ITEM 1: BUSINESS
The Company's primary product shipped in the United States is aluminum aerosol pressurized cans. The market size is an estimated 3.0 billion units. Major product groups include personal products, household products, automotive and industrials, paints and finishes, insect sprays, and food products. Aluminum containers historically comprise 10% of the aerosol market with personal products and hair sprays comprising the largest segments.
The tube industry is comprised of plastic, laminate, and metal products. The major markets are pharmaceutical, dentifrice, cosmetic, and personal care. The estimated annual tube volume is 2.95 billion units. The metal tube market, which represents the Company's segment of the market, has become a small part of the Company's overall sales mix.
The Company does not fill any containers that it manufacturers. The other product lines mentioned previously are of relatively minor importance, are in a highly competitive market, and are sold to a small number of specialty customers.
The industry in which the Company competes is extremely price competitive. The Company continues to offer a high quality product, meet customer product demands, and at the same time remain price competitive.
SALES 1997-1999
The Company supplies approximately 100 customers including 15-20 major accounts. In 1999, two customers accounted for 45% (32% and 13%) of the Company's sales. In 1998, two customers accounted for 60% (48% and 12%) of the Company's sales. In 1997, sales to two customers accounted for 61% (27% and 34%) of the Company's sales.
Excess capacity in the industry has had an adverse effect on the Company. However, steps are currently being taken to implement operational changes and reduce costs in order to offset the loss in volume.
The current sales backlog of production orders and inventory on hand is slightly less than last year. This position can change rapidly as customers release new orders or adjust desired quantities. The Company's production is against firm orders and subject to firm and final pricing.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 3
THE MANUFACTURING PROCESS
While production lines for aluminum aerosols and tubes can be dissimilar, automatic production machinery and equipment perform each of the following steps in a continuous process:
Extruding the can or tube:
1. Trimming the can or tube to its proper length.
2. Heating and cleaning the can or tube shell.
3. Coating or lining the interior and/or exterior of the shell.
4. Decorating and over lacquering the container.
5. Necking or forming the orifice or shoulders of the can or tube.
6. Packaging the product.
Solid aluminum slugs are first fed through a hopper into an impact extrusion press 250-400 tons pressure at impact point. Then the containers, now recognizable as such, are fed by conveyors, during which time a micrometer and other tests are made periodically to check wall and bottom thickness, into a trimmer that shears the side wall to correct length. After the container shells have been trimmed, the containers are conveyed through one or more ovens and washing tanks. Then they are fed back onto a production line where they are spun on spindles or other transfer devices, and sprayed with coats of the desired internal resin liner. To set these resins for maximum resistance to certain product corrosivity, the containers are preheated and baked in an oven at very high temperatures (over 500(Degree) F). A vinyl or epoxy-type base coat of the desired color is then sprayed on the outside of the container. After going through another drying oven, the containers are positioned for lithography (of up to six colors) on an offset press and then dried. If specifications call for a high degree of protection of the container finish against possible marring by product spray or drip, the containers are then given a coating with an external clear lacquer, usually of the epoxy type. After final drying, a "rolling" machine turns the neck inward or outward, so that the lip touches the inside of the neck to form a continuous interior circumferential bead leaving the mouth circular. In addition to product compatibility discussed below, this necking process, plus the seamless construction and the exceptionally high bursting strength, gives the aerosol its chief selling appeal from a technical standpoint; while the seamless construction combined with the printing capability provides the aesthetic appeal and marketability. The finished products, at a rate of up to 150 per minute, are packed for shipment to the customer.
Though each container has the same physical characteristics, they may differ widely as to special features. Selection of internal liners, lithographic print inks, base coat formulation and external lacquers are all conditioned by the chemical characteristics of product and propellant and how each reacts with the other. Also acting to differentiate the containers of one customer from those of another are the form of product dispersal, the type of metal or plastic overcap, and possible corrosive characteristics of the valve components intended for a particular product. The Company obtains samples of all the components after the custom filler or marketer has achieved product and propellant compatibility, and parallel tests are conducted to evolve the right liners and coatings to use so that they fit the particular product. Frequently, the customer changes his source of supply, and seemingly minor changes may throw out all the formulation specifications.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 4
Some of the external coating problems are ameliorated by the use of aluminum, which has surface especially suited to receive coatings. Aerosol cans contain 99.4% aluminum (or slightly less than metal tubes to impart greater rigidity), and under a microscope, the aluminum surface looks like a series of raw teeth which readily pick up high quality coating and inks with good hard adhesive qualities.
