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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 2002
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 333-73552
PLASTIPAK HOLDINGS, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-2418126
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9135 General Court, Plymouth, Michigan 48170
--------------------------------------------
(Address of principal executive offices)
(734) 455-3600
--------------
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
------------------------------------------------------
The number of shares of the registrant's common stock, $1.00 par value,
outstanding as of August 3, 2002 was 27,753.
- --------------------------------------------------------------------------------
PLASTIPAK HOLDINGS, INC.
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION...........................................................1
Item 1. Financial Statements..........................................................1
Condensed Consolidated Balance Sheets as of November 3, 2001
and August 3, 2002 (unaudited)................................................1
Condensed Consolidated Statements of Earnings (unaudited) for the
Three Month and Nine Month Periods Ended August 3, 2002 and August 4, 2001....3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended August 3, 2002 and August 4, 2001...........................4
Notes to Condensed Consolidated Financial Statements..........................6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................28
PART II - OTHER INFORMATION.............................................................29
Item 6. Exhibits and Reports on Form 8-K.............................................29
- --------------------------------------------------------------------------------
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
AUGUST 3, NOVEMBER 3,
ASSETS 2002 2001
--------- -----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 26,358,839 $ 53,483,389
Accounts receivable
Trade (net of allowance of $4,342,926 and $6,111,236
at August 3, 2002 and November 3, 2001) 50,721,056 48,906,619
Related parties 7,895,320 6,695,143
Prepaid expenses 11,161,224 10,707,870
Inventories 77,580,888 77,930,887
Prepaid federal income taxes 1,913,520 1,100,000
Deferred income taxes 8,193,000 6,437,000
Other current assets 8,262,120 5,202,346
------------ ------------
Total Current Assets 192,085,967 210,463,254
PROPERTY, PLANT AND EQUIPMENT - NET 290,631,959 270,382,231
OTHER ASSETS
Cash surrender value of life insurance 1,650,845 1,650,845
Deposits 14,905,302 6,066,405
Capitalized loan costs 9,887,569 10,679,904
Intangible assets, (net of accumulated amortization of
$8,666,300 and $7,447,400 at August 3, 2002
and November 3, 2001) 5,063,376 3,282,302
Note receivable 14,442 2,529,736
Sundry 3,094,644 -
------------ ------------
Total Other Assets 34,616,178 24,209,192
------------ ------------
$517,334,104 $505,054,677
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY AUGUST 3, NOVEMBER 3,
2002 2001
--------- ----------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 81,461,934 $ 95,649,181
Current portion of long-term obligations 5,845,212 6,615,597
Accrued liabilities
Taxes other than income 7,386,440 4,454,849
Other accrued expenses 36,185,277 23,761,086
Income taxes 3,010,563 1,081,560
------------ ------------
Total Current Liabilities 133,889,426 131,562,273
SENIOR NOTES (NET OF UNAMORTIZED DISCOUNT OF $3,747,281
AND $4,056,688 AT AUGUST 3, 2002 AND NOVEMBER 3, 2001) 271,427,267 270,943,312
LONG-TERM OBLIGATIONS 51,691,132 55,503,756
DEFERRED INCOME TAXES 15,062,000 11,238,000
OTHER NON-CURRENT LIABILITIES 3,616,922 3,399,352
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000
shares authorized; 27,753 shares
issued and outstanding 27,753 27,753
Retained earnings 41,619,604 32,380,231
------------ ------------
Total Stockholders' Equity 41,647,357 32,407,984
------------ ------------
$517,334,104 $505,054,677
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
AUGUST 3, AUGUST 4, AUGUST 3, AUGUST 4,
2002 2001 2002 2001
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues $208,691,408 $205,539,141 $600,280,201 $610,588,526
Costs and expenses 181,253,411 183,737,899 511,906,764 537,034,951
------------ ------------ ------------ ------------
Gross profit 27,437,997 21,801,242 88,373,437 73,553,575
Selling, general and administrative expenses 17,094,532 14,838,164 49,440,238 45,042,917
------------ ------------ ------------ ------------
Operating profit 10,343,465 6,963,078 38,933,199 28,510,658
Other expense (income)
Equity in affiliate earnings - - - (38,437)
Interest expense 8,660,825 6,231,051 26,357,958 20,482,364
Interest income (446,704) (212,355) (1,003,994) (512,569)
Royalty income (590,273) (325,962) (815,481) (682,324)
Loss (gain) on sale of equipment 62,058 (1,118) 251,268 (10,473)
Loss (gain) on foreign currency translation (1,946,402) 324,259 806,159 44,892
Sundry income (69,937) (232,601) (223,084) (822,188)
------------ ------------ ------------ ------------
5,669,567 5,783,274 25,372,826 18,461,265
------------ ------------ ------------ ------------
Earnings before income taxes 4,673,898 1,179,804 13,560,373 10,049,393
Income tax expense (benefit)
Current 2,253,000 1,303,000 2,253,000 1,303,000
Deferred (632,000) (706,000) 2,068,000 1,976,000
------------ ------------ ------------ ------------
1,621,000 597,000 4,321,000 3,279,000
------------ ------------ ------------ ------------
Net earnings $ 3,052,898 $ 582,804 $ 9,239,373 $ 6,770,393
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
---------------------------
AUGUST 3, AUGUST 4,
2002 2001
(39 WEEKS) (40 WEEKS)
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 9,239,373 $ 6,770,393
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 35,344,614 32,552,615
Bad debt (recovery) expense (1,226,717) 471,944
Deferred salaries 378,050 338,750
Deferred income tax expense 2,068,000 2,157,000
Loss (gain) on sale of equipment 251,268 (11,189)
Loss on investment in affiliate - 722,413
Equity in earnings of affiliate - (38,437)
Foreign currency translation gain (452,933) (1,564,448)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,787,897) 4,450,873
Decrease (increase) in inventories 349,999 (7,459,593)
Increase in prepaid expenses and other
current assets (3,822,128) (1,726,513)
Increase in prepaid federal income taxes (813,520) (700,222)
Increase in other liabilities 15,226,314 4,783,974
Increase in deposits (8,838,897) (2,438,791)
Decrease in accounts payable (14,187,247) (8,134,063)
Increase in sundry and note receivable (404,802) (2,200,935)
Increase in income taxes 1,929,003 -
------------ ------------
Net cash provided by operating activities 33,252,480 27,973,771
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (52,526,278) (38,650,583)
Acquisition of intangible assets (3,000,000) (2,247,917)
------------ ------------
Net cash used in investing activities (55,526,278) (40,898,500)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
-----------------------------
AUGUST 3, AUGUST 4,
2002 2001
(39 WEEKS) (40 WEEKS)
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit facility 1,803,115 19,262,751
Payments on long-term obligations (6,299,556) (8,344,066)
Proceeds from long-term obligations 21,503 2,024,302
Capitalized loan costs (375,814) -
------------ ------------
Net cash (used in) provided by financing activities (4,850,752) 12,942,987
------------ ------------
Net (decrease) increase in cash (27,124,550) 18,258
Cash and cash equivalents at beginning of period 53,483,389 3,346,970
------------ ------------
Cash and cash equivalents at end of period $ 26,358,839 $ 3,365,228
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 775,000 $ 2,000,000
============ ============
Cash paid for interest $ 19,773,000 $ 21,740,000
============ ============
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of equipment through the assumption
of long-term obligations $ 314,000 $ 3,067,000
============ ============
Increase in fair value of the interest rate swap $ 174,548 $ -
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and estimated provisions for bonus and
profit-sharing arrangements) considered necessary for a fair presentation have
been included. Operating results for the nine months ended August 3, 2002 are
not necessarily indicative of the results that may be expected for the year
ended November 2, 2002.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in the
Company's Registration Statement on Form S-4 filed by Plastipak Holdings, Inc.
(Plastipak) with the Securities and Exchange Commission on February 25, 2002.
NOTE B - FISCAL PERIOD
Plastipak has elected a 52/53 week fiscal period for tax and financial reporting
purposes. Plastipak's fiscal period ends on the Saturday closest to October 31.
The nine month period ending August 3, 2002 and August 4, 2001 contained 39 and
40 weeks, respectively. The three month period ending August 3, 2002 and August
4, 2001 contained 13 weeks.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), Accounting for Goodwill
and Other Intangibles. SFAS 142 requires that goodwill and certain other
intangible assets no longer be amortized to earnings, but instead be reviewed
periodically for potential impairment. The standard is effective for fiscal
years beginning after December 15, 2001.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. While SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," it retains many of the fundamental provisions of that
statement. The standard is effective for fiscal years beginning after December
15, 2001.
The Company expects that the adoption of these standards will not have a
material impact on its financial position or results from operations.
NOTE D - INVENTORIES
Inventories consisted of the following at:
AUGUST 3, NOVEMBER 3,
2002 2001
----------- -----------
Raw materials $31,338,236 $28,166,931
Finished goods 32,765,289 38,922,590
Parts and supplies 13,477,363 10,841,366
----------- -----------
$77,580,888 $77,930,887
=========== ===========
6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE E - SENIOR NOTES
On August 20, 2001, the Company issued $275,000,000 of 10.75% senior notes due
in 2011. Interest is payable semi-annually. The indenture under which the notes
were issued places restrictions on the payment of dividends, the acquisition of
our common stock, the payment of indebtedness that is subordinate to the notes,
asset sales, and the incurrence of debt and issuance of preferred stock. The
senior notes are unconditionally guaranteed by all of the Company's domestic
subsidiaries. Prior to September 1, 2004, subject to certain limitations, in the
event of a common stock offering, the Company may redeem up to 35% of the
outstanding notes at a redemption price of 110.75% of the principal amount plus
accrued interest. After September 1, 2006, the Company may redeem all or any
portion of the outstanding notes at premiums which decline from 105.375% at
September 1, 2006 to 101.792% at September 1, 2008. On or after September 1,
2009, the notes may be redeemed at par. The net proceeds received, after
underwriting discounts and other fees and expenses, were approximately
$263,200,000.
NOTE F - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by Financial
Accounting Standards Board Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires companies to recognize all
of their derivative instruments as either assets or liabilities at fair value in
the statement of financial position. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and further,
on the type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge or a cash flow hedge.
For derivative instruments that are designated and qualify as a fair value hedge
(i.e., hedging the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable to a particular
risk), the gain or loss on the derivative instrument as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk are recognized
in current earnings during the period of the change in fair values. For
derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change. The Company currently uses only fair value
hedge accounting.
On July 16, 2002, the Company entered into an interest rate swap with a bank
pursuant to which it exchanged fixed rate interest in connection with The Senior
Notes discussed in Note E on a notional amount of $100,000,000 for a variable
rate equal to six months LIBOR plus 5.165% for a 9 year period ending September
1, 2011. As of August 3, 2002, the Company recorded an increase of $174,548 in
sundry to recognize the fair value of the swap and a $174,548 increase in the
Senior Note to recognize the difference between the carrying value and fair
value of the related hedge liability.
On September 11, 2002 pursuant to an agreement between the Company and the bank
to terminate the interest rate swap agreement, the bank paid the Company
$3,012,000.
NOTE G - LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the ordinary
course of business. The ultimate legal and financial liability of this
litigation cannot be estimated with certainty, but management believes, based on
their examination of these matters, experience to date and discussions with
counsel, that the ultimate liability will not be material to the Company's
business, financial condition or results of operations.
7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
The Senior Notes are unsecured, and guaranteed by each of Plastipak's current
and future material domestic subsidiaries.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of August 3, 2002 and
November 3, 2001 and the nine and three months period ending August 3,
2002 and August 4, 2001, respectively of (a) Plastipak the parent; (b)
the guarantor subsidiaries; (North American Operating Segment) (c) the
nonguarantor subsidiaries (South American Operating Segment); (d)
Plastipak on a consolidated basis, and
(2) Elimination entries necessary to consolidate Plastipak Holdings, Inc.,
the parent, with the guarantor (North American operating segment) and
nonguarantor (South American operating segment) subsidiaries.
Each subsidiary guarantor is wholly-owned by Plastipak, all guarantees are full
and unconditional; and all guarantees are joint and several.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF AUGUST 3, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ------------ ------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,000 $ 24,327,983 $ 2,029,856 $ - $ 26,358,839
Accounts receivable 12,711,198 48,634,033 5,644,484 (8,373,339) 58,616,376
Prepaid expenses - 7,630,904 3,530,320 - 11,161,224
Inventories - 61,132,631 16,448,257 - 77,580,888
Prepaid federal income taxes - 1,913,520 - - 1,913,520
Deferred income taxes 1,755,000 3,760,000 2,678,000 - 8,193,000
Other current assets - 4,039,107 4,223,013 - 8,262,120
------------ ------------- ----------- ------------ ------------
Total current assets 14,467,198 151,438,178 34,553,930 (8,373,339) 192,085,967
PROPERTY, PLANT AND EQUIPMENT - NET - 237,599,323 53,032,636 - 290,631,959
OTHER ASSETS
Cash surrender value of life insurance - 1,650,845 - - 1,650,845
Deposits - 14,905,302 - - 14,905,302
Investments in and advances to affiliates 313,834,264 (246,433,824) - (67,400,440) -
Capitalized loan costs - 9,887,569 - - 9,887,569
Intangible assets - 4,945,381 117,995 - 5,063,376
Deferred tax asset - long-term (814,000) 814,000 - - -
Note receivable - 5,014,442 - (5,000,000) 14,442
Sundry 174,548 - 2,920,096 - 3,094,644
------------ ------------- ----------- ------------ ------------
Total other assets 313,194,812 (209,216,285) 3,038,091 (72,400,440) 34,616,178
------------ ------------- ----------- ------------ ------------
Total assets $327,662,010 $ 179,821,216 $90,624,657 $(80,773,779) $517,334,104
============ ============= =========== ============ ============
8
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF AUGUST 3, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- ---------- --------- ---------
CURRENT LIABILITIES
Accounts payable $ - $ 56,846,907 $ 32,988,366 $ (8,373,339) $ 81,461,934
Current portion of long-term liabilities - 2,186,627 3,658,585 - 5,845,212
Taxes other than income - 6,454,140 932,300 - 7,386,440
Income taxes 2,147,563 863,000 - - 3,010,563
Other accrued expenses 12,675,545 19,958,969 3,550,763 - 36,185,277
------------- ------------- ------------- ------------- -------------
Total current liabilities 14,823,108 86,309,643 41,130,014 (8,373,339) 133,889,426
SENIOR NOTES 275,174,548 (3,747,281) - - 271,427,267
LONG-TERM OBLIGATIONS - 2,694,191 53,996,941 (5,000,000) 51,691,132
DEFERRED INCOME TAXES (3,983,003) 17,455,000 1,590,003 - 15,062,000
OTHER LONG-TERM LIABILITIES - 3,140,782 476,140 - 3,616,922
------------- ------------- ------------- ------------- -------------
Total liabilities 286,014,653 105,852,335 97,193,098 (13,373,339) 475,686,747
STOCKHOLDERS' EQUITY (DEFICIT) 41,647,357 73,968,881 (6,568,441) (67,400,440) 41,647,357
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity $ 327,662,010 $ 179,821,216 $ 90,624,657 $ (80,773,779) $ 517,334,104
============= ============= ============= ============= =============
9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 1,000 $ 51,476,877 $ 2,005,512 $ - $ 53,483,389
Accounts receivable 6,186,005 43,977,603 12,430,070 (6,991,916) 55,601,762
Prepaid expenses - 5,642,605 5,065,265 - 10,707,870
Inventories - 60,687,715 17,243,172 - 77,930,887
Prepaid federal income taxes - 1,100,000 - - 1,100,000
Deferred income taxes (1,000) 3,760,000 2,678,000 - 6,437,000
Other current assets - 739,964 4,462,382 - 5,202,346
------------- ------------- ------------- ------------- -------------
Total current assets 6,186,005 167,384,764 43,884,401 (6,991,916) 210,463,254
PROPERTY, PLANT AND EQUIPMENT - NET - 213,264,728 57,117,503 - 270,382,231
OTHER ASSETS
Cash surrender value of life insurance - 1,650,845 - - 1,650,845
Deposits - 6,066,405 - - 6,066,405
Investments in and advances to affiliates 300,364,511 (252,548,602) - (47,815,909) -
Capitalized loan costs - 10,679,904 - - 10,679,904
Intangible assets - 2,969,666 312,636 - 3,282,302
Deferred tax asset - long-term (814,000) 814,000 - - -
Note receivable - 7,529,736 - (5,000,000) 2,529,736
------------- ------------- ------------- ------------- -------------
Total other assets 299,550,511 (222,838,046) 312,636 (52,815,909) 24,209,192
------------- ------------- ------------- ------------- -------------
Total assets $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ - $ 64,500,951 $ 38,140,146 $ (6,991,916) $ 95,649,181
Current portion of long-term liabilities - 2,230,150 4,385,447 - 6,615,597
Taxes other than income - 3,993,001 461,848 - 4,454,849
Income taxes (168,440) 1,250,000 - 1,081,560
Other accrued expenses 6,240,972 13,531,214 3,988,900 - 23,761,086
------------- ------------- ------------- ------------- -------------
Total current liabilities 6,072,532 85,505,316 46,976,341 (6,991,916) 131,562,273
SENIOR NOTES 275,000,000 (4,056,688) - - 270,943,312
LONG-TERM OBLIGATIONS - 4,755,203 55,748,553 (5,000,000) 55,503,756
DEFERRED INCOME TAXES (7,744,000) 17,392,000 1,590,000 - 11,238,000
OTHER LONG-TERM LIABILITIES - 2,817,367 581,985 - 3,399,352
------------- ------------- ------------- ------------- -------------
Total liabilities 273,328,532 106,413,198 104,896,879 (11,991,916) 472,646,693
STOCKHOLDERS' EQUITY (DEFICIT) 32,407,984 51,398,248 (3,582,339) (47,815,909) 32,407,984
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED AUGUST 3, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ ------------ ------------
Revenues $ - $196,142,998 $13,893,324 $(1,344,914) $208,691,408
Cost and expenses - 167,449,620 14,878,705 (1,074,914) 181,253,411
----------- ------------ ----------- ----------- ------------
Gross profit (loss) - 28,693,378 (985,381) (270,000) 27,437,997
Selling, general and administrative expenses - 15,491,447 1,873,085 (270,000) 17,094,532
----------- ------------ ----------- ----------- ------------
Operating profit (loss) - 13,201,931 (2,858,466) - 10,343,465
Other (income) expense
Equity in (earnings) loss of affiliates (4,628,370) 348,874 - 4,279,496 -
Interest expense 7,337,871 211,633 1,161,032 (49,711) 8,660,825
Interest income (7,248,399) 7,077,382 (325,398) 49,711 (446,704)
Royalty income - (590,273) - - (590,273)
Gain on sale of equipment - 62,123 (65) - 62,058
Sundry income (135,000) 68,324 (3,261) - (69,937)
Gain on foreign currency translation - - (1,946,402) - (1,946,402)
----------- ------------ ----------- ----------- ------------
(4,673,898) 7,178,063 (1,114,094) 4,279,496 5,669,567
Earnings (loss) before income taxes 4,673,898 6,023,868 (1,744,372) (4,279,496) 4,673,898
Income taxes 1,621,000 - - - 1,621,000
----------- ------------ ----------- ----------- ------------
Net earnings (loss) $ 3,052,898 $ 6,023,868 $(1,744,372) $(4,279,496) $ 3,052,898
=========== ============ =========== =========== ===========
12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED AUGUST 4, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 187,615,430 $ 17,036,244 $ 887,467 $ 205,539,141
Cost and expenses - 164,986,008 17,740,621 1,011,270 183,737,899
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 22,629,422 (704,377) (123,803) 21,801,242
Selling, general and administrative expenses - 12,386,613 1,815,551 636,000 14,838,164
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 10,242,809 (2,519,928) (759,803) 6,963,078
Other (income) expense
Equity in loss (earnings) of affiliates (1,179,804) 941,594 - 238,210 -
Interest expense - 4,271,952 2,039,234 (80,135) 6,231,051
Interest income - 85,516 (86,412) (211,459) (212,355)
Royalty income - (325,962) - - (325,962)
Gain on sale of equipment - - (1,118) - (1,118)
Loss on foreign currency translation - - 324,259 - 324,259
Sundry (loss) income - 491,322 (87,923) (636,000) (232,601)
------------- ------------- ------------- ------------- -------------
(1,179,804) 5,464,422 2,188,040 (689,384) 5,783,274
Earnings (loss) before income taxes 1,179,804 4,778,387 (4,707,968) (70,419) 1,179,804
Income taxes 597,000 - - - 597,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 582,804 $ 4,778,387 $ (4,707,968) $ (70,419) $ 582,804
============= ============= ============= ============= =============
13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE NINE MONTHS ENDED AUGUST 3, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues - $ 554,274,461 $ 48,169,685 $ (2,163,945) $ 600,280,201
Cost and expenses - 463,629,621 50,171,088 (1,893,945) 511,906,764
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 90,644,840 (2,001,403) (270,000) 88,373,437
Selling, general and administrative expenses - 44,121,827 5,588,411 (270,000) 49,440,238
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 46,523,013 (7,589,814) - 38,933,199
Other (income) expense
Equity in (earnings) loss of affiliates (13,469,753) 2,275,220 - 11,194,533 -
Interest expense 22,119,121 793,435 3,599,362 (153,960) 26,357,958
Interest income (21,756,545) 21,127,570 (528,979) 153,960 (1,003,994)
Royalty income - (815,481) - - (815,481)
Gain on sale of equipment - 329,059 (77,791) - 251,268
Sundry income (453,196) 242,575 (12,463) - (223,084)
Loss on foreign currency translation - - 806,159 - 806,159
------------- ------------- ------------- ------------- -------------
(13,560,373) 23,952,378 3,786,288 11,194,533 25,372,826
Earnings (loss) before income taxes 13,560,373 22,570,635 (11,376,102) (11,194,533) 13,560,373
Income taxes 4,321,000 - - - 4,321,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 9,239,373 $ 22,570,635 $ (11,376,102) $ (11,194,533) $ 9,239,373
============= ============= ============= ============= =============
14
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE NINE MONTHS ENDED AUGUST 4, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 553,849,465 $ 59,236,847 $ (2,497,786) $ 610,588,526
Cost and expenses - 481,264,671 58,144,264 (2,373,984) 537,034,951
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 72,584,794 1,092,583 (123,802) 73,553,575
Selling, general and administrative expenses - 39,428,647 5,614,270 - 45,042,917
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 33,156,147 (4,521,687) (123,802) 28,510,658
Other expense (income)
Equity in loss (earnings) of affiliates (10,049,393) 1,721,936 - 8,289,020 (38,437)
Interest expense - 15,652,367 5,121,591 (291,594) 20,482,364
Interest income - (191,393) (321,176) - (512,569)
Royalty income - (682,324) - - (682,324)
Gain on sale of equipment - (10,071) (402) - (10,473)
Sundry income - (65,276) (756,912) - (822,188)
Gain on foreign currency translation - - 44,892 - 44,892
------------- ------------- ------------- ------------- -------------
(10,049,393) 16,425,239 4,087,993 7,997,426 18,461,265
Earnings (loss) before income taxes 10,049,393 16,730,908 (8,609,680) (8,121,228) 10,049,393
Income taxes 3,279,000 - - - 3,279,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 6,770,393 $ 16,730,908 $ (8,609,680) $ (8,121,228) $ 6,770,393
============= ============= ============= ============= =============
15
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED AUGUST 3, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 6,400,000 $ 31,400,171 $(4,547,691) $ - $ 33,252,480
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (50,765,055) (3,338,416) 1,577,193 (52,526,278)
Proceeds from sale of equipment - - 1,577,193 (1,577,193) -
Investment in and advances to affiliates (6,400,000) (1,990,000) - 8,390,000 -
Acquisition of intangible assets - (3,000,000) - - (3,000,000)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (6,400,000) (55,755,055) (1,761,223) 8,390,000 (55,526,278)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - - 1,803,115 - 1,803,115
Principal payments on long-term obligations - (2,418,198) (3,881,358) - (6,299,556)
Proceeds from long-term obligations - - 21,503 - 21,503
Capital increases - - 8,390,000 (8,390,000) -
Capitalized loan costs - (375,814) - - (375,814)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities - (2,794,012) 6,333,260 (8,390,000) (4,850,752)
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash - (27,148,896) 24,346 - (27,124,550)
Cash and cash equivalents at beginning
of period 1,000 51,476,877 2,005,512 - 53,483,389
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent at end of period $ 1,000 $ 24,327,981 $2,029,858 $ - $ 26,358,839
============ ============ ============ ============ ============
16
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE H - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED AUGUST 4, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities $ 10,049,629 $ 14,322,870 $ 2,749,956 $ 851,316 $ 27,973,771
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (30,969,415) (7,681,168) - (38,650,583)
Investment in and advances to affiliates (10,049,629) 10,922,335 (21,390) (851,316) -
Acquisition of intangible assets - (2,247,917) - - (2,247,917)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (10,049,629) (22,294,997) (7,702,558) (851,316) (40,898,500)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - 10,290,000 8,972,751 - 19,262,751
Payments on long-term obligations - (1,881,517) (6,462,549) - (8,344,066)
Proceeds from long-term obligations - - 2,024,302 - 2,024,302
------------ ------------ ------------ ------------ ------------
Net cash provided financing
activities - 8,408,483 4,534,504 - 12,942,987
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash - 436,356 (418,098) - 18,258
Cash and cash equivalents at beginning of period - 1,805,335 1,541,635 - 3,346,970
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent at end of period $ - $ 2,241,691 $1,123,537 $ - $ 3,365,228
============ ============ ============ ============ ============
GUARANTOR NONGUARANTOR
DEPRECIATION AND AMORTIZATION EXPENSE SUBSIDIARIES SUBSIDIARIES TOTAL
------------------------------------- ------------ ------------ -----------
8/3/02 $29,226,091 $6,118,523 $35,344,614
=========== ========= ==========
8/4/01 $26,961,964 $5,590,651 $32,552,615
=========== ========= ==========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. As you read the
material below, we urge you to carefully consider our financial statements and
related information provided herein.
All statements other than statements of historical fact included in this
report, including statements regarding our future financial position, economic
performance and results of operations, as well as our business strategy, budgets
and projected costs and plans and objectives of management for future operations
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "anticipate", "believe", or
"continue" or the negative thereof or variations thereon or similar terminology.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from our expectations include, without limitation, risks
associated with our Brazilian operations, competition in our product categories,
including the impact of possible new technologies, our high degree of leverage
and substantial debt service obligations, the restrictive covenants contained in
instruments governing our indebtedness, our exposure to fluctuations in resin
and energy prices, our dependence on significant customers and the risk that
customers will not purchase our products in the amounts we expect, our
dependence on key management and our labor force and the material adverse effect
that could result from the loss of their services. All forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the cautionary statements set forth in this
paragraph.
OVERVIEW
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan
corporation that was formed in 1998 to act as a holding company for several
related companies. On October 30, 1999, Plastipak acquired all of the equity
interests in Plastipak Packaging, Inc. ("Packaging"), Whiteline Express, Ltd.
("Whiteline"), Clean Tech, Inc. ("Clean Tech") and TABB Realty, LLC ("TABB"),
and a portion of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brasil"), through a reorganization (the "Reorganization").
Packaging, our principal operating company whose business commenced operations
in 1967, designs and manufactures rigid plastic containers, and was incorporated
in Delaware in 1982. Packaging also owns the remainder of Plastipak Brasil.
Whiteline is a trucking company serving our transportation and logistics needs,
and was incorporated in Delaware in 1982. Clean Tech, a plastics recycling
operation, provides a source of clean, high quality post-consumer recycled
plastic raw material, and was incorporated in Michigan in 1989. TABB owns real
estate and leases it to Packaging, Whiteline, and Clean Tech. Plastipak Brasil
produces injection-molded plastic preforms and blow molds rigid plastic
packaging in Paulinia and produces injection-molded plastic preforms in Manaus.
Plastipak Brasil also maintains a sales office in Buenos Aires, Argentina. Other
than
18
Plastipak Brasil and its subsidiaries, all of the Plastipak group of companies
are headquartered in Plymouth, Michigan.
RESULTS OF OPERATIONS
We report our results of operations on the basis of a 52-53 week period. Our
fiscal year end is the closest Saturday to October 31 each year. The nine month
periods ended August 3, 2002 and August 4, 2001 were 39 and 40 weeks long,
respectively. The three month periods ended August 3, 2002 and August 4, 2001
were 13 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the three months and nine months ended August 3, 2002 and August 4,
2001.
CONSOLIDATED REVENUE BY PRODUCT CATEGORY
Three Months Ended August 3, 2002 Nine Months Ended August 3, 2002 and
and August 4, 2001 August 4, 2001 (a)
(dollar amounts in thousands)
2002 % 2001 % 2002 % 2001 %
===================================== =====================================
Carbonated and non-
carbonated beverage revenue $ 95,335 45.7% $101,806 49.5% $267,068 44.5% $281,504 46.1%
Consumer cleaning revenue $ 58,849 28.2% $ 57,226 27.9% $177,719 29.6% $174,212 28.6%
Food and processed juice
revenue $ 28,590 13.7% $ 24,905 12.1% $ 83,773 13.9% $ 85,072 13.9%
Industrial, agricultural and
automotive revenue $ 11,195 5.4% $ 11,806 5.7% $ 30,933 5.2% $ 33,674 5.5%
Health, personal care and
distilled spirits revenue $ 3,030 1.4% $ 2,665 1.3% $ 8,916 1.5% $ 7,998 1.3%
Other revenue (b) $ 11,692 5.6% $ 7,131 3.5% $ 31,871 5.3% $ 28,129 4.6%
------------------------------------- -------------------------------------
Total revenue $208,691 100.0% $205,539 100.0% $600,280 100.0% $610,589 100.0%
(a) The nine month periods ended August 3, 2002 and August 4, 2001
were 39 and 40 weeks long, respectively.
(b) Other revenue includes Clean Tech (recycling), Whiteline
(transportation and logistics) and other miscellaneous sources
of revenue.
Three Months Ended August 3, 2002 Compared to Three Months Ended August 4, 2001
REVENUE
Revenue increased 1.5% to $208.7 million for the three months ended August
3, 2002 while unit sales increased for the period by 5.7%. Lower average
material pricing during the quarter
19
accounted for the difference in unit versus dollar sales. We estimate that lower
resin prices passed through to customers resulted in approximately $8.0 million
in reduced revenue for the three months ended August 3, 2002.
Revenue and unit sales increases and decreases by category are discussed more
specifically below:
- Carbonated and non-carbonated beverage revenue decreased 6.4% to $95.3
million while unit sales during the three-month period ended August 3,
2002 increased by 4.7% over the same period in 2001. Revenue generated
by Packaging decreased 3.9% while revenue generated by Plastipak Brasil
decreased 20.0%. For the three-month period ended August 3, 2002,
Packaging unit sales increased 8.7% while Plastipak Brasil unit sales
decreased 10.7% versus the same period in 2001. The revenue decrease
for Plastipak Brasil was attributed to a general slow-down in the
Brazilian economy and the continued weakening of the Brazilian
currency, the Real. Warm summer temperatures in the U.S. and the
introduction of several new products like Pepsi Blue and Dr Pepper Red
Fusion helped drive unit volume growth. Continued emphasis and
expansion in the water market also contributed to our increased unit
volume.
- Consumer cleaning revenue increased 2.8% to $58.8 million. Unit sales
during the three-month period ended August 3, 2002 increased 10.4% over
the three-month period ended August 4, 2001. Raw material price
reductions passed through to the customers and product mix shifts
accounted for the difference in sales units and dollar increases.
Consumers' preference for liquid detergents over powders continued to
drive sales growth along with several new packaging initiatives in this
category.
- Food and processed juices revenue increased 14.8% to $28.6 million.
Unit sales during the three-month period ended August 3, 2002 increased
7.5% over the three-month period ended August 4, 2001. The unit sales
increase was driven by growth in the squeezable category (mayonnaise,
relish, tartar sauce etc.) combined with strong sales across the entire
category. Revenue increased as a result of increases in larger value
add packages along with increased activity in the hot-fill side of our
business
- Industrial, agricultural and automotive revenue decreased 5.2% to $11.2
million. Unit sales for the three-month period ended August 3, 2002
increased 6.6% from the three-month period ended August 4, 2001. The
market success of large multi-use containers are providing incremental
volume growth in a sector that is otherwise flat. Dollar sales were
impacted by the change in raw material pricing, with revenue down for
the quarter compared to the same period in 2001.
- Health, personal care and distilled spirits revenue increased 13.7% to
$3.0 million. Unit sales for the three-month period ended August 3,
2002 were up 16.9% over the three-month period ended August 4, 2001.
Strong shipping rates to existing customers resulting in the unit
increase and the revenue increase during the quarter.
- Other revenue increased 64.0% to $ 11.7 million. This increase is
attributable mainly to increases in other materials sales, freight,
recycling and other miscellaneous revenue.
20
GROSS PROFIT
Gross profit increased 25.9% to $27.4 million for the three-month period
ended August 3, 2002. Gross profit as a percent of revenue improved to 13.1% as
compared to 10.6% in the prior period. The improvement in gross profit as a
percent of revenue was partially due to lower resin costs which decreased
revenue without decreasing associated gross profit. Gross profit increases were
also the result of improved manufacturing reliability and throughput in the
three months ended August 3, 2002. In addition, current process redesign
initiatives helped generate increased gross profit.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. Industry practice and
contractual arrangements with our customers permit price changes to be passed
through to customers by means of generally corresponding changes in product
pricing. As a result, we have in the past experienced revenue changes without
corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
August 3, 2002 increased 15.2% to $17.1 million. As a percentage of revenue,
selling, general and administrative expenses increased to 8.2% for the three
months ended August 3, 2002 from 7.2% in the three months ended August 4, 2001.
The increase was related to an increase in corporate labor and benefits of $1.4
million and a $0.3 million increase related to the implementation of SAP
("Systems, Applications, Products in Data Processing"). Increases in taxes and
insurance also contributed to the increase.
INTEREST EXPENSE
Interest expense increased by 39.0% to $8.7 million for the three-month
period ended August 3, 2002. The increase was due to the sale, on August 20,
2001, of $275.0 million of the 10.75% Senior Notes. The average interest rate
for the three-month period ended August 3, 2002 was approximately 10.0% compared
to an average interest rate of approximately 8.6% for the three-month period
ending August 4, 2001. In addition, our debt level was approximately $54.1
million higher as compared to the prior period ending August 4, 2001.
OTHER (INCOME) AND EXPENSE
Other income increased by $2.5 million to $(3.0) million for the three month
period ended August 3, 2002. The increase was principally due to $2.3 million
gain in foreign currency exchange rate.
21
NET EARNINGS
Net earnings increased by $2.5 million from net earnings of $0.6 million for
the three month period ended August 4, 2001 to net earnings of $3.1 million for
the three month period ended August 3, 2002. An improvement in operating profit
of $3.4 million was the primary reason for the increase.
NINE MONTHS ENDED AUGUST 3, 2002 COMPARED TO NINE MONTHS ENDED AUGUST 4, 2001
REVENUE
Revenue decreased 1.7% to $600.3 million for the nine months ended August 3,
2002 while unit sales increased 1.8% for the period to 5.0 billion units
compared to the nine-month period ended August 4, 2001. The decreases over the
prior period are due to several factors. First, the nine-month period ended
August 3, 2002 contained only 39 weeks, while the nine-month period ended August
4, 2001 contained 40 weeks. If 2002 revenue were restated for 40 weeks, 2002
revenue would have increased over the prior period by approximately 0.8%.
Second, resin prices (which represent a significant cost of the product) have
decreased in the nine months ended August 3, 2002 as compared to the nine months
ended August 4, 2001. Lower resin prices were passed on to our customers in the
form of lower sales prices for the products we sell. We estimate that lower
resin prices resulted in approximately a $25.0 million reduction in revenue for
the nine months ended August 3, 2002. Finally, we exited a piece of business
through an asset sale in the second quarter of fiscal year 2001 which resulted
in lower sales revenue for the first half of 2002 versus the same period in
2001.
Revenue and unit sales increases and decreases by category are discussed
more specifically below:
- Carbonated and non-carbonated beverage revenue decreased 5.1% to $267.1
million while unit sales during the nine-month period ended August 3,
2002 increased by 3.2% over the nine-month period ended August 4, 2001.
Unit sales growth was attributable to the U.S. market where unit sales
increased 6.4% from the period in 2001. Economic uncertainty in Brazil
resulted in a 6.6% decrease in unit sales during the nine-month period
ended August 3, 2002. Increased activity in the water market continues
to drive increased unit volume. While unit sales increased, revenue
declined in this category due to lower average raw material prices and
a product mix shift to more single service packages that have lower
selling prices.
- Consumer cleaning revenue increased 2.0% to $177.7 million. Unit sales
during the nine-month period ended August 3, 2002 increased 4.1% over
the nine-month period ended August 4, 2001. Sales growth was driven by
several new packaging initiatives in this category.
- Food and processed juices revenue decreased 1.5% to $83.8 million. Unit
sales during the nine-month period ended August 3, 2002 decreased 7.1%
over the nine-month period
22
ended August 4, 2001. The decrease in sales units was primarily the
result of the sale of production assets in this category during the
second quarter of fiscal year 2001.
- Industrial, agricultural and automotive revenue decreased 8.1% to $30.9
million, while unit sales for the nine-month period ended August 3,
2002 increased 7.7% to 105.5 million units over the same period in
2001. The market success of large multi-use containers are providing
incremental volume growth in a category that is otherwise flat. Dollar
sales were impacted by the change in material pricing with revenue down
for the first nine months of fiscal year 2002 compared to the same
period in 2001.
- Health, personal care and distilled spirits revenue increased 11.5% to
$8.9 million. Unit sales for the nine-month period ended August 3, 2002
were up 13.8% over the nine-month period ended August 4, 2001. Strong
shipping rates to existing customers accounted for this increase along
with several new initiatives in this category.
- Other revenue increased 13.3% to $31.9 million. This increase is
attributable mainly to an increase in freight, recycling, and other
miscellaneous revenue.
GROSS PROFIT
Gross profit increased 20.1% to $88.4 million for the nine-month period
ended August 3, 2002. Gross profit as a percent of revenue improved to 14.7% in
the nine-month period ended August 3, 2002 as compared to 12.0% in the
nine-month period ended August 4, 2001. The improvement in gross profit as a
percent of revenue was partially due to lower resin costs that decreased revenue
without decreasing associated gross profit. Gross profit increases were the
result of improved manufacturing reliability and throughput in the nine months
ended August 3, 2002. In addition, current process redesign initiatives helped
generate increased gross profit.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. Industry practice and
contractual arrangements with our customers permit price changes to be passed
through to customers by means of generally corresponding changes in product
pricing. As a result, we have in the past experienced revenue changes without
corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 9.8% to $49.4 million
for the nine-month period ended August 3, 2002. As a percentage of revenue,
selling, general and administrative expenses increased to 8.2% in the nine
months ended August 3, 2002 from 7.4% in the nine months ended August 4, 2001.
The increase was related to the reclassification of $1.0 million of site
management wages from manufacturing expenses and a $1.0 million increase related
to the implementation of SAP. Increases in corporate labor, taxes and insurance
contributed $2.0 million to the increase.
23
INTEREST EXPENSE
Interest expense increased by 28.7% to $26.4 million for the nine months
ended August 3, 2002. The increase was due to the sale, on August 20, 2001, of
$275.0 million of the 10.75% Senior Notes. The average interest rate for the
nine-month period ended August 3, 2002 was approximately 10.0% compared to an
average interest rate of approximately 8.9% for the nine-month period ending
August 4, 2001. In addition, our debt level was approximately $54.1 million
higher as compared to the prior period ending August 4, 2001.
OTHER (INCOME) AND EXPENSE
Other income decreased by $1.0 million to $(1.0) million principally due to
$0.8 million in foreign currency exchange rate losses that were principally
related to the devaluation of the Peso in Argentina.
NET EARNINGS
Net earnings increased by $2.4 million from net earnings of $6.8 million for
the nine month period ended August 4, 2001 to net earnings of $9.2 million for
the nine month period ended August 3, 2002. The increase in net earnings was
primarily due to improvements in operating profit.
FINANCIAL CONDITION
We intend to expand our business, both domestically and internationally. We
have a significant amount of financing capacity to fund the continued growth of
our business. Past expenditures have been used to maintain equipment and expand
capacity for revenue growth. These expenditures were funded with cash flow from
operations, bank debt and additional operating leases. Future capital
expenditures will be used in the same manner as past expenditures.
As part of our process redesign initiatives, we are investing heavily in
information systems, process management and training. We have successfully
completed the implementation of initial SAP enterprise software in all but one
of our North American facilities. We expect to spend an additional $3 to $5
million in the aggregate on the remaining projects. During the nine months ended
August 3, 2002, we spent approximately $52.5 million to cover the capital
requirements of our operations. We expect to incur capital expenditures of
approximately $85 million in fiscal 2002.
We are using technology that will allow us to pursue opportunities in the
beer, condiment, sauce and beverage markets. South America provides significant
opportunities with our current customer base. Our largest customer in Brazil,
AmBev, is also the largest brewer in South America.
Our overall financial condition improved during the nine-month period ended
August 3, 2002. We had positive cash flow from operating activities of $33.3
million, which in part funded our
24
capital expenditures of approximately $52.5 million. Cash and cash equivalents
were used to cover the remaining balance of capital expenditures.
SEASONALITY
The carbonated soft drink (CSD) and, to a lesser extent, the other beverage
portions of our business are highly seasonal, with peak demand during warmer
summer months, and reduced demand during the winter. We normally add temporary
staff and build inventory of products for our CSD and water customers in
anticipation of seasonal demand in the quarter preceding the summer.
INFLATION
We use large quantities of plastic resins in manufacturing our products.
These resins accounted for approximately one-third of our cost of goods sold in
the nine-month period ended August 3, 2002, and are subject to substantial price
fluctuations resulting from shortages in supply and changes in the prices of
natural gas, crude oil and other petrochemical products from which these resins
are produced. We generally enter into three-year agreements with our resin
suppliers, and our purchases of raw materials are subject to market prices and
inflation.
EFFECT OF CHANGES IN EXCHANGE RATES
In general, our results of operations are partially affected by changes in
foreign exchange rates. We invoice our Brazilian and Argentinian customers in
the Brazilian Real and Argentine Peso, respectively. A portion of those invoices
is pegged to the U.S. exchange rate. As a result, subject to market conditions,
a decline in the value of the U.S. dollar relative to the Brazilian Real and
Argentine Peso can have a favorable effect on our profitability. Conversely, an
increase in the value of the dollar relative to the Brazilian Real and Argentine
Peso can have a negative effect on our profitability. Exchange rate fluctuations
had a material effect on the results of operations for the nine months ended
August 3, 2002, resulting in a loss of approximately $0.8 million. We severely
curtailed shipping to Argentina given the economic crisis that country is
experiencing. As a result, our exposure to Argentina is minimal as of August 3,
2002.
INFORMATION SYSTEMS INITIATIVE
We completed an evaluation and assessment of our business systems and
processes in the calendar year 2000. The two major activities of this evaluation
included an internal effort to redesign our business practices through an
initiative called "Process Redesign," and a comprehensive project to evaluate
SAP enterprise resource planning software and functionality. As a result of
these evaluations, we decided to purchase and install this industry-leading
manufacturing and distribution software solution. As of mid-May 2002, we have
completed implementation of SAP in all but one of our North American facilities.
We have incurred costs of approximately $9.5 million to purchase, test and
install SAP hardware and software. We expect to incur $0.5 million of additional
costs in fiscal year 2002 to optimize SAP software.
25
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased 18.9% to $33.3 million
for the nine-months ended August 3, 2002 as compared to the nine months ended
August 4, 2001. The increase is primarily the result of improved operating
performance with net earnings increasing $2.4 million from the nine months ended
August 4, 2001. An increase of $1.7 million in non-cash expenses that include
items such as depreciation and amortization, bad debt expense, deferred income
tax expense, and foreign currency translation contributed to the increase in
cash. A change of $1.1 million in net working capital and other assets and
liabilities also increased cash.
Net cash used in investing activities was $55.5 million and $40.9 million
for the nine-month periods ending August 3, 2002 and August 4, 2001,
respectively. Investing activities were primarily attributed to the acquisition
of property and equipment. For the nine months ended August 3, 2002 and August
4, 2001, property and equipment acquisitions were $52.5 million and $38.7
million, respectively.
Net cash (used in) provided from financing activities was $(4.9) million and
$12.9 million for the nine-month periods ended August 3, 2002 and August 4,
2001, respectively. In the nine months ended August 3, 2002, net cash of $6.3
million was used to make principal payments on long-term obligations. The use of
cash was partially offset by net proceeds from long-term obligations of $1.8
million. In the nine months ended August 4, 2001, cash was provided from net
borrowings of $19.3 million under a revolving credit facility. The cash provided
was partially used to make $8.3 million of principal payments on long-term
obligations.
On August 20, 2001, we sold an aggregate total principal amount of $275
million of 10.75% Senior Notes to qualified institutional buyers. The notes have
a maturity date of September 2011, and we have the option to redeem all or a
portion of the notes at any time on or after September 1, 2006. The proceeds
from these notes were used to pay off existing debt. Interest under the notes is
payable on September 1 and March 1 of each year. The indenture under which the
notes were issued places restrictions on our ability to declare or pay
dividends, purchase or acquire equity interests of Plastipak, and retire
indebtedness that is subordinate to the notes. The notes also have covenants
that place restrictions on the incurrence of debt, the issuance of stock, and
granting of liens.
On August 20, 2001, in conjunction with the Senior Notes, we entered into an
Amended Credit Agreement which allows us to borrow up to $150 million, subject
to a borrowing base consisting of 85% of eligible domestic accounts receivable,
65% of the value of eligible domestic inventory and 50% of the value of domestic
property, plant and equipment. The Amended Credit Agreement has a five-year
term. Interest under the Amended Credit Agreement is payable at 200 to 350 basis
points per annum over Eurodollar or at prime rates, as we select. The Amended
Credit Agreement is secured by substantially all of our assets, including
pledges of the stock of Plastipak and all of its material foreign subsidiaries.
Packaging, Whiteline, Clean Tech, and TABB are the borrowers and guarantors
under the Amended Credit Agreement and Plastipak guarantees obligations under
the Amended Credit Agreement. As of August 3, 2002,
26
$52.7 million in letters of credit were outstanding under the Amended Credit
Agreement and we had $97.3 million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. We will need between $6.0 and $7.0 million of additional capital to add
machinery and equipment in our new facility in Manaus, Brazil. We estimate that
our existing operations in Brazil will require between $4.0 to $5.0 million in
working capital to cover seasonal increases in inventory that will be required
during the Brazilian spring months. Our overall capital expenditure budget in
fiscal 2002 is approximately $85 million and $70 million in 2003, a majority of
which is expected to be discretionary capital expenditures. We expect to have a
new site in Florida start up around December 2002. Additionally, we expect to
have a new site in Alabama start up in the first half of fiscal 2003. We expect
to finance all of our capital expenditures with operating cash flows and to
cover any shortfalls with borrowings under the Amended Credit Agreement.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of August 3, 2002, we had approximately $26 million in cash and cash
equivalents. It is possible, however, that our business will not generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will not be realized or that future borrowings will not
be available under the Amended Credit Agreement in an amount sufficient to
enable us to service our indebtedness, or to fund our other liquidity needs. In
addition, we may not be able to refinance any of our indebtedness, including the
Amended Credit Agreement or the 10.75% Senior Notes due 2011, on commercially
reasonable terms or at all.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At August 03, 2002 we had no material foreign exchange contracts. We do
not enter into foreign exchange contracts for trading or speculative purposes.
SHORT-TERM AND LONG-TERM DEBT
We are exposed to interest rate risk primarily through our borrowing
activities. Our policy has been to utilize United States dollar denominated
borrowings to fund our working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements, while long-term debt is
generally used to finance long-term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and our future financing requirements.
On July 16, 2002, we entered into an interest rate swap agreement. In
connection with the Senior Notes, we exchanged fixed rate interest of 10.75% on
a notional amount of $100,000,000 for variable rate interest. The variable rate
was equal to six month LIBOR plus 5.165%. On September 11, 2002, pursuant to an
agreement with the bank to terminate the interest rate swap agreement, we
received a cash payment of approximately $3.0 million. The proceeds will be used
to finance capital expenditures.
28
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(a) Exhibits.
10.1 Amended and Restated Restricted Stock Bonus Plan.
99.1 Chief Executive Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. None.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASTIPAK HOLDINGS, INC.
Dated: September 17, 2002 By: /s/ William C. Young
-------------------------
William C. Young
President and Chief Executive Officer
By: /s/ Michael J. Plotzke
-------------------------
Michael J. Plotzke,
Treasurer and Chief Financial Officer
30
CERTIFICATIONS
I, William C. Young, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 17, 2002 /s/ William C. Young
-------------------------
William C. Young
Chief Executive Officer
Plastipak Holdings, Inc.
CERTIFICATIONS
I, Michael J. Plotzke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Date: September 17, 2002 /s/ Michael J. Plotzke
-------------------------
Michael J. Plotzke
Chief Financial Officer
Plastipak Holdings, Inc.
EXPLANATORY NOTE REGARDING CERTIFICATIONS: Representations 4, 5 and 6 of the
certification as set forth in Form 10-Q have been omitted, consistent with the
transition provisions of SEC Exchange Act Release No. 34-46427, because this
quarterly report on Form 10-Q covers a period ending before the effective date
of Rules 13a-14 and 15d-14.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Amended and Restated Stock Bonus Plan
99.1 Chief Executive Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.