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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 2, 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
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(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
- --------------------------------------------------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There is no public trading market for the common stock of the registrant. The
number of shares of the registrant's common stock, $1.00 par value, outstanding
as of November 2, 2002 was 28,316.
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PLASTIPAK HOLDINGS, INC.
FORM 10K INDEX
PART I ............................................................. 1
Item 1. Business .................................................. 1
Item 2. Properties................................................... 14
Item 3. Legal Proceedings .......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ........ 16
PART II ............................................................. 16
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ......................................... 16
Item 6. Selected Financial Data ..................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk ................................................ 27
Item 8. Financial Statements and Supplementary Data ................ 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................ 59
PART III ............................................................. 59
Item 10. Advisory Committee Members, Directors and
Executive Officers of the Registrant ....................... 59
Item 11. Executive Compensation ..................................... 60
Item 12. Security Ownership of Certain Beneficial Owners
and Management .............................................. 64
Item 13. Certain Relationships and Related Transactions ............ 65
PART IV ............................................................. 70
Item 14. Controls and Procedures...................................... 70
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ........................................ 70
ii
PART I
ITEM 1. BUSINESS
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 majority of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brazil"), 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 Brazil.
Whiteline is a trucking company which serves 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 Brazil produces injection-molded plastic preforms, blow molds rigid
plastic packaging in Paulinia and Manaus. Plastipak Brazil also maintains a
sales office in Buenos Aires, Argentina. Other than Plastipak Brazil and its
subsidiaries, all of the Plastipak group of companies are headquartered in
Plymouth, Michigan.
Plastipak is a leading manufacturer of plastic packaging containers for many
of the world's largest consumer products companies. During fiscal 2002, we
manufactured and distributed approximately 6.8 billion containers worldwide for
over 450 customers. In North America, we are the exclusive supplier of plastic
containers to Procter & Gamble for heavy-duty, liquid laundry detergents and the
largest supplier of plastic containers to Kraft Foods for their salad dressings,
barbecue sauces and grated cheeses. We are recognized by our customers as an
innovator in blow-molded package design and manufacturing, and we have obtained
over 100 U.S. patents, many of which are registered in foreign countries, for
our state-of-the-art, package-manufacturing processes. For 35 years, we have
worked as a strategic partner with our customers in the early stages of their
new marketing initiatives. We provide integrated transportation and logistics
services, and satisfy our customers' needs for recycling, reliability and
dependability in plastic packaging. For the year ended November 2, 2002, our
revenue was $812.2 million, our earnings were $8.6 million and our EBITDA was
$96.5 million.
We have increased our revenue between 1998 and 2002 at a compounded annual
growth rate (CAGR) of approximately 9.5%, exceeding the industry average.
Further, all of our revenue growth has been organic. This continued growth is
being driven by the advantages of plastic over glass and metal (e.g., weight,
strength and shatter resistance), customer preferences for plastic and
technological advances. We believe that we are well positioned to capitalize on
the conversion trend and to increase our market share in our product categories.
We locate our manufacturing plants near the filling sites of our key
customers. In addition to our track record of innovative design, superior
customer service and low-cost manufacturing processes, the proximity of our
locations to our key customers helps us retain our major customers. To meet the
demand of our diverse customer base, we operate fourteen plants in the United
States and Brazil. The total square footage of our manufacturing and warehousing
facilities is in excess of five million square feet. Our expansion in Brazil has
given us additional customer service capability and access to South America's
rapidly expanding plastic packaging market. We plan to use our relationships
with key customers to create new opportunities in North and South America.
Our principal executive offices are located at 9135 General Court, Plymouth,
Michigan 48170-0907. Our mailing address is P.O. Box 2500C, Plymouth, Michigan
48170-0907, and our telephone number is (734) 455-3600.
THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10K MAY NOT PROVE TO BE
ACCURATE.
This Form 10K contains certain "forward-looking statements," including, in
particular, the statements about our plans and strategies, under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Business." Although we believe that our plans, intentions and
expectations reflected in such forward-looking statements are reasonable, we
cannot assure you that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from our
forward looking statements
1
are set forth above in this "Risk Factors" section and elsewhere in this Form
10K. All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements.
OVERVIEW
Because our broad range of product lines serves customers in diverse
industries and geographic regions, we believe our revenue and cash flow are
relatively predictable, reducing our exposure to market or economic
fluctuations. We have increased revenue organically between 1998 and 2002 at a
CAGR of approximately 9.5%. To support our revenue growth, we have invested more
than $290.0 million in facilities, machinery and equipment over the last five
years. We believe our commitment to investing in state-of-the-art facilities,
machinery and equipment has resulted in significant additional capacity to serve
our customers' needs, and enables us to produce plastic containers at
competitive prices.
In 1999, we initiated a continuous effort to redesign business processes to
reduce waste and non-value added costs. Our recent results of operations reflect
a strong gross profit improvement. In fiscal 2002, our gross profit improved by
$14.4 million over fiscal 2001. This improvement is substantially the result of
the implementation of process redesign initiatives and reliability improvements
in our manufacturing facilities. We believe we will continue to improve
operating margins through further development and implementation of process
redesigns.
In the year ended November 2, 2002, 73% of our revenue was generated by our
top ten customers, nine of whom are under contracts having terms of between one
and five years. These contracts, however, may be terminated earlier by the
customer or ourselves under certain circumstances. Terms and conditions of our
customer contracts vary, but in general the contracts are requirements contracts
that do not obligate the customer to purchase any given amount of product from
us.