SEGMENT DATA
The Company has one segment of business which is the manufacture of containers, either aluminum cans or tubes. All of its major product lines are sold to the same marketer and/or manufacturing industries for highly similar end uses. All products are fabricated by the extrusion method of forming metal and many customers are buying all product lines for sale to essentially the same markets. The products are manufactured under the same roof with overlapping labor forces and overhead, and on similar machinery.
RAW MATERIALS
The basic raw materials essential to the operation of the Company are aluminum ingot, paint, ink and paper products for packaging and shipping containers. All necessary supplies are readily available. The Company has a supply agreement for aluminum slugs that expires in the year 2000. The Company may terminate this supply agreement upon thirty days written notice to the buyer provided the buyer's selling price to the Company is not competitive with market quotes obtained from at least three other vendors for aluminum.
ENVIRONMENT
The Company is subject to federal, state, and local requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. It is the Company's policy to comply with these requirements, and the Company believes that as a general matter its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage, and of resulting financial liability, in connection with its business. Some risk of environmental damage is, however, inherent in particular operations and products of the Company, as is the case with other companies engaged in similar businesses.
The Company is and has been engaged in handling, manufacture, use or disposal of several substances, which are classified as hazardous or toxic by one or more regulatory agencies. The Company believes that its handling, manufacture, use and disposal of such substances have generally been in accord with environmental law and regulations. It is possible, however, that future knowledge or other developments, such as improved capability to detect such substances in the environment, increasingly strict environmental laws and standards and enforcement policies thereunder, could bring into question the Company's handling, manufacture, use, or disposal of such substances.
EMPLOYEES
The Company presently employs approximately 130-150 persons at its facility located in Bloomfield, New Jersey. The Company is a non-union organization and management's relationship with its employees is considered excellent.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 5
ITEM 2:
ITEM 2: PROPERTIES
The Company's facility is located in Bloomfield, New Jersey.
The land, building, and equipment are pledged as collateral under various loan agreements with the Company's secured working capital lender, which has a security interest in substantially all the Company's assets.
The executive, administrative, marketing and engineering offices along with the manufacturing and warehouse facilities are contained in three (3) buildings, a total of 261,000 square feet. There is adequate space to expand the operations if required.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
In January 1998, a jury verdict was rendered against the Company in a lawsuit filed by a former employee alleging age discrimination and breach of contract. The amount of damages and attorney's fees awarded to the employee approximated $638,000. On June 5, 1998, a settlement agreement with the former employee was reached whereby the Company would pay, over a two year period, a total of $700,000 including interest, of which $60,000 was paid in 1998. In June 1999, as part of a further agreement, $600,000 was paid as full and final settlement of the suit.
There are several other suits arising in the normal course of business. The Company believes these suits are without merit and is vigorously defending its position in each suit. Counsel for the Company cannot offer an opinion as to the probable outcome of such cases.
ITEM 4:
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Shareholders at the annual meeting, expected to be held in September, will be asked to elect the Board of Directors and ratify the Company's independent auditors.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 6
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 7
PART II
ITEM 5:
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Peerless Tube Company Corporation Common Stock is traded over-the-counter. The Company is traded under the symbol PLSU. There has been a relatively small number of trades during 1999.
The range of the high and low common stock sale's prices as reported by the NASD bulletin board over the counter for each of the quarters for the years ended December 31, 1999, 1998, and 1997 are listed as follows:
QUARTER 1999 1998 1997 - ------------------- ----------------- ---------------- ----------------- 1 $0.4400 $0.3125 $0.6250 $0.3750 $0.2600 $0.4375 2 $0.4400 $0.4375 $0.3750 $0.4400 $0.2800 $0.3125 3 $0.6250 $0.2800 $0.5000 $0.5000 $0.1250 $0.3125 4 $0.6600 $0.2500 $0.3750 $0.3750 $0.0625 $0.3000 - ------------------- ----------------- ---------------- -----------------
There were no stock or cash dividends declared or paid since 1989. Under the Company's loan agreement, the Company is restricted from the payment of dividends.
The approximate number of record holders of the Company's Common Stock, at December 31, 1999, was 1,100.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
The information included under the caption Selected Financial Data Five Years Ended December 31, 1999 at page 17 of the Company's 1999 Annual Report to shareholders is incorporated herein by reference.
