10-Q 1 y05757e10vq.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2004 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ____________________ COMMISSION FILE NUMBER 0-08791 PVC CONTAINER CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-2616435 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Industrial Way West, Eatontown, New Jersey 07724 ---------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code (732) 542-0060 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 14, 2005 --------------------- -------------------------------- Common $.01 par value 7,042,393 shares CONTENTS

PAGE NO. ~~----~~ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -~~September~~ 30December 31, ~~2003~~2004 and June 30, ~~2003~~2004 3 (Unaudited) Consolidated Statements of Operations - Three and Six Months Ended ~~September~~December 3031, ~~2003~~2004 and ~~2002~~2003 (Unaudited) 4 Consolidated Statements of Cash Flows -~~Three~~ Six Months Ended ~~September~~December 3031, ~~2003~~2004 and ~~2002~~2003 (Unaudited) 5 Notes to Consolidated Financial Statements ~~(Unaudited)~~ 6-1213 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-1419 Item 3. Quantitative and Qualitative Disclosure About Market Risk 1519 Item 4. Controls and Procedures 19 PART II. OTHER INFORMATION Item 41. ~~Controls~~Legal ~~and~~Proceedings ~~Procedures~~20 15 Item 64. ~~Exhibits~~Submission ~~and~~of ~~Reports~~Matters onto ~~Form~~a ~~8-K~~Vote 16of ~~Signatures~~Security 17Holders ~~Certification~~20 ~~18-19~~Item ~~Additional~~6. Exhibits 20 Signatures 21

Page 2 Part I Financial Information Item 1: Financial Statements PVC Container Corporation Consolidated Balance Sheets (Unaudited)

~~SEPTEMBER~~December ~~JUNE~~June 3031, ~~2003~~2004 30, ~~2003~~2004 ------------ ------------~~-----~~ ASSETS Current assets: Cash and cash equivalents $ ~~483~~438,~~689~~132 $ ~~673~~365,~~055~~820 Accounts receivable, net 1112,~~269~~000,~~473~~526 1214,~~398~~901,~~916~~390 Inventories, ~~net 13~~15,~~243~~003,~~613~~484 12,~~525~~461,~~741~~663 Prepaid expenses and other current assets 1,~~846~~164,~~061~~383 1945,~~255,440~~951 Deferred income taxes 12,~~658~~768,~~154~~587 1,~~658~~632,~~154~~029 Net assets held for disposition 700,000 -- ------------ ------------~~---~~ Total current assets 2832,~~500~~075,~~990~~112 2830,~~511,~~306,853 Properties, plant and equipment at cost, net 3025,~~790~~496,~~295~~990 3028,~~297~~609,~~375~~378 Goodwill, net of accumulated amortization ~~3,296,298~~-- 3,296,298 Other assets ~~310~~131,~~659~~230 ~~339~~176,~~212~~692 ------------ ------------~~-----~~ $ 6257,~~898~~703,~~242~~332 $ 62,~~444~~389,~~191~~221 ============ ============~~=====~~ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 810,~~008~~494,~~169~~219 $ 810,~~132~~207,~~728~~342 Accrued expenses 2,~~317~~254,~~247~~328 2,~~675~~373,~~908~~488 Current portion of long-term debt 32,~~643~~973,~~762~~001 3,~~351~~929,~~266~~649 ------------ ------------~~-----~~ Total current liabilities 1315,~~969~~721,~~178~~548 1416,~~159~~510,~~902~~479 Long-term debt 2725,~~296~~844,~~809~~789 2624,~~480~~077,~~888~~230 Interest rate swap ~~452~~93,~~908~~550 ~~543~~198,~~436~~278 Deferred income taxes 2,~~460~~745,~~828~~456 2,~~423~~628,~~711~~292 Other liabilities 100,000 -- Stockholders' equity: Preferred stock, par value $1.00, authorized 1,000,000 ~~shares~~Shares, none issued -- -- Common stock, par value $.01, authorized 10,000,000 shares, 7,044,655 shares issued and outstanding as of ~~September~~December 3031, ~~2003~~2004 and June 30, ~~2003,~~2004 ~~respectively~~ 70,446 70,446 Capital in excess of par value 3,810,981 3,810,981 Retained earnings 159,~~109~~376,~~103~~552 15,~~280~~215,~~249~~294 Accumulated other comprehensive loss (~~267~~55,~~216~~195) (~~320~~116,~~627~~984) Treasury stock, at cost (2,262 shares at ~~September~~December 3031, ~~2003~~2004 and June 30, ~~2003~~2004) (4,795) (4,795) ------------ ------------~~-----~~ Total stockholders' equity 1813,~~718~~197,~~519~~989 18,~~836~~974,~~254~~942 ------------ ------------~~-----~~ $ 6257,~~898~~703,~~242~~332 $ 62,~~444~~389,~~191~~221 ============ ============~~=====~~

See accompanying notes Page 3 PVC Container Corporation Consolidated Statements of Operations (Unaudited)