Our primary raw materials consist of PET and HDPE resins. Although revenue
is affected by fluctuations in resin prices, our gross margin is, in general,
substantially unaffected by these fluctuations. In general, industry practice
and contractual arrangements historically have permitted us to pass price
increases through to our customers by means of corresponding changes in product
pricing. As a result, we believe that our gross profits are relatively insulated
from resin price fluctuations.
We design, manufacture and distribute plastic containers in five product
categories:
- carbonated and non-carbonated beverage;
- consumer cleaning;
- food and processed juices;
- industrial, automotive and agricultural; and
- health, personal care and distilled spirits.
OUR PRODUCT CATEGORIES
CARBONATED AND NON-CARBONATED BEVERAGE
We are a leader in the beverage packaging industry. Our carbonated and
non-carbonated beverage business has continued to grow, as plastic has continued
to make inroads in replacing other packaging materials. This product category
includes carbonated soft drinks ("CSD"), bottled water, juice drinks and beer.
We have seen significant growth in non-CSD demand for PET bottles, which are
clear and light-weight, and have become the standard for the bottled water
industry. We are one of the largest suppliers of PET bottles used for Pepsi's
Aquafina and Dr Pepper's Deja Blue water. In addition, we were recently awarded
a long-term contract from Buffalo Rock, the largest Pepsi franchise to supply
CSD and bottled water containers. This business will be serviced out of our new
facility in McCalla, Alabama.
2
We are also a leading producer of bottles for the CSD industry, where
production complexity is relatively low and production runs are relatively long.
We are a leading supplier to Pepsi Cola Bottlers of PET bottles for all of its
Pepsi brands, including Pepsi, Diet Pepsi and Mountain Dew. Our other large CSD
customers include AmBev (South America's largest brewer), Beverage Associates
(Cadbury Beverages), Dr Pepper/Seven Up Bottling Group, and National Beverage.
CONSUMER CLEANING
Procter & Gamble and Reckitt Benckiser are among our largest customers in
this product category. We are the sole supplier for all of Procter & Gamble's
branded heavy-duty, liquid laundry detergent containers in North America,
including Tide, Cheer, Era and Gain. We also supply containers for various
household products, such as Procter & Gamble's Bounce and Febreze and Reckitt's
Lysol, Resolve and Electrasol. We partner with many of our customers to create
distinctive containers such as Procter & Gamble's award-winning 300-oz. Tide
dispenser bottle launched in 2000. We have long been an industry leader in
developing new proprietary plastic packaging for consumer cleaning products. In
1984, also with Procter & Gamble, we developed the system for applying the "Drip
Proof" spout for Tide liquid laundry detergent. We also use many of our patents
for value-added features such as in-mold labeling, where a plastic or paper
brand label is molded into and becomes part of the actual plastic container in a
single process, replacing glued-on, post-manufacture labeling. We use a
sophisticated preferential heating process to produce oval PET bottles suitable
for trigger spray applications, a product with growing popularity among
consumers. We are pursuing significant growth opportunities associated with the
continued conversion to HDPE and PET packaging of household cleaners. We
continue to grow as liquid detergents, which are primarily packaged in plastic,
capture market share from powdered detergents, which are primarily packaged in
cardboard. Consumer cleaning container sales provided 29.8% of our revenue for
the year ended November 2, 2002.
FOOD AND PROCESSED JUICES
We produce HDPE, PET and polypropylene (PP) containers for customers in the
food industry, with a focus on customers for whom proprietary packaging designs
are critical to product identification and distinction. AC Humko, Everfresh,
Ken's Foods, Kraft Foods, The Kroger Company, Marzetti and Tropicana are among
our primary customers in this product category. We are the largest supplier of
plastic containers to Kraft Foods in North America for their salad dressings, 10
and 18-oz. squeeze mayonnaise and Miracle Whip, barbecue sauces and grated
cheeses. We also produce plastic containers for such popular processed foods as
coffee creamers, relishes and vegetable oils.
From 1998 through 2002, we grew our food and processed juices revenue at a
CAGR of 10.8%. This substantial growth has been driven by the continuing
conversion from metal, glass and paper containers to plastic bottles, as the
functionality, safety and improving economics of plastic became more apparent,
and as consumer preference for plastic packaging continued to grow. PET squeeze
bottles for such condiments as salad dressing and mayonnaise have proven
extremely popular with consumers who recognize the added convenience that
plastic provides.
We are increasing our activity and presence in the production of PET bottles
required for the hot-fill packaging of shelf-stable juices and juice drinks. The
hot-fill process, in which bottles are filled at between 180 to 190 degrees
Fahrenheit to kill bacteria, permits the shipment and display of juices and
juice drinks without refrigeration. The manufacturing process for hot-fill PET
packaging is more demanding than that used for cold-fill beverage containers,
and typically involves slower processing speeds, greater shape complexity and
heavier weights. Recently, we were awarded a long-term contract from Pepsi to
supply Gatorade bottles beginning in 2004. This business will be serviced out
of our facility in Garland, Texas. Food and processed juices container sales
accounted for 13.6% of our revenue in the year ended November 2, 2002.
INDUSTRIAL, AUTOMOTIVE AND AGRICULTURAL
Castrol, Equilon, Chevron/Texaco, Old World Industries (Peak), Shell and
Turtle Wax are among our major customers in this product category. To increase
our product diversity, we have targeted end markets in this product category,
including motor oil, antifreeze, windshield washer fluid and other specialty
automotive aftermarket products. We also supply containers for BEHR deck
cleaners and BASF chemical products. Industrial, automotive and agricultural
container sales generated 5.1% of our revenue in the year ended November 2,
2002.
3
HEALTH, PERSONAL CARE AND DISTILLED SPIRITS
Our primary customers in this product category include Dial and Seagram's.