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis" at pages 13-16, management section, of the Company's 1999 Annual Report to Shareholders is incorporated herein by reference.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, together with the reports therein of Goldstein Golub Kessler LLP dated March 1, 2000 appear on pages 1-12, auditor's section, of the Company's 1999 annual report to shareholders.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on any auditing , accounting or financial disclosure in 1999.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 8
PART III
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information, relating to the directors of the Registrant, as well as information relating to compliance with section 16(a) of the Securities Exchange Act of 1934 is contained in a definitive Proxy statement primarily involving election of directors and appointment of independent accountants. The Registrant is simultaneously filing this document with the Securities and Exchange Commission pursuant to Regulation 14a, and such information is incorporated by reference. Certain other information relating to the Executive Officers of the Registrant appears at page 7 of this Form 10-K Annual Report.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
Information relating to executive compensation is also contained in the Proxy statement referred to above in Item 10: Directors and Executive Officers of the Registrant, and such information is incorporated by reference.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and management is also contained in the Proxy statement referred to above in Item 10: Directors and Executive Officers of the Registrant, and such information is incorporated by reference.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions can be found in Note 11 to the consolidated financial statements and on page 7, management section, of the Company's 1999 annual report to stockholders and incorporated herein by reference.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 9
ITEM 14:
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
* The consolidated financial statement schedules should be read in conjunction with the Consolidated Financial Statements incorporated by reference in Item 8 of the Form 10-K Annual Report. Schedules other than those listed above have been omitted because of the absence of the conditions under which they are required or because information required is shown in the consolidated financial statements or the notes thereto.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PEERLESS TUBE COMPANY
Registrant
By:
--------------------------------------- Frederic Remington, Jr. Chairman of the Board and Chief Executive Officer
By:
--------------------------------------- Richard W. Potts President and Director
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 11
OUR VISION We will be one of the leaders in the packaging industry, successful in everything we do. - -------------------------------------------------------------------------------- OUR We will achieve our vision by being a COMMITMENT Total Quality Company, continuously improving our processes to satisfy our internal and external customers. - -------------------------------------------------------------------------------- OUR VALUES CUSTOMERS - Our first priority is to satisfy our customers.
PEOPLE - We help our employees improve their skills, encourage them to take risks, treat them fairly, and recognize their accomplishments, asking them to approach their jobs with passion and commitment.
TEAMWORK - We build trust and teamwork with open, candid communications. We work together and share technologies and best practices with our suppliers and customers.
INNOVATION - We accept change as the rule, not the exception, and drive it by encouraging creativity.
PERFORMANCE - We encourage the highest expectations, set ambitious goals, and quite simply strive to be the best.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 12
SALES AND RESULTS OF OPERATIONS 1999 COMPARED TO 1998
SALES
Net sales for the year ended December 31, 1999 decreased $1,176,000 or 8% on sales of $14,381,000 when compared to 1998 net sales of $15,557,000. Aerosol volume for 1999 was $12,280,000 as compared with sales for 1998 of $14,300,000 or a decrease of 14%. Aluminum tube sales for 1999 were $1,279,000 as compared with 1998 tube sales of $782,000 or an increase of 64%. Miscellaneous sales for 1999 totaled $822,000 as compared to $475,000 in 1998. The decrease in sales was a result of a slight decrease in sales to a major customer.
In 1999, the Company's sales to two customers accounted for 45% (32% and 13%) of the Company's total sales. In 1998, two customers accounted for 60% (48% and 12%) of the Company's sales.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the years ended December 31, 1999 and December 31, 1998 was $1,242,000 or 8.6% of sales and $303,000 or 2.0% of sales, respectively. This was primarily the result of lower aluminum costs and reduced factory personnel.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31, 1999 were $1,518,000 or 11% of sales as compared to $1,874,000 or 12% of sales for the year ended December 1998.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1999 was $335,000 as compared to $270,000 in 1998.
Other income for the year ended December 31, 1999 was $336,000 as compared to $1,000 for the year ended December 31, 1998. In February 1999, the Company received a payment of $321,000 as the result of the final closing of their pension plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of $421,000 at December 31, 1999. This was a $1,314,000 increase from the negative working capital of $1,735,000 at December 31, 1998.
Cash at December 31, 1999 was $50,000 or an increase of $35,000 when compared to the same date in 1998. In order to meet cash requirements during 1999, the Company went through a refinancing, decreasing its current liabilities by $1,427,000 and increasing long term debt by $1,064,000.
The Company has a working capital loan secured by the Company's accounts receivables and inventories.
Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 13
SALES AND RESULTS OF OPERATIONS 1998 COMPARED TO 1997
SALES
Net sales for the year ended December 31, 1998 decreased $731,000 or 4% on sales of $15,557,000 when compared to 1997 net sales of $16,288,000. Aerosol volume for 1998 was $14,300,000 as compared with sales for 1997 of $15,152,000 or a decrease of 6%. Aluminum tube sales for 1998 were $782,000 as compared with 1997 tube sales of $844,000 or a decrease of 7%. Miscellaneous sales for 1998 totaled $475,000 as compared to $292,000 in 1997. The decrease in sales was a result of a slight decrease in sales to a major customer.
In 1998, the Company's sales to two customers accounted for 60% (48% and 12%) of the Company's total sales. In 1997, two customers accounted for 61% (34% and 27%) of the Company's sales.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the years ended December 31, 1998 and December 31, 1997 was $303,000 or 2.0% of sales and $228,000 or 1.0% of sales respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31, 1998 were $1,874,000 or 12% of sales as compared to $2,778,000 or 17% for the year ended December 1997.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1998 was $270,000 as compared to $278,000 in 1997.
Other income for the year ended December 31, 1998 was $1,000 as compared to $89,000 for the year ended December 31, 1997. Most of the other income in 1997 related to the surrender of life insurance policies.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of ($1,735,000) at December 31, 1998. This was a $1,582,000 decrease from the working capital of ($153,000) at December 31, 1997.
Cash at December 31, 1998 was $15,000 or a decrease of $153,000 when compared to the same date in 1997. In order to meet cash requirements during 1998, the Company was required to increase its line of credit in order to minimize the drain in working capital and help in the net repayment of debt. The increase to the line of credit was $271,000.
The Company has a working capital loan secured by the Company's accounts receivables and inventories.
Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 14
SALES AND RESULTS OF OPERATIONS 1997 COMPARED TO 1996
SALES
Net sales for the year ended December 31, 1997 decreased $7,328,000 or 31% on sales of $16,288,000 when compared to 1996 net sales of $23,616,000. Aerosol volume for 1997 was $15,152,000 as compared with sales for 1996 of $17,921,000 or a decrease of 15%. Aluminum tube sales for 1997 was $844,000 as compared with 1996 Tube sales of $5,175,000 or a decrease of 84%. Miscellaneous sales for 1997 totaled $292,000 as compared to $520,000. The decrease in 1997 vs. 1996 in the aerosol and tube lines was a result of excess capacity in the aerosol markets and the closing of the Puerto Rico facility.
In 1997, the Company's sales to two customers accounted for 61% (27% and 34%) of the Company's total sales. In 1996 three customers accounted for 55% (22%, 21% and 12%) of the Company's sales.
The Company's sales of aluminum aerosols are approximately 93% of the 1997 sales as compared to 76% in 1996. The mix change is a result of the closing of the Puerto Rico facility in 1996. The Puerto Rico facility produced solely aluminum tube product.
GROSS MARGIN TRENDS AND DISCUSSION
The gross profit for the year ended December 31, 1997 and December 31, 1996 was $228,000 or 1.0% of sales and $2,115,000 or 9.0% of sales respectively. The decrease in gross margin is primarily due to current excess capacity which the Company has available. A large part of the Company's costs are "fixed" rather than variable and the decreased demand for product in 1997 had a sufficient impact on the Company's ability to absorb the high amount of fixed costs. While the Company has been successful in reducing costs, it must increase its machine hour leverage and "value added" hours, in order to be profitable. The Company must increase its sales level in order to accomplish the above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31, 1997 were $2,778,000 or 17% of sales as compared to $2,528,000 or 11% for the year ended December 1996. The increase in SG&A is due to non-recurring legal expenses.
INTEREST EXPENSE, AND OTHER INCOME, NET
Interest expense for the year ended December 31, 1997 was $278,000 as compared to $607,000 in 1996. The decrease of $329,000 was a result of the termination of the sales/leaseback agreement with the Block Drug Company.
Other income for the year ended December 31, 1997 was $89,000 as compared to $1,786,000 for the year ended December 31, 1996. The decrease is largely attributed to the Sale/Leaseback of Puerto Rico being terminated in November 1996. (See note 10, of notes to the Financial Statements).
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 15
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital of ($153,000) at December 31, 1997. This was approximately a $72,000 increase from the negative working capital of ($225,000) at December 31, 1996.
Net cash at December 31, 1997 was $190,000 or a decrease of $37,000 when compared to the same period in 1996. In order to meet cash requirements during 1997, the Company was required to increase its equipment loan in order to minimize the drain in working capital and help in the net repayment of debt. The increase to the equipment loan was $552,000.
The debt-equity-ratio at December 31, 1997 was 4:1 as compared to 1.5:1 at December 31, 1996.
