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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-40067
PLIANT CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0496065
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Woodfield Road, Suite 600
Schaumburg, IL 60173
(847) 969-3300
(Address of principal executive offices and telephone number)
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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On August 6, 2002, there were
596,634 outstanding shares of the registrant's Common Stock.
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PLIANT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND
DECEMBER 31, 2001 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 2002 AND 2001 5
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY(DEFICIT) FOR THE SIX MONTHS ENDED JUNE 30, 2002 6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 37
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 38
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001 (DOLLARS IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
June 30, December 31,
2002 2001
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,081 $ 4,818
Receivables, net of allowances of $3,594 and $2,438, respectively 134,634 125,436
Inventories 105,060 83,948
Prepaid expenses and other 974 3,026
Income taxes receivable 549 985
Deferred income taxes 5,727 2,563
--------- ---------
Total current assets 259,025 220,776
PROPERTY, PLANT AND EQUIPMENT, net 370,514 369,324
GOODWILL 214,640 204,425
INTANGIBLE ASSETS, net 25,187 26,774
OTHER ASSETS 32,475 30,384
--------- ---------
TOTAL ASSETS $ 901,841 $ 851,683
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,280 $ 17,767
Trade accounts payable 116,514 101,508
Accrued liabilities 48,964 43,097
--------- ---------
Total current liabilities 173,758 162,372
LONG-TERM DEBT, net of current portion 733,448 695,556
OTHER LIABILITIES 21,640 18,944
DEFERRED INCOME TAXES 28,234 26,156
--------- ---------
Total liabilities 957,080 903,028
--------- ---------
MINORITY INTEREST 197 271
--------- ---------
REDEEMABLE PREFERRED STOCK - 200,000 shares authorized, 130,983 shares
outstanding and designated as Series A, no par value, with a redemption and
liquidation value of $1,000 per share 138,096 126,149
REDEEMABLE COMMON STOCK - no par value; 60,000 shares authorized; 53,996 shares
outstanding, net of related stockholders' notes receivable
of $13,239 at June 30, 2002 and $12,720 at December 31, 2001 16,259 16,778
--------- ---------
Total redeemable stock 154,355 142,927
--------- ---------
STOCKHOLDERS' DEFICIT:
Common stock - no par value; 10,000,000 shares authorized 542,431 shares
Outstanding at June 30, 2002 and 542,571 at December 31, 2001 103,376 103,362
Warrants 38,676 38,715
Accumulated deficit (338,411) (326,356)
Stockholders' notes receivable (637) (616)
Accumulated other comprehensive income/(loss) (12,795) (9,648)
--------- ---------
Total stockholders' deficit (209,791) (194,543)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 901,841 $ 851,683
========= =========
See notes to condensed consolidated financial statements.
3
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
NET SALES $ 217,880 $ 203,569 $ 427,963 $ 406,228
COST OF SALES 176,016 163,912 340,520 324,608
--------- --------- --------- ---------
Gross profit 41,864 39,657 87,443 81,620
--------- --------- --------- ---------
OPERATING EXPENSES:
Sales, general, and administrative 22,960 26,738 43,662 46,832
Research and development 2,268 2,479 4,378 4,883
Stock-based compensation related to
Administrative employees -- -- -- 7,033
Plant closing costs 876 -- 2,722 --
--------- --------- --------- ---------
Total operating expenses 26,104 29,217 50,762 58,748
--------- --------- --------- ---------
OPERATING INCOME 15,760 10,440 36,681 22,872
INTEREST EXPENSE (19,090) (19,065) (35,945) (39,425)
OTHER INCOME - Net 527 4,877 979 5,772
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (2,803) (3,748) 1,715 (10,781)
INCOME TAX PROVISION (BENEFIT) (86) 456 1,856 (1,853)
--------- --------- --------- ---------
NET LOSS $ (2,717) $ (4,204) $ (141) $ (8,928)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (IN THOUSANDS) (UNAUDITED)
- -------------------------------------------------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (141) $ (8,928)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 22,917 21,727
Deferred income taxes (1,555) (3,413)
Stock-based compensation related to administrative employees -- 7,033
(Gain)/loss on disposal of assets (72) (353)
Changes in assets and liabilities:
Receivables (2,673) (8,223)
Inventories (12,900) 2,262
Prepaid expenses and other 2,225 (1,220)
Intangible assets and other assets (1,920) 835
Trade accounts payable 9,846 (2,399)
Income taxes payable 905 (209)
Accrued liabilities 1,992 4,325
Other liabilities 2,630 2,072
Other (606) --
-------- --------
Net cash provided by operating activities 20,648 13,509
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- 7,914
Capital expenditures for plant and equipment (21,966) (29,087)
Purchase of Decora net of cash (20,578)
-------- --------
Net cash used in investing activities (42,544) (21,173)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock and net change
in related stockholders' notes receivables 47 45
Net borrowings/principal payments on long-term debt 28,405 7,968
-------- --------
Net cash provided by financing activities 28,452 8,013
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 707 (1,118)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,263 (769)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 4,818 3,060
-------- --------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 12,081 $ 2,291
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 22,172 $ 32,791
Income taxes $ 1,692 $ (1,617)
Other non-cash disclosure:
Preferred stock dividends accrued but not paid $ 11,281 $ 7,719
See notes to condensed consolidated financial statements.
5
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
ACCUMULATED
STOCKHOLDERS' OTHER
COMMON STOCK ACCUMULATED NOTES COMPREHENSIVE
SHARES AMOUNT WARRANTS DEFICIT RECEIVABLE INCOME/(LOSS) TOTAL
------ ------ -------- ------- ---------- ------------- -----
BALANCE, DECEMBER 31, 2001 543 $ 103,362 $ 38,715 $(326,356) $ (616) $ (9,648) $(194,543)
Net loss -- -- -- (141) -- -- (141)
Fair value change in interest
rate derivatives classified as
cash flow hedges -- -- -- -- -- (2,068) (2,068)
Issuance of common stock to
management for warrants -- 39 (39) -- -- -- --
Preferred stock dividend and
accretion -- -- -- (11,914) -- -- (11,914)
Purchase of stock by directors -- 100 -- 100
Repurchase of common stock (1) (125) -- -- (125)
Amortization of discount on
stockholder's note receivable -- -- -- -- (21) -- (21)
Foreign currency translation
adjustment -- -- -- -- -- (1,079) (1,079)
--------- --------- --------- --------- --------- --------- ---------
BALANCE, JUNE 30, 2002 542 $ 103,376 $ 38,676 $(338,411) $ (637) $ (12,795) $(209,791)
--------- --------- --------- --------- --------- --------- ---------
See notes to condensed consolidated financial statements.
6
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without audit, in accordance with U.S. generally accepted
accounting principles and pursuant to the rules and regulations of the
Securities and Exchange Commission. The information reflects all normal
recurring adjustments that, in the opinion of management, are necessary for
a fair presentation of the financial position, results of operations and
cash flows of Pliant Corporation and its subsidiaries ("Pliant" or the
"Company") as of the dates and for the periods presented. Results of
operations for the period ended June 30, 2002 are not necessarily
indicative of results of operations to be expected for the full fiscal
year.
Certain information in footnote disclosures normally included in financial
statements presented in accordance with U.S. generally accepted accounting
principles has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 and the Company's Registration
Statement on Form S-4 (File No. 333-86532), as amended. Certain
reclassifications have been made to the condensed consolidated financial
statements for the three and six months ended June 30, 2001 for comparative
purposes.
2. INVENTORIES
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market value. Inventories as of June 30, 2002 and December 31,
2001 consisted of the following (in thousands):
June 30, December 31,
2002 2001
--------- -----------
Finished goods $56,060 $50,738
Raw materials 40,499 27,499
Work-in-process 8,501 5,711
----- -----
Total $105,060 $83,948
======== =======
3. PLANT CLOSING COSTS, OFFICE CLOSING COSTS AND WORKFORCE REDUCTION
PLANT CLOSING COSTS -- During 2000, we approved and announced a strategic
initiative to cease operations at our Dallas, Texas; Birmingham, Alabama;
and Harrington, Delaware facilities. These facilities represent a portion
of our Design, Industrial and Specialty Films segments, respectively. The
intent of this initiative was to maximize the capacity of other Company
owned facilities by moving the production from these locations to plants
that were not operating at capacity. As a result of this strategic
initiative, we recorded a pre-tax charge of $19.6 million for plant closing
costs during the year ended December 31, 2000. Of the $19.6 million, $13.8
million represented a reserve
7
for impaired plant and equipment, $5.0 million represented a charge for
severance costs and $0.8 million represented a charge for other closure
costs and inventory write-offs. The major actions relating to the exit of
these facilities included closing each of the respective facilities,
disposal of the related equipment of each facility and termination of the
employees of the respective facilities. As of December 31, 2000, we had
completed our closure of our Dallas facility. In addition, we completed the
closure of our Birmingham facility during the second quarter of 2001.
During the third quarter of 2001, we analyzed the economics of closing our
Harrington facility in light of changes in customer demand and our recent
acquisition of Uniplast. These changes, together with the movement of a
production line from our Birmingham plant, have significantly improved the
profitability of the Harrington plant. As a result, we revised our plans to
close that facility. During the first six months of 2001, $1.1 million was
incurred to downsize the Harrington facility. The remaining balance of the
plant closure costs of $7.6 million accrued in 2000 was credited to plant
closing costs during the third quarter of 2001.