We manufacture a wide range of plastic containers for branded products,
including Seagram's 7 Crown, Seagram's Gin. We manufacture a full line of liquor
bottles, ranging from the 50 milliliter "airplane" miniatures to the 1.75 liter
bottle, for Seagram's, Hiram Walker, Black Prince and Kittling Ridge. Our
in-mold labeling capabilities are of significant competitive value in this
category. We expect to grow alongside our customers in this product category as
they expand and build or acquire new brands and products. In the year ended
November 2, 2002, we generated 1.4% of our revenue from this category.
OUR COMPETITIVE STRENGTHS
LONG-TERM RELATIONSHIPS WITH MAJOR CONSUMER PRODUCT COMPANIES IN DIVERSE, STABLE
INDUSTRIES
We enjoy long-standing relationships that average over 15 years with our top
ten customers, including Kraft Foods (over 15 years), Pepsi Cola (over 15
years), Procter & Gamble (over 25 years) and Reckitt Benckiser (over 25 years).
With our key customers, we have strategic-supply arrangements, many of which
have three years or more remaining before renewal. We attribute these close
relationships to our creative design and engineering capabilities, high level of
customer service, high quality products, efficient manufacturing, reliable
delivery, speed to market and experienced and stable management team and
workforce. We supply several of these customers with 100% of their plastic
packaging needs nationally, regionally or for a specific brand, including Kraft
Foods salad dressings and Tide liquid laundry detergent.
Our long-term relationships with our customers are strengthened by our
ability to meet their need for cooperative package design and development
processes. Our skilled and creative engineering staff and location of plants
near key customers' filling facilities encourage continued customer loyalty.
STRATEGICALLY LOCATED, STATE-OF-THE-ART OPERATING FACILITIES
We serve our U.S. customers through a nationwide network of twelve strategically
located, technologically advanced manufacturing facilities, through our
Productivity Center in Jackson Center, Ohio, through our Packaging Development
Center in Medina, Ohio, and a network of strategically located warehouse
facilities. Brazil is served by manufacturing facilities in Paulinia and Manaus.
Our plants feature top quality injection molding machines, high speed blow
molders (including the multi-station GEM-PAK technology, which was developed and
patented by our manufacturing and engineering teams), computerized material and
inventory handling, and machines modified to allow the quick changeover of molds
to meet varying customer needs. Over the last five years, we have invested over
$290.0 million in our facilities and state-of-the-art production equipment,
which have significantly reduced our costs. Our facilities are strategically
located near the filling sites of most of our key customers, which we believe
enables us to facilitate just-in-time inventory management, eliminate costly
shipping and handling charges, reduce working capital needs and foster the
development of long-term manufacturing and distribution relationships. We
believe that locating our facilities near our key customers also creates entry
barriers for our competition. With our fleet of approximately 275 tractors and
900 trailers, we offer same-day delivery to many of our customers. Our 98%
on-time delivery rate is among the best in the industry.
TECHNOLOGY-DEVELOPMENT CAPABILITIES
We are proud of our industry leading engineering and design capabilities and
believe that we often earn and retain business as a result of these skills. Our
packaging development and productivity centers have secured over 100 patents and
continue to incorporate leading technology into customer-driven applications. We
also believe we have a sustainable competitive advantage because we can produce
prototypes of new designs with great speed and creativity for our customers.
Recently, we were able to design and deliver a prototype to a customer just two
weeks after they first explained their packaging concept to us. We have
re-engineered existing manufacturing equipment to allow quick mold changeovers,
reducing the changeover process from days to hours, giving us greater production
flexibility.
4
Our Packaging Development Center creates innovative product designs for our
customers, and our Productivity Center has developed major process improvements
in the manufacture of our containers. Our customers rely on our design and
technical expertise because brand distinctive package design is a critical
component in many of their marketing programs. We have centered a substantial
portion of our growth strategy on customers that require custom, as opposed to
stock, plastic containers as a critical component of their marketing efforts.
PROCESS REDESIGN INITIATIVES AND FLEXIBLE COST STRUCTURE
In 1999, we initiated an ongoing effort to redesign our business processes,
which has reduced waste, increased safety, improved reliability, decreased
claims and returns and increased accuracy of orders, resulting in reduced costs
and increased revenue per worker. Our increased operating profit in fiscal 2002
is the direct result of the implementation of process redesign initiatives and
reliability improvements in our manufacturing facilities. We believe that we can
achieve further savings through continued process improvements. In fiscal 2002,
we successfully completed the implementation of Phase I and Phase II of our SAP
enterprise software project. This enterprise software integrates and automates
many of our sales, purchasing and administrative functions, and assists in our
process re-engineering initiatives, which we believe will create significant
cost reductions. Additionally, we have created a highly variable cost structure
that can adjust quickly to customer demand. Our long-term customer contracts are
structured with pricing mechanisms to adjust for fluctuations in raw material
prices.
CUSTOMER-ORIENTED CULTURE
In our 35 years in business, we have created a special culture focused on
customer service. Plastipak's engineering teams participate in the early phases
of our key customers' new marketing initiatives. As an integrated team, we work
alongside our customers to shape the design features of new packaging containers
and develop new processes and equipment to manufacture those containers.
Further, to ensure that our employees' incentives are aligned with our
customers' objectives, compensation for approximately 500 key manufacturing
employees with leadership responsibility is based on operating and logistics
performance measures. We believe these employee incentives will further enhance
our strong relationships with key customers, help us attract new customers and
allow us to control costs.
