $5,500,000. See
Note 5 to the Notes to the Consolidated Financial Statements below.
6. As indicated above under "Manufacturing Operations" the
Company acquired on March 30, 1998 the plastic bottle manufacturing facilities
of McKechnie Investments Ltd. The facility consists of 100,000 square feet of
warehouse and manufacturing space located on 37 acres of real property owned by
the Company.
7. and 8. As indicated above under "Manufacturing Operations"
the Company acquired on September 3, 1998 the plastic bottle manufacturing
business of Marpac Industries located in Kingston, New York and Ardmore,
Oklahoma. The Kingston facility consists of 34,000 square feet of manufacturing,
warehouse and office space. The Ardmore, Oklahoma facility consists of 10,000
square feet of manufacturing, warehouse and office space. The Kingston facility
is located on approximately 6 acres of real property with 2.4 adjacent acres for
expansion and all of which are owned by the Company.
9. The Company occupies approximately 9,300 square feet of
executive offices under a lease for a term of ten years commencing on January 1,
1999 at an initial monthly rental of
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$13,950 until December 31, 2000 when the monthly rental increases to $15,500
until December 31, 2004 when the monthly rental increases to $16,275 until
December 31, 2006 when the monthly rental increases to $17,050 until the end of
the term. As indicated above under "Manufacturing Operations", the Company
relocated its Eatontown, New Jersey manufacturing facility to a new facility
located in Hazleton, Pennsylvania and its executive offices to the new location
described above.
Item 3. Legal Proceedings.
There are pending two actions and several claims against the
Company relating to products of the Company manufactured and sold in the
ordinary course of business and which, in the opinion of management, will not
adversely affect the business or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
None
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PART II
Item 5. Market for Registrant's Common Stock
and Related Securityholder Matters.
The Company's common stock trades on the Nasdaq National
Stock Market under the symbol PVCC. The last trade of the common stock on August
31, 1999 was at a price of $6.50 per share. The following is a summary of the
high and low trade information on the Nasdaq National Stock Market during the
fiscal year of the Company ended June 30, 1999 and June 30, 1998:
Year Ended June 30, 1999
Low High
1st Quarter $6.50 $7.50
2nd Quarter 6.125 7.75
3rd Quarter 6.125 7.50
4th Quarter 5.50 7.00
Year Ended June 30, 1998
Low High
1st Quarter $3.06 $4.75
2nd Quarter 3.50 4.69
3rd Quarter 4.375 7.25
4th Quarter 6.00 9.75
As at September 2, 1999, the number of holders of record of
the issued and outstanding common stock of the Company was approximately 595.
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. The Company declared on January 29, 1996 a stock dividend in
the amount of 3% per share and a total of 202,817 shares were paid on February
26, 1996 to shareholders in connection with this dividend. The Company declared
on August 29, 1996 a cash dividend of $.06 per share payable on September 20,
1996 to shareholders of record as of the close of business on September 13,
1996. No dividends have been declared or paid during the fiscal years ended June
30, 1999 and 1998. The Company paid dividends of approximately $418,000 during
the fiscal year ended June 30, 1997.
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Item 6.
Selected Financial Data.
Years Ended June 30
- ---
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
SELECTED INCOME STATEMENT DATA:
- ---
Net Sales $85,155,047 $69,728,498 $58,392,310 $57,216,317 $53,886,103
- ---
Income from operations $4,770,689 $4,489,406 $4,206,218 $4,950,200 $3,556,095
- ---
Net Income $1,608,805 $2,087,891 $2,250,528 $2,552,570 $1,610,665
- ---
Earnings per share:*
Weighted average shares
for diluted shares 7,158,741 7,064,671 6,989,034 6,841,085 6,964,730
- ---
Income from operations $.67 $.64 $ .60 $.72 $.51
- ---
Net Income $.23 $.30 $ .32 $.37 $.23
- ---
Cash dividends per share $--- $--- $ .06 $ -- $.05
- ---
Stock dividends per share $--- $--- $ --- $ .08 $ --
- ---
SELECTED BALANCE SHEET DATA
- ---
Current assets $33,999,892 $25,000,463 $20,386,764 $19,274,008 $16,605,173
- ---
Current liabilities $20,360,096 $16,654,395 $11,876,707 $12,299,121 $10,655,197
- ---
Working capital $13,639,796 $8,346,068 $8,510,057 $6,974,887 $5,949,976
- ---
Total assets $83,352,568 $70,371,118 $46,041,366 $44,181,871 $34,158,390
- ---
Noncurrent liabilities $42,516,662 $34,989,808 $17,525,635 $17,196,372 $11,369,189
- ---
Stockholders' equity $20,475,810 $18,726,915 $16,639,024 $14,686,378 $12,134,004
* Earnings per share calculations are based on the weighted average number of
shares of common stock and common stock equivalents outstanding. Retroactively
restated for the 3% stock dividend paid on February 26, 1996 to shareholders of
records on February 9, 1996.
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
FISCAL 1999 AS COMPARED TO FISCAL 1998
The Company's net sales for the fiscal year ended June 30,
1999 reached a level of $85,155,000, an increase of approximately 22.1% over the
1998 level of $69,728,000. The Company's Novatec Plastics division experienced
increased demand; its Airopak specialty container division, which now includes
Marpac Industries, and its Novapak division, (which reflects twelve months of
operations from its acquisition of Charter Supply Co.,Inc. ("McKechnie) versus
three months in 1998) also registered growth.
Cost of goods sold decreased from 76.7% in 1998 to 75.2% in
fiscal 1999. Manufacturing efficiencies and lower raw material prices accounted
for this decrease. Selling, general, and administrative expenses ("SG&A") were
$9,187,000 or 10.8% of net sales for the fiscal year ended June 30, 1999 as
compared to $6,522,000 or 9.4% of net sales for the fiscal year ended June 30,
1998. SG&A expenses have increased to support the Company's continued expansion.
Depreciation and amortization expense for fiscal 1999 increased $3,132,000 as
compared to fiscal 1998, primarily as a result of the recent acquisitions, as
well as higher depreciation associated with recent investments in PET equipment.
Earnings before interest, taxes, depreciation, and
amortization ("EBITDA") increased from approximately $8,642,000 in fiscal 1998
to approximately $12,212,000 in fiscal 1999. Of the $3,570,000 increase in
EBITDA, approximately $662,000 was due to the performance of the Novatec
Plastics division, with the remaining $2,908,000 as a result of the growth in
the Company's plastic containers segment.
Income from operations for the fiscal year ended June 30,
1999 increased to $4,771,000 or 5.6% of net sales as a result of the
fluctuations discussed above. For fiscal 1998, income from operations was
$4,489,000 or 6.4% of net sales after a $1,200,000 pretax charge to income for
restructuring relating to the relocation of its Eatontown, New Jersey
manufacturing facility to Hazleton, Pennsylvania.
Net interest expense increased $1,197,000 during the fiscal
year ended June 30, 1999 as compared to fiscal 1998. The net increase was
primarily due to additional borrowings to finance acquisitions.
Net income for the year ended June 30, 1999 decreased to
$1,609,000 or $.23 per share as compared to $2,088,000 or $.30 per share for
fiscal 1998.
FISCAL 1998 AS COMPARED TO FISCAL 1997
The Company's net sales for the fiscal year ended June 30,
1998 reached a level of $69,728,000, an increase of approximately 19.4% over the
1997 level of $58,302,000. The Company's Airopak specialty container division
and its Novatec Plastics division both experienced increased demand; its Novapak
division, which now includes the Charter Supply Co., Inc. (McKechnie)
acquisition registered significant growth in demand for its PET bottles.