The following is a summary of the key elements of the 2000 exit plan,
excluding Harrington as management revised their closure plans for that
facility in 2001 (dollars in thousands):
DALLAS BIRMINGHAM TOTAL
------ ---------- -----
Number of employees to be terminated .. 68 105 173
Book value of property and equipment to
be .................................... $ 1,593 $ 8,913 $10,506
Disposed of
Estimated proceeds from disposal ...... 1,200 1,749 2,949
------- ------- -------
Net write-off from disposal ........... 393 7,164 7,557
Severance costs ....................... 588 2,271 2,859
Other closure costs ................... 302 225 527
------- ------- -------
Total closure costs ................... $ 1,283 $ 9,660 $10,943
======= ======= =======
There was no loss of any revenues or income from the closure of these
facilities due to the fact that their respective sales volumes were
transferred to other facilities except for the majority of the custom bag
business that we exited when we closed the Dallas plant which was not
material. As of June 30, 2002 the remaining reserves related to other costs
are included in other accrued liabilities in the accompanying consolidated
balance sheets, while the reserve for impairment of property and equipment
has been recorded as a direct reduction of the net property and equipment
balances. Utilization of these reserves during the six months ended June
30, 2002 is summarized below (in thousands):
UTILIZED
BALANCE ----------------- BALANCE
12/31/01 NON-CASH CASH REVERSAL 6/30/02
-------- -------- ---- -------- -------
Property and equipment reserves $2,556 $ -- $ -- $2,556
Severance costs ............... -- -- -- --
Other costs ................... 233 -- 219 14
------ ------ ------ ------
Total ......................... $2,789 $ -- $ 219 $ $2,570
====== ====== ====== ==== ======
As of June 30, 2002, all of the expected employee terminations had been
completed at our Dallas and Birmingham facilities, respectively. As of June
30, 2002, all planned employee terminations had been completed at the
Harrington facility. There were no reserves remaining for the Harrington
facility closure as of December 31, 2001.
As a part of the July 2001 acquisition of Uniplast Holdings, Inc., the
Company approved a plan to close three Uniplast production facilities and
reduce the sales and administrative personnel. As of December 31, 2001 the
closure of the production plants and reduction of sales and administrative
personnel were complete. Severance costs associated with this plan of $3.0
million were accrued as
8
a part of the cost of the acquisition. The cost of relocating production
lines to existing Company locations is expensed to plant closing costs as
incurred. The Company incurred approximately $3.0 million for these
relocation costs during the fourth quarter of 2001. During the three and
six months ended June 30, 2002 the Company incurred relocation costs of
approximately $0.9 million and $2.7 million, respectively.
OFFICE CLOSING COSTS AND WORKFORCE REDUCTION -- During the fourth quarter
of 2000, we approved and announced a cost saving initiative resulting in a
Company-wide workforce reduction, relocation of the corporate office from
Salt Lake City, Utah to the Chicago, Illinois area and closure of the
Dallas, Texas divisional office. As a result of this initiative we recorded
a pre-tax charge of $7.1 million, which was included as part of Selling,
General and Administrative expenses in the consolidated statements of
operations for the year ended December 31, 2000. The major actions relating
to this initiative included a reduction in workforce due to consolidation
of duties, and closing the offices in Dallas, Texas and Salt Lake City,
Utah. We completed the workforce reduction of 52 employees and the closure
of the office in Dallas, Texas during the first quarter of 2001, as well as
the Salt Lake City office closure during the second quarter of 2001. The
following is a summary of the key elements of this plan (dollars in
thousands):
WORKFORCE RELOCATION OF CLOSURE OF
REDUCTION CORPORATE OFFICE DALLAS OFFICE TOTAL
Number of employees .. 52 36 2 90
Leasehold improvements $1,000 $1,000
Severance cost ....... $2,940 2,352 $ 21 5,313
Other costs related to
leases ............... 721 82 803
------ ------ ------ ------
Total cost ........... $2,940 $4,073 $ 103 $7,116
====== ====== ====== ======
As of June 30, 2002, the remaining reserves related to severance costs and
other costs related to leases. These reserves are included in other accrued
liabilities in the accompanying consolidated balance sheets, while the
reserve for impairment related to leasehold improvements has been recorded
as a reduction of the net property and equipment balance. In the fourth
quarter of 2001, an additional $0.9 million was accrued to revise the
estimate of future non-cancelable lease costs in excess of income from
subleasing. Utilization of these reserves during the six months ended June
30, 2002 is summarized below (in thousands):
UTILIZED
BALANCE ----------------- ADDITIONAL BALANCE
12/31/01 NON-CASH CASH ACCRUAL 6/30/02
-------- -------- ---- ---------- -------
Leasehold improvements ...... $ -- $ -- $ -- $-- $ --
Severance cost .............. 128 -- 78 -- 50
Other costs related to leases 1,136 -- 404 -- 732
------ ------- ------ ----- ------
Total cost .................. $1,264 $ -- $ 482 $-- $ 782
====== ======= ====== ===== ======
As of June 30, 2002, all of the expected employee terminations had been
completed in connection with the workforce reduction and the closure of the
Dallas office and all but one of the expected employee terminations had
been completed in connection with the closure of the Salt Lake City
corporate office.
9
4. COMPREHENSIVE INCOME/(LOSS)
Other comprehensive losses for the three and six months ended June 30, 2002
were $8.7 million and $3.3 million, respectively. Other comprehensive
losses for the three and six months ended June 30, 2001 were $1.7 million
and $8.6 million, respectively. The components of other comprehensive
income/(loss) are net income, the change in cumulative unrealized losses on
derivatives recorded in accordance with Statement of Financial Accounting
Standards No. 133 and foreign currency translation.
5. STOCK OPTION PLANS
During the six months ended June 30, 2002 options to purchase 11,615 shares
were granted. During the six months ended June 30, 2002 options to purchase
2,680 shares were cancelled due to employee terminations.
6. LONG-TERM DEBT
Effective April 2, 2002, we entered into an amendment of our credit
facilities to, among other things, permit the offering of $100 million
aggregate principal amount of our 13% Senior Subordinated Notes due 2010
(the "2002 Notes"). The amendment also adjusted certain financial
covenants, including the leverage and interest coverage ratios and the
permitted amount of capital expenditures. The amendment also allows us to
borrow additional term loans in an aggregate principal amount of up to $85
million under an uncommitted incremental Tranche B facility, the proceeds
of which may be used to finance certain permitted acquisitions, if any,
completed prior to March 31, 2003. We incurred an amendment fee of $1.3
million in connection with the amendment. We also incurred approximately
$0.5 million of legal and administrative expenses in connection with
negotiating the amendment.
On April 10, 2002 we completed the private offering of the 2002 Notes at an
issue premium of $3.75 million. The total cost of issuance was
approximately $5.0 million. We used approximately $93.3 million of the net
proceeds from the issuance of the 2002 Notes to repay indebtedness under
our credit facilities, including a repayment of approximately $63.3 million
on our revolving credit facility and a $30 million repayment on our term
loans. Our credit facilities limit the use of the remaining net proceeds to
repayments on our credit facilities or certain permitted acquisitions. The
facility also required that we repay, on December 31, 2002, additional term
loans in the amount by which $18 million exceeds the amount we invest in
certain acquisitions. Due to the completion of the Decora acquisition on
May 20, 2002, there is no requirement to repay additional term debt on
December 31, 2002 (See Note 8). In May 2002, we completed an exchange
offer, pursuant to which we exchanged all of the 2002 Notes for notes
registered under the Securities Act of 1933.
10
Long-term debt as of June 30, 2002 and December 31, 2001 consisted of the
following (in thousands):
6/30/2002 12/31/2001
--------- ----------
Credit Facilities:
Revolver, variable interest, 6.25% as of June 30, 2002 ... $ -- $ 39,511
Tranche A and B term loans, variable interest at a
weighted average rate of 6.4% as of June 30,2002 ........ 429,200 463,800
Senior subordinated notes, interest at 13.0% (net of
original issue discount and warrants being amortized of
$12,330) ................................................. 207,670 207,253
Senior subordinated notes, interest at 13.0% (including the
premium on issue being amortized of $3,752) .............. 103,752
Obligations under capital leases .......................... 1,106 2,090
Insurance financing, interest at 6.1% as of Dec 31, 2001 .. -- 588
Other financing ........................................... -- 81
Total ................................ 741,728 713,323
Less current portion ...................................... (8,280) (17,767)
--------- ----------
Long-term portion ......................................... $ 733,448 $ 695,556
========= =========
7. INCOME TAXES
For the six months ended June 30, 2002 the income tax expense was $1.9
million or 108% of income before income taxes as compared to an income tax
benefit of $1.9 million or 17% of loss before income taxes for the six
months ended June 30, 2001. For the three months ended June 30, 2002, the
income tax benefit was $0.1 million or 3% of loss before income taxes as
compared to an income tax expense of $0.5 million on loss before income
taxes of $3.7 million for the three months ended June 30, 2001. The reason
for the significant variance in the effective income tax rate is
principally due to the change in the mix between US and foreign taxable
income. The effective rate for foreign income taxes is substantially higher
than the effective rate for income taxes in the US.
8. ACQUISITIONS
In May 2002, we acquired substantially all of the assets and assumed
certain liabilities of Decora Industries, Inc. and its operating
subsidiary, Decora Incorporated (collectively, "Decora"), a New York based
manufacturer and reseller of printed, plastic films, including plastic
films and other consumer products sold under the Con-Tact(R) brand name.
Our purchase of Decora's assets was approved by the United States
Bankruptcy Court. The purchase price was approximately $18 million. The
purchase price was negotiated with the creditors committee and was paid in
cash using borrowings from our existing revolving credit facility. The
assets purchased consist of one plant and related equipment used by Decora
primarily to print, laminate and convert films into adhesive shelf liner.
Over the next several months we intend to close the plant and commence
manufacturing these products at plants in Mexico and Danville, Kentucky.
This purchase expands our product base to a new market. In addition we
expect to realize substantial synergies in raw material costs, freight
costs and administrative expenses. In addition to the purchase price of $18
million we have accrued $2.7 million of liabilities related to acquisition
costs and severance payments. Results of operations from the date of
acquisition is included in the consolidated statements of operations for
the periods ended June 30, 2002.
11
The aggregate purchase price of $20.7 million, including accrued
liabilities related to acquisition costs and severance payments, has been
allocated on a preliminary basis to assets and liabilities. This allocation
is preliminary pending final fixed asset and intangible asset valuations.
The preliminary allocation is as follows (dollars in millions):
Current Assets $ 15.8
Property Plant and Equipment 5.0
Goodwill and Intangible assets 6.2
Current Liabilities (6.3)
-------
Total Purchase Price $ 20.7
=======
The pro forma results of operations for the three and six months ended June
30, 2002 and 2001 (assuming that the Decora acquisition had occurred on
January 1, 2002) are as follows (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $223,200 $217,151 $443,205 $430,481
Net Income/(loss) (2,966) (6,350) (9,340) (85,446)
These pro forma results reflect certain non-recurring items. The net income
reflects the write down of goodwill and long-lived assets and
reorganization costs related to the bankruptcy that are considered
non-recurring. The write-down of goodwill and long-lived assets was $6.6
million (pre-tax) for the three and six months ended June 30, 2002. Net
income/loss for the six months ended June 30, 2001 reflects $12.8 million
(pre-tax basis) for the loss of a discontinued operation and $57.7 million
(pre-tax basis) for the write-down of goodwill. The reorganization items
were $0.2 million and $0.6 million for the three and six months ended June
30, 2002, respectively. The reorganization items were $0.5 million and $1.7
million for the three and six months ended June 30, 2001, respectively. The
effective income tax rate for pre-acquisition results of operations of
Decora was 0% due to the net operating losses and valuation allowances.
9. OPERATING SEGMENTS
Operating segments are components of our business for which separate
financial information is available that is evaluated regularly by our chief
operating decision maker in deciding how to allocate resources and in
assessing performance. This information is reported on the basis that it is
used internally for evaluating segment performance.
We have three reportable operating segments: design products, industrial
films and specialty films. The design products segment produces printed
rollstock, bags and sheets used to package products in the food and other
industries. The recently purchased Decora business is included in the
design products segment. The industrial films segment produces stretch
films, used for industrial unitizing and containerization, and PVC films,
used to wrap meat, cheese and produce. The specialty films segment produces
converter films that are sold to other flexible packaging manufacturers for
additional fabrication, barrier films that contain and protect food and
other products, and other films used in the personal care, medical,
agriculture and horticulture industries. Disclosures for each product line
within operating segments are not required because amounts of segment
profits and segment total assets are impracticable to obtain.
12
Sales and transfers between our segments are eliminated in consolidation.
We evaluate performance of the operating segments based on profit or loss
before income taxes, not including plant closing costs and other
nonrecurring gains or losses. Our reportable segments are managed
separately with separate management teams, because each segment has
differing products, customer requirements, technology and marketing
strategies. Segment profit or loss and segment assets as of and for the
three months ended June 30, 2002 and 2001 are presented in the following
table (in thousands):
SPECIALTY DESIGN INDUSTRIAL CORPORATE/
FILMS PRODUCTS FILMS OTHER TOTAL
JUNE 30, 2002
Net sales to customers $ 95,306 $ 57,133 $ 65,441 $ -- $ 217,880
Intersegment sales 2,788 1,426 2,344 (6,558) --
--------- --------- --------- --------- ---------
Total net sales 98,094 58,559 67,785 (6,558) 217,880
Depreciation and amortization
3,547 2,935 2,032 3,060 11,574
Interest expense 5 385 134 18,566 19,090
Segment profit (loss) 19,413 6,055 12,583 (40,854) (2,803)
Segment total assets 456,705 213,121 153,382 78,633 901,841
Capital expenditures 5,018 2,669 2,480 1,324 11,491
JUNE 30, 2001
Net sales to customers 87,933 55,513 60,123 -- 203,569
Intersegment sales 1,864 1,062 1,339 (4,265) --
--------- --------- --------- --------- ---------
Total net sales 89,797 56,575 61,462 (4,265) 203,569
Depreciation and amortization
2,958 2,862 1,937 3,881 11,638
Interest expense 6 846 (29) 18,242 19,065
Segment profit (loss) 20,030 11,659 9,444 (44,881) (3,748)
Segment total assets 404,416 185,568 122,582 75,663 788,229
Capital expenditures 5,377 3,786 1,861 2,753 13,777
13
Segment profit or loss and segment assets as of and for the six months
ended June 30, 2002 and 2001 are presented in the following table (in
thousands):
SPECIALTY DESIGN INDUSTRIAL CORPORATE/
FILMS PRODUCTS FILMS OTHER TOTAL
JUNE 30, 2002
Net sales to customers $ 196,161 $ 105,991 $ 125,811 $ -- $ 427,963
Intersegment sales 4,408 2,162 4,691 (11,261) --
--------- --------- --------- --------- ---------
Total net sales 200,569 108,153 130,502 (11,261) 427,963
Depreciation and amortization 7,225 5,553 4,008 6,131 22,917
Interest expense 10 879 258 34,798 35,945
Segment profit (loss) 42,235 12,778 25,076 (78,374) 1,715
Capital expenditures 9,565 4,770 5,165 2,466 21,966
JUNE 30, 2001
Net sales to customers 175,626 108,882 121,720 -- 406,228
Intersegment sales 4,133 3,066 2,878 (10,077) --
--------- --------- --------- --------- ---------
Total net sales 179,759 111,948 124,598 (10,077) 406,228
Depreciation and amortization 5,751 5,371 3,913 6,692 21,727
Interest expense 12 1,733 (58) 37,738 39,425
Segment profit (loss) 38,796 20,879 20,463 (90,919) (10,781)
Capital expenditures 12,779 8,011 4,499 3,798 29,087
14
A reconciliation of the totals reported for the operating segments to our
totals reported in the consolidated condensed financial statements is as
follows (in thousands):
Three months ended
JUNE 30,
--------
2002 2001
---- ----
PROFIT OR LOSS
Total segment profit for reportable segments $ 38,051 $ 41,133
-------- --------
Plant closing costs (876) --
Unallocated amounts
Corporate expenses (21,412) (26,639)
Interest expense (18,566) (18,242)
-------- --------
Total corporate/other (40,854) (44,881)
-------- --------
Income (loss) before taxes $ (2,803) $ (3,748)
======== ========
15
A reconciliation of the totals reported for the operating segments to our
totals reported in the consolidated condensed financial statements is as
follows (in thousands):
Six months ended
JUNE 30,
--------
2002 2001
---- ----
PROFIT OR LOSS
Total segment profit for reportable segments $ 80,089 $ 80,138
-------- --------
Stock-based compensation related to administrative
employees -- (7,033)
Plant closing costs (2,722) --
Unallocated amounts
Corporate expenses (40,854) (46,148)
Interest expense (34,798) (37,738)
-------- --------
Total corporate/other (78,374) (90,919)
-------- --------
Income (loss) before taxes $ 1,715 $(10,781)
======== ========
June 30, June 30,
2002 2001
---- ----
ASSETS
Total assets for reportable segments $823,644 $712,566
Intangible assets not allocated to segments -- 14,200
Other unallocated assets 78,197 61,463
-------- --------
Total consolidated assets $901,841 $788,229
======== ========
10. NEW ACCOUNTING STANDARDS
In July, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No.
141 requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001, clarifies the
recognition of intangible assets separately from goodwill and requires that
unallocated negative goodwill be written off immediately as an
extraordinary gain. SFAS No. 142, which was effective for fiscal years
beginning after December 15, 2001, requires that ratable amortization of
goodwill be replaced with periodic tests of goodwill impairment and that
intangible assets, other than goodwill, which have determinable useful
lives, be amortized over their useful lives. As required by SFAS 142, the
Company stopped amortizing goodwill effective January 1, 2002. The Company
has evaluated, with the assistance of an independent consultant, any
possible impairment of goodwill under SFAS 142 guidelines. Based on this
evaluation the Company has determined that there is no impairment of the
Company's goodwill.
We have three reporting segments, Specialty Films, Design Products, and
Industrial Films, all of which have goodwill. The changes in the carrying
value of goodwill for the six months ended June 30, 2002 was as follows (in
thousands):
16
SPECIALTY DESIGN INDUSTRIAL
--------- ------ ----------
FILMS PRODUCTS FILMS TOTAL
----- -------- ----- -----
Balance as of December 31, 2001 $163,300 $ 23,086 $ 18,039 $204,425
Goodwill acquired during the year 1,049 6,739 2,427 10,215
-------- -------- -------- --------
Balance as of June 30, 2002 164,349 $ 29,825 $ 20,466 $214,640
The changes to Goodwill in the six months ended June 30, 2002 relate to the
Decora acquisition and adjustments related to the Uniplast acquisition.
Following is a reconciliation of net income between the amounts reported in
the three and six months ended June 30, 2001 and the adjusted amounts
reflecting these new accounting rules (in thousands):
Three Months Six Months
Ended Ended
June 30, 2001 June 30, 2001
Net income/(loss):
Reported net income/(loss) $(4,204) $(8,928)
Goodwill amortization 1,914 3,180
------- -------
Adjusted net income/(loss) $(2,290) $(5,748)
According to SFAS 142, other intangible assets will continue to be
amortized over their useful lives. During the quarter ended June 30, 2002
we assigned values to the intangibles in our three operating segments.
Gross
Carrying Accumulated
VALUE AMORTIZATION
----- ------------
Amortized intangible assets:
Customer Lists $14,400 $ (720)
Other 33,755 (22,248)
------------------------
Total $48,155 $(22,968)
------------------------
The amortization schedule for the next 5 years on the intangible assets
included above is as follows (in thousands):
Six months ending 12/31/02 $1,820
Year Ending 12/31/03 3,373
Year Ending 12/31/04 2,995
Year Ending 12/31/05 2,995
Year Ending 12/31/06 2,995
17
11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in separate
columns, financial information for (i) Pliant (on a parent only basis), with its
investment in its subsidiaries recorded under the equity method, (ii) guarantor
subsidiaries (as specified in the Indenture, dated May 31, 2000 (the "2000
Indenture"), relating to Pliant's $220 million senior subordinated notes due
2010 (the "2000 Notes") and the Indenture, dated April 10, 2002 (the "2002
Indenture" and, together with the 2000 Indenture, the "Indentures"), relating to
Pliant's $100 million senior subordinated notes due 2010 (the "2002 Notes" and,
together with the 2000 Notes, the "Notes")) on a combined basis, with any
investments in non-guarantor subsidiaries specified in the Indentures recorded
under the equity method, (iii) direct and indirect non-guarantor subsidiaries on
a combined basis, (iv) the eliminations necessary to arrive at the information
for Pliant and its subsidiaries on a consolidated basis, and (v) Pliant on a
consolidated basis, in each case as of June 30, 2002 and December 31, 2001 and
for the three and six month periods ended June 30, 2002 and 2001. The Notes are
fully and unconditionally guaranteed on a joint and several basis by each
guarantor subsidiary and each guarantor subsidiary is wholly owned, directly or
indirectly, by Pliant. There are no contractual restrictions limiting transfers
of cash from guarantor and non-guarantor subsidiaries to Pliant except from our
Alliant joint venture. The condensed consolidating financial statements are
presented herein, rather than separate financial statements for each of the
guarantor subsidiaries because management believes that separate financial
statements relating to the guarantor subsidiaries are not material to investors.
18
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2002 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,180 $ 790 $ 2,111 $ -- $ 12,081
Receivables, net 95,109 16,932 22,593 -- 134,634
Inventories 77,263 16,187 11,610 -- 105,060
Prepaid expenses and other (60) 554 480 -- 974
Income taxes receivable 31 345 173 -- 549
Deferred income taxes 8,508 (765) (2,016) -- 5,727
--------- --------- --------- --------- ---------
Total current assets 190,031 34,043 34,951 -- 259,025
PLANT AND EQUIPMENT, net 299,756 23,004 47,754 -- 370,514
GOODWILL, net 195,946 2,122 16,572 -- 214,640
INTANGIBLE ASSETS, net 23,613 1,339 235 -- 25,187
INVESTMENT IN SUBSIDIARIES 70,447 -- -- (70,447) --
OTHER ASSETS 29,135 368 2,972 -- 32,475
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 808,928 $ 60,876 $ 102,484 $ (70,447) $ 901,841
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,280 $ -- $ -- $ -- $ 8,280
Trade accounts payable 91,534 9,256 15,724 -- 116,514
Accrued liabilities 39,798 3,080 6,086 -- 48,964
Due to (from) affiliates (23,501) 23,876 (375) -- --
--------- --------- --------- --------- ---------
Total current liabilities 116,111 36,212 21,435 -- 173,758
LONG-TERM DEBT, net of current portion 706,481 -- 26,967 -- 733,448
OTHER LIABILITIES 19,901 31 1,708 -- 21,640
DEFERRED INCOME TAXES 21,771 3,799 2,664 -- 28,234
--------- --------- --------- --------- ---------
Total liabilities 864,264 40,042 52,774 -- 957,080
--------- --------- --------- --------- ---------
MINORITY INTEREST ...................... -- -- 197 -- 197
REDEEMABLE STOCK:
Preferred stock .................... 138,096 -- -- -- 138,096
Common stock ....................... 16,259 -- -- -- 16,259
--------- --------- --------- --------- ---------
REDEEMABLE STOCK ....................... 154,355 -- -- -- 154,355
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 103,376 14,020 29,240 (43,260) 103,376
Warrants 38,676 -- -- -- 38,676
Retained earnings (accumulated deficit) (338,311) 6,825 26,440 (33,365) (338,411)
Stockholders' note receivable (637) -- -- -- (637)
Accumulated other comprehensive income (loss) (12,795) (11) (6,167) 6,178 (12,795)
--------- --------- --------- --------- ---------
Total stockholders' equity (deficit) (209,691) 20,834 49,513 (70,447) (209,791)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 808,928 $ 60,876 $ 102,484 $ (70,447) $ 901,841
--------- --------- --------- --------- ---------
19
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 967 $ 3,851 $ -- $ 4,818
Receivables, net 94,163 7,321 23,952 -- 125,436
Inventories 65,135 9,087 9,726 -- 83,948
Prepaid expenses and other 1,856 398 772 -- 3,026
Income taxes receivable 361 7 617 -- 985
Deferred income taxes 4,670 (314) (1,793) -- 2,563
--------- --------- --------- --------- ---------
Total current assets 166,185 17,466 37,125 -- 220,776
PLANT AND EQUIPMENT, net 293,628 26,386 49,310 -- 369,324
GOODWILL, net 185,807 2,122 16,496 -- 204,425
INTANGIBLE ASSETS, net 25,139 1,506 129 -- 26,774
INVESTMENT IN SUBSIDIARIES 62,837 -- -- (62,837) --
OTHER ASSETS 27,188 182 3,014 -- 30,384
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 760,784 $ 47,662 $ 106,074 $ (62,837) $ 851,683
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 17,767 $ -- $ -- $ -- $ 17,767
Trade accounts payable 81,099 4,678 15,731 -- 101,508
Accrued liabilities 36,541 1,703 4,853 -- 43,097
Due to (from) affiliates (24,978) 22,147 2,831 -- --
--------- --------- --------- --------- ---------
Total current liabilities 110,429 28,528 23,415 -- 162,372
LONG-TERM DEBT, net of current portion 662,556 -- 33,000 -- 695,556
OTHER LIABILITIES 17,411 -- 1,533 -- 18,944
DEFERRED INCOME TAXES 22,108 1,625 2,423 -- 26,156
--------- --------- --------- --------- ---------
Total liabilities 812,504 30,153 60,371 -- 903,028
--------- --------- --------- --------- ---------
MINORITY INTEREST ....................... (104) -- 375 -- 271
REDEEMABLE STOCK:
Preferred stock ..................... 126,149 -- -- -- 126,149
Common stock ........................ 16,778 -- -- -- 16,778
--------- --------- --------- --------- ---------
REDEEMABLE STOCK ........................ 142,927 -- -- -- 142,927
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 103,362 14,020 29,616 (43,636) 103,362
Warrants 38,715 -- -- -- 38,715
Retained earnings (accumulated deficit) (326,356) 3,500 21,215 (24,715) (326,356)
Stockholders' note receivable (616) -- -- -- (616)
Accumulated other comprehensive income (loss) (9,648) (11) (5,503) 5,514 (9,648)
--------- --------- --------- --------- ---------
Total stockholders' equity (deficit) (194,543) 17,509 45,328 (62,837) (194,543)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 760,784 $ 47,662 $ 106,074 $ (62,837) $ 851,683
--------- --------- --------- --------- ---------
20
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 2002(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
NET SALES $ 171,709 $ 18,796 $ 33,933 $ (6,558) $ 217,880
COST OF SALES 139,886 15,074 27,614 (6,558) 176,016
--------- --------- --------- --------- ---------
GROSS PROFIT 31,823 3,722 6,319 -- 41,864
OPERATING EXPENSES 21,789 1,545 2,770 -- 26,104
--------- --------- --------- --------- ---------
OPERATING INCOME 10,034 2,177 3,549 -- 15,760
INTEREST EXPENSE (18,571) -- (519) -- (19,090)
EQUITY IN EARNINGS OF SUBSIDIARIES 4,902 -- -- (4,902) --
OTHER INCOME (EXPENSE), Net (575) (8) 1,110 -- 527
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (4,210) 2,169 4,140 (4,902) (2,803)
INCOME TAX PROVISION (BENEFIT) (1,593) -- 1,507 -- (86)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (2,617) $ 2,169 $ 2,633 $ (4,902) $ (2,717)
========= ========= ========= ========= =========
21
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 2001(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
NET SALES $ 169,986 $ 8,856 $ 28,992 $ (4,265) $ 203,569
COST OF SALES 137,033 7,805 23,339 (4,265) 163,912
--------- --------- --------- --------- ---------
GROSS PROFIT 32,953 1,051 5,653 -- 39,657
OPERATING EXPENSES 26,434 90 2,693 -- 29,217
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) 6,519 961 2,960 -- 10,440
INTEREST EXPENSE (18,219) -- (846) -- (19,065)
EQUITY IN EARNINGS OF SUBSIDIARIES 6,340 -- -- (6,340) --
OTHER INCOME (EXPENSE), Net 703 4,444 (270) -- 4,877
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (4,657) 5,405 1,844 (6,340) (3,748)
INCOME TAX PROVISION (BENEFIT) (453) -- 909 -- 456
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (4,204) $ 5,405 $ 935 $ (6,340) $ (4,204)
========= ========= ========= ========= =========
22
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2002(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
NET SALES $ 341,746 $ 29,535 $ 67,943 $ (11,261) $ 427,963
COST OF SALES 273,222 24,576 53,983 (11,261) 340,520
--------- --------- --------- --------- ---------
GROSS PROFIT 68,524 4,959 13,960 -- 87,443
OPERATING EXPENSES 42,983 1,629 6,150 -- 50,762
--------- --------- --------- --------- ---------
OPERATING INCOME 25,541 3,330 7,810 -- 36,681
INTEREST EXPENSE (34,808) -- (1,137) -- (35,945)
EQUITY IN EARNINGS OF SUBSIDIARIES 8,650 -- -- (8,650) --
OTHER INCOME , Net (561) (5) 1,545 -- 979
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (1,178) 3,325 8,218 (8,650) 1,715
INCOME TAX PROVISION (BENEFIT) (1,137) -- 2,993 -- 1,856
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (41) $ 3,325 $ 5,225 $ (8,650) $ (141)
========= ========= ========= ========= =========
23
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 2001(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
NET SALES $ 340,924 $ 18,415 $ 56,966 $ (10,077) $ 406,228
COST OF SALES 274,259 15,693 44,733 (10,077) 324,608
--------- --------- --------- --------- ---------
GROSS PROFIT 66,665 2,722 12,233 -- 81,620
OPERATING EXPENSES 53,293 180 5,275 -- 58,748
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) 13,372 2,542 6,958 -- 22,872
INTEREST EXPENSE (37,689) -- (1,736) -- (39,425)
EQUITY IN EARNINGS OF SUBSIDIARIES 10,213 -- -- (10,213) --
OTHER INCOME (EXPENSE), Net 1,121 4,609 42 -- 5,772
--------- --------- --------- --------- ---------
INCOME(LOSS) BEFORE INCOME TAXES (12,983) 7,151 5,264 (10,213) (10,781)
INCOME TAX PROVISION (BENEFIT) (4,055) -- 2,202 -- (1,853)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (8,928) $ 7,151 $ 3,062 $ (10,213) $ (8,928)
========= ========= ========= ========= =========
24
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 7,458 $ 5,644 $ 7,546 -- $ 20,648
-------- -------- -------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- -- -- -- --
Transfers between segments (9,116) 9,762 (646) -- --
Decora Acquisition (6,209) (14,369) -- -- (20,578)
Capital expenditures for plant and equipment (17,592) (2,400) (1,974) -- (21,966)
-------- -------- -------- --------- --------
Net cash (used in) provided by investing
activities (32,917) (7,007) (2,620) -- (42,544)
-------- -------- -------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt/payment of dividends -- -- -- -- --
Net proceeds from issuance of common stock and
net change in related stockholders' notes
receivables 47 47
Borrowings on long-term debt 34,438 -- (6,033) -- 28,405
-------- -------- -------- --------- --------
Net cash provided by financing
activities 34,485 -- (6,033) -- 28,452
-------- -------- -------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 154 1,186 (633) -- 707
-------- -------- -------- --------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 9,180 (177) (1,740) -- 7,263
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD -- 967 3,851 -- 4,818
-------- -------- -------- --------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 9,180 $ 790 $ 2,111 $ -- $ 12,081
======== ======== ======== ========= ========
25
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES $ 16,123 $ (1,960) $ (654) $ -- $ 13,509
-------- -------- -------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets 2,966 4,948 -- -- 7,914
Capital expenditures for plant and equipment (25,261) (2,135) (1,691) -- (29,087)
-------- -------- -------- ----------- --------
Net cash (used in)provided by investing
activities (22,295) 2,813 (1,691) -- (21,173)
-------- -------- -------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt / payment of dividends 150 -- (150) --
Net proceeds from issuance of common stock and
net change in related stockholders' notes
receivable 45 -- -- 45
Borrowings on long-term debt 6,749 -- 1,219 -- 7,968
-------- -------- -------- ----------- --------
Net cash provided by/(used in) financing
activities 6,944 -- 1,069 -- 8,013
-------- -------- -------- ----------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (1,231) (798) 911 -- (1,118)
-------- -------- -------- ----------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (459) 55 (365) -- (769)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 459 10 2,591 -- 3,060
-------- -------- -------- ----------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ -- $ 65 $ 2,226 $ -- $ 2,291
======== ======== ======== =========== ========
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated financial
condition, liquidity and capital resources and results of operations. This
analysis should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report
on Form 10-K for the year ended December 31, 2001 (the "2001 10-K") and our
Registration Statement on Form S-4 (file No. 333-86532), as amended. This
section contains certain forward-looking statements within the meaning of
federal securities laws that involve risks and uncertainties, including
statements regarding our plans, objectives, goals, strategies and financial
performance. Our actual results could differ materially from the results
anticipated in these forward-looking statements as a result of factors set forth
under "Cautionary Statement for Forward-Looking Information" below and elsewhere
in this report.
GENERAL
We generate our revenues, earnings and cash flows from the sale of film and
flexible packaging products throughout the world. We manufacture these products
at 27 facilities located in North America, South and Central America, Europe and
Australia. Our sales have grown primarily as a result of strategic acquisitions
made over the past several years, increased levels of production at acquired
facilities, return on capital expenditures and the overall growth in the markets
for film and flexible packaging products.
In May 2002, we acquired substantially all of the assets and assumed certain
liabilities of Decora Industries, Inc. and its operating subsidiary, Decora
Incorporated (collectively, "Decora"), a New York based manufacturer and
reseller of printed, plastic films, including plastic films and other consumer
products sold under the Con-Tact(R) brand name. Our purchase of Decora's assets
was approved by the the United States Bankruptcy Court. The purchase price was
approximately $18 million. The purchase price was negotiated with the creditors
committee and was paid in cash using borrowings from our existing revolving
credit facility. The assets purchased consist of one plant and related equipment
used by Decora primarily to print, laminate and convert films into adhesive
shelf liner. Over the next several months we intend to close the plant and
commence manufacturing these products at plants in Mexico and Danville,
Kentucky. The Decora acquisition expands our product base to the market for
adhesive shelf liners. In addition, we expect to realize substantial synergies
that will reduce raw material costs, freight costs and administrative expenses
associated with Decora's operations. In addition to the purchase price of $18
million, we have accrued $2.7 million of liabilities related to acquisition
costs and severance payments.
In July 2001, we acquired 100% of the outstanding stock of Uniplast Holdings
Inc., a manufacturer of multi-layer packaging films, industrial films and
cast-embossed films, with operations in the United States and Canada, for
approximately $56.0 million in cash and equity. In connection with the
acquisition of Uniplast, we announced a plan to close three of Uniplast's six
plants, move certain purchased assets to other locations and to terminate most
of the sales, administration and technical employees of Uniplast. All three of
these plants were closed in 2001. All three plants were sold in the first six
months of 2002.
The Company expects to continue to make acquisitions as opportunities arise.
On June 10, 2002, we entered into a separation agreement with Richard P. Durham,
our former Chairman and Chief Executive Officer. As of the date of the
separation agreement, Mr. Durham owned 28,289 shares of common stock, 12,083
performance vested shares, 2,417 time vested shares, warrants to purchase
1,250.48 shares of common stock and 1,232 shares of preferred stock of Pliant.
All of Mr.
27
Durham's time vested shares and 2,416 of Mr. Durham's performance
vested shares had vested as of the date of the separation agreement. Pursuant to
the separation agreement, Mr. Durham agreed to convert an outstanding promissory
note issued as payment for a portion of his shares into two promissory notes.
The first note (the "Vested Secured Note"), in the principal amount of
$2,430,798, relates to Mr. Durham's time vested shares and the vested portion of
his performance vested shares. The second note (the "Non-Vested Secured Note"),
in the principal amount of $4,862,099, relates to the 9,667 performance vested
shares which had not vested as of the date of the separation agreement. In
addition to these notes, Mr. Durham has an additional outstanding promissory
note (the "Additional Note"), with a principal amount of $1,637,974, relating to
a portion of the shares of common stock held by Mr. Durham.
The separation agreement preserved a put option established by Mr. Durham's
employment agreement with respect to his shares. For purposes of this put
option, the separation agreement provides that the price per share to be paid by
Pliant is $483.13 with respect to common stock, $483.13 less any exercise price
with respect to warrants, and the liquidation preference with respect to
preferred stock. On July 9, 2002, Mr. Durham exercised his put option with
respect to 28,289 shares of common stock, 1,232 shares of preferred stock and
warrants to purchase 1,250.48 shares of common stock. Restrictive covenants
under our credit facilities limit the number of shares we can currently
repurchase from Mr. Durham. Accordingly, we have agreed to purchase 8,204 shares
from Mr. Durham for a purchase price of $3,963,599 less the outstanding amount
of the Additional Note, which will be cancelled. In addition, in accordance with
the separation agreement, we intend to repurchase and cancel Mr. Durham's 9,667
unvested shares in exchange for cancellation of the Non-Vested Secured Note. We
expect that these repurchases will be completed in the third quarter of 2002.
In connection with Mr. Durham's resignation as Chairman and Chief Executive
Officer, Jack E. Knott was appointed our Chief Executive Officer. Mr. Durham
continues to serve as a member of our Board of Directors as a designee of The
Christena Karen H. Durham Trust, which holds 158,917 shares, or approximately
26.6% of our outstanding common stock.
During the second quarter of 2001, we completed the implementation of a
company-wide supply chain cost initiative. This initiative, which we began in
the fourth quarter of 1999, focused on improving the efficiency of our
operations through improvements to our procurement, logistics, planning and
production processes.
During 2001, we completed the transition of our corporate headquarters from Salt
Lake City, Utah to Schaumburg, Illinois, and we made certain changes in our
management. During the first quarter of 2001, we incurred non-cash stock-based
compensation expense of approximately $7.0 million as a result of certain
modifications to our senior management employment arrangements with two
executive officers.
RESULTS OF OPERATIONS
The following table sets forth net sales, operating expenses, and operating
income, and such amounts as a percentage of net sales, for the three and six
months ended June 30, 2002 and 2001 (dollars in millions).
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
2002 2001 2002 2001
-------------- ----------------- ---------------- -----------------
% OF % OF % OF % of
$ SALES $ SALES $ SALES $ SALES
----- ----- ----- ----- ----- ----- ----- -----
Net Sales $ 217.9 100.0% $ 203.6 100.0% $ 428.0 100.0% $ 406.2 100.0%
Cost of sales 176.0 80.7 164.0 80.6 340.5 79.6 324.6 79.9
----- ---- ----- ---- ----- ---- ----- ----
Gross profit 41.9 19.3 39.6 19.4 87.5 20.4 81.6 20.1
Total operating
expenses 26.1 12.0 29.2 14.4 50.8 11.9 58.7 14.5
---- ---- ---- ---- ---- ---- ---- ----
Operating income $ 15.8 7.3% $ 10.4 5.0% $ 36.7 8.5% $ 22.9 5.6%
====== ===== ====== ===== ====== ===== ====== =====
28
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
NET SALES
Net sales increased by $14.3 million, or 7.0%, to $217.9 million for the three
months ended June 30 2002, from $203.6 million for the three months ended June
30, 2001. The increase was primarily due to a 15.1% increase in sales volume,
partially offset by a 7.6% decrease in our average selling price. Excluding the
effect of the Uniplast and Decora acquisitions, sales volumes increased 4.5 %
during the three months ended June 30, 2002 as compared to the same period in
2001. (See Note 8 to the condensed consolidated financial statements for a
discussion of the Decora acquisition). In the markets we serve, the average
selling price of our products generally increases or decreases as the price of
resins, our primary raw material, increases or decreases. Average resin prices
in the second quarter of 2002 were lower than the average resin prices in the
same period in 2001, resulting in a decrease in our average selling prices.
GROSS PROFIT
Gross profit increased by $2.3 million, or 5.8%, to $41.9 million for the second
quarter of 2002, from $39.6 million for the second quarter of 2001. The Decora
acquisition added $1.7 million of gross profit for the quarter ended June 30,
2002. In addition, gross profit was favorably affected by the increase in sales
volumes discussed above.
TOTAL OPERATING EXPENSES
Total operating expenses decreased by $3.1 million, or 10.6%, to $26.1 million
for the second quarter of 2002 from $29.2 million for the same period in 2001.
Higher operating expenses for the second quarter of 2001 were primarily due to
nonrecurring expenses, including $3.0 million of fees paid to consultants in
connection with the Company-wide supply chain improvement initiative and $1.7
million of restructuring expenses related to office closures. The $4.7 million
decrease in operating expenses attributable to these nonrecurring expenses was
partially offset by $0.9 million of plant closing costs incurred during the
second quarter of 2002 related primarily to the relocation of production lines
from the plants acquired and closed as part of the Uniplast acquisition.
OPERATING INCOME
Operating income increased by $5.4 million, or 51.9%, to $15.8 million for the
three months ended June 30, 2002 from $10.4 million for the three months ended
June 30, 2001, due to the factors discussed above.
29
INTEREST EXPENSE
Interest expense remained relatively stable at $19.1 million for the three
months ended June 30, 2002, as compared to the same period in 2001. The increase
in interest expense resulting from the issuance of an additional $100 million of
subordinated debt in April 2002 was offset by lower interest expense on
outstanding term loans due to repayments, and lower interest rates applicable to
our credit facilities due to a decrease in LIBOR.
OTHER INCOME
Other income decreased to $0.5 million for the three months ended June 30, 2002,
from $4.9 million for the three months ended June 30, 2001. This decrease
reflects an unusually high amount of other income for the 2001 period, which was
primarily due to proceeds and assets received from a settlement with a potential
customer in the second quarter of 2001.
INCOME TAX EXPENSE (BENEFIT)
We recorded an income tax benefit of $0.1 million for the second quarter of 2002
as compared to income tax expense of $0.5 million for the same period in 2001.
(See Note 7 to the condensed consolidated financial statements for a discussion
of the change in the effective income tax rate).
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES
Net sales increased by $21.8 million, or 5.3%, to $428.0 million for the six
months ended June 30, 2002 from $406.2 million for the six months ended June 30,
2001. The increase was primarily due to a 14.1% increase in sales volume,
partially offset by a 7.6% decrease in average selling prices. The sales volume
increased principally due to the Uniplast acquisition and an increase in sales
volume from the industrial films segment. Uniplast was acquired in July 2001. In
the markets we serve, the average selling price of our products generally
increases or decreases as the price of resins, our primary raw material,
increases or decreases. Average resin prices were lower during the first six
months of 2002 compared to the same period in 2001, resulting in a decrease in
our average selling prices.
GROSS PROFIT
Gross profit increased by $5.9 million, or 7.2%, to $87.5 million for the six
months ended June 30, 2002, from $81.6 million for the six months ended June 30,
2001. The increase was primarily due to the effect of higher sales volumes,
partially offset by lower gross margins due to a change in sales mix. In
addition the acquisition of Decora added $1.7 million of gross profits for the
six months ended June 30, 2002.
However, within the six months ended June 30, 2002, gross profits for the second
quarter decreased $3.7 million or 8% as compared to the first quarter, primarily
due to the effect of recent raw material price increases partially offset by the
effect of the Decora acquisition and increases in sales volumes. The effect of
the raw material price increase on gross profits was approximately $5.3 million.
We announced and implemented price increases to cover substantially all the raw
material price increases. However, due to the competitive nature of our
industry, particularly during a period when success of announced raw material
price increases was uncertain, we saw a significant portion of this
implementation shift to the third quarter.
30
TOTAL OPERATING EXPENSES
Total operating expenses decreased by $6.3 million, or 10.7%, to $52.4 million
for the first six months of 2002 from $58.7 million for the six months ended
June 30, 2001. Higher operating expenses for first six months of 2001 were
primarily due to nonrecurring expenses, including $7 million of stock based
compensation related to administrative employees, $3 million of fees paid to
consultants in connection with a company-wide supply chain improvement
initiative and $1.7 million of restructuring expenses related to office
closures. The $11.7 million decrease in operating expenses attributable to these
nonrecurring expenses was partially offset by $4.3 million of plant closing
costs incurred during the first six months of 2002 related primarily to the
relocation of production lines from the plants acquired and closed as part of
the Uniplast acquisition.
OPERATING INCOME
Operating income increased by $13.8 million, or 60%, to $36.7 million for the
six months ended June 30, 2002 from $22.9 million for the six months ended June
30, 2001, due to the factors discussed above.
INTEREST EXPENSE
Interest expense decreased by $3.5 million, or 8.8%, to $35.9 million for the
six months ended June 30, 2002, from $39.4 million for the six months ended June
30, 2001. The decrease was primarily due to a decrease in LIBOR which decreases
the variable interest rate applicable to our credit facilities and lower
interest expense on outstanding term loans resulting from repayments. These
reductions in interest were partially offset by an increase in interest expense
due to the issuance of an additional $100 million of subordinated debt in April
2002.
OTHER INCOME (EXPENSE)
Other income decreased $4.8 million to $1.0 million for the six months ended
June 30, 2002 from $5.8 million for the six months ended June 30, 2001. The
decrease reflects an unusually high amount of other income for the 2001 period,
which was primarily due to the proceeds and assets received from a settlement
with a potential new customer in the second quarter of 2001.
INCOME TAX EXPENSE (BENEFIT)
Income tax expense was $1.9 million for the six months ended June 30, 2002 as
compared to an income tax benefit of $1.9 million for the same period in 2001.
See Note 7 to the condensed consolidated financial statements for a discussion
on the change in the effective income tax rate.
OPERATING SEGMENT REVIEW
GENERAL. Operating segments are components of our Company for which
separate financial information is available that is evaluated regularly by our
chief operating decision maker in deciding how to allocate resources and in
assessing performance. For more information on our operating segments see Note 9
to the unaudited condensed consolidated financial statements.
31
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2001
SPECIALTY FILMS
- ---------------
NET SALES. The net sales of our specialty films segment increased $7.4
million, or 8.4%, to $95.3 million for the three months ended June 30, 2002 from
$87.9 million for the three months ended June 30, 2001. This increase was
primarily due to a 13.6% increase in sales volume, partially offset by a 4.6%
decrease in our average selling prices. The increased sales volume was primarily
the result of the Uniplast acquisition. Selling prices decreased principally due
to the effects of lower resin prices in the second quarter of 2002 as compared
to the same period in 2001 and the acquisition of Uniplast.
SEGMENT PROFIT. The specialty films segment profit remained relatively
stable at $19.4 million for the three months ended June 30, 2002 as compared to
$20.0 million for the three months ended June 30, 2001. The favorable effect of
higher sales volumes was offset by the effect of lower margins due to the change
in mix.
SEGMENT TOTAL ASSETS. The specialty films segment total assets increased
$52.3 million, or 12.9%, to $456.7 million as of June 30, 2002 from $404.4
million as of June 30, 2001. The increase was principally due to the acquisition
of Uniplast, capital expenditures for capacity expansions and changes to the
reserve for plant closing cost, partially offset by depreciation expenses. In
addition, the Company allocated goodwill and intangible assets to the operating
segments under SFAS 142.
DESIGN PRODUCTS
- ---------------
NET SALES. The net sales of our design products segment increased $1.6
million, or 2.9%, to $57.1 million for the three months ended June 30, 2002 from
$55.5 million for the three months ended June 30, 2001. Sales volumes increased
1.9 % and average selling prices decreased 1% . Sales volumes and prices were
favorably affected by the acquisition of the Decora business in May 2002.
Excluding the effects of Decora, the sales volumes decreased 4.1% and selling
prices decreased 5.4%. Selling prices decreased principally due to the effects
of lower resin prices in the second quarter of 2002 as compared to the same
period in 2001.
SEGMENT PROFIT. The design products segment profit decreased $5.6 million,
to $6.1 million for the three months ended June 30, 2002 from $11.7 million for
the three months ended June 30, 2001. This decrease was primarily due to
unusually high segment profits in the second quarter of 2001 due to a
substantial settlement from a potential customer, partially offset by the
favorable effect of the Decora acquisition.
SEGMENT TOTAL ASSETS. The design products segment total assets increased
$27.5 million, or 14.8%, to $213.1 million as of June 30, 2002 from $185.6
million as of June 30, 2001. This increase was principally due to the addition
of assets from the Decora acquisition. In addition, the Company allocated
goodwill and intangible assets to the operating segments under SFAS 142.
INDUSTRIAL FILMS
- ----------------
NET SALES. The net sales in our industrial films segment increased $5.3
million, or 8.8%, to $65.4 million for the three months ended June 30, 2002 from
$60.1 million for the three months ended June 30, 2001. This increase was
principally due to a 22.7% increase in sales volumes, primarily as a result of
the Uniplast acquisition, and increases in sales volume in the stretch film
segment. The favorable effect of the volume increase was partially offset by
lower selling prices. Selling prices decreased 12.8% principally due lower resin
prices and a change in sales mix.
32
SEGMENT PROFIT. The industrial films segment profit increased $3.1 million,
or 33%, to $12.6 million for the three months ended June 30, 2002 from $9.4
million for the three months ended June 30, 2001. This increase was principally
due to the effect of higher sales volumes discussed above, partially offset by
the effect of lower margins due to the change in sales mix.
SEGMENT TOTAL ASSETS. The industrial films segment total assets increased
$30.8 million, or 25.1%, to $153.4 million as of June 30, 2002 from $122.6
million as of June 30, 2002. This increase was principally due to the addition
of assets from the Uniplast acquisition and to capital expenditures for
maintenance of business which were partially offset by depreciation expenses. In
addition, the Company allocated goodwill and intangible assets to the operating
segments under SFAS 142.
UNALLOCATED CORPORATE EXPENSES
- ------------------------------
Unallocated corporate expenses decreased $5.2 million, or 19.6%, to $21.4
million for the three months ended June 30, 2002 from $26.6 million for the
three months ended June 30, 2001, principally due to a $3.0 million reduction in
fees paid to consultants relating to a company-wide supply chain improvement
initiative. In addition, the unallocated corporate expenses for the three months
ended June 30, 2001 included $1.7 million of plant and office closing costs.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001
SPECIALTY FILMS
- ---------------
NET SALES. The net sales of our specialty films segment increased $20.6
million, or 11.7%, to $196.2 million for the six months ended June 30, 2002 from
$175.6 million for the six months ended June 30, 2001. This increase was
primarily due to a 16.1% increase in sales volume partially offset by a 3.8%
decrease in our average selling prices. The increased sales volume was primarily
as a result of the Uniplast acquisition. Selling prices decreased principally
due to the effects of lower resin prices in the second quarter of 2002 as
compared to the same period in 2001.
SEGMENT PROFIT. The specialty films segment profit increased $3.4 million,
8.8%, to $42.2 million for the six months ended June 30, 2002 from $38.8 million
for the six months ended June 30, 2001. The increase was primarily due to the
increase in sales discussed above including the effect of the Uniplast
acquisition. Margins for the six months ended June 30, 2002 remained relatively
stable as compared to the same period in 2001.
DESIGN PRODUCTS
- ---------------
NET SALES. The net sales of our design products segment decreased $2.9
million, or 2.7%, to $106.0 million for the six months ended June 30, 2002 from
$108.9 million for the six months ended June 30, 2001. This decrease was
primarily due to a 6.8% decrease in our average selling prices (excluding the
effect of the Decora business), partially offset by the incremental sales
volumes. The increase in sales volumes was primarily due to the Decora
acquisition. Selling prices decreased principally due to the effects of lower
resin prices in the first half of 2002 as compared to the same period in 2001.
SEGMENT PROFIT. The design products segment profit decreased $8.1 million,
or 38.8%, to $12.8 million for the six months ended June 30, 2002 from $20.9
million for the six months ended June 30, 2001. This decrease was primarily due
to unusually high segment profits in the six months ended June 30, 2001 due
33
to a settlement from a potential customer, partially offset by the favorable
effect of the Decora acquisition.
INDUSTRIAL FILMS
- ----------------
NET SALES.The net sales in our industrial films segment increased $4.1
million, or 3.4%, to $125.8 million for the six months ended June, 2002 from
$121.7 million for the six months ended June 30, 2001. This increase was due to
a 18.8% increase in sales volumes primarily as a result of the Uniplast
acquisition and growth in the stretch business due to increased market share,
partially offset by a 13.0% decrease in selling prices. Selling prices decreased
principally due to the effects of a decrease in resin prices and a change in
sales mix.
SEGMENT PROFIT. The industrial films segment profit increased $4.6 million,
or 22.4%, to $25.1 million for the six months ended June 30, 2002 from $20.5
million for the six months ended June 30, 2001. This increase was principally
due to the effect of higher sales volume discussed above partially offset by a
decrease in margins resulting principally from a change in sales mix.
UNALLOCATED CORPORATE EXPENSES
- ------------------------------
Unallocated corporate expenses decreased $5.3 million, or 11.5%, to $40.9
million for the six months ended June 30, 2002 from $46.2 million for the six
months ended June 30, 2001, principally due to a $3.0 million reduction in fees
paid to consultants relating to a company-wide supply chain improvement
initiative. In addition, the unallocated corporate expenses for the six months
ended June 30, 2001 included $2.9 million of plant and office closing costs.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities was $20.6 million for the six months
ended June 30, 2002, an increase of $7.1 million, or 52.6%, from the same period
in 2001. This increase was principally due to improved operating results and
changes in working capital items as compared to the six months ended June 30,
2001.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities was $42.5 million for the six months ended
June 30, 2002, as compared to $21.2 million for the same period in 2001. The
increase in net cash used in investing activities was principally due to the
acquisition of Decora for $20.6 million net of cash, partially offset by a
decrease in capital expenditures. Capital expenditures were $21.9 million and
$29.1 million for the six month periods ended June 30, 2002 and 2001,
respectively. Capital expenditures in both periods were primarily for major
expansion projects in all of our product lines. We expect capital expenditures
to be approximately $4 million higher for the remaining half of 2002 principally
due to the capital expenditures for the relocation of the Decora production. In
2001, we received $7.9 million as part of a sale-leaseback transaction of
newly-acquired machinery and equipment.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $28.5 million for the six months
ended June 30, 2002, compared to $8.0 million for the same period in 2001. The
activity for 2002 included the effects of the
34
issuance of the $100 million aggregate principal amount of 13% Senior
Subordinated Notes due 2010 (the "2002 Notes") and repayment of term loans
discussed under "Liquidity" below.
LIQUIDITY
As of June 30, 2002, we had $12.1 million in cash and cash equivalents and
approximately $85.3 million of working capital and approximately $92.5 million
available under our $100.0 million revolving credit facility. We had $7.5
million of letters of credit issued, which reduces the amount available for
borrowings under our revolving credit facility. As of June 30, 2002, the debt
under our credit facilities bore interest at a weighted average rate of 6.4%
including the effect of interest rate derivative agreements.
Effective April 2, 2002, we entered into an amendment of our credit facilities
to, among other things, permit the offering of the 2002 Notes. The amendment
also adjusted certain financial covenants, including the leverage and interest
coverage ratios and the permitted amount of capital expenditures. The amendment
also allows us to borrow additional term loans in an aggregate principal amount
of up to $85 million under an uncommitted incremental Tranche B facility, the
proceeds of which may be used to finance certain permitted acquisitions, if any,
completed prior to March 31, 2003. We incurred an amendment fee of $1.3 million
in connection with the amendment. We also incurred approximately $0.5 million of
legal and administrative expenses in connection with negotiating the amendment.
On April 10, 2002 we completed the private offering of the 2002 Notes. We used
approximately $93.3 million of the net proceeds from the issuance of the Notes
to repay indebtedness under our credit facilities, including a repayment of
approximately $63.3 million on our revolving credit facility and a $30 million
repayment on our term loans. Our credit facilities limit the use of the
remaining net proceeds to repayments on our credit facilities or certain
permitted acquisitions. We were required to repay, on December 31, 2002,
additional term loans in the amount by which $18 million exceeds the amount we
invest in certain acquisitions. Due to the completion of the Decora acquisition
on May 20, 2002, there is no requirement to repay additional term debt on
December 31, 2002. In May 2002 we completed an exchange offer, pursuant to which
we exchanged the 2002 Notes for notes registered under the Securities Act of
1933.
The following table sets forth the scheduled principal payments on the credit
facilities, the $220 million principal amount Senior Subordinated Notes issued
in May 2000 (the "2000 Notes") and the 2002 Notes :
YEAR PRINCIPAL PAYMENT
- -------------------------------
2002 $ 80,620
2003 19,776,331
2004 51,678,479
2005 60,921,875
2006 34,380,964
Thereafter 574,889,595
The foregoing table does not give effect to up to $85 million in additional term
loans that we may borrow under the uncommitted incremental tranche B facility
permitted under the amendment to the credit facilities.
In addition, we are required to make annual mandatory prepayments of the term
loans under the credit facilities within 90 days following the end of each year
in an amount equal to the amount by which 100% of excess cash flow for such year
(or 50% of excess cash flow if our leverage ratio at the end of such year is
less than or equal to 4 to 1) exceeds the aggregate amount of voluntary
prepayments made since the last
35
excess cash flow payment, subject to the amount of voluntary prepayments made
since the last excess cash flow payment, subject to certain adjustments. In
addition, the term loan facilities are subject to mandatory prepayments in an
amount equal to (a) 100% of the net cash proceeds of equity and debt issuances
by us or any of our subsidiaries, and (b) 100% of the net cash proceeds of asset
sales or other dispositions of property by us or any of our subsidiaries, in
each case subject to certain exceptions.
The interest expense and scheduled principal payments on our borrowings affect
our future liquidity requirements. We expect that cash flows from operating
activities and available borrowings under our revolving credit facility of $100
million under the credit agreement will provide sufficient working capital to
operate our business, to make expected capital expenditures and to meet
foreseeable liquidity requirements. In addition, given our current sales
forecast and expected price increases, we believe that we will comply with the
covenants contained in our credit facilities. However, if (a) we are not able to
increase prices to cover historical and future raw materials price increases,
(b) volume growth does not continue as expected, or (c) we experience any
significant negative effects to the business, we may not have sufficient working
capital to operate our business, to make expected capital expenditures or to
meet foreseeable liquidity requirements. In addition, if any of these events
occurs, and we are unable to obtain waivers or amendments to our credit facility
covenants or we are unable to raise additional equity, we may not be able to
comply with certain of our debt covenants, including the applicable debt to
EBITDA (earnings before interest, taxes, depreciation and amortization and
certain other adjustments as provided in our credit agreement) leverage
ratio.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Certain information set forth in this report contains "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital expenditures,
financing needs, plans or intentions relating to acquisitions, business trends,
and other information that is not historical information. When used in this
report, the words "estimates," "expects," "anticipates," "forecasts," "plans,"
"intends," "believes" and variations of such words or similar expressions are
intended to identify forward-looking statements. We may also make additional
forward-looking statements from time to time. All such subsequent
forward-looking statements, whether written or oral, by us or on our behalf, are
also expressly qualified by these cautionary statements.
All forward-looking statements, including, without limitation, management's
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections
are expressed in good faith and we believe there is a reasonable basis for them.
But, there can be no assurance that management's expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply
only as of the date made. We undertake no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.
There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in or
contemplated by this report. These risks include, but are not limited to:
general economic and business conditions, particularly an economic downturn;
industry trends; increases in our leverage; interest rate increases; changes in
our ownership structure; raw material costs and availability, particularly
resin; competition; the loss of any of our significant customers; changes in the
demand for our products; new technologies; changes in distribution channels or
competitive conditions in the markets or countries in which we operate; costs of
integrating any recent or future acquisitions; loss of our intellectual property
rights; foreign currency fluctuations and devaluations and political instability
in our foreign markets; changes in our business strategy or development plans;
36
availability, terms and deployment of capital; availability of qualified
personnel; and increases in the cost of compliance with laws and regulations,
including environmental laws and regulations. Each of these risks and certain
other uncertainties are discussed in more detail in the 2001 10-K and in our
Registration Statement on Form S-4 (file no. 333-86532), as amended, filed with
the Securities and Exchange Commission. There may be other factors, including
those discussed elsewhere in this report, that may cause our actual results to
differ materially from the forward-looking statements. Any forward-looking
statements should be considered in light of these factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various interest rate and resin price risks that arise in the
normal course of business. We finance our operations with borrowings comprised
primarily of variable rate indebtedness. We enter into interest rate collar and
swap agreements to manage interest rate market risks and commodity collar
agreements to manage resin market risks. Our raw material costs are comprised
primarily of resins. Significant increases in interest rates or the price of
resins could adversely affect our operating margins, results of operations and
ability to service our indebtedness. An increase of 1% in interest rates payable
on our variable rate indebtedness would increase our annual interest expense by
approximately $3.0 million, after accounting for the effect of our interest rate
hedge agreements.
As a result of the mandatory redemption features, as of June 30, 2002, the
carrying value of our outstanding preferred stock has been increased by $2.0
million to reflect the accumulated accretion towards the $131.0 million
redemption value at May 31, 2011, excluding accumulated dividends. As of June
30, 2002, we have accrued dividends of approximately $37.6 million, which is
included as part of the liquidation value of the Preferred Stock.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
We issued options to purchase up to 11,615 shares of our common stock to 74
of our employees on May 31, 2002 in exchange for services. We issued these
options under our 2000 Stock Incentive Plan at an exercise price of $483.13 per
share, which was the fair market value of our common stock on the date of grant.
One-quarter of these options will vest on each of December 31, 2002, 2003, 2004
and 2005 if the market value of our common stock reaches specified levels on or
before these dates. Any options that remain unvested will vest in full on
December 31, 2009 if the option holder is still our employee on this date. These
options expire ten years from the date of grant. We believe that the issuance of
these options was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof or Regulation D thereunder because this
issuance did not involve a public offering or sale. No underwriters, brokers or
finders were involved in this transaction.
37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
10.1 Separation Agreement dated as of June 10, 2002 between Richard P.
Durham and Pliant Corporation.
99.1 Certification pursuant to 18 U.S.C Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) During the quarter ended June 30, 2002, we filed four Current
Reports on Form 8-K. We filed a report on Form 8-K dated April
18, 2002 to report the sale of $100 million aggregate principal
amount of 13% Senior Subordinated Notes due 2010. We filed a
report on Form 8-K dated May 8, 2002 to report the change of our
auditors. We filed a report on Form 8-K dated May 28, 2002 to
report the Decora acquisition, and we filed a report on Form 8-K
dated June 17, 2002 to report the appointment of a new Chief
Executive Officer. Subsequent to the end of the quarter, on
August 5, 2002, we filed an amendment to our report on Form 8-K
dated May 28, 2002 to include financial information relating to the
Decora acquisition.
38
SIGNATURES
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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.
PLIANT CORPORATION
/s/ Brian E. Johnson
---------------------------------------------
BRIAN E. JOHNSON
Executive Vice President and
Chief Financial Officer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: August 6, 2002
INDEX TO EXHIBITS
Exhibits
10.1 Separation Agreement dated as of June 10, 2002 between Richard
P. Durham and Pliant Corporation.
99.1 Certification pursuant to 18 U.S.C Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.