MANAGEMENT DEPTH AND EXPERIENCE
Our management team has an impressive track record of cultivating our
customer base of major consumer product companies, launching innovative product
designs and achieving profitable, organic growth. Our top 12 senior executives
have on average 22 years experience in the industry and 19 years experience at
Plastipak. Our executives are invested in our success through their over 90%
ownership of our equity. We believe our retention levels are among the highest
in the industry. Our management team includes engineers who have developed many
of the processes that we have patented and use to our competitive advantage.
OUR BUSINESS STRATEGY
Our strategy is to continue to increase our revenues and profitability and
to further enhance our leading industry positions. From fiscal 1998 to 2002, we
increased our revenues by 43.6% to $812.2 million, our earnings to $8.6 million,
our EBITDA by 88.3% to $96.5 million and our production volume by 31.8% to 6.8
billion units, all through organic growth. We will continue to prudently invest
in production equipment only after establishing contracts with our customers and
completing our normal rigorous internal review process. The key components of
our strategy include the following objectives:
CAPITALIZE ON CONTINUED INDUSTRY CONVERSION TO PLASTIC CONTAINERS
We expect the conversion of food products from glass, paper and cans to
plastic containers, which we believe is being driven by consumer preference,
favorable total packaging economics, technology advances and improved
functionality, will continue. We are well positioned to capitalize on the
continuation of these trends. For example, our new product initiatives include
PET pickle jars, coffee containers and various juice bottles.
5
In addition to opportunities in the domestic hot-fill PET arena, and
increased use of PET containers for household cleaners, we believe that
additional conversions to HDPE packaging will occur in various snack, dairy and
juice drink applications.
Additionally, we expect that over the next three to five years, as barrier
technology progresses, a portion of the single serving beer container market
will be converted to plastic, for use in venues where breakage is a concern.
Brewers in the beer industry are strongly committed to brand identity and
differentiation, and would prefer serving their product to customers in
stadiums, concerts, sporting events, and at pools and beaches, in a way that
permits them to maintain that identity (rather than in paper or plastic cups).
Single serving plastic beer bottles offer that method.
We also believe that as barrier technology for smaller size plastic
containers progresses, we will be positioned to compete for the conversion of
single serving CSD packaging from aluminum cans and 10-oz. glass to plastic, a
60 billion-unit market. Last year, a major soft drink manufacturer introduced a
500 ml package utilizing barrier containers Plastipak supplied.
Also, owing to environmental concerns about disposable plastic waste, the
industries we serve are requiring more high-quality, recycled content in their
plastic packaging. We have significant experience in producing high quality HDPE
and PET containers with recycled content for various customers. We own a
dedicated facility that produces post-consumer recycled plastic resin that
offers us a secure source for recycled resin for our products. We believe we are
well positioned to capitalize on this growing consumer interest toward
recycling.
CONTINUE DEVELOPING VALUE-ADDED SERVICES AND PRODUCTS
Supported by our technology and packaging development centers, we have
successfully researched, developed and launched new-patented technologies in our
marketplace. We believe our success in this area differentiates us from our
competitors and will enable us to continue to gain market share. For key
customers, our technology development is an integral part of their overall
marketing strategy and has helped our customers drive innovation in the
marketplace.
EXPAND MARKET SHARE WITH KEY CUSTOMERS
Our high-quality, low-cost manufacturing capabilities and track record of
focused customer service position us well to continue growing market share with
our customer base of major consumer product companies. As our customers continue
to acquire new businesses and brands, we believe that we will secure additional
long-term contracts with them and grow our product offerings. Central to our
strategy to expand market share with key customers are the continued:
- delivery of focused customer service;
- location of facilities close to customer plants;
- innovation in packaging design; and
- provision of low cost manufacturing processes.
We also intend to target strategic new customers who require our core
competencies in blow molding and injection molding. We are working to translate
relationships we have developed with multi-national customers in Brazil into
additional business in North and South America.
OUR CUSTOMERS
Substantially all of our sales are made to major branded consumer products
companies, primarily in the United States. Our customers demand a high degree of
packaging design and engineering to accommodate complex bottle shapes,
performance requirements, materials, speed to market and reliable delivery. As a
result, many customers opt for long-term contracts, many of which have terms of
one to five years. Nine of our top ten customers are under
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contracts with terms between one and five years. These contracts, however, may
be terminated earlier by us or our customer upon a material breach of the
contract or, in some cases, in the event we determine it is not in our best
interest to change our terms and conditions through the procedures outlined in
the contract to meet competitive prices. Our customers have requested
competitive price reductions from time to time in the past under their contracts
with us.
In many cases, we are the sole supplier of all of a customer's custom
plastic bottle requirements nationally, regionally or for a specific brand. Our
largest customer is Procter & Gamble. For fiscal 2000, 2001 and 2002, Procter &
Gamble accounted for approximately 20%, 23% and 25% of our revenue,
respectively. Our largest customers include:
CUSTOMER
CUSTOMER PRODUCT CATEGORY SINCE (A)
-------- -------------------------------------------------------- ------------
Procter & Gamble Consumer Cleaning Mid 1970s
Reckitt Benckiser Consumer Cleaning Mid 1970s
Saxco Health, Personal Care and Distilled Spirits Early 1980s
Kraft Foods Food and Processed Juices Mid 1980s
Old World Industrial, Automotive and Agricultural Mid 1980s
The Kroger Company Carbonated and Non-Carbonated Beverage, Food and Late 1980s
Processed Juices
National Beverage Carbonated and Non-Carbonated Beverage Late 1980s
Pepsi COBO Carbonated and Non-Carbonated Beverage Late 1980s
AC Humko Food and Processed Juices Early 1990s
PepsiAmerica Carbonated and Non-Carbonated Beverage Early 1990s
AmBev Carbonated and Non-Carbonated Beverage Mid 1990s
Beverage Associates Cooperative Carbonated and Non-Carbonated Beverage Mid 1990s
(Cadbury Beverages)
Dr Pepper Bottling Group Carbonated and Non-Carbonated Beverage Mid 1990s
Pepsi CPG Carbonated and Non-Carbonated Beverage Mid 1990s
Southern Beverage Carbonated and Non-Carbonated Beverage Mid 1990s
Ken's Foods Food and Processed Juices Late 1990s
- ----------
(a) These companies include their predecessors, if applicable.