THREE MONTHS ENDED ~~SEPTEMBER~~SIX 30MONTHS ENDED December 31 December 31 ---------------------------- ---------------------------- 2004 2003 ~~2002~~2004 2003 ------------ ------------ ------------ ------------ Net sales $ 2123,~~229~~043,~~348~~928 $ 2120,~~336~~661,~~996~~549 $ 46,708,776 $ 41,890,897 Cost and expenses: Cost of goods sold (exclusive of depreciation and amortization expense shown separately below) 19,500,465 16,~~963~~717,~~730~~401 1739,~~543~~651,~~569~~779 33,681,131 Selling, general and administrative expenses 2,~~436~~774,~~857~~268 2,~~277~~325,~~619~~758 5,988,688 4,762,615 Depreciation and amortization 1,~~514~~409,~~336~~142 1,~~461~~583,~~242~~150 2,809,111 3,097,486 Goodwill impairment charge 3,296,299 -- 3,296,299 -- Provision for restructuring ~~116~~572,~~271~~899 160,214 572,899 276,485 Asset impairment 448,615 -- 448,615 -- ------------ ------------ ------------ 21------------ 28,~~031~~001,~~194~~688 2120,~~282~~786,~~430~~523 52,767,391 41,817,717 ------------ ------------ ------------ ~~Income~~------------ (Loss) income from operations ~~198~~(4,~~154~~957,760) 54(124,~~566~~974) (6,058,615) 73,180 Other income (expense): Interest expense (452,134) (488,~~232~~815) (~~482~~880,~~795~~181) (977,047) Other income 8631,~~830~~500 144,500 73,000 144,500 ------------ ------------ ------------ ------------ (~~488~~420,~~232~~634) (~~395~~344,~~965~~315) (807,181) (832,547) ------------ ------------ ------------ ------------ Loss before benefit for income taxes (~~290~~5,~~078~~378,394) (~~341~~469,~~399~~289) (6,865,796) (759,367) Benefit for income taxes ~~118~~436,~~932~~555 ~~139~~192,~~974~~408 1,027,054 311,340 ------------ ------------ ------------ ------------ Net loss $ (~~171~~4,~~146~~941,839) $ (~~201~~276,~~425~~881) $ (5,838,742) $ (448,027) ============ ============ ============ ============ Loss per share ~~Basic~~(basic and ~~Diluted~~diluted) $ (.70) $ (0.0204) $ (.83) $ (0.0306) ============ ============ ============ ============

See accompanying notes. Page 4 PVC Container Corporation Consolidated Statements of Cash Flows (Unaudited)

~~THREE~~SIX MONTHS ENDED ~~SEPTEMBER~~DECEMBER 3031 2004 2003 ~~2002~~ ----------- -----------~~---------~~ CASH FLOWS FROM OPERATING ACTIVITIES Net ~~income (~~loss) $ (~~171~~5,~~146~~838,742) $ (~~201~~448,~~425~~027) Adjustments to reconcile net ~~income (~~loss) to net cash provided by operating activities: Depreciation and amortization 12,~~514~~809,~~336~~111 13,~~461~~097,~~242~~486 Goodwill impairment 3,296,298 -- Asset impairment 448,615 -- Amortization of deferred financing costs 4486,~~125~~578 3989,~~127~~917 Deferred income taxes ~~445~~(52,~~899~~264) -- Gain on sale of equipment (43,000) (144,500) Insurance recovery (30,000) -- Changes in assets and liabilities: Accounts receivable, net 1of allowances 2,~~129~~900,~~443~~864 12,~~401~~753,~~727~~582 Inventories (~~717~~2,~~872~~541,821) (~~401~~3,~~955~~028,746) Prepaid expenses and other current assets (~~590~~1,~~621~~228,501) (~~503~~819,~~056~~273) Other assets 48,~~428~~884 48,~~424~~848 Accounts payable and accrued expenses ~~(483~~267,~~220)~~717 ~~600,922 Income taxes payable~~ (~~775~~65,~~900~~923) ----------- -----------~~---------~~ Net cash provided by operating activities ~~729~~83,~~473~~739 21,~~071~~443,~~005~~364 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (2845,~~007,256~~338) (13,~~429~~004,~~141~~410) Proceeds from sale of equipment 43,000 144,500 Insurance recoveries 30,000 -- ----------- -----------~~-------~~ Net cash used in investing activities (2772,~~007,256~~338) (12,~~429~~859,~~141~~910) ~~-------------------------------~~ CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (payments) from revolving credit line ~~434~~2,~~624~~415,435 ~~Proceeds~~276,517 ~~from~~Payments ~~long-term~~of ~~debt~~indebtedness (1,~~519~~935,~~670~~641) (1,~~736~~792,~~000~~807) ~~Payment~~Proceeds onfrom ~~indebtedness~~long-term ~~(845~~debt 331,~~877)~~117 (2,~~761~~531,~~822)~~818 Deferred financing costs (2050,000) (20,000) ----------- -----------~~---------~~ Net cash provided by ~~(used in)~~ financing activities 1760,~~088,417~~911 (1995,~~045,822)~~528 ----------- -----------~~---------~~ Net increase (decrease) in cash and cash equivalents ~~(189~~72,~~366)~~312 (~~403~~421,~~958~~018) Cash and cash equivalents at beginning of period 365,820 673,055 ~~657,123~~ ----------- -----------~~---------~~ Cash and cash equivalents at end of period $ ~~483~~438,~~689~~132 $ ~~253~~252,~~165~~037 =========== ===========~~=========~~ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ ~~488~~871,~~916~~438 $ ~~480~~975,~~653~~033 =========== ===========~~=========~~ Income taxes paid $ ~~250~~32,~~825~~625 $ ~~635~~264,~~925~~525 =========== ===========~~=========~~

See accompanying notes. Page 5 Note 1 Description of Business General PVC Container Corporation (the "Company") was incorporated in Delaware in 1968. The Company's major business activity is manufacturing and selling a line of plastic bottles made from polyvinyl chloride ("PVC") compounds, high-density polyethylene ("HDPE"), and polyethylene terephthalate ("PET") resins. The Company sells these bottles through Novapak Corporation, which is a wholly-owned subsidiary. Another wholly-owned subsidiary, Airopak Corporation, produces bottles that are fluorinated to improve the chemical resistance and barrier properties. The Company's products are used primarily to package cosmetics, toiletries, foods, household chemicals, and lawn and garden and industrial chemical products. In addition to plastic bottles, the Company produces and sells PVC compounds through its wholly-owned subsidiary, Novatec Plastics Corporation. The Company uses these compounds, and also sells them to other plastic bottle manufacturers whose products compete with those the Company produces. During the last several years, the Company has endeavored to diversify its PVC compound business. The Company has developed and begun to sell several types of specialty PVC compounds for non-bottle applications, including extruded profiles and accessories, furniture, molding and other indoor fixtures, and a variety of injection molded electrical and electronic housings. Note 2 Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting, pursuant to the rules and regulations of the Securities and Exchange Commission. In management's opinion, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position as of December 31, 2004, and the results of operations and cash flows for the three and six month periods ended December 31, 2004 and 2003. Operating results for the three and six month periods ended December 31, 2004, are not necessarily indicative of the results that may be expected for the year ended June 30, 2005. The accompanying consolidated financial statements include the accounts of PVC Container Corporation and its wholly-owned subsidiaries, Novapak Corporation, Novatec Plastics Corporation, Marpac Industries, Inc., Airopak Corporation, and PVC Container International Sales Corporation, a foreign sales company that was dissolved effective June 29, 2004. All inter-company accounts have been eliminated. While the Company believes the disclosures presented are adequate to make the information not misleading, these consolidated financial statements should be read in conjunction with the financial statements and the notes included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2004. Diluted earnings per share are based on the average number of common shares outstanding during each period, assuming exercise of all stock options having exercise prices less than the average market price of the common stock using the treasury stock method. The weighted average number of shares of common stock used in computing basic and diluted loss per share were as follows: Page 6

THREE MONTHS ENDED ~~SEPTEMBER~~SIX 30MONTHS ENDED DECEMBER 31 DECEMBER 31 --------------------- --------------------- 2004 2003 ~~2002~~2004 2003 --------- --------- --------- --------- Weighed average common shares outstanding used to calculate basic ~~earnings (~~loss) per share 7,042,393 7,042,393 7,042,393 7,042,393 Net effect of dilutive securities based upon the treasury stock method using an average market price - - -- -- --~~---------------~~ Weighed average common and dilutive securities outstanding used to calculate diluted ~~earnings (~~loss) per share 7,042,393 7,042,393 7,042,393 7,042,393 ========= ========= ========= =========

The Company has excluded all outstanding stock options because they would have had an anti-dilutive effect. Note 3 Stock-Based Compensation As permitted by SFAS 123, the Company has elected to follow the intrinsic value method under Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock option plans. Pursuant to APB 25, the Company does not recognize compensation expense at the time an option is granted as long as the exercise price of the option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of grant. As required by the disclosure provisions of SFAS 123, the following table illustrates the effect on net loss and net loss per common share as if the Company had applied the fair value method to measure stock-based compensation. Page 7

THREE MONTHS ENDED ~~SEPTEMBER~~SIX 30MONTHS ENDED DECEMBER 31 DECEMBER 31 ------------------------------ ------------------------------ 2004 2003 ~~2002~~2004 2003 ------------- ------------- ------------- ------------- Net loss, as reported $ (~~171~~4,~~146~~941,839) $ (~~201~~276,~~423~~881) $ (5,838,742) $ (448,027) Add: Stock-based compensation ~~Included~~included in reported net loss, net of tax ~~-- --~~ Deduct: Stock-based compensation expense under fair value reporting, net of tax $ (2,122) $ (6,507) $ 4,955 $ (1013,~~159~~014) ------------- ------------- ------------- ------------- Pro forma net loss $ (~~177~~4,~~653~~943,961) $ (~~211~~283,~~582~~388) $ (5,833,787) $ (461,041) ============= ============= ============= ============= Loss per share: Net loss, as reported: Basic $ (0.0270) $ (0.0304) $ (0.83) $ (0.06) Diluted $ (0.0270) $ (0.0304) $ (0.83) $ (0.06) Pro forma net loss: Basic $ (0.0370) $ (0.0304) $ (0.83) $ (0.07) Diluted $ (0.0370) $ (0.0304) $ (0.83) $ (0.07)

Note 4 Impact of Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Boards issued its final standard on accounting for share-based payments (SBP), FASB Statement No. 123R (revised 2004), that requires companies to expense the value of employee stock options and similar awards. The standard is effective for public companies for interim and annual periods beginning after June 15, 2005, and applies to all outstanding and unvested SBP awards. The Company is in the process of assessing the impact of this standard that will be adopted as of July 1, 2005 upon adoption in July 2005. The Company plans to measure the fair value of the stock options using the Black-Scholes-Merton option pricing model. Management does not expect the adoption of FASB Statement No. 123R to have a significant impact on the financial position or results of operation of the Company. Page 8 Note 5 Inventories consist of:

~~SEPTEMBER~~DECEMBER JUNE 3031, ~~2003~~2004 30, ~~2003~~2004 ------------ ------------~~----~~ Raw materials $ 56,~~359~~569,~~244~~946 $ 64,~~023~~980,~~810~~080 Finished goods 78,~~292~~192,~~569~~543 6,~~264~~742,~~247~~899 Reserves (~~969~~1,~~995~~219,445) (1876,~~036,762~~888) ------------ ------------~~----~~ Total FIFO inventories 1113,~~681~~543,~~818~~044 1110,~~251~~846,~~295~~091 Molds for resale, in production 1847,~~067,412~~084 ~~840~~945,~~605~~212 Supplies ~~494~~613,~~383~~356 ~~433~~670,~~841~~360 ------------ ------------~~----~~ $ 1315,~~243~~003,~~615~~484 $ 12,~~525~~461,~~741~~663 ============ ============~~====~~

Note 6 PNC Bank Agreement The Company entered into a $43,750,000 senior secured credit facility ("PNC Bank Agreement") with PNC Bank in August 2000. The PNC Bank Agreement was a five year, $25,000,000 senior revolving credit facility; a five year, $12,183,000 senior term loan; a five year, $4,192,000 standby letter of credit; and a $2,000,000 capital expenditure line. On November 15, 2004, the PNC Bank Agreement was amended to extend the maturity of the credit facility, senior term loan, standby letter of credit and capital expenditure line to 2007, and to make specific changes to the credit facilities. The total senior secured credit facility was reduced to $28,532,000 (which represents the outstanding facility amount at the extension date) consisting of the following components: a senior revolving credit facility of $18,000,000; a senior term loan of $5,686,000; a standby letter of credit of $3,846,000; and a capital expenditure line of $1,000,000. At December 31, 2004, the Company was in compliance with the annual minimum equity and fixed charge coverage covenants in the PNC Bank Agreement. The term loan bears interest at LIBOR plus 250 basis points; the revolving credit facility bears interest at the prime rate. The Company entered into interest-rate swap agreements to effectively convert a portion of the floating term loan debt interest to a fixed rate. The $1 million capital expenditure line of credit bears interest at the prime rate. Borrowings under the PNC Bank Agreement totaled approximately $16.3 million at December 31, 2004. Note 7 Segments The Company has two reportable segments identified by product type: Plastic Containers and Compound. The Plastic Containers segment manufactures custom designed PET, HDPE, and PVC containers mainly for cosmetics, toiletries, foods, household chemicals, and lawn and garden and industrial chemical products. The Compound segment manufactures PVC compound for use by the Company and sale to external customers. The reportable segments are managed separately because they use different manufacturing processes and operate in different strategic markets. The Company evaluates each segment's performance based on net income (loss). The accounting policies for the reportable segments are the same as those for the Company. Inter-segment sales and transfers are recorded at market prices. Information on segments and a reconciliation to consolidated totals are as follows: Page 9

~~THREE~~SIX MONTHS ENDED ~~SEPTEMBER~~DECEMBER 3031 ~~---------------------------------~~2004 2003 ~~2002~~ ------------ ------------~~---------~~ Net revenues: Company total $ 59,~~191~~461,~~125~~558 $ 69,~~300~~639,~~844~~741 ~~Intersegment~~Inter segment revenue - Compound (12,~~528~~314,~~975~~783) (12,~~872~~945,~~711~~874) ------------ ------------~~--------~~ Revenues from external customers - Compound 37,~~662~~146,~~150~~775 46,~~428~~693,~~133~~867 Plastic containers 1739,~~567~~562,~~198~~001 1635,~~908~~197,~~863~~030 ------------ ------------~~--------~~ Total consolidated net revenues $ 2146,~~229~~708,~~348~~776 $ 2141,~~336~~890,~~996~~897 ============ ============~~========~~ Net ~~income (~~loss): Compound $ ~~201~~(351,~~467~~460) $ 80198,~~033~~221 Plastic containers (~~372~~5,~~613~~487,282) (~~281~~646,~~458~~248) ------------ ------------~~--------~~ Total consolidated net loss $ (~~171~~5,~~146~~838,742)(1) $ (~~201~~448,~~425~~027) ============ ============~~========~~ ~~Total~~(1) ~~assets:~~Includes ~~Compound~~ $3.7 ~~5,725,725~~million $of ~~6,175,064~~impairment ~~Plastic~~charges ~~containers~~for ~~57,172,518~~goodwill ~~53,677,771~~and other long-~~-------------------------------~~term ~~Total consolidated~~ assets ~~$ 62,898,243 $ 59,852,835 ================================~~.

~~THREE~~December ~~MONTHS~~31,2004 ~~ENDED~~June ~~SEPTEMBER~~ 30,2004 ~~-------------------------~~Total ~~2003~~assets: ~~2002~~Compound ~~------------------------- Net loss~~ $~~(171~~ 6,~~146)~~052,792 $~~(201,425)~~ ~~Unrealized gain (loss) on interest rate swap~~6,058,541 ~~net~~Plastic ofcontainers ~~taxes 53~~51,~~411~~650,540 ~~(105~~56,~~451)~~330,680 ------------ ------------ ~~Comprehensive~~Total ~~loss~~consolidated assets $~~(117~~ 57,~~735)~~703,332 $~~(306~~ 62,~~876)~~389,221 ============ ============

Note 8 Comprehensive Loss The following table sets forth comprehensive loss for the three and six-month periods ended December 31, 2004 and 2003:

Page 10 Note 9 Provision for Restructuring In the second fiscal quarter 2005, the Company recorded a $573,000 pre-tax charge for restructuring to compensate for the escalating cost of raw materials and its inability, for competitive reasons, to pass these increases to its customers. The Company has begun a cost reduction initiative, which it expects will reduce its payroll and benefits by nearly $1,700,000 annually. This initiative is expected to improve operating efficiency and position the Company to take advantage of new business opportunities. We have begun to implement work force reductions and will continue to do so in stages through April 30, 2005. The work force reductions will be accomplished through both involuntary and voluntary terminations. The voluntary program was offered to all employees, but the Company retained the right to reject offers to resign on a case-by-case basis. Beginning in the second fiscal quarter 2005 and continuing through the fourth fiscal quarter 2005, management estimates the Company will recognize total charges of up to $600,000, including severance and related benefit costs associated with work force reductions. We expect to eliminate 22 salaried positions through the end of the fiscal year ending June 30, 2005. As of December 31, 2004, 18 of these positions have been eliminated and these employees are no longer with the Company. All of the $573,000 charge was paid as of December 31, 2004. During the six months ended December 31, 2003, the Company incurred total restructuring costs of $276,000, all of which was paid through December 31, 2003. Approximately $116,000 of that amount, including $43,000 for severance and other personnel related costs for 38 employees and $73,000 for equipment relocation and other transfer costs, was incurred and recognized during the quarter ended September 30, 2003. During the quarter ended December 31, 2003, the Company continued the restructuring and recorded $160,000 for the three months ended December 31, 2004, all of which has been paid, which includes $130,000 for severance and other personnel costs and $30,000 for equipment relocation and other transfer costs. These costs are reflected in the plastic container segment of our business. In addition, the plastic container segment experienced manufacturing inefficiencies related to the transfer of operations from Kingston to Philmont. These additional costs are reflected in cost of goods sold. Note 10 Pension The following table presents the components of net periodic benefit cost for pension benefits for the three and six-month periods ended December 31, 2004:

The Company made a minimum required contribution during the six months ended December 31, 2004, in the amount of $8,662. Page 11 Note 11 Impairment of Goodwill During the second quarter of fiscal 2005, the Company's New York extrusion blow molding facility experienced significant reductions in gross margin and declines in revenue that were not anticipated due to the loss of several customer contracts and the inability to successfully pass on rising resin prices to customers. The second quarter loss exceeded expectations by the largest variance to date. Management's forecast of future cash flows from the Philmont, New York operation was substantially lower than previous forecasts. Additionally, certain cost containment and cost reduction initiatives at this facility did not have the expected impact on operating performance. Accordingly, impairment indicators were present, and therefore, the Company performed an interim test for goodwill impairment using the discounted cash flow evaluation approach and determined that the goodwill was impaired, necessitating a charge of $3.3 million for the full carrying value of goodwill. This charge is presented in the "goodwill impairment charges" line item in the Company's consolidated statement of operations for the quarter ended December 31, 2004. Note 12 Income Taxes The effective income tax rate decreased from 41% during the three and six month period ended December 31, 2003 to 15% during the three and six month period ended December 31, 2004, due to the tax benefits received through the utilization of net operating losses, offset by non-deductible permanent charges for impairment of goodwill. Note 13 Other During the first fiscal quarter 2005, the Company recorded a charge of $100,000 related to lifetime medical benefits for the retiring Chief Executive Officer and his spouse under the terms of his severance agreement. The Company entered into a $710,000 severance agreement with the retiring Chief Executive Officer, and $355,000 has been paid pursuant to the agreement as of December 31, 2004. The Company will record severance costs of $177,500 in each of the next two fiscal quarters to coincide with the additional $355,000 payable on June 29, 2005. The charges relating to lifetime medical benefits and executive severance costs are reflected in selling, general and administrative expenses. Actuary and liability balances related to the severance charges for the six months ended December 31, 2004 were as follows:

Page 12 Note 14 Net Assets Held For Disposition The Company has an asset held for sale in the amount of $700,000 (selling price of $750,000 less disposal costs). During the second quarter of fiscal year 2005, the Company recorded a $450,000 pre-tax charge to operations for asset impairment related to the expected loss on the sale of its Kingston, New York manufacturing facility. Accordingly the Company has classified this facility in net assets held for disposition at December 31, 2004 and is included in the Plastic Container segment. In January, the Company entered into a contract to sell the Kingston facility. The anticipated closing date is on or about March 15, 2005. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion provides information and analysis of our results of operations for the three and six months ended December 31, 2004, and the three and six months ended December 31, 2003, and our liquidity and capital resources. This discussion should be read in conjunction with our consolidated financial statements included elsewhere in this report. OVERVIEW PVC Container Corporation is a major producer of plastic containers for the packaging industry. We operate several wholly-owned subsidiaries that manufacture and sell general line plastic bottles and specialty plastic containers and supply PVC compounds and specialty plastic alloys in the United States. Our plastic bottles are sold primarily to manufacturers and distributors of personal care products, food, household chemicals, and lawn and garden and industrial chemical products. PVC compounds are used in our own operations or sold to other plastic manufacturers. CRITICAL ACCOUNTING POLICIES Several of our accounting policies involve significant judgments and uncertainties. Three policies have the potential to significantly affect our results of operations and financial position: For impairment analysis, we measure the present value of future cash flows against the carrying value of the long-lived asset. For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends of trade discounts and allowances and the possibility of non-collection due to the financial position of our customers. For inventory, we estimate the volume of goods that we will not be able to sell in the normal course of business and write down the value of those goods to the recovery value expected to be realized through off-price channels. Our income tax policy records the estimated future tax effects of differences between the tax basis of assets and liabilities and the amount reported in the accompanying consolidated balance sheets, as well as operating loss carry forwards. We follow very specific guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required. Page 13 Historically, actual results in these areas have not been materially different than our estimates, and we do not anticipate that our estimates and assumptions will materially change in the future. However, if we incorrectly anticipate trends or unexpected events occur, our results of operations could be materially affected. OPERATING PERFORMANCE In the discussion of the Company's results of operations that follows, the Company presents EBITDA, which is earnings before interest, taxes, depreciation, and amortization. The Company believes that the presentation of EBITDA provides useful information to investors because management uses EBITDA to assess its operating performance. In addition, management believes that EBITDA is a measurement widely used in the Company's industry, so we provide this information to allow investors to analyze our performance relative to our competitors. However, EBITDA is not computed in accordance with generally accepted accounting principles and should not be considered in isolation or as a substitute for any measure of performance that is determined in accordance with generally accepted accounting principles. EBITDA may not be comparable to similarly titled measures of other companies. The following table provides a reconciliation from net loss to EBITDA.

RESULTS OF OPERATIONS Net sales for the three-month period ended December 31, 2004, increased by 11.5% to $23,044,000, compared to $20,662,000 for the three-month period ended December 31, 2003. For the six-month period ended December 31, 2004, sales also increased by 11.5% to $46,709,000, compared to $41,891,000 for the six-month period ended December 31, 2003. The increase in net sales reflects a 30.3% growth in PET bottle sales for the three and six months ended December 31, 2004. The Company continues to expand its market share for this line of business. Our general line HDPE and PVC extrusion blow bottle sales volume during the three and six months ended December 31, 2004, was comparable to the sales volume for the three and six month period ended December 31, 2003. The Company's specialty bottle group experienced a 16.2% sales increase during the three and six month period ended December 31, 2004, compared to the same period a year ago due to increased customer demands. Our plastic compounding segment experienced an increase of 8.8% and 6.7% for the three and six months ended December 31, 2004, respectively, in sales volume from the same periods last year due to increased unit sales prices on substantially the same volume (9,500,000 lbs) of unit sales. Page 14 Cost of goods sold for the three months ended December 31, 2004, was $19,500,000, or 84.6% of net sales, compared to $16,717,000, or 80.9% of net sales, for the three months ended December 31, 2003. For the six months ended December 31, 2004, cost of sales was $39,652,000, or 84.9% of net sales, compared to $33,681,000, or 80.4% of sales for the six months ended December 31, 2003. The increases in cost of goods sold for the three and six month periods were caused primarily by increased raw material and energy costs, along with under-absorbed direct labor and factory overhead costs. Because raw material costs are expected to continue increasing, we are increasing our focus on cost containment, mitigating the cost increases with our strategic sourcing initiative, reducing our manufacturing overhead, improving manufacturing yields, and improving our ability to pass on material price increases to our customers. Selling general and administrative ("SG&A") expenses increased by $448,000 for the three-month period ended December 31, 2004, and by $1,226,000 for the six-month period ended December 31, 2004, over the amounts recorded the same periods a year ago. For the quarter ended December 31, 2004, SG&A expenses were $2,774,000, or 12.0% of net sales, compared to $2,326,000, or 11.3% of net sales, for the quarter ended December 31, 2003. For the six months ended December 31, 2004, SG&A expenses were $5,989,000, or 12.8% of net sales, compared to $4,763,000, or 11.3% of net sales, for the six months ended December 31, 2003. This increase for the three and six month periods is mainly attributable to increased consulting fees related to operational improvements, executive severance agreements and executive recruiting costs. We are evaluating and implementing several potential initiatives designed to reduce our SG&A expenses as a percentage of sales, one of which was the cause for the restructuring charge discussed below. Depreciation and amortization expenses decreased to $1,400,000 for the three-month period ended December 31, 2004, compared to $1,580,000 for the three months ended December 31, 2003. For the six-month period ended December 31, 2004, depreciation and amortization expense were $2,809,000, compared to $3,097,000 for the six months ended December 31, 2003. The primary cause for this decrease during the quarter and six months ended December 31, 2004, was that certain manufacturing and computer assets became fully depreciated in the current fiscal year. During the second quarter of fiscal 2005, the Company's New York extrusion blow molding facility experienced significant reductions in gross margin and declines in revenue that were not anticipated due to the loss of several customer contracts and the inability to successfully pass on rising resin prices to customers. The second quarter loss exceeded expectations by the largest variance to date. Management's forecast of future cash flows for the New York operation was substantially lower than previous forecasts. Additionally, certain cost containment and cost reduction initiatives at this facility did not have the expected impact on operating performance. Accordingly, impairment indicators were present, and therefore, the Company performed an interim test for goodwill impairment using the discounted cash flow evaluation approach and determined that the goodwill was impaired, necessitating a charge of $3.2 million for the full carrying value of goodwill. In the second fiscal quarter 2005, the Company recorded a $573,000 pre-tax charge for restructuring to compensate for the escalating cost of raw materials and its inability, for competitive reasons, to pass these increases to its customers. The Company has begun a cost reduction initiative, which it expects will reduce its payroll and benefits by nearly $1,700,000 annually. This initiative is expected to improve operating efficiency and position the Company to take advantage of new business opportunities. We have begun to implement work force reductions and will continue to do so in stages through April 30, 2005. The work force reductions will be accomplished through both involuntary and voluntary terminations. The Page 15 voluntary program was offered to all employees, but the Company retained the right to reject offers to resign on a case-by-case basis. Beginning in the second fiscal quarter 2005 and continuing through the fourth fiscal quarter 2005, management estimates the Company will recognize total charges of up to $600,000, including severance and related benefit costs associated with work force reductions. We expect to eliminate 22 salaried positions through the end of the fiscal year ending June 30, 2005. As of December 31, 2004, 18 of these positions have been eliminated, and these employees are no longer with the Company. All of the $573,000 charge was paid as of December 31, 2004. During the six months ended December 31, 2003, the Company incurred total restructuring costs of $276,000, all of which was paid through December 31, 2003. Approximately $116,000 of that amount, including $43,000 for severance and other personnel related costs for 38 employees and $73,000 for equipment relocation and other transfer costs, was incurred and recognized during the quarter ended September 30, 2003. During the quarter ended December 31, 2003, the Company continued the restructuring and recorded $160,000 for the three months ended December 31, 2003, all of which has been paid, including $130,000 for severance and other personnel costs and $30,000 for equipment relocation and other transfer costs. These costs are reflected in the Plastic Container segment. In addition, the Plastic Container segment experienced manufacturing inefficiencies related to the transfer of operations from Kingston , New York to Philmont, New York. These additional costs are reflected in cost of goods sold. The Company has an asset held for sale in the amount of $700,000 (selling price of $750,000 less disposal costs). During the second quarter of fiscal year 2005, the Company recorded a $450,000 pre-tax charge to operations for asset impairment related to the expected loss on the sale of its Kingston, New York manufacturing facility. Accordingly the Company has classified this facility in net assets held for disposition at December 31, 2004 and is included in the Plastic Container segment. In January, the Company entered into a contract to sell the Kingston facility. The anticipated closing date is on or about March 15, 2005. The effective income tax rate decreased from 41% during the three and six month period ended December 31, 2003 to 15% during the three and six month period ended December 31, 2004, due to the tax benefits received through the utilization of net operating losses, offset by non-deductible permanent charges for impairment of goodwill. Net loss for the quarter ended December 31, 2004, was $4,942,000, or $.70 on a diluted earnings per share basis, compared to a net loss of $277,000, or $.04 on a diluted earnings per share basis, for the same period a year ago. For the six months ended December 31, 2004, the net loss was $5,839,000, or $.83 on a diluted earnings per share basis, compared to a net loss of $448,000, or $.06 on a diluted earnings per share basis, for the six-month period ended December 31, 2003. Page 16 LIQUIDITY AND CAPITAL RESOURCES This discussion is presented on a consolidated basis because management generally does not monitor liquidity and capital resources on a segment basis. Because we sell plastic containers used in seasonal industries such as lawn and garden, we have seasonal sales like the rest of the industry. Due to these seasonal requirements, we incur short-term indebtedness to finance our working capital requirements. The Company's liquidity position and working capital remained adequate for the six-month period ended December 31, 2004. Net working capital as of December 31, 2004, increased to $16,353,000 from $13,796,000 as at June 30, 2004. The current ratio of assets to liabilities increased from 1.8 at June 30, 2004, to 2.0 at December 31, 2004, and is primarily attributed to the net increase in inventories and prepaid expenses, offset by lower accounts receivable. During the six-month period ended December 31, 2004, the Company generated net cash from operating activities of $84,000 and proceeds from our revolving credit line and additional equipment financing of $2,747,000. These funds were primarily used to acquire capital assets of $845,000 and to reduce debt by $1,936,000. Cash used for inventories, net of reserves, during the six-month period ended December 31, 2004, was $2,542,000, a decrease of $487,000 from the corresponding period of the prior year. We decreased production and spent more time reducing inventories during the first half of fiscal 2005 by two means. Management has initiated strategic initiatives to enhance scheduling and planning efficiencies and addressed our purchasing procedures. These measures enabled the Company to reduce inventory levels. Cash used for capital assets during the six-month period ended December 31, 2004, decreased $2,159,000 over the same period a year ago. For the six-month period ended December 31, 2003, capital assets were purchased to support growth in our PET product line. Our short-term liquidity and short-term capital resources are projected to be adequate to allow us to continue to meet financial obligations. Management believes the financial resources available to the Company, including internally generated funds and borrowings under our revolving credit facility, will be sufficient to meet foreseeable working capital requirements. At December 31, 2004, we had unused sources of liquidity consisting of cash and cash equivalents of $438,000 and unused credit under a revolving credit facility of $6,684,000. Our revolving credit facility includes financial and other covenants, including a minimum equity covenant and a fixed charge coverage covenant. As of December 31, 2004, we were in compliance with all applicable covenants. In November 2004, the Company extended the PNC Bank Agreement described in Note 6, which was scheduled to mature in 2005. The terms and conditions are substantially the same as the original agreement. The total senior secured credit facility was approximately $28,500,000 at December 31, 2004. We utilize revolving loan facilities for seasonal working capital needs and for other general corporate purposes. We can use amounts available under revolving loan facilities in excess of seasonal working capital needs to pursue our growth strategy, particularly in PET product lines, and for other permitted purposes. Page 17 There were no material changes during the six months ended December 31, 2004, in the contractual obligations presented in the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended June 30, 2004 other than the PNC Agreement discussed above. The effective portion of the gain or loss on a derivative instrument that is designated and qualifies as a cash flow hedge is reported as a component of other comprehensive income and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Off-Balance Sheet Arrangements There are no material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition. STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE Certain statements in this report that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations, and involve a number of business risks and uncertainties, any one of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Forward-looking statements do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance or results of current and anticipated market conditions and market strategies; sales efforts; expenses; and financial results. There are risks and uncertainties that may cause results to differ materially from those set forth in the Company's forward-looking statements. It is not possible to predict or identify all risk factors, but unanticipated changes that could cause such results to differ materially could include changes in U.S., regional, or world polymer growth rates affecting the Company's markets; changes in global industry capacity or in the rate at which anticipated changes in capacity are realized in the polyvinyl chloride or other industries in which the Company participates; fluctuations in raw material prices, quality and supply and in energy prices and supply, in particularly fluctuations outside the normal range of industry cycles; and an inability to raise prices or sustain price increases for products. The Company cannot guarantee that any forward-looking statement will be realized, although management believes its plans and assumptions are prudent. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated, or projected. Page 18 The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Investors should consult any further disclosures the Company makes on related subjects in its filings with the Securities and Exchange Commissions. Item 3: Quantitative and Qualitative Disclosures About Market Risk Market risks relating to our operations result primarily from changes in interest rates. Interest rate pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes. Our interest rate risk management objective is to limit the impact of interest rate changes on our net income and cash flow and to reduce our overall borrowing cost. We use variable rate swap agreements to manage our exposure to interest rate fluctuations. These agreements effectively convert variable interest rates to fixed rates, enabling management to predict interest expense and to avoid the risk of dramatic rate fluctuations. We have entered into rate swap agreements with banks under our senior secured credit facility. As of December 31, 2004, the Company had total outstanding indebtedness of $28,818,000. Of this amount, the total indebtedness subject to variable interest rates was approximately $21,557,000. Based on the Company's December 31, 2004, variable debt level, a 25 basis point increase or decrease in interest rates would have had a $13,650 impact on interest expense for the quarter ended December 31, 2004. Item 4: Controls and Procedures Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of management, including the Company's principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, the Company's principal executive officer and principal financial officer believe, as of the end of the period covered by this Quarterly Report, that disclosure controls and procedures were effective in ensuring that all material information relating to the Company, including its consolidated subsidiaries, required to be disclosed in the reports the Company files with the Securities and Exchange Commission has been made known in a timely manner. There were no changes to the Company's internal control over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Page 19 PART II OTHER INFORMATION Rider A Item 1: Legal Proceedings There are no actions or claims pending against the Company, which, in the opinion of management, would adversely affect the financial position, results of operations or cash flows of the Company. Item 4: Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on December 8, 2004. The stockholders took the following actions: (1) elected all Director nominees designated in the Information Statement dated November 18, 2004; and (2) approved the selection of the independent auditors of the Company for the year ending June 30, 2005. The Directors were elected pursuant to the following vote:

The approval of the selection of Ernst & Young LLP as independent auditor to the Company for the year ending June 30, 2005 was approved by the following vote.

Item 5: Other Information The Company and its subsidiaries entered into the Fourth Amendment, dated as of November 15, 2004 (the "Fourth Amendment"), to the Revolving Credit, Term Loan and Security Agreement, dated as of November 27, 2001 (as previously amended, the "Credit Agreement"), with PNC Bank, National Association, as administrative agent (the "Agent"). The Fourth Amendment, among other things, extended the maturity of the Credit Agreement to 2007 and amended certain financial covenants of the Company and its subsidiaries. The total borrowing capacity of the Credit Agreement was also reduced to $28,532, 000, consisting of the following components: a senior revolving credit facility of $18,000,000; a senior term loan of $5,686,000; a standby letter of credit of $3,846,000; and a capital expenditure line of $1,000,000. The Company and its subsidiaries entered into the Fifth Amendment, dated as of February 14, 2005 (the "Fifth Amendment"), to the Credit Agreement with the Agent. The Fifth Amendment amended certain financial covenants of the Company and its subsidiaries. The Fourth Amendment and the Fifth Amendment are filed herewith as Exhibits 10.1 and 10.2, respectively. The foregoing descriptions of the Fourth Amendment and the Fifth Amendment are qualified in their entirety by reference to the full text of such documents, which are incorporated by reference herein. Item 6: Exhibits 10.1 Fourth Amendment To Revolving Credit, Term Loan And Security Agreement 10.2 Fifth Amendment To Revolving Credit, Term Loan And Security Agreement 10.3 Summary of PVC Container Corporation Cash Bonus Incentive Plan 10.4 Summary of PVC Container Corporation Long-Term Management Incentive Compensation Program 31.1 Certification of William J. Bergen, President, Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Jeffrey A. Shapiro, Senior Vice President, Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of William J. Bergen, Chief Executive Officer, and Jeffrey Shapiro, Chief Financial Officer, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Page 20 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 14, 2005 PVC Container Corporation /s/ William J. Bergen William J. Bergen President and Chief Executive Officer Date: February 14, 2005 PVC Container Corporation /s/ Jeffrey Shapiro Jeffrey Shapiro Chief Financial Officer Page 21

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