The Company has a working capital loan secured by the Company's accounts receivables and inventories.
Management must monitor its cash resources very closely. Operational improvements, aggressive marketing, and favorable aluminum pricing will be required in order to improve cash availability and management.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 16
*For the year ended December 31, 1996, the net income included a recognized gain of $1,555,000, net of Puerto Rico capital gains tax, in connection with the termination of the sale leaseback of the Puerto Rico facility.
PEERLESS TUBE COMPANY 1999 ANNUAL REPORT FORM 10-K 17
PEERLESS TUBE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
PEERLESS TUBE COMPANY
CONTENTS DECEMBER 31, 1999 - --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet 2 Statement of Operations and Accumulated Deficit 3 Statement of Cash Flows 4 Notes to Consolidated Financial Statements 5 - 12
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders Peerless Tube Company
We have audited the accompanying consolidated balance sheets of Peerless Tube Company as of December 31, 1999 and 1998, and the related consolidated statements of operations and accumulated deficit, and cash flows for each of the three years in the period ended December 31, 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 financial position of Peerless Tube Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 of the notes to consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows and has a stockholders' deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP New York, New York
March 1, 2000
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 - -------------------------------------------------------------------------------- 1. BUSINESS Peerless Tube Company (the "Company") supplies collapsible ORGANIZATION metal tubes and seamless aluminum aerosol containers to AND SIGNIFICANT national marketers primarily in the pharmaceutical, ACCOUNTING cosmetic and toiletry industries. Manufacturing facilities POLICIES: are located in Bloomfield, NJ.
The consolidated financial statements of the Company include the accounts of Peerless and its wholly owned inactive subsidiary, Peerless Tube Company of Puerto Rico, Inc. All significant intercompany accounts and transactions have been eliminated.
Inventories are stated at the lower of cost (first-in, first-out method) or market.
Depreciation of property, plant and equipment is provided for by the straight-line and the declining-balance methods over the estimated useful lives of the related assets.
Property, plant and equipment is stated at the lower of cost, less accumulated depreciation, or net realizable value.
Revenue from sales of products is recognized at the date of shipment to customers.
The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses on these accounts.
Basic earnings per share ("EPS") is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options, restricted stock awards and warrants. Diluted EPS is not presented since the effect would be antidilutive.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstance indicate that the carrying value of an asset may not be fully recoverable. The Company performs nondiscounted cash flow analyses to determine if an impairment exists.
Impairment losses on assets are determined based on the present value of cash flows using discount rates which reflect the inherent risk of the underlying business. Impairment losses on assets to be disposed of are based on the estimated proceeds to be received less costs of disposal.
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures About Fair Value of Financial Instruments, requires management to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial instruments. Financial instruments are generally defined by SFAS No.
PEERLESS TUBE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 - --------------------------------------------------------------------------------
107 as cash, evidence of ownership interest in equity, or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. At December 31, 1999 and 1998, management believes that the carrying amount of the revolving credit line approximates fair value because of the short maturity of this financial instrument. The carrying value of the Company's long-term debt is considered to approximate fair value based upon current borrowing rates offered to the Company.
Costs incurred in 1999 in the amount of approximately $180,000 in connection with obtaining the borrowings described in Note 8 have been deferred and are being amortized over the terms of the borrowing by the straight-line method. Accumulated amortization at December 31, 1999 is approximately $15,000.
Advertising costs are expensed as incurred. For the years ended December 31, 1999 and 1998, advertising expense was $29,000 and $73,000, respectively.
2. BUSINESS AND The accompanying consolidated financial statements have DEBT been prepared in conformity with generally accepted RESTRUCTURING: accounting principles, which contemplate continuation of the Company as a going concern. Since 1988, however, the Company has suffered recurring losses from operations and negative cash flows and currently has a stockholders' deficiency. These conditions raise substantial doubt about its ability to continue as a going concern.
The Company's management has continually evaluated and reshaped its business to improve the operational results of the Company and respond to the changes in the economic and competitive market in which the Company operates. Major cost and head count reduction programs previously implemented focused on reduction of pension and employee benefits, particularly changes to healthcare benefits. Except for periodic additions to meet peaks in sales demand, the Company has reduced its workforce, both salaried and hourly. Management introduced and implemented new programs to improve its production, inventory management and management cost accounting systems.
With the anticipated cooperation of its secured lender and the additional consolidation of plant assets, management believes that actions presently being taken to improve the Company's operating performance including reductions of staffing levels and stabilization of raw material prices will provide adequate working capital, help minimize the financial losses, and create the opportunity for the Company to continue as a going concern.