While our business is concentrated with our major customers, we believe that
our technological skills and low-cost position, coupled with long-term
"partnering" relationships with our customers, make the complete loss of any of
these major customers less likely. Our ten largest customers have been
associated with us for an average of over 15 years.
RAW MATERIALS
Resin and energy, the principal raw materials of our plastics business, have
remained widely available to our U.S. operations, though subject to considerable
price volatility. The great majority of Plastipak's customer contracts allow us
to pass through resin price increases on 30 days' notice. Since we usually
receive 30 days' notice of price increases from our resin suppliers, we are
generally able to tolerate price increases without substantial harm to profits,
although contracts containing pass-through provisions may not be available to us
in the future. See "Risks Related to Our Business." As a major consumer of
resin, we also leverage our bulk purchasing power to gain favorable pricing and
terms.
Clean Tech has continued to be able to meet almost all of our needs for
post-consumer recycled material. Post-consumer recycled material prices tend to
fluctuate in tandem with the virgin resin markets, since demand for
post-consumer recycled material increases as prices for virgin material rise
above those for post-consumer recycled material.
7
Trade restrictions and currency devaluations have driven up the cost of
imported resin in Brazil. See "Risks Related to Our Business."
MANUFACTURING AND DISTRIBUTION
We serve our customers with a wide range of state-of-the-art manufacturing
capabilities and services. Our 14 manufacturing facilities are strategically
located near the filling sites of our key customers. We believe that our
proximity to key customers enables us to work closely with our customers, to
facilitate just-in-time inventory management, to eliminate costly shipping and
handling charges, to reduce working capital needs and to foster the development
of long-term manufacturing and distribution relationships.
We continue to be an industry leader in production technologies for plastic
containers by:
- efficiently manufacturing containers with specialized features, such as
multiple layers, barrier coatings, in-mold labeling and bottles designed
to accommodate trigger sprayers;
- improving manufacturing technology to allow ever increasing production
volumes without increasing the need for floor space (including the
multi-station GEM-PAK, which we developed and patented and which
significantly increases production capability as compared to older
blow-molding machines); and
- making innovative modifications to our blow molders to effect tooling
changes in a matter of hours, instead of days, allowing quick shifts in
product mix.
To meet demand and reduce our inventory costs, our facility managers receive
real-time order and forecasting information from some of our customers. We have
completed the implementation of phase I and phase II of our SAP enterprise
software project, which has integrated, automated and streamlined many of our
supply chain operations. As a result, we will better serve our customers' needs.
Our subsidiary, Whiteline, is a fully licensed ICC common carrier, and
serves approximately 70% of our transportation needs. With Whiteline's fleet of
approximately 275 tractors and 900 trailers, we offer same-day delivery to many
of our customers. Our 98% on-time delivery rate is among the best in the
industry.
PACKAGING DEVELOPMENT
Our Productivity and Packaging Development Centers create innovative product
designs for our customers and process improvements in the manufacture of our
containers. Our customers rely on our design and technical expertise because
package design is a critical component in many of their marketing programs. We
have an in-house staff of approximately 70 employees at our Productivity and
Packaging Development Centers dedicated to product development and improvement.
These professionals work closely with customers to develop new products and
designs, often using sophisticated computer-aided design software.
We are capable of generating new product designs within weeks of customer
requests. We also believe that our customized designs help our customers
differentiate their products in the marketplace while also improving the appeal
and performance of their products. We believe that these capabilities have given
us a significant competitive advantage in certain high-margin niche container
product markets where the ability to produce sophisticated package designs and
deliver high quality graphics at a reasonable cost is crucial to a product's
success. Additionally, we have the engineering capabilities in-house to create
new machines, which can more efficiently produce the proprietary products
developed for our customers. Packaging development expenses were approximately
$6.3 million, $7.1 million and $8.6 million for fiscal 2000, 2001 and 2002,
respectively.
SALES AND MARKETING
We reach our large and diversified base of over 450 customers primarily
through our direct field sales force. A large number of our sales
representatives focus their work on particular product lines and national
accounts, while the remaining field sales staff covers specific geographic
territories. We believe that our direct field sales force is
8
able to focus on target markets and create strong, enduring customer
relationships. A direct sales force also allows us to coordinate centralized
pricing strategies.
FOREIGN OPERATIONS
Since 1996, we have expanded our operations into South America. We are
working to leverage our relationships with new customers in Brazil into new
opportunities in North and South America. Our initial operation was a plant
located in suburban Sao Paulo (Paulinia), Brazil. We recently opened a facility
in Manaus, a tax-free zone in the state of Amazonia, Brazil. We also have a
sales office in Buenos Aires, Argentina. Our Brazilian net revenue has grown
from $8.0 million in 1996 to $65.9 million for the year ended November 2, 2002.
We believe that the global trend in the conversion of glass, metal and paper to
plastic packaging will continue, particularly in the developing world, as
consumer economies expand and industrialization continues. We are exploring
opportunities to opening up a small facility somewhere in the Eastern European
region.