Cost of goods sold decreased from 78.2% in 1997 to 76.7% in
fiscal 1998. Manufacturing efficiencies and lower raw material prices accounted
for this decrease. Selling, general and administrative expenses ("SG&A") was
$6,522,000, or 9.4% of net sales for the fiscal year ended
-11-
14
June 30, 1998 as compared to $5,394,000, or 9.2% of net sales for the fiscal
year ended June 30, 1997. SG&A expenses have increased to support the Company's
expansion and its entry into the PET market.
The Company recorded a $1,200,000 pretax charge to income for
restructuring relating to the relocation of its Eatontown, New Jersey
manufacturing facility to Hazleton, Pennsylvania.
Income from operations for the fiscal year ended June 30,
1998 increased to $4,489,000 or 6.4% of net sales; before the restructuring
charge, income from operations was $5,689,000, or 8.2% of net sales. For fiscal
1997, income from operations was $4,206,000 or 7.2% of net sales. Increased
revenues and profit margins more than offset the increase in SG&A and
depreciation expense.
Net interest expense increased $361,000 during the fiscal
year ended June 30, 1998, as compared to fiscal 1997. The net increase was
primarily due to additional borrowings to finance acquisitions.
Net income for the year ended June 30, 1998 decreased to
$2,088,000 or $.30 per share as compared to $2,251,000 or $.32 per share for
fiscal 1997. Prior to the restructuring charge net income was $2,790,000 or $.40
per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position at June 30, 1999 increased
from the prior year. Working capital increased approximately $5,294,000 to
$13,640,000 at June 30, 1999 from $8,346,000 at June 30, 1998. Approximately
$4,351,000 of the increase relates to a reclassification from net property,
plant and equipment to Net assets held for disposition, as a result of
management's intent to sell this long-lived asset above net book value in fiscal
2000. The current ratio increased to 1.67 at June 30, 1999 from 1.50 at June 30,
1998.
Cash flows from operations during fiscal 1999 in the amount
of $6,513,000 represent a decrease of $896,000 from the prior year. The major
reasons are an increase in depreciation ($3,132,000) offset by lower net income
($479,000) and higher net operating working capital ($3,549,000).
The Company received $14,400,000 in proceeds from long term
debt. These funds, combined with the cash flow from operations, were used to
finance the acquisition of Marpac Industries, Inc., to acquire $3,022,000 in
capital assets, and reduce long term debt by $6,350,000.
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 of June 30, 1999, the
Company had unused sources of liquidity consisting of cash and cash equivalents
of $784,000 and available unused credit under a revolving credit facility of
$5,000,000.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date ending in "00" as the year 1900 rather than the year 2000. This could
result in system failure or miscalculations causing disruptions of operations
including, among other
-12-
15
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During fiscal 1998, the Company began a program to upgrade
its computer software and hardware which is expected to be completed in calendar
1999, prior to any anticipated impact on its operating systems. A significant
portion of the costs related to this program are included in the June 30, 1998
audited financial statements. The Company believes that with these upgrades for
its computer systems, the Year 2000 issue will not pose significant operational
problems. However, if such modifications and conversions are not made, or are
not completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company is continuing to contact all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have a material adverse effect on the Company's systems.
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-
-13-
16
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth the directors and executive
officers of the Company. Each director holds office until his successor is
elected and qualifies.
Name Age Held Office Since Offices with the Company
Phillip L. Friedman 52 1982 President, Chief Executive, and
Director
Joel Francis Roberts 57 1989 Senior Vice President Operations
William A. Del Pizzo 41 1996 Vice President, Chief Financial Officer
John F. Turben 64 1996 Director
Raymond A. Lancaster 53 1996 Director
Michael Sherwin 58 1996 Director
George R. Begley 56 1996 Director
PHILLIP L. FRIEDMAN was employed by Occidental Chemical
Corporation (formerly Hooker Chemical Corporation), a leading manufacturer and
supplier of PVC resins and compounds from 1969 until December 1981, when he
joined the Company. During his last 5 years with Occidental, Mr. Friedman was
Manager of Business Development and Director of Commercial Development for the
Polyvinyl Chloride Plastics Division. As the Director of Commercial Development,
he was responsible for coordinating and reducing to commercial practice various
research and development projects within the plastics industry. He is a member
of the Executive Committee of the Company.
JOEL FRANCIS ROBERTS, from 1984 to July 1986, was a plant
manager for Technical Plastics Extruders, an extruder of sheet material. During
July 1986 he joined the Company as a plant manager and became a Director of
Operations during 1989. He became a Senior Vice President for Operations during
fiscal 1999.
WILLIAM A. DEL PIZZO, was employed by Price Waterhouse from
1978 to 1980, when he joined Allied Signal Corporation where he held a variety
of accounting and financial positions from 1980 until 1989. He then joined
Ausimont USA, Inc., a manufacturer of fluoropolymers and specialty chemicals,
where he served as Chief Financial Officer until 1996. In October 1996, he
joined the Company as Vice President and Chief Financial Officer.
GEORGE R. BEGLEY
Mr. Begley is an independent investment advisor, a director
of North Coast Energy and a member of the audit committee of the Company.
RAYMOND A. LANCASTER
Mr. Lancaster is the Managing Partner of Kirtland Capital
Partners II L.P. (see "Security Ownership of Certain Beneficial Owners and
Management") and was the managing partner of Kirtland Capital Partners from 1995
to 1996 and of Key Corp. from 1990 to 1995. He is a member of the Executive and
Audit Committee of the Company. Currently, Mr. Lancaster is a KCP I and KCP II
Advisory Board member and a member of the Board of Directors of Fairmount
Minerals, Ltd., PVC
-14-
17
Container Corporation, R. Tape Corporation, Stonebridge Industries, Steris
Corporation, and Unifrax Corporation.
MICHAEL SHERWIN
Mr. Sherwin is the Vice Chairman of Mid-West Forge
Corporation and Chairman and Chief Executive Officer of Columbiana Boiler
Company. Prior to joining Mid-West Forge Corporation, Mr. Sherwin was the
President of National City Venture Corporation and National City Capital
Corporation, both subsidiaries of National City Corporation. He is chairman of
the Audit Committee of the Company.
JOHN F. TURBEN
Mr. Turben is Chairman of Kirtland Capital Partners and is a
KCP I and KCP II Advisory Board member and serves as Chairman of The Hickory
Group, PVC Container Corporation and Harrington and Richardson 1871, Inc. He is
also Chairman of the Executive Committee of Fairmount Minerals, Ltd. and
Execution Services Inc. He is a director of NACCO Industries, Unifrax
Corporation and TruSeal Technologies Inc. He is Chairman of the Board of the
Company and a member of its Executive Committee.
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, 1999 and 1998
Consolidated Statements of Income for the three years ended
June 30, 1999
Consolidated Statements of Stockholders' Equity
for the three years ended June 30, 1999
Consolidated Statements of Cash Flows for the three years
ended June 30, 1999
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedule.
Report of Independent Auditors on Consolidated Financial
Statement Schedule
For the three years ended June 30, 1999
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of the State of Delaware (filed as
Exhibit 3.1 to the Company's Form 10-K for the fiscal year
ended June 30, 1988 (the "1988 10-K"), and incorporated
herein by reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2 to the 1988
10-K, and incorporated herein by reference).
10.1 Deferred Compensation Plan established June 4, 1986 and
effective July 1, 1986 (filed as Exhibit 10.1 to the
Company's Form 10-K for the fiscal year ended June 30, 1987
(the "1987 10-K"), and incorporated herein by reference).
10.2 Profit Sharing Savings Plan (Flexinvest 401(k) Plan)
effective July 1, 1984 (filed as Exhibit 10.2 to the 1987
10-K, and incorporated herein by reference).
-16-
19
10.3 1981 Incentive Stock Option Plan filed as an Exhibit to the
Company's Form 10-K for fiscal 1982 and incorporated herein
by reference (filed as Exhibit 10.3 to the 1987 10-K, and
incorporated herein by reference).
10.4 Employment Agreement between the Company and Phillip L.
Friedman dated July 1, 1982 as amended on June 4, 1986
(filed as Exhibit 10.4 to the 1987 10-K, and incorporated
herein by reference).
10.5 Lease for the Company's container manufacturing plant dated
October 5, 1973 and amended July 2, 1974 between John
Donato, Jr. and the Company (filed as Exhibit 10.5 to the
1987 10-K, and incorporated herein by reference).
10.7 Loan and Security Agreement among the Company, First Jersey
National Bank and Novatec dated June 1, 1984 and modified
March 31, 1986 (filed as Exhibit 10.7 to the 1987 10-K, and
incorporated herein by reference).
10.8 Credit Agreement among the Company, New Jersey Economic
Development Authority, United Jersey Bank and The First
Jersey National Bank dated as of November 1, 1981 (filed as
Exhibit 10.8 to the 1987 10-K, and incorporated herein by
reference).
10.9 Bond Financing Agreement among the Company, New Jersey
Economic Development Authority, United Jersey Bank and The
First Jersey National Bank dated November 27, 1984 (filed as
Exhibit 10.9 to the 1987 10-K, and incorporated herein by
reference).
10.10 Collective Bargaining Agreement dated September 1, 1988
between the Company and Local 108, Retail, Wholesale and
Department Store Union, AFL-CIO (filed as Exhibit 10.10 to
the 1988 10-K, and incorporated herein by reference).
10.11 Third Amendment to Employment Agreement between Phillip L.
Friedman and the Company dated November 29, 1989 (filed as
Exhibit 10.11 to 1990 10-K and incorporated herein by
reference).
10.12 Asset Purchase Agreement between Airopak Corporation and
Air Products and Chemicals, Inc. dated 8/4/94 (filed as
Exhibit 10 to the report on Form 8-K filed on August 8, 1994
and incorporated herein by reference).
10.13 Employment Agreement between the Company and Phillip L.
Friedman dated July 1, 1996 (filed as Exhibit 10.2 to the
December 12, 1996 8-K, and incorporated herein by
reference).
10.14 Stock Purchase Agreement among the Company, Kirtland
Capital Partners, and Rimer Anstalt, dated December 3, 1996
(filed as Exhibit 10.1 to the December 12, 1996 8-K and
incorporated herein by reference).
-17-
20
10.15 1996 Incentive Stock Option Plan (filed as Exhibit 10.3 to
the December 12, 1996 8-K, and incorporated herein by
reference).
10.16 Asset Purchase Agreement dated March 30, 1998 among the
Company, Charter Supply Co., Inc. and McKechnie Investments,
Inc. (filed as an Exhibit to the April 14, 1998 Report on
Form 8-K and incorporated herein by; reference).
10.17 Loan and Security Agreement among the Company and its
subsidiaries and Fleet Bank, N.A. dated March 30, 1998
relating to the financing of the purchase described in 10.16
above (filed as an Exhibit to the April 14, 1998 Report on
Form 8-K and incorporated herein by reference).
10.18 Stock Purchase Agreement dated September 3, 1998 among the
Company and the sellers of all the securities of Marpac
Industries, Inc. (filed as an Exhibit to the September 18,
1998 Report on Form 8-K and incorporated herein by
reference).
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).
22 Subsidiaries of the Company (filed as Exhibit 22 to the 1987
10-K, and incorporated herein by reference).
23 Consent of Ernst & Young LLP
99.1 Second Amendment to the PVC Container Corporation 1981
Incentive Stock Option Plan, dated July 6, 1989, with the
unanimous written consent of Directors of the Company (filed
as Exhibit 28.1 to 1990 10-K and incorporated herein by
reference.
99.2 Letter dated September 22, 1989 from Phillip L. Friedman to
Bidyuk AG regarding the termination of their Option
Agreement dated December 14, 1987 (filed as Exhibit 28.2 to
1990 10-K and incorporated herein by reference).
-18-
21
Exhibits filed herewith:
None.
(b) Reports on Form 8-K filed during last quarter of the year ended June
30, 1999:
None.
(c) Exhibits
None.
(d) Financial statement schedules
The financial statement schedules required by Regulation S-X are
submitted as a separate section of this filing.
-19-
22
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of the State of Delaware (filed as Exhibit 3.1
to the Company's Form 10-K for the fiscal year ended June 30, 1988
(the "1988 10-K"), and incorporated herein by reference).
3.2 The Company's By-Laws (filed as Exhibit 3.2 to the 1988 10-K, and
incorporated herein by reference).
10.1 Deferred Compensation Plan established June 4,
1986 and effective July 1, 1986 (filed as
Exhibit 10.1 to the Company's Form 10-K for the
fiscal year ended June 30, 1987 (the "1987
10-K"), and incorporated herein by reference).
10.2 Profit Sharing Savings Plan Flexinvest 401(k)
Plan) effective July 1, 1984 (filed as Exhibit
10.2 to the 1987 10-K, and incorporated herein
by reference).
10.3 1981 Incentive Stock Option Plan filed as an Exhibit to the
Company's Form 10-K for fiscal 1982 and incorporated herein by
reference (filed as Exhibit 10.3 to the 1987 10-K, and
incorporated herein by reference).
10.4 Employment Agreement between the Company and
Phillip L. Friedman dated July 1, 1982 as
amended on June 4, 1986 (filed as Exhibit 10.4
to the 1987 10-K, and incorporated herein by
reference).
10.5 Lease for the Company's container manufacturing plant dated
October 5, 1973 and amended July 2, 1974 between John Donato, Jr.
and the Company (filed as Exhibit 10.5 to the 1987 10-K, and
incorporated herein by reference).
10.7 Loan and Security Agreement among the Company,
First Jersey National Bank and Novatec dated
June 1, 1984 and modified March 31, 1986 (filed
as Exhibit 10.7 to the 1987 10-K, and
incorporated herein by reference).
10.8 Credit Agreement among the Company, New Jersey
Economic Development Authority, United Jersey
Bank and The First Jersey National Bank dated as
of November 1, 1981 (filed as Exhibit 10.8 to
the 1987 10-K, and incorporated herein by
reference).
10.9 Bond Financing Agreement among the Company, New
Jersey Economic Development Authority, United
Jersey Bank and The First Jersey National Bank
dated November 27, 1984 (filed as Exhibit 10.9
to the 1987 10-K, and incorporated herein by
reference).
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).
-20-
23
10.11 Third Amendment to Employment Agreement between Phillip L.
Friedman and the Company dated November 29, 1989 and incorporated
herein by reference.
10.12 Asset Purchase Agreement between Airopak Corporation and Air
Products and Chemicals, Inc. dated August 4, 1994 (filed as
Exhibit 10 to the report on Form 8-K filed on August 8, 1994 and
incorporated herein by reference).
10.13 Employment Agreement between the Company and Phillip L. Friedman
dated July 1, 1996 (filed as Exhibit 10.2 to the December 12, 1996
8-K, and incorporated herein by reference)
10.14 Stock Purchase Agreement among the Company,
Kirtland Capital Partners, and Rimer Anstalt,
dated December 3, 1996 (filed as Exhibit 10.1 to
the December 12, 1996 8-K and incorporated
herein by reference).
10.15 1996 Incentive Stock Option Plan (filed as
Exhibit 10.3 to the December 12, 1996 8-K, and
incorporated herein by reference).
10.16 Asset Purchase Agreement dated March 30, 1998 among the Company,
Charter Supply Co., Inc. and McKechnie Investments, Inc. (filed as
an Exhibit to the April 14, 1998 Report on Form 8-K and
incorporated herein by; reference).
10.17 Loan and Security Agreement among the Company
and its subsidiaries and Fleet Bank, N.A. dated
March 30, 1998 relating to the financing of the
purchase described in 10.16 above (filed as an
Exhibit to the April 14, 1998 Report on Form 8-K
and incorporated herein by reference).
10.18 Stock Purchase Agreement dated September 3, 1998
among the Company and the sellers of all the
securities of Marpac Industries, Inc. (filed as
an Exhibit to the September 18, 1998 Report on
Form 8-K and incorporated herein by reference).
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).
22 Subsidiaries of the Company (filed as Exhibit 22 to the 1987 10-K,
and incorporated herein by reference).
23 Consent of Ernst & Young LLP.
99.1 Second Amendment to the PVC Container
Corporation 1981 Incentive Stock Option Plan,
dated July 6, 1989, with the unanimous written
consent of Directors of the Company and
incorporated herein by reference.
99.2 Letter dated September 22, 1989 from Phillip L. Friedman to Bidyuk
AG regarding the termination of their Option Agreement dated
December 14, 1987 and incorporated herein by reference.
-21-
24
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 27, 1999
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 Friedman Chief Executive Officer and Director September 27, 1999
- ----------------------------------
Phillip L. Friedman
/s/William A. Del Pizzo Vice President, Chief Financial and September 27, 1999
- ---------------------------------- Accounting Officer
William A. Del Pizzo
/s/John F. Turben Director September 27, 1999
- ----------------------------------
John F. Turben
/s/Raymond A. Lancaster Director September 27, 1999
- ----------------------------------
Raymond A. Lancaster
- ---------------------------------- Director
George R. Begley
/s/Michael Sherwin Director September 27, 1999
- ----------------------------------
Michael Sherwin
25
Consolidated Financial Statements
PVC Container Corporation
June 30, 1999, 1998 and 1997
26
PVC Container Corporation
Consolidated Financial Statements
June 30, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors............................................... 1
Consolidated Balance Sheets.................................................. 2
Consolidated Statements of Income............................................ 3
Consolidated Statements of Stockholders' Equity.............................. 4
Consolidated Statements of Cash Flows........................................ 5
Notes to Consolidated Financial Statements................................... 6
27
Report of Independent Auditors
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the accompanying consolidated balance sheets of PVC Container
Corporation as of June 30, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PVC
Container Corporation as of June 30, 1999 and 1998 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1999 in conformity with generally accepted accounting
principles.
[Ernst & Young LLP SIGNATURE]
MetroPark, New Jersey
September 17, 1999
1
28
PVC Container Corporation
Consolidated Balance Sheets
JUNE 30
1999 1998
-------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 784,087 $ 868,498
Accounts receivable, net 12,815,674 11,091,406
Inventories 13,386,060 10,901,200
Prepaid expenses and other current assets 1,146,070 653,326
Deferred income taxes 1,517,271 1,486,033
Net assets held for disposition 4,350,730
-------------------------------
Total current assets 33,999,892 25,000,463
Other assets 235,784 426,000
Goodwill, net of accumulated amortization 3,826,482
Unexpended proceeds from construction loan 4,724,914 8,653,055
Properties, plant and equipment at cost, net 40,565,496 36,291,600
-------------------------------
$ 83,352,568 $ 70,371,118
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,596,606 $ 7,993,694
Accrued expenses 4,864,355 5,806,645
Income taxes payable 1,337,291 238,325
Current portion of long-term debt 4,561,844 2,615,731
-------------------------------
Total current liabilities 20,360,096 16,654,395
Long-term debt 39,413,118 33,309,115
Deferred income taxes 3,103,544 1,680,693
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, 7,038,705 and
7,004,705 shares issued and outstanding as of June 30, 1999 and
1998 70,387 70,047
Capital in excess of par value 3,786,497 3,646,747
Retained earnings 16,618,926 15,010,121
-------------------------------
Total stockholders' equity 20,475,810 18,726,915
-------------------------------
$83,352,568 $70,371,118
===============================
See accompanying notes.
2
29
PVC Container Corporation
Consolidated Statements of Income
FISCAL YEAR ENDED JUNE 30
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
Net sales $85,155,047 $69,728,498 $58,392,310
Cost and expenses:
Cost of goods sold (exclusive of depreciation and
amortization expense shown separately below)
64,056,366 53,508,548 45,650,484
Selling, general and administrative expense 9,186,743 6,521,759 5,393,838
Depreciation and amortization expense 7,141,249 4,008,785 2,979,982
Equity in loss of jointly owned company 161,788
Provision for restructuring 1,200,000
---------------------------------------------
80,384,358 65,239,092 54,186,092
---------------------------------------------
Income from operations 4,770,689 4,489,406 4,206,218
Other income (expenses):
Interest expense (2,457,940) (1,205,477) (834,695)
Interest income 68,590 13,451 4,093
Other income 299,966 144,018 250,261
---------------------------------------------
2,089,384 (1,048,008) (580,341)
---------------------------------------------
Income before provision for income taxes 2,681,305 3,441,398 3,625,877
Provision for income taxes 1,072,500 1,353,507 1,375,349
--------------------------------------------
Net income $1,608,805 $2,087,891 $2,250,528
============================================
Earnings per share (basic and diluted) $.23 $.30 $.32
Cash dividends per share .06
See accompanying notes.
3
30
PVC Container Corporation
Consolidated Statements of Stockholders' Equity
COMMON STOCK
ISSUED AND CAPITAL IN TOTAL
OUTSTANDING EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------------------------------------------------------------------------------
Balance, June 30, 1996 6,964,705 $69,647 $3,527,147 $11,089,584 $14,686,378
Net income 2,250,528 2,250,528
Cash dividends (417,882) (417,882)
Issuance of common stock 40,000 400 119,600 120,000
------------------------------------------------------------------------------
Balance, June 30, 1997 7,004,705 70,047 3,646,747 12,922,230 16,639,024
Net income 2,087,891 2,087,891
------------------------------------------------------------------------------
Balance, June 30, 1998 7,004,705 70,047 3,646,747 15,010,121 18,726,915
Net income 1,608,805 1,608,805
Exercise of stock options 34,000 340 139,750 140,090
------------------------------------------------------------------------------
Balance, June 30, 1999 7,038,705 $70,387 $3,786,497 $16,618,926 $20,475,810
==============================================================================
See accompanying notes.
4
31
PVC Container Corporation
Consolidated Statements of Cash Flows
FISCAL YEAR ENDED JUNE 30
1999 1998 1997
---------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,608,805 $ 2,087,891 $ 2,250,528
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,141,249 4,008,785 2,979,982
Equity in loss of jointly owned company 161,788
Deferred income taxes (158,387) (47,289) (93,528)
Gain on sale of equipment (201,662) (167,250)
Changes in assets and liabilities:
Accounts receivable (401,268) 450,247 (408,574)
Inventories (1,977,860) (387,327) (1,043,624)
Prepaid expenses and other current assets (366,744) (93,788) (246,383)
Other assets 488,216 (426,000)
Accounts payable and accrued expenses (718,378) 1,996,779 (75,172)
Income taxes payable 1,098,966 (180,135) (413,490)
-------------------------------------------------------
Net cash provided by operating activities 6,512,937 7,409,163 2,944,277
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,021,554) (5,535,987) (3,103,208)
Investment in jointly owned company 291,199
Proceeds from sale of equipment 234,000 1,011,382 2,759,167
Purchase of business (12,000,000) (10,209,579)
-------------------------------------------------------
Net cash used in investing activities (14,787,554) (14,734,184) (52,842)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 140,090
Proceeds from long-term debt 14,400,000 12,459,720 1,151,583
Payments on indebtedness (6,349,884) (4,488,691) (4,461,812)
Dividends paid (417,882)
-------------------------------------------------------
Net cash provided by (used in) financing activities 8,190,206 7,971,029 (3,728,111)
-------------------------------------------------------
Net (decrease) increase in cash and cash equivalents
(84,411) 646,008 (836,676)
Cash and cash equivalents, beginning of year 868,498 222,490 1,059,166
-------------------------------------------------------
Cash and cash equivalents, end of year $ 784,087 $ 868,498 $ 222,490
=======================================================
See accompanying notes.
5
32
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
PVC Container Corporation (the "Company") was incorporated in Delaware on June
14, 1968. The Company's major business activity primarily consists of the
manufacture and sale of a line of plastic bottles made from polyvinyl chloride
compounds and high density polyethylene resins. These bottles are used primarily
for the packaging of cosmetics, toiletries, foods, household chemicals, lawn and
garden, and industrial chemical products.
CONSOLIDATION
The accompanying financial statements include the accounts of PVC Container
Corporation and its wholly-owned subsidiaries, Novatec Plastics Corporation,
Novapak Corporation, Airopak Corporation 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.
STOCK PURCHASE AGREEMENT
Pursuant to a stock purchase agreement dated December 3, 1996, and executed on
December 12, 1996, approximately 4.37 million shares of the Company's common
stock was purchased by Kirtland Capital Partners II LP and an affiliate, from
Rimer Anstalt (former majority shareholder) and certain other shareholders of
the Company.
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 LIFO cost or market value. Cost for
substantially all of the inventories is determined under the LIFO method.
DEPRECIATION
Depreciation is provided for financial reporting purposes on a straight-line
method over the estimated useful lives of the related assets. Maintenance and
repairs are charged to operations as incurred. Major renewals and betterments
are capitalized.
NET ASSETS HELD FOR DISPOSITION
In connection with the Company's strategic planning, certain facilities have
been classified as "Net Assets Held for Disposition" reflecting management's
intention to sell these assets during fiscal 2000.
6
33
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred and
amounted to $222,000, $257,000 and $240,000 in 1999, 1998 and 1997,
respectively.
INTEREST-RATE PROTECTION AGREEMENTS
The Company enters into monthly Interest-Rate Protection Agreements ("IRPAs") to
modify the interest characteristics of certain outstanding debt. Each IRPA is
designated for all or a portion of the principal balance and term of a specific
debt obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the life
of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related to
the debt. The fair values of IRPAs are not recognized in the financial
statements. Gains and losses on terminations of IRPAs would be deferred as an
adjustment to the carrying amount of the outstanding debt and amortized as an
adjustment to interest expense related to the debt over the remaining term of
the original contract life of the IRPAs. In the event of the early
extinguishment of the designated debt obligation, any realized or unrealized
gain or loss from the IRPA would be recognized in income coincident with the
extinguishment. The Company does not enter into any IRPAs that are not
designated with outstanding debt or which have notional amounts (or durations)
in excess of the principal amounts (or maturities) of the underlying debt.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations or
expected to be disposed when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
7
34
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation
(FASB 123), the Company has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock option plans. Under APB 25,
compensation expense is calculated at the time of option grant based upon the
difference between the exercise price of the option and the fair market value of
the Company's common stock at the date of grant, recognized over the vesting
period.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
SEGMENTS
In fiscal 1999, the Company adopted Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. Statement 131 superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business Enterprise.
Statement 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. Statement 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information (see
Note 15).
PENSIONS
In February 1998, the FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits ("Statement 132"). Statement
132 established standards for the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in the
benefit
8
35
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer useful as they
were when FASB Statements No. 87, Employers' Accounting for Pensions and No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits were issued. All pension disclosures
have been presented, and where appropriate, restated to conform to the Statement
132 requirements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after January 1, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new statement will have a significant effect on earnings or the financial
position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. INVENTORIES
Inventories consist of the following:
1999 1998
------------------------------
Raw materials $ 4,641,472 $ 3,355,086
Finished goods 7,419,735 6,634,135
------------------------------
Total LIFO inventories 12,061,207 9,989,221
Molds for resale, in production 853,433 539,635
Supplies 471,420 372,344
------------------------------
Total $13,386,060 $10,901,200
==============================
The excess of inventory valued at LIFO cost over FIFO basis which approximates
replacement cost at June 30, 1999 and 1998 was approximately $228,000 and
$385,000, respectively.
9
36
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
3. ALLOWANCES
Allowance for doubtful accounts totaled approximately $956,000 and $412,000 at
June 30, 1999 and 1998, respectively.
4. PROPERTIES, PLANT AND EQUIPMENT
ESTIMATED
USEFUL LIFE IN
1999 1998 YEARS
----------------------------------------------------
Land $ 730,343 $ 450,686
Building and improvements 16,209,834 18,330,991 20-25
Machinery and equipment 45,891,605 37,045,029 7-10
Molds 5,364,215 4,650,585 3- 5
Office furniture and equipment 3,160,760 2,035,304 5-l0
Motor vehicles 137,632 74,959 3- 5
Leasehold improvements 13,521 13,521
------------------------------
71,507,910 62,601,075
Less accumulated depreciation 30,942,414 26,309,475
------------------------------
$40,565,496 $36,291,600
==============================
5. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
1999 1998
----------------------------
Accrued payroll $1,017,118 $ 819,063
Accrued vacation 568,380 709,261
Accrued employee incentives 1,103,833 2,123,408
Accrued restructuring charge 405,659 1,200,000
Other accrued expenses 1,769,365 954,913
----------------------------
$4,864,355 $5,806,645
============================
10
37
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
1999 1998
----------------------------------
Notes payable:
South Carolina Economic Development Authority:
Loan $ 3,700,000 $ 3,700,000
New Jersey Economic Development Authority:
Series D Note 2,900,000 3,150,000
Pennsylvania Industrial Development Authority:
Loan 983,420
GE Capital Public Finance:
Equipment loans 7,012,428 7,714,415
Building loan 4,804,449 5,129,412
Fleet Bank of New Jersey:
Term notes 23,405,777 13,557,778
Revolving line of credit 1,400,000
Edgar County Bank Construction Loan 467,549 500,038
City of Paris:
Community Development Assistance Loan 318,527 349,894
Revolving Loan Fund 95,770 105,143
Illinois Small Business Development Loan 243,076 262,625
Obligations under capital leases 43,966 55,541
----------------------------------
43,974,962 35,924,846
Less current portion (4,561,844) (2,615,731)
----------------------------------
$ 39,413,118 $ 33,309,115
==================================
Maturities of long-term debt are as follows: 2000 - $4,561,844; 2001 -
$3,901,208; 2002 - $3,945,565; 2003 - $3,940,239; and 2004 to 2016 -
$27,626,106. Interest paid amounted to $2,413,246, $1,174,899 and $837,461 in
1999, 1998 and 1997, respectively.
NOTE PAYABLE - SOUTH CAROLINA ECONOMIC DEVELOPMENT AUTHORITY "S.C. EDA"
This note was obtained to finance the construction of the Company's South
Carolina manufacturing facility and is due April 1, 2016. Prepayments may be
made without penalty. This note is subject to prior mortgages in favor of the
Fleet Bank of New Jersey. The effective interest rate on this obligation was
3.8% and 3.9% in 1999 and 1998, respectively.
11
38
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
The agreement contains certain provisions which require the funds to be held in
trust (the "Trust") by a third-party financial institution until such time that
equipment purchases are made. The funds are invested at rates of return
comparable to the interest rate paid by the Company on the obligation. Equipment
purchases in connection with this agreement are paid directly from the Trust.
S.C. EDA has issued tax exempt bonds to fund the debt. Should the tax exempt
status of this bond issue be negated, the rate of interest of this note would be
retroactively adjusted.
The Company has unused letters of credit amounting to approximately $3.9 million
in conjunction with this note.
NOTE PAYABLE - NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY "N.J. 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 Fleet Bank of New Jersey. The effective interest rate
on this obligation was 3.5% and 3.7% in 1999 and 1998, respectively.
N.J. EDA has issued tax exempt bonds to fund the debt. Should the tax exempt
status of this bond issue be negated, the rate of interest of this note would be
retroactively adjusted.
The Company has unused letters of credit amounting to approximately $3.0 million
in conjunction with this note.
NOTE PAYABLE - PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY-"PIDA"
During fiscal year 1999, the Company obtained a $1.0 million loan from the
Pennsylvania Industrial Development Authority ("PIDA") to assist in financing
the construction of its Hazleton, Pennsylvania manufacturing facility. The loan
is payable in 145 equal monthly installments of $8,634 at an interest rate of
3.75% with a maturity date of March 1, 2011. The loan may be prepaid in whole or
in part subject to certain requirements stated in the loan agreement. The loan
is collateralized by the property.
12
39
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
GE CAPITAL PUBLIC FINANCE BUILDING AND EQUIPMENT LOANS
During fiscal year 1998, the Hazleton Area Industrial Development Authority
approved $7,250,000 tax-exempt Industrial Development Bonds. The Bonds were
purchased and are held by GE Capital Public Finance, Inc., who is financing a
loan to the Company in conjunction with the Company's Hazleton, Pennsylvania
manufacturing facility. The loan is payable in 144 decreasing monthly
installments at an interest rate of 5.15% with a final lump sum payment of
$1,860,530 on June 15, 2010. The loan may be prepaid in whole or in part subject
to certain requirements stated in the loan agreement. The loan is collateralized
by the property. The Company has unused letters of credit amounting to
approximately $500,000 in conjunction with this note.
During fiscal year 1998, the City of Paris, Illinois approved $2,500,000 Series
1997C Industrial Development Revenue bonds. The Bonds were purchased and are
held by GE Capital Public Finance, Inc., who is financing a loan to the Company
in conjunction with the Company's expansion of its Paris, Illinois manufacturing
facility. The loan is payable in 120 decreasing monthly installments at an
interest rate of 5.45% through March 16, 2008. The loan may be prepaid in whole
or in part subject to certain requirements stated in the loan agreement. The
loan is collateralized by the property and the equipment.
During fiscal year 1997, the City of Paris, Illinois approved $1,200,000 Series
1997A and $2,300,000 Series 1997B Industrial Development Revenue Bonds. The
Bonds were purchased and are held by GE Capital Public Finance, Inc., who is
financing a loan to the Company in conjunction with the Company's expansion of
its Paris, Illinois manufacturing facility. The loan is payable in 120
decreasing monthly installments at an interest rate of 5.90% with a final lump
sum payment of $602,952 on April 1, 2007. The loan may be prepaid in whole or in
part subject to certain requirements stated in the loan agreement. The loan is
collateralized by the property and the equipment. The Company has unused letters
of credit amounting to approximately $1.2 million in conjunction with this loan.
The agreements contain provisions which require the funds to be held in trust
(the "Trust") by a third-party financial institution until such time that
building, construction or equipment purchases are made. The funds are invested
at rates of return comparable to the interest rate paid by the Company on the
obligation. Purchases in connection with this agreement are paid directly from
the Trust.
13
40
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
The bonds issued by the City of Paris to fund the debt are tax-exempt bonds.
Should the tax-exempt status of these bonds be negated, the rate of interest of
this note would be retroactively adjusted.
TERM NOTES
During fiscal year 1999, the Company obtained a $12.0 million loan from Fleet
Bank to finance the September 3, 1998 acquisition of Marpac Industries, Inc. The
loan principal is payable in 83 monthly installments of $100,000 beginning on
October 1, 1998 with a final lump sum payment of $3,700,000 on August 1, 2005.
The Company participates in an interest rate protection agreement ("SWAP"),
whereby the Company has assumed a fixed rate of interest on $6.0 million of the
principal at 7.79% and Fleet has assumed the variable rate assigned to the loan
(LIBOR plus 185 basis points). Pursuant to the SWAP agreement, the Company
agrees to exchange with Fleet, on a monthly basis, the difference between the
fixed rate in the SWAP agreement and the LIBOR floating rate applied to the
notional principal amount. Interest on the remaining $6 million of principal is
payable monthly beginning on October 1, 1998 at LIBOR plus 185 basis points
through the loan's maturity on August 1, 2005. The loan is collateralized by the
property and equipment purchased.
During fiscal year 1998, the Company obtained a $10.0 million loan from Fleet
Bank ("Fleet") to finance the March 30, 1998 acquisition of Charter Supply Co.,
Inc. The loan principal is payable in 72 monthly installments of $83,333
beginning on April 1, 1999 with a final lump sum payment of $4.0 million on
March 1, 2005. The Company participates in an interest rate protection agreement
("SWAP") whereby the Company has assumed a fixed rate of interest on $5.0
million of the principal at 7.35% and Fleet has assumed the variable rate
assigned to the loan (LIBOR plus 125 basis points). Pursuant to the SWAP
agreement, the Company agrees to exchange with Fleet, on a monthly basis, the
difference between the fixed rate in the SWAP agreement and the LIBOR floating
rate applied to the notional principal amount. Interest on the remaining $5.0
million of principal is payable monthly beginning on April 1, 1998 at LIBOR plus
125 basis points through the loan's maturity on March 1, 2005. The loan is
collateralized by the property and equipment purchased.
During fiscal year 1997, the Company consolidated various equipment and term
notes through a $2,530,000 term loan with Fleet Bank. The loan provides for
monthly payments of $70,278, including principal and interest, matures on April
1, 2000 and is collateralized by the equipment. The Company participates in an
interest rate protection
14
41
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
agreement ("SWAP"), whereby the Company has assumed a fixed rate of interest on
the remaining principal at 7.72% and Fleet has assumed the variable rate
assigned to the loan (LIBOR plus 125 basis points). Pursuant to the SWAP
agreement, the Company agrees to exchange with Fleet, on a monthly basis, the
difference between the fixed rate in the SWAP agreement and the LIBOR floating
rate applied to the notional principal amount. The Company may prepay this note
in whole or in part subject to certain requirements stated in the loan
agreement.
During fiscal year 1997, the Company obtained a $1.2 million loan from Fleet
Bank to finance the expansion of its New Jersey manufacturing facility. The loan
is payable in 180 monthly payments of $6,667 including principal and interest,
through the note's maturity in November 2011. The Company participates in an
interest rate protection agreement ("SWAP") whereby the Company has assumed a
fixed rate of interest on the remaining principal at 9.35% and Fleet has assumed
the variable rate assigned to the loan (LIBOR plus 225 basis points). Pursuant
to the SWAP agreement, the Company agrees to exchange with Fleet, on a monthly
basis, the difference between the fixed rate in the SWAP agreement and the LIBOR
floating rate applied to the notional principal amount. The note is
collateralized by the building.
During fiscal year 1994, the Company purchased $1,200,000 of property and
equipment which was financed through a term note with Fleet Bank. The note
provides for principal payments of $5,000 and interest due monthly through the
note's maturity, July 1, 1999. The note was amended as of June 30, 1999 for
$866,333 and is payable in 75 monthly principal installments of $7,667 and a
final lump sum payment of $291,308 on November 1, 2005 plus interest at LIBOR
plus 185 basis points. The note is collateralized by the property and equipment
purchased.
REVOLVING LINE OF CREDIT
On April 1, 1997, the Company entered into a new $5,000,000 line of credit
agreement with Fleet Bank. Borrowings under this line bear interest payable
monthly at the prime rate (7.75% at June 30, 1999), and principal borrowings are
due in full on October 31, 1999. The Company was in compliance with all
covenants of this loan agreement at June 30, 1999. The Company had no borrowings
under this line of credit at June 30, 1999.
15
42
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
EDGAR COUNTY BANK CONSTRUCTION LOAN
During fiscal year 1998, the Company refinanced $495,000 of their loan obtained
for real estate improvements for a manufacturing plant in Paris, Illinois. The
loan is payable in fifty-nine monthly principal payments of $2,750 and a final
lump sum payment of $332,750 on August 30, 2003 plus interest at 7.75%. 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% through April 1, 2008. 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.
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% through
April 1, 2008. 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 in August 2008. 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.
The carrying amounts of the aforementioned debt agreements approximate fair
value.
16
43
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as
follows:
YEAR AMOUNT
--------------------------------
2000 $ 953,167
2001 851,283
2002 820,003
2003 804,316
2004 637,696
Thereafter 3,770,457
Rental expense for operating leases amounted to $1,148,549, $810,824 and
$681,924 in 1999, 1998 and 1997, respectively.
8. PENSION PLAN
On September 1, 1990, the Company instituted a non-contributory defined benefit
pension plan (the Plan) for all eligible full-time union employees. Benefits are
based on years of service. The Company contributes to the Plan amounts,
actuarially determined by the Unit Credit Actuarial Cost Method, which provides
the Plan with sufficient assets to meet future benefit payment requirements. The
assets of the Plan are invested principally in short-term investments. The
following table sets forth the Plan's funded status and the amount recognized in
the Company's consolidated balance sheet:
1999 1998
--------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 947,389 $ 761,667
Service cost 9,536 63,693
Interest cost 70,237 63,336
Amendments 89,182
Actuarial loss 5,319
Settlement (net) (12,444)
Benefits paid (21,797) (23,364)
--------------------------------
Benefit obligation at end of year $ 1,005,365 $ 947,389
================================
17
44
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. PENSION PLAN (CONTINUED)
1999 1998
-----------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 651,518 $ 565,503
Actual return on plan assets 48,938 42,589
Settlement (54,891)
Employer contribution 122,723 129,546
Benefits paid, including expenses (41,035) (31,229)
-----------------------------
Fair value of plan assets at end of year $ 782,144 $ 651,518
=============================
Funded status $(223,221) $(295,871)
Unrecognized net actuarial loss 356,229 172,708
Unrecognized prior service cost 18,430 20,105
Curtailment (net) 166,938
Unrecognized transition obligation 24,141 27,159
Adjustment to recognize minimum liability (398,800) (386,910)
-----------------------------
Pension liability $(223,221) $(295,871)
=============================
Weighted-average assumptions at year-end:
Discount rate 7.50% 7.50%
Expected return on plan assets 8.50 8.50
Rate of compensation increase 0.00 0.00
Components of net periodic benefit cost:
Service cost $ 9,536 $ 63,693
Interest cost 70,237 63,336
Expected return on plan assets (61,951) (52,580)
Amortization of transition obligation 3,018 12,356
Amortization of prior service cost 1,675 6,860
Recognized net actuarial loss 17,634 6,513
-----------------------------
Net periodic benefit cost $ 40,149 $ 100,178
=============================
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 $127,956, $391,081 and $282,991
in 1999, 1998 and 1997, respectively.
18
45
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. COMMON STOCK
The Company's Board of Directors approved and ratified on January 16, 1997, an
incentive stock option plan pursuant to which options to purchase an aggregate
of 600,000 shares of the common stock of the Company may be granted. Such plan
conforms to the requirements of Rule 16B-3 of the Securities Exchange Act of
1934. The options granted are exercisable to the extent of 20-25% per year on a
cumulative basis through their expiration on January 16, 2007.
FASB 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options and
warrants ("equity awards") under the fair value method of FASB 123. The fair
value of these equity awards was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999 and 1998, respectively: risk-free interest rates of
approximately 7%; expected volatility of 0.3%; expected option life equal to the
vesting period, and an expected dividend yield of 0.0%.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the equity
awards is amortized to expense over the options vesting period. The Company's
pro forma information is as follows:
1999 1998
-------------------------
Pro forma net income $1,560,143 $2,080,883
Pro forma net income per share of common stock .22 .30
19
46
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. COMMON STOCK (CONTINUED)
A summary of stock option activity follows:
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
-----------------------------------
Outstanding at June 30, 1996 -- --
Granted 374,000 $ 4.29
Forfeited -- --
Exercised -- --
-----------------------------------
Outstanding at June 30, 1997 374,000 4.29
Granted -- --
Forfeited -- --
Exercised -- --
-----------------------------------
Outstanding at June 30, 1998 374,000 4.29
Granted 118,000 6.38
Forfeited (51,000) (4.13)
Exercised (34,000) (4.13)
-----------------------------------
Outstanding at June 30, 1999 407,000 $ 4.92
===================================
Exercisable at June 30, 1997 79,250 $ 4.28
===================================
Exercisable at June 30, 1998 158,500 $ 4.28
===================================
Exercisable at June 30, 1999 216,250 $ 4.60
===================================
Exercise prices for options outstanding as of June 30, 1999 ranged from $4.13 to
$6.38 per share. The weighted average remaining contractual life of these
options is 8.41 years.
The Company paid cash dividends per share of $.06 in the year ended June 30,
1997. The Company has no intention to pay cash dividends in the future.
20
47
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES
The provision for income taxes consists of:
1999 1998 1997
------------------------------------------------
Current:
Federal $1,035,565 $1,065,700 $1,125,441
State 243,322 335,096 343,436
------------------------------------------------
1,278,887 1,400,796 1,468,877
Deferred:
Federal (160,497) (36,649) (72,485)
State (45,890) (10,640) (21,043)
------------------------------------------------
(206,387) (47,289) (93,528)
------------------------------------------------
Total provision $1,072,500 $1,353,507 $1,375,349
================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of June 30 are as follows:
1999 1998
----------------------------
Deferred tax liabilities:
Long-lived assets $3,103,544 $1,680,693
----------------------------
Total deferred tax liabilities 3,103,544 1,680,693
Deferred tax assets:
Bad debt reserves 410,000 164,077
Inventory reserves 388,000 220,800
Accrued liabilities and other 719,271 1,101,156
----------------------------
Total deferred tax assets 1,517,271 1,486,033
----------------------------
Net deferred tax liabilities $1,586,273 $ 194,660
============================
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:
1999 1998 1997
------------------------------
Federal tax at statutory rate 34% 34% 34%
Effect of:
State income taxes, net of federal income tax benefit 4 6 6
Goodwill amortization 3
Foreign operations (1) (1) (1)
Other (1)
------------------------------
Effective income tax rate 40% 39% 38%
==============================
21
48
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
Income taxes paid amounted to $322,000, $1,571,000 and $1,812,000 in 1999, 1998
and 1997, respectively.
11. ACQUISITION
On September 3, 1998 the Company acquired, in consideration for the payment of a
purchase price of $12,000,000, all of the issued and outstanding shares of
Marpac Industries, Inc. together with certain real property owned by the
sellers. The consideration was provided by Fleet Bank, N.A. pursuant to a Loan
and Security Agreement among the Company and its wholly-owned subsidiaries and
Fleet Bank, N.A., dated as of September 3, 1998 in the amount of $12,000,000.
Marpac Industries, Inc. is a technical blow molding operation that produces
bottles, containers, cartridges and various dispensers for domestic and
international customers including office equipment, food and industrial
products. Marpac Industries, Inc. has its principal operation in Kingston, New
York and also has a facility located in Ardmore, Oklahoma.
The acquisition has been accounted for as a purchase. Accordingly, the results
of the operations have been included in the Company's results of operations from
the acquisition date. The purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
acquisition date. The excess of purchase price over net assets of the business
acquired is amortized on a straight-line basis over fifteen years. Amortization
expense totaled approximately $225,000 for the year ended June 30, 1999.
On March 30, 1998, the Company acquired from McKechnie Investments, Inc.,
certain assets and liabilities from its wholly-owned subsidiary known as Charter
Supply Co., Inc. for $10.21 million.
The Company accounted for the acquisition as a purchase. Accordingly, the
acquired assets and liabilities assumed have been recorded at their estimated
fair values at the date of acquisition. The results of operations of the
acquired business are included in the accompanying consolidated statement of
income from the date of acquisition.
22
49
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
11. ACQUISITION (CONTINUED)
The unaudited pro forma results as if the above acquisitions had occurred on
July 1, 1998 and 1997 are as follows:
1999 1998
----------------------------
Net sales $86,916,000 $93,099,000
Net income 1,686,000 2,519,000
Net income per diluted share .24 .36
The pro forma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions taken place at the
beginning of the periods presented nor are they intended to be indicative of
results that may occur in the future.
12. EARNINGS PER SHARE
The following table sets forth the computation of weighted-average shares
outstanding for calculating basic and diluted earnings per share for the years
ended June 30, 1999, 1998 and 1997. Income available to common stockholders for
both basic and diluted earnings per share is the same as net income presented in
the statements of income for the years ended June 30, 1999, 1998 and 1997.
1999 1998 1997
--------------------------------------------
Weighted-average shares for basic earnings
per share 7,008,955 7,004,705 6,989,034
Effect of dilutive securities:
Employee stock options 149,786 59,966 -
--------------------------------------------
Adjusted weighted-average shares for diluted
earnings per share 7,158,741 7,064,671 6,989,034
============================================
13. PROVISION FOR RESTRUCTURING
During the fourth quarter of 1998, the Company recorded a $1.2 million charge
for restructuring relating to the relocation of its Eatontown, New Jersey
manufacturing facility to Hazleton, Pennsylvania. Principal items included in
the charge are severance for workforce reductions of approximately 114 union
employees totaling approximately $500,000, with the remainder of the charge
relating to pension costs and other exit costs. The majority of this liability
which remains at June 30, 1999 is attributable to pension funding requirements
related to the workforce reduction.
23
50
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
14. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
As more fully described in Note 11, the Company acquired certain assets from
Marpac Industries, Inc. on September 3, 1998. The purchase price was allocated
to the assets based on their estimated market values as follows:
Fair value of assets acquired:
Accounts receivable, net $ 1,323,000
Inventory, net 507,000
Other current assets 126,000
Property, plant and equipment 8,579,000
Goodwill and other noncurrent assets 4,394,000
Less liabilities assumed:
Accounts payable and accrued expenses (1,379,000)
Deferred income taxes (1,550,000)
============
Net cash paid $ 12,000,000
============
Excluded from the consolidated statements of cash flows in 1999 and 1998 was the
effect of certain noncash financing activities related to the $2.5 million loan
and the $7.3 million loan obtained by the Company from GE Capital in March 1998
and June 1998, respectively, the $3.5 million loan from GE Capital obtained by
the Company in April 1997 and the $5.5 million South Carolina EDA loan obtained
by the Company in April 1996. Capital expenditures in connection with these
agreements totaled approximately $3.9 million and $3.5 million in 1999 and 1998,
respectively. The Company retired $1.8 million of South Carolina EDA bonds in
1998.
15. SEGMENTS
The Company identifies its segments based upon differences in the types of
products it sells. The Company currently has two reportable segments: Plastic
Containers and Compound. The Plastic Containers segment manufactures custom
designed PET, HDPE and PVC containers mainly for cosmetics, toiletries, foods,
household chemicals, lawn and garden and industrial chemical products. The
Compound segment manufactures PVC compound for use by the Company as well as
external customers. The external use of the PVC compound is for extruded
profiles and accessories, furniture, molding and other indoor fixtures, and
molded electrical and electronic housings.
24
51
PVC Container Corporation
Notes To Consolidated Financial Statements (continued)
15. SEGMENTS (CONTINUED)
The reportable segments are each managed separately due to the different
manufacturing processes used and the different strategic markets in which each
segment operates. The Company evaluates each segment's performance based on
profit or loss from operations before income taxes. The accounting policies for
the reportable segments are the same as those for the Company (described in Note
1). Intersegment sales and transfers are recorded at market prices. Information
on segments and a reconciliation to consolidated total are as follows:
1999 1998 1997
-----------------------------------------------
Net revenues:
Compound total $25,366,232 $25,801,387 $25,062,819
Intersegment revenue - Compound (8,157,436) (8,030,027) (7,937,193)
-----------------------------------------------
Revenues from external customers - Compound
17,208,796 17,771,360 17,125,626
Plastic Containers 67,946,251 51,957,138 41,266,684
-----------------------------------------------
Total consolidated net revenues $85,155,047 $69,728,498 $58,392,310
===============================================
Depreciation and amortization expense:
Compound $ 376,011 $ 382,282 $ 381,494
Plastic Containers 6,765,238 3,626,503 2,598,488
-----------------------------------------------
Total consolidated depreciation and
amortization expense $ 7,141,249 $ 4,008,785 $ 2,979,982
===============================================
Interest income:
Compound $ - $ - $ -
Plastic Containers 68,590 13,451 4,093
-----------------------------------------------
Total consolidated interest income $ 68,590 $ 13,451 $ 4,093
===============================================
Interest expense:
Compound $ 98,369 $ 92,960 $ 132,514
Plastic Containers 2,359,571 1,112,517 702,181
-----------------------------------------------
Total consolidated interest expense $ 2,457,940 $ 1,205,477 $ 834,695
===============================================
Restructuring charge:
Compound $ - $ - $ -
Plastic Containers - 1,200,000 -
-----------------------------------------------
Total consolidated restructuring charge $ - $ 1,200,000 $ -
===============================================
25
52
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
15. SEGMENTS (CONTINUED)
1999 1998 1997
-----------------------------------------------------
Income tax expense (benefit):
Compound $ 1,274,707 $ 1,032,244 $ 915,853
Plastic Containers (202,207) 321,263 459,496
-----------------------------------------------------
Total consolidated income tax expense $ 1,072,500 $ 1,353,507 $ 1,375,349
=====================================================
Net income (loss):
Compound $ 1,968,821 $ 1,548,366 $ 1,414,566
Plastic Containers (360,016) 539,525 835,962
-----------------------------------------------------
Total consolidated net income $ 1,608,805 $ 2,087,891 $ 2,250,528
=====================================================
Total assets:
Compound $ 8,737,834 $ 8,275,506 $ 8,494,282
Plastic Containers 74,614,734 62,095,612 37,547,084
-----------------------------------------------------
Total consolidated assets $ 83,352,568 $ 70,371,118 $ 46,041,366
=====================================================
Capital expenditures:
Compound $ 278,943 $ 327,338 $ 152,143
Plastic Containers 2,742,611 5,208,649 2,951,065
-----------------------------------------------------
Total consolidated capital expenditures $ 3,021,554 $ 5,535,987 $ 3,103,208
=====================================================
In addition to the above, the Company made certain non-cash capital expenditures
relating to the Plastic Containers segment as discussed in Note 14.
26
53
Report of Independent Auditors
on Consolidated Schedule
The Board of Directors and Stockholders
PVC Container Corporation
We have audited the consolidated financial statements of PVC Container
Corporation as of June 30, 1999 and 1998, and for each of the three years in the
period ended June 30, 1998, and have issued our report thereon dated September
17, 1999 (included elsewhere in this Form 10-K). Our audits also included the
financial statement schedule listed in Item 14(a) of this Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, 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 Signature]
MetroPark, New Jersey
September 17, 1999
54
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 BALANCE
BEGINNING OF COSTS AND ACCOUNTS AGAINST END OF
DESCRIPTION YEAR EXPENSES (DESCRIBED) RESERVE YEAR
- ---------------------------------------------------------------------------------------------------------------
Valuation accounts deducted
from assets to which they
apply:
June 30, 1999
Accounts receivable $411,725 $584,449 $ 40,000 $956,174
Inventory 552,000 74,000 184,000 442,000
June 30, 1998:
Accounts receivable 242,692 2,000 167,033 (A) 411,725
Inventory 222,000 180,000 150,000 (A) 552,000
June 30, 1997:
Accounts receivable 242,692 141,000 - $141,000 242,692
Inventory 70,000 152,000 - - 222,000
(A) Acquired in conjunction with acquisition of Charter Supply Co., Inc.