Item 1. Description of Business.
General. PVC Container Corporation (the "Company") was incorporated in Delaware on June 14, 1968. The Company's major business activity consists of the manufacture and sale of a line of plastic bottles made from polyvinyl chloride ("PVC") compounds and high-density polyethylene ("HDPE") resins. Some of the HDPE bottles are fluorinated to improve the chemical resistance and barrier properties of the containers manufactured by the Company's wholly-owned subsidiary known as Airopak Corporation. The Company recently began the manufacture and sale of plastic bottles made from injection stretch blow molding grades of polyethylene terephlalcate ("PET"). The Company also manufactures PET preforms which can be converted into various sizes of plastic bottles and which can be economically shipped in their pre-form state prior to such conversion. The Company plans to utilize the PET capability as both a defensive and growth strategy by seeking new packaging opportunities that require PET bottles. See "Competition and Marketing." These bottles ("plastic bottles") are used primarily for the packaging of cosmetics, toiletries, foods, household chemicals lawn and garden and industrial chemical products.
PVC compounds are used by the Company or sold to other plastic bottle manufacturers for the production of plastic bottles which compete with those produced by the Company. These PVC compounds are sold through the Company's wholly-owned subsidiary, Novatec Plastics Corporation, Inc. ("Novatec"). During the last several years, the Company has made some progress in its efforts to diversify its PVC compound business. For example, the Company recently developed and began to sell several categories of specialty PVC compounds for non-bottle applications ("specialty compounds") including extruded profiles for window frames and accessories, furniture, molding and other indoor fixtures, and a variety of injection molded electrical and electronic housings (the "Company's targeted markets'"). Sales of specialty compounds have been encouraging, although no assurance can be given as to their ultimate market acceptance.
The Company operates its business in one industry segment. Accordingly, no information is being furnished herein or in the accompanying financial statements relating to industry segments of the Company. The Company has not identified in its annual reports to shareholders revenue and income relating to lines of business because the Company believes it has been engaged since its inception in one dominant line of business consisting of the manufacture and sale of plastic containers and compounds used in the manufacture of containers.
Sales. The Company's plastic bottles are sold primarily to manufacturers of toiletries and cosmetics, food, household chemicals, lawn and garden and industrial chemical products, private label manufacturers of similar products, and bottle distributors who sell to such manufacturers. PVC compounds are sold to the Company and to other manufacturers of plastic bottles, and a small but increasing amount of specialty compounds are sold to a diverse range of manufacturers of other products. A limited amount of the Company's total sales is made through commission sales representatives. During the fiscal year ended June 30, 1997, no one customer accounted for 10% or more of the Company's net sales.
Sales of the Company's plastic bottles and PVC bottle compounds have accounted for most of the Company's net income; sales of specialty compounds to non-bottle customers have accounted for the remainder of the Company's net income. Plastic bottles are offered in food grade and non-food grade materials, fluorinated or non-fluorinated, in clear and opaque colors and in a range of sizes from one ounce to two and one-half gallons. The Company produces plastic bottles utilizing its own molds, in proprietary designs ("stock bottles") which are of its own design and also produces on a contractual basis plastic bottles in molds owned by the customer, utilizing their designs and specifications ("custom bottles").
Sales of plastic bottles are generally a "regional" business. The majority of the Company's customers are within a 300 mile radius of the Company's respective plastic bottle manufacturing plants. Freight costs prohibit shipping plastic bottles long distances due to their bulky nature, except for specialty bottles of a unique design or fluorinated containers that are not available from local manufacturers. In contrast, the Company's PVC compounds which are sold in the form of plastic pellets and are denser than plastic bottles can be shipped throughout the continental United States and Canada, and tend to be less regional and more of a "national" business.
The Company's business is usually characterized by low customer demand during the months of July and August and the last half of December due to shutdowns of buyers' plants during those periods.
Manufacturing Operations. The Company uses extrusion blow molding equipment to manufacture its PVC plastic bottles. The same equipment is also used to manufacture fluorinated and non-fluorinated plastic bottles from HDPE and can also be used with some modifications, to process bottles from other blow molding polymers, including polypropylene, glycol-modified polyethylene terephthalate ("PETG") and some new extrusion grade polyethylene terephathalate resins ("EPET") which are presently semi-commercial.
The Company operates facilities in Eatontown, New Jersey, Paris, Illinois, Manchester, Pennsylvania and Walterboro, South Carolina for the manufacturing of plastic bottles. In August 1989, the Company relocated its existing plastic bottle business from a leased facility in Eatontown, New Jersey to a newly constructed plant, also in Eatontown, New Jersey, owned by the Company. This new facility provided the Company with additional space needed to support manufacturing in efficiencies and capacity. In April 1993, the Company commenced operations in a new facility, located in Paris, Illinois which was added to support growth of the Company's midwest bottle business. On August 4, 1994, the Company acquired from Air Products and Chemicals Inc., through its recently incorporated wholly-owned subsidiary known as Airopak Corporation the assets of a specialty container business. The business is conducted from leased facilities located in Manchester, Pennsylvania, and relates to the manufacture and sale of AIROPAK(R) fluorinated HDPE containers. The assets of the business consist of equipment, machinery and inventory used in connection with the manufacturing of such containers. A description of the Company's plastic bottle facilities is set forth below in item 2
Item 2. Properties.
The Company's manufacturing activities with respect to its continuing businesses are conducted at the six facilities described in the following table:
Building Area ------------- Location Purpose of Facility (square feet) - -------- ------------------- Eatontown, New Jersey Plastic Bottle Plant and 136,998(1) warehousing and Office Eatontown, New Jersey Plastic Compounding Plant, 50,162(2) warehouse and office Manchester, Pennsylvania Airopak Corporation Plant and 69,140(3) warehousing Manchester, Pennsylvania Airopak Corporation 25,000(4) warehousing Paris, Illinois Plastic bottle Plant and 125,000(5) warehousing and office Walterboro, S.C. Plastic bottle Plant 61,430(6) warehousing and office
1. The Eatontown bottle plant manufacturing facility is located at 401 Industrial Way West, Eatontown, New Jersey on 8.1 acres of real property owned by the Company. The Company's principal executive offices are also located at this location. The building is constructed from concrete panels, and was completed in June 1989. In connection with the construction and acquisition of certain equipment for this facility, the Company obtained financing through the NJEDA. During June 1996 the Company completed the construction of an additional 34,000 sq. foot warehouse and manufacturing space. This expansion was financed by the Company through its revolving credit facility at Fleet Bank N.A. as at June 30, 1996. On September 6, 1996 the Company obtained additional financing in the amount of $1,200,000. See Note 5 to the Notes to the Consolidated Financial Statements below.
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 in a steel building having a total of 69,140 square feet.
4. Airopak corporation also leases 25,000 square feet of separate warehouse space also in a steel building. The aggregate annual rental payable with respect to the manufacturing and warehouse space for the Airopak Corporation detailed above and in Item 4 is $320,136 plus real estate taxes, utilities and certain other charges payable under net leases which expire on April 30, 1998 with respect to the manufacturing and warehouse facility. It is believed that these facilities are large enough to allow for future growth of the business conducted at these facilities.
5. 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.
6. 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. See Note 5 to the Notes to the Consolidated Financial Statements below.
Item 3.
Item 3. Legal Proceedings.
There is pending one action and several claims 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.
Item 4. Submission of Matters to a Vote of Securityholders.
During the fiscal year ended June 30, 1997 there was a special meeting of the shareholders of the Company held on January 16, 1997 at which four new directors were elected and the 1996 Incentive Stock Option Plan was approved by the shareholders.
PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Securityholder Matters.
The principal market in which the Company's common stock is traded is the over-the-counter market. The mean quotation on September 11, 1997 was $4.00. The shares of common stock currently are quoted on NASDAQ and bear the symbol "PVCC." The average closing bid and asked quotations during the fiscal years ended June 30, 1997 and June 30, 1996 are as follows:
As at September 11, 1997, the number of holders of record of the issued and outstanding common stock of the Company was approximately 663.
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.
Item 6.
Item 6. Selected Financial Data.
- -------- * 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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
The Company's net sales for the fiscal year ended June 30, 1997 reached a level of $58,392,000, an increase of approximately 2.1% over the 1996 level of $57,216,000. Lower than expected demand for the general line of plastic bottles was more than offset by increased demand in the Company's Airopak specialty container division and its Novatec Plastics PVC compound division. Cost of goods sold decreased marginally from 78.4% of net sales in 1996 to 78.2% for 1997. Selling, general and administrative expenses ("SG&A") was $5,394,000, or 9.2% of net sales for the fiscal year ended June 30, 1997 as compared to $4,505,000, or 7.9% of net sales for the fiscal year ended June 30, 1996, representing a 19.7% increase over the same period last year. SG&A expenses have increased to support the anticipated future growth in revenue that is expected from the Company's expansion in South Carolina and its entry into the PET market.
Income from operations for the fiscal year ended June 30, 1997 decreased to $4,206,000 or 7.2% of net sales from $4,950,000 or 8.7% of net sales for the prior fiscal year. Higher sales margins were more than offset by the higher SG&A expenses referred to in the preceding paragraph. The Company's share of the operating loss in the Edge Craft USA joint venture, including the write-off associated with its sale, amounted to $162,000.
Net interest expense increased $35,000 during the fiscal year ended June 30, 1997, as compared to fiscal 1996. Lower interest rates, offset by additional borrowings resulted in the slight increase in interest expense.
Net income for the year ended June 30, 1997 decreased $302,000 to $2,251,000 or $.32 per share as compared to $2,553,000 or $.37 per share for fiscal 1996.
Fiscal 1996 As Compared to Fiscal 1995
The Company's net sales for the fiscal year ended June 30, 1996 reached a record level of $57,216,000, increasing by approximately 6.2% over the 1995 amount of $53,886,000. The increase in revenues was the result of improvements in all areas of the Company's business. Plastic bottle sales and PVC compound sales all showed some modest growth during the fiscal year.
Gross profit as a percentage of net sales was 21.6% for the fiscal year ended June 30, 1996, compared to 19.0% for the fiscal year ended June 30, 1995. The cost of goods sold increased approximately $1,218,000 to a level of $44,839,000, or 78.4% of net sales for the fiscal year as compared to $43,621,000, or 81.0% of net sales for the prior fiscal year. The major reasons for the improvement in the gross profit margin and decrease in cost of goods sold as a percentage of net sales was the fluctuating PVC and HDPE resin prices that saw a
steep decline in the first six months of the fiscal year, and then a slow steady increase in the second half of the fiscal year, which were, however, offset with some product price increases that have raised margins to a healthier level than historically achieved in prior years. Additionally, the Company experienced higher operating capacity utilization during the fiscal year compared to the prior year, which also improved plant efficiency and operating margins.
Selling, general and administrative expenses ("SG&A) was $4,505,000, or 7.9% of net sales for the fiscal year ended June 30, 1996 as compared to $3,996,000, or 7.4% of net sales for the fiscal year ended June 30, 1995, representing a 12.8% increase over the same period last year. The increase in SG&A was due in part to higher office incentive compensation, which is proportionate to higher pretax income, increased workers compensation insurance expense, due to a larger number of claims experience from prior years, as well as some additional consulting expenses related to the Company's reengineering of its operations and management information systems.
Income from operations for the fiscal year ended June 30, 1996 increased 39.2% to $4,950,000, or 8.7% of net sales as compared to $3,556,000, or 6.6% of net sales for fiscal 1995. Higher operating income was the result of increased sales volume across the entire Company's product mix, lower raw material costs, and higher operating utilization in the Company's manufacturing plants. The Company's share of the operating loss in the Edge Craft USA joint venture was $108,000.
Net interest expense decreased $101,000 during the fiscal year ended June 30, 1996, as compared to fiscal 1995. Lower interest expenses reflect lower interest payments on several capital lease arrangements which were completed during 1996, where payments of principal accounted for an increasing portion of the payment as opposed to interest. Additionally, the overall interest rates on the Company's financing from EDA loans decreased, reflecting lower bond yields in fiscal 1996 compared to fiscal 1995.
Net income for the year ended June 30, 1996 increased 58.5% or approximately $942,000 to $2,553,000, or $.37 per share as compared to $1,611,000 or $.23 per share for fiscal 1995. The increase is due to the higher gross profit from operations for fiscal 1996 compared to fiscal 1995.
Liquidity and Capital Resources
The Company's liquidity position at June 30, 1997 improved from the prior year. Working capital increased approximately $1,535,000 to $8,510,000 at June 30, 1997 from $6,975,000 at June 30, 1996. The current ratio increased to 1.72 at June 30, 1997 from 1.57 at June 30, 1996.
Cash flows from operations during fiscal 1997 in the amount of $2,944,000 represent a decrease of $1,906,000 from the prior year. The major reason for the decrease is
attributable to the higher working capital requirements needed to support the current and expected sales growth. An increase in accounts receivable of $409,000, as well as an increase of $1,044,000 in inventories are the primary factors for this change.
The Company received $2,759,000 from the sale of building and equipment, as well as $1,152,000 in proceeds from long term debt. These funds, combined with cash flow from operations, were used to acquire $3,103,000 in capital assets, reduce long term debt by $4,462,000, and declare and pay out cash dividends in the amount of $418,000.
In April 1995, the Company formed a 50/50 joint venture (called "Edge Craft USA, Inc.") with Edge Craft, Ltd. of Ontario, Canada for the manufacture and sale of vinyl edgebanding manufactured with PVC compounds produced by the Company's wholly-owned subsidiary, Novatec Plastics Corporation. In June 1997, the Company agreed to sell its share of the joint venture to its venture partner, Edge Craft Ltd.
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, 1997, the Company had unused sources of liquidity consisting of cash and cash equivalents of $222,000 and available unused credit under a revolving credit facility of $5,000,000.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See annexed financial statements.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
-None-
PART III
Item 10.
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.
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.
JOHN C. D'AVELLA, from June 1973 to July 1974, was an employee of Cosmetics Unlimited, Bogota, New Jersey in the area of purchasing and inventory control. From July 1974 to September 1975 he was employed as the General Manager in charge of purchasing and sales at D'Avella's Pharmacy in Newark, New Jersey. Mr. D'Avella was employed from September 1975 to 1978 as Sales Manager of the Company. In 1978 he became Vice President in Charge of Sales and Secretary of the Company.
JOEL FRANCIS ROBERTS, from 1984 to July 1986, was a plant manager for Technical Plastics Extruders, an extruder of sheet material. During July 1986 he joined the Company as a plant manager and became a Director of Operations during 1989. He became a Vice President for Operations during November 1989.
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 Fairmont Minerals, Ltd., PVC Container Corporation, R. Tape Corporation, ShoreBridge Corp., 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.
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.
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.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14.
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, 1997 and 1996
Consolidated Statements of Income for the three years ended June 30, 1997
Consolidated Statements of Stockholders' Equity for the three years ended June 30, 1997
Consolidated Statements of Cash Flows for the three years ended June 30, 1997
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules.
Report of Independent Auditors on Consolidated Financial Statement Schedules
For the three years ended June 30, 1997
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).
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).
10.15 1996 Incentive Stock Option Plan (filed as Exhibit 10.3 to the December 12, 1996 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).
Exhibits filed herewith:
None.
(b) Reports on Form 8-K filed during last quarter of the year ended June 30, 1997:
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.
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).
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).
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.
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 9, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ----
/s/ Phillip L. Friedman Chief Executive September 9, 1997 - -------------------------- Officer and Director Phillip L. Friedman
/s/ John C. D'Avella Chief Operating Officer September 9, 1997 - -------------------------- and Director John C. D'Avella
/s/ William A. Del Pizzo Vice President, Chief September 9, 1997 - -------------------------- Financial and Accounting William A. Del Pizzo Officer
/s/ John F. Turben Director September 9, 1997 - -------------------------- John F. Turben
/s/Raymond A. Lancaster Director September 9, 1997 - -------------------------- Raymond A. Lancaster
/s/ George R. Begley Director September 9, 1997 - -------------------------- George R. Begley
/s/ Michael Sherwin Director September 9, 1997 - -------------------------- Michael Sherwin
PVC CONTAINER CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K
JUNE 30, 1997
PVC Container Corporation
Consolidated Financial Statements
June 30, 1997, 1996 and 1995
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
Report of Independent Auditors
The Board of Directors and Stockholders PVC Container Corporation
We have audited the consolidated financial statements of PVC Container Corporation listed in the accompanying index to financial statements (Item 14(a)(1)). Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying index to financial statements (Item 14(a)(1)) present fairly, in all material respects, the consolidated financial position of PVC Container Corporation at June 30, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey August 8, 1997
PVC Container Corporation
Consolidated Balance Sheets
See accompanying notes.
PVC Container Corporation
Consolidated Statements of Income
See accompanying notes.
PVC Container Corporation
Consolidated Statements of Stockholders' Equity
See accompanying notes.
PVC Container Corporation
Consolidated Statements of Cash Flows
See accompanying notes.
PVC Container Corporation
Notes to Consolidated Financial Statements
June 30, 1997, 1996 and 1995
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, 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.
ACQUISITION
On August 4, 1994, the Company acquired certain assets from Air Products and Chemicals, Inc., for its recently incorporated wholly-owned subsidiary known as Airopak Corporation for $1.57 million.
The Company accounted for the acquisition as a purchase. Accordingly, the acquired assets have been recorded at their estimated fair values at the date of acquisition. The results of operations of the acquired business are included in the accompanying consolidated statement of income from the date of acquisition. The pro forma results of operations for the period July 1, 1994 to August 4, 1994 have not been presented as such amounts are not material.
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 $240,000, $252,000 and $217,000 in 1997, 1996 and 1995, respectively.
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 February 1997, the Financial Accounting Standards Board issued FASB Statement No. 128, Earnings Per Share, effective for periods ending after December 15, 1997. The Company will adopt the Statement in its quarterly report for the quarter ended December 31, 1997. At that time, the Company will be required to change the method it currently uses to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of primary and fully diluted earnings per share is not expected to be material.
Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding retroactively restated for the 3% stock dividend declared by the Board of Directors payable on February 26, 1996 to stockholders of record on February 9, 1996. No common stock dividend was paid in 1995.
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.
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
2. INVENTORIES
Inventories consist of the following:
The excess of inventory valued on FIFO basis which approximates replacement cost over LIFO cost at June 30, 1997 was approximately $2,000. Replacement cost exceeded LIFO cost by approximately $216,000 at June 30, 1996.
3. PROPERTIES, PLANT AND EQUIPMENT
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
4. ACCRUED EXPENSES
Accrued expenses at June 30 consists of:
5. LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows: 1998 - $1,866,648; 1999 - $1,758,876; 2000 - $1,630,525; 2001 - $940,131; 2002 - $950,512; and 2003 to 2016 - $11,057,125. Interest paid amounted to $837,461, $749,327 and $881,021 in 1997, 1996 and 1995, 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% in 1997 and 3.9% in 1996.
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.
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 3.6% and 3.7% in 1997 and 1996, 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.
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
GE CAPITAL PUBLIC FINANCE BUILDING AND EQUIPMENT LOAN
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 agreement contains provisions which require the funds to be held in trust (the "Trust") by a third-party financial institution until such time that building, construction or equipment purchases are made. The funds are invested at rates of return comparable to the interest rate paid by the Company on the obligation. Purchases in connection with this agreement are paid directly from the Trust.
The bonds issued by the City of Paris to fund the debt are tax-exempt bonds. Should the tax-exempt status of these bonds be negated, the rate of interest of this note would be retroactively adjusted.
435 INDUSTRIAL WAY MORTGAGE
During fiscal year 1992, the Company financed $900,000 for the purchase of a building adjacent to its property. In July 1996, the Company sold the building and repaid the remaining principal on the mortgage totaling approximately $705,000 with a portion of the proceeds from the sale.
EQUIPMENT NOTES
During fiscal year 1995, the Company received a second draw down on its $2,300,000 equipment loan from Fleet Bank, amounting to $1,260,000. The note requires principal payments of $21,355 and interest at 9.31% on the first of every month through the note's maturity in March 1999, at which time the full unpaid principal and interest are due. The first draw down note provides for the monthly payment of interest at 7.82% through and including May 1, 1995. Principal payments of $10,000 and interest are due thereafter on the first of every month through the note's maturity in March 1999, at which time the full unpaid principal and interest are due. During 1997, these notes were consolidated into the $2,530,000 term note with Fleet Bank as discussed below.
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
During fiscal year 1995, the Company obtained a $950,000 equipment loan from Fleet Bank for its newly acquired Airopak division. The note is payable in eighty-four monthly payments of $11,310, plus interest at 9.19%. During 1997, the note was consolidated into the $2,530,000 term note with Fleet Bank as discussed below.
TERM NOTES
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 at 7.72%. The note matures on April 1, 2000 and is collateralized by the equipment. 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 at 9.35%, through the notes maturity in November 2011. 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, March 1, 1999, when the full amount of unpaid principal and interest is due. The note may be prepaid in whole or in part subject to certain requirements stated in the loan agreement. The note is collateralized by the property and equipment purchased.
During fiscal year 1993, the Company purchased $3,000,000 of equipment which was financed through three term notes with Fleet Bank. The notes, with original principal balances of $1,500,000, $900,000 and $600,000 are payable in sixty monthly payments of $50,000 plus interest at 7.29%, 6.8% and 6.69%, respectively. These notes were consolidated into the $2,530,000 term note with Fleet Bank as discussed above.
REVOLVING NOTE
During fiscal year 1996, the Company purchased $2,175,000 of property and equipment which was financed through a revolving note with Fleet Bank. Borrowings under this revolving note bear interest at the prime rate (8.25% at June 30, 1996) and are payable in full on October 31, 1997. During fiscal year 1997, the note was prepaid in full in
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
accordance with the requirements stated in the loan agreement. On April 1, 1997, the Company entered into a new $5,000,000 line of credit agreement with Fleet Bank. Borrowings under this note bear interest payable monthly at the prime rate, 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, 1997.
EDGAR COUNTY BANK CONSTRUCTION LOAN
During fiscal year 1993, the Company financed $675,000 for real estate improvements for a manufacturing plant in Paris, Illinois. The loan is payable in sixty monthly principal payments of $2,813 and a final lump sum payment of $506,250 on April 30, 1998, plus interest at 6.75%. The loan is collateralized by a shared first lien interest for the land and building in Paris, Illinois in conjunction with an inter creditor agreement between the bank and the City of Paris.
COMMUNITY DEVELOPMENT ASSISTANCE LOAN
In fiscal year 1993, the Illinois Department of Commerce and Community Affairs approved a loan with the City of Paris for development of a manufacturing plant in Illinois for $500,000 which will be payable in 180 monthly installments of $3,453 including interest at 3%. The loan is collateralized by a shared first lien interest for the land and building in Paris, Illinois in conjunction with an inter creditor agreement between the City of Paris and Edgar County Bank.
REVOLVING LOAN FUND
The Illinois Department of Commerce and Community Affairs also approved a revolving loan fund from the City of Paris to assist in the development of the manufacturing plant in Illinois for $150,000 in fiscal year 1993. The loan is payable in 180 monthly installments of $1,033 including interest at 3%. The loan is collateralized by a subordinate lien interest for the land and building in Paris, Illinois in conjunction with an inter creditor agreement between the City of Paris and Edgar County Bank.
ILLINOIS SMALL BUSINESS DEVELOPMENT LOAN
In fiscal year 1994, the Illinois Department of Commerce and Community Affairs approved a loan with the City of Paris for the expansion of the Company's manufacturing plant in Illinois for $350,000 which is payable in 180 monthly installments of $2,767
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
including interest at 5% and a final payment to satisfy the conditions of the loan. The loan can be prepaid in whole or in part without penalty. The loan is collateralized by the property and improvements thereafter as well as the rent issues and profits of the premises.
6. OPERATING LEASES
Minimum rental commitments under non-cancellable operating leases are payable as follows:
Rental expense for operating leases amounted to $344,965, $118,594 and $142,179 in 1997, 1996 and 1995, respectively.
7. PENSION PLAN
On September 1, 1990, the Company instituted a non-contributory defined benefit pension plan (the Plan) for all eligible full-time union employees. Benefits are based on years of service. The Company contributes to the Plan amounts, actuarially determined by the Unit Credit Actuarial Cost Method, which provides the Plan with sufficient assets to meet future benefit payment requirements. The assets of the Plan are invested principally in short-term investments. Net pension cost consists of the following components:
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
7. PENSION PLAN (CONTINUED)
The reconciliation of the funded status of the Plan to the amount on the Company's balance sheet is as follows:
The assumptions used in determining the funded status of the Plan are as follows: (i) discount rate - 7.5% in 1997 and 1996, and (ii) expected rate of return on assets of 8.5% for 1997 and 1996.
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 $282,991, $520,123 and $337,534 in 1997, 1996 and 1995, respectively.
8. COMMON STOCK
The Company's Board of Directors approved and ratified on January 16, 1997, an incentive stock option plan pursuant to which options to purchase an aggregate of 600,000 shares of the common stock of the Company may be granted. 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 expiration. During 1997, the Company issued 334,000 options to officers and
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
8. COMMON STOCK (CONTINUED)
employees at the average price of $4.30 and 40,000 options to directors at an average price of $4.13. At June 30, 1997, there were 226,000 options for common stock which remained for future issuance.
The Company contributed 40,000 shares of common stock to its Employee Stock Option Plan ("ESOP") on November 21, 1996. The value of the shares at the date of grant in fiscal 1996 was $120,000 which was included in selling, general and administrative expenses in fiscal year 1996.
The Company paid cash dividends per share of $.06 and $.05 in the years ended June 30, 1997 and 1996, respectively. The Company has no intention to pay cash dividends in the future.
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 1997 and 1996, respectively: risk-free interest rates of between 6.16% and 6.23%; expected volatility of 0.3%; expected option life equal to the vesting period, and an expected dividend yield of 0.0%.
For purposes of pro forma disclosures, the estimated fair value of the equity awards is amortized to expense over the options vesting period. The expense in fiscal 1997 would have no impact on the Company's net income and net income per share of common stock.
9. INCOME TAXES
The provision for income taxes consists of:
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of June 30, 1997 are as follows:
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:
Income taxes paid amounted to $1,812,000, $1,462,000 and $871,000 in 1997, 1996 and 1995, respectively.
PVC Container Corporation
Notes to Consolidated Financial Statements (continued)
10. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES
As more fully described in Note 1, the Company acquired certain assets from Air Products and Chemicals, Inc. on August 4, 1994. The purchase price was allocated to the assets based on their estimated market values as follows:
Excluded from the consolidated statements of cash flows in 1997 and 1996 was the effect of certain noncash financing activities related to 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 $4.5 million and $261,000 in 1997 and 1996, respectively.
PVC Container Corporation
Schedule II - Valuation and Qualifying Accounts