COMPETITION
We face substantial competition throughout our product categories from a
number of well-established national and regional companies. Our primary national
competitors include Amcor, American National Can, Inc., Ball Plastics,
Consolidated Container Company, Constar International, Crown Cork & Seal
Company, Inc., Graham Packaging Company, Liqui-Box Corporation, Owens-Illinois,
Inc., and Silgan Holdings, Inc. In addition, we face substantial competition
from a number of captive packaging operations with significant in-house bottling
and blow-molding capacity, such as Dean Foods, The Kroger Company, The Perrier
Group of America and Suiza Foods.
INTELLECTUAL PROPERTY
We own over 100 U.S. patents, and have over 30 patent applications currently
pending at the United States Patent and Trademark Office. In addition, over 300
foreign patents have been issued and approximately 175 are pending, although not
all of our U.S. patents are registered in foreign countries. Our patents include
patents for our GEM-PAK molding system, a gas clamping electronically controlled
molding machine.
We are continually developing new patents. Because our patented packaging
designs create goodwill and result in product differentiation, we believe that
these intellectual property assets are important to our business. Our business
is not dependent on any one of these patents, since plastics manufacturing
technology continues to move forward rapidly. Patent licensing, however, serves
to keep the new technologies we develop proprietary, giving us a short, but
important, window of competitive advantage.
In addition, we rely on proprietary know-how, continuing technological
innovation and other trade secrets to develop products and maintain our
competitive position. We attempt to protect our proprietary know-how and our
other trade secrets by executing, when appropriate, confidentiality agreements
with our customers and employees. We cannot assure you that our competitors will
not discover comparable or the same knowledge and techniques through independent
development or other means.
We have also licensed or sub-licensed certain of our intellectual property
rights to third parties. These range from trimming systems that eliminate any
plastic waste or "chips" from containers to our unique "in-mold labeling"
equipment for bottle decoration. Many bottle designs are also licensed for
revenue generation. In some cases, patented bottle designs are assigned or used
by our customers, as their needs arise. Since our unique customer relationships
allow us to be in on the ground floor in bottle design development, our
customers often attain patent coverage for our joint design efforts.
ENVIRONMENTAL COMPLIANCE
We are subject to national, state, local and foreign laws and regulations
that impose limitations and prohibitions on the discharge and emission of, and
establish standards for the use, disposal, and management of, some kinds of
materials and waste, and impose liability for the costs of investigating and
cleaning up, and damages resulting from, present and past spills, disposals, or
other releases of hazardous substances or materials. Environmental laws and
regulations can be complex and may change often. Compliance with these laws and
regulations can require
9
significant capital expenditures, and violations may result in substantial fines
and penalties. In addition, environmental laws in the United States, such as the
Comprehensive Environmental Response, Compensation and Liability Act, impose
liability on several grounds for the investigation and cleanup of contaminated
soil, groundwater, and buildings, and for damages to natural resources, at a
wide range of properties. For example, contamination at properties formerly
owned or operated by us, as well as at properties we currently own or operate,
and properties to which hazardous substances were sent by us, may result in
liability for us under these environmental laws and regulations. As a
manufacturer, we also have an inherent risk of liability under environmental
laws and regulations regarding ongoing operations.
From time to time, we have been subject to claims asserted against us by
regulatory agencies for environmental matters relating to the generation and
disposal of hazardous substances and wastes. Some of these claims have related
to properties or business lines acquired by us after a release has occurred. In
each known instance, however, we believe that the claims asserted against us, or
obligations incurred by us, will not result in a material adverse effect upon
our business, financial position or results of operations. Nonetheless, there
can be no assurance that activities at these facilities or facilities acquired
in the future, or changes in environmental laws and regulations, will not result
in additional environmental claims being asserted against us or additional
investigations or remedial actions being required.
In addition, a number of governmental authorities in the United States and
in other countries have enacted and are expected to continue to enact
legislation aimed at reducing the amount of disposed plastic wastes. These
programs have included, for example, mandating rates of recycling and/or the use
of recycled materials, imposing deposits or taxes on plastic packaging material,
and/or requiring retailers or manufacturers to take back packaging used for
their products. This legislation, as well as voluntary initiatives similarly
aimed at reducing the level of plastic wastes, could reduce the demand for some
plastic packaging, result in greater costs for plastic packaging manufacturers
or otherwise affect our business. To date, these initiatives and developments
have not materially and adversely affected us. Some consumer products companies
(including some of our customers) have responded to these governmental
initiatives and to perceived environmental concerns of consumers by, for
example, using bottles made in whole or in part of recycled plastic. Our
subsidiary, Clean Tech, is among the top 20 suppliers of post-consumer recycled
materials in the United States. Clean Tech supplies approximately 90% of
Plastipak's post-consumer recycled materials needs.
EMPLOYEES
We have approximately 3,700 non-union employees in the U.S. and 170
employees in Brazil. Given the seasonality of the plastic bottling industry, we
expect to continue to employ temporary and seasonal workers during peak
production months, in both the United States and Brazil. We have not had any
material labor disputes in the past five years and consider our relations with
our employees to be good.
RISKS RELATED TO OUR BUSINESS
COMPETITION -- WE FACE CONSIDERABLE COMPETITIVE RISKS.
We face substantial competition from a number of well-established national
and regional companies. Our primary national competitors include Amcor, American
National Can, Inc., Ball Plastics, Consolidated Container Company, Constar
International, Crown Cork & Seal Company, Inc., Graham Packaging Company,
Liqui-Box Corporation, Owens-Illinois, Inc., and Silgan Holdings, Inc. In
addition, we face substantial competition from a number of captive packaging
operations with significant in-house bottling and blow-molding capacity, such as
Dean Foods, The Kroger Company, The Perrier Group of America and Suiza Foods.
Many of our competitors have financial and other resources that are
substantially greater than ours. In order to compete successfully, we will need
to continue to make substantial capital expenditures to develop new products and
streamline our manufacturing processes. Competition in our industry could
negatively affect our business operations. See "Business -- Competition."
10
CONCENTRATION OF CUSTOMERS -- WE HAVE SEVERAL MAJOR CUSTOMERS, THE LOSS OF WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
For the fiscal year ended November 2, 2002, our largest single customer
accounted for approximately 25% of our revenue. Our ten largest customers
accounted for approximately 73% of our revenue. The termination by any of these
customers of their relationship with us could have a material adverse effect on
our business and results of operations. Nine of our top ten customers are under
contracts with terms of between one and five years. In general, these contracts
are requirements contracts that do not obligate our customers to purchase any
specific minimum product from us. These contracts may be terminated by us or by
our customer prior to their expiration dates upon a material breach of the
contract or, in some cases, in the event we determine it is not in our best
interest to change our terms and conditions through the procedures outlined in
the contract to meet competitive prices. Our customers have requested
competitive price reductions from time to time in the past under their contracts
with us.
ECONOMIC AND POLITICAL RISK IN SOUTH AMERICA -- WE HAVE SPECIAL RISKS ASSOCIATED
WITH OUR SOUTH AMERICAN OPERATIONS.
We have significant operations in Brazil. We currently have two plants
located in Brazil. We also have a sales office in Buenos Aires, Argentina. For
the year ended November 2, 2002, net sales of our Brazilian subsidiaries totaled
approximately $65.9 million, representing approximately 8% of our worldwide
revenue for such period. We experienced a net loss of approximately $12.8
million on our Brazilian sales for the year ended November 2, 2002.
Our results to date in Brazil have been less than we expected, as currency
devaluations, high interest rates, inflation, import restrictions and a legal
system which makes it difficult to enforce contracts have reduced both revenue
and profits. Import duties on equipment needed to upgrade our production
capabilities in Brazil are significant. We are working diligently to improve and
expand our operations in Brazil to make them profitable, but we cannot assure
you that our Brazilian operations will ever become profitable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Foreign Operations."
The following factors create higher risks to our South American operations
than we experience in the United States:
- continuing high nominal interest rates;
- limitations on conversion of foreign currencies into U.S. dollars or
remittance of dividends and other payments;
- imposition or increase of withholding and other taxes on remittances and
other payments;
- inability to fully utilize foreign tax credits and fully pass through
foreign losses here in the U.S. due to limitations imposed by U.S. tax
laws;
- the potential for political instability and inflation and the imposition
or increase of restrictions on investments and other restrictions by
foreign governments;
- inability of our foreign subsidiaries to enforce certain of their key
agreements through the legal systems in South America.
CURRENCY FLUCTUATIONS -- WE HAVE SIGNIFICANT FOREIGN EXCHANGE RISKS WITH RESPECT
TO OUR BRAZILIAN OPERATIONS THAT WE CANNOT CONTROL.
Our Brazilian contracts are priced in U.S. dollars; however, we invoice our
customers in the Brazilian Real. Following several significant devaluations of
Brazil's currency, despite "make whole" agreements in our contracts, some of our
customers agreed to only partial price increases. These increases accounted for
only a portion of the cost to us of devaluation, leading to a reduction in our
gross margin in Brazil.
11
Fluctuations in the value of the U.S. dollar may adversely affect our
results of operations. Because our consolidated financial results are reported
in dollars, if we generate sales or earnings in other currencies the translation
of those results into dollars can result in a significant increase or decrease
in the amount of those sales or earnings. In addition, our debt service
requirements are primarily in U.S. dollars, even though a portion of our cash
flow is generated in the Brazilian Real. Significant changes in the value of the
Brazilian Real relative to the U.S. dollar could have a material adverse effect
on our financial condition and our ability to meet interest and principal
payments on U.S. dollar denominated debt, including the exchange notes and
borrowings under the Amended Credit Agreement. Given the volatility of exchange
rates, we may not be able to effectively manage our currency transaction and/or
translation risks. It is expected that the volatility in currency exchange rates
will continue to have a material effect on the financial condition or results of
operations of our foreign subsidiaries. We expect that the portion of our
revenue denominated in non-dollar currencies will continue to increase in future
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Effects of Changes in Exchange Rates." In addition, the
value of our investment in Plastipak Brazil is partially a function of the
currency exchange rate between the U.S. dollar and the Brazilian Real. We have
not executed hedge transactions to endeavor to reduce our exposure to foreign
currency exchange rate risks, and do not believe that hedging is a viable option
for us in the immediate future.
FUTURE CAPITAL REQUIREMENTS -- IF WE CANNOT OBTAIN THE FUNDS TO MAKE THE
SIGNIFICANT CAPITAL EXPENDITURES THAT OUR BUSINESS WILL REQUIRE, WE MAY NOT BE
ABLE TO MAINTAIN OUR CURRENT LEVEL OF OPERATIONS OR GROW OUR BUSINESS.
To fund our growth plans and maintain our current level of operations, we
will continue to make substantial capital expenditures for product development
and improvements in our manufacturing processes. In fiscal 2001 and 2002, we
made capital expenditures of approximately $56 million and $85 million,
respectively. We estimate that capital expenditures in each of fiscal 2003 and
2004 will be approximately $105 million and $90 million, respectively. In
addition, we may be required to make additional investments as the demands of
our industry and our customers evolve. We may not be able to fund any necessary
investments, and the failure to do so could have a material adverse effect on
our business, financial condition and results of operations.
ACQUISITION STRATEGY -- WE COULD FACE CONSIDERABLE BUSINESS AND FINANCIAL RISKS
IN IMPLEMENTING OUR ACQUISITION STRATEGY.
Our growth strategy may include acquisitions of other consumer goods
packaging businesses, although we do not currently have any commitments or
agreements with respect to any such acquisitions. Risks we could face with
respect to acquisitions include:
- problems in assimilating operations, technologies, services and
products;
- diversion of management's attention from existing business concerns; and
- incurrence of debt and contingent liabilities.
Any of these risks could have a material adverse effect upon our business,
financial condition and results of operations. We may not be successful in
consummating future acquisitions on favorable terms or at all.
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIERS -- WE
ARE EXPOSED TO THE RISKS ASSOCIATED WITH FLUCTUATIONS IN THE PRICES OF RESIN.
We face the risk that our access to resin is interrupted or that we may not
be able to purchase it at competitive prices. We use large quantities of plastic
resins in manufacturing our products. Plastic resin accounted for approximately
one-third of our cost of goods sold in fiscal 2002. Plastic resins are subject
to substantial price fluctuations caused by shortages in supply and changes in
the prices of natural gas, crude oil and other petrochemical products from which
these resins are produced. We may experience supply interruptions in the future.
Our purchases of raw materials are subject to market prices. Although we
generally have pass through provisions in many of our customer contracts, market
conditions may not permit us to pass through any future raw material price
increases. The inability to procure resin or significant increases in resin
prices, coupled with an inability to promptly pass such increases on to
customers, would have a material adverse effect on our financial condition and
results of
12
operations. Furthermore, a significant increase in resin prices could slow the
pace of conversion from paper, glass and metal containers to plastic containers
to the extent that these costs are passed on to the customer. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Raw Materials."
DEPENDENCE ON KEY PERSONNEL -- WE ARE DEPENDENT ON SEVERAL KEY SENIOR MANAGERS,
THE LOSS OF WHOM COULD HAVE A MATERIAL EFFECT ON OUR BUSINESS AND DEVELOPMENT.
Our business and our future success depend to a significant extent upon the
continued service of our executive officers and senior managers. In particular,
the loss of the services provided by William C. Young, William A. Slat, Michael
J. Plotzke, Gene W. Mueller, Pradeep Modi, Thomas Busard, Frank Pollock, Richard
Darr, J. Ronald Overbeck, Leann M. Underhill and David Daugherty, among others,
could have a material adverse effect on our business and results of operations.
Our failure to retain such key personnel could have a material adverse effect on
our business, financial condition and results of operations. We do not have key
man life insurance.
OTHER RISKS
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK -- WE ARE CONTROLLED BY THE YOUNG
FAMILY.
William C. Young, our Chief Executive Officer, and members of his immediate
family own over 90% of our common stock on a fully-diluted basis and, therefore,
control our board of directors. As a result, the Young family will continue to
have the ability to elect and remove directors and determine the outcome of
matters presented for approval by our shareholders. Circumstances may occur in
which the interests of the Young family could be in conflict with the interests
of the holders of the notes.
REGULATION -- OUR OPERATIONS AND PRODUCTS ARE SUBJECT TO SUBSTANTIAL
ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS.
Our operations and properties are subject to stringent federal, state, local
and foreign laws and regulations relating to pollution, environmental protection
and workplace health and safety. Such laws and regulations frequently change,
are different in every jurisdiction, and can impose substantial fines and
sanctions for violations. Our operations must comply with these laws, and must
adapt to regulatory requirements in all jurisdictions in which we operate as
these requirements change.
Environmental laws generally impose liability for costs to investigate and
remediate contamination without regard to fault and, under certain
circumstances, liability may be joint and several resulting in one responsible
party being held responsible for the entire obligation. We have incurred, and
may continue to incur, such costs related to at least two of our properties.
Although we believe our operations and properties are substantially in
compliance, new laws and regulations, stricter enforcement or interpretation of
existing laws and regulations or the discovery of previously unknown
contamination or previously unknown off-site liability, the imposition of new
clean-up requirements, or claims for property damage or personal injury arising
from environmental matters could require us to incur costs or become the basis
for the new or increased liabilities that could have a material adverse effect
on our business, financial condition or results of operations.
Legislation concerning mandatory rates of recycling, mandatory use of
recycled materials, deposits or taxes on plastic packaging material or
requirements that retailers or manufacturers take back packaging used for their
products could reduce the demand for certain plastic packaging, result in
greater costs for plastic packaging manufacturers and, therefore, have a
material adverse effect on our business, financial condition and results of
operations.
13
PRODUCT LIABILITY RISK -- WE FACE PRODUCTS LIABILITY RISK. IN ADDITION, OUR
BUSINESS IS EXPOSED TO THE PRODUCTS LIABILITY RISK OF OUR CUSTOMERS.
Because our plastic containers are used for consumer products, our business
is exposed to products liability risk and the risk of negative publicity. The
amount and scope of our product liability insurance may not be adequate to cover
a products liability claim that is successfully asserted against us.
In addition, we are exposed to the products liability risk and negative
publicity of our customers and suppliers. Because many of our customers are
carbonated soft drink, dairy, water and branded consumer products companies,
with their own products liability risk, our sales may decline if any of our or
our competitors' customers are sued on a products liability claim. We may also
suffer a decline in sales from the negative publicity associated with such a
lawsuit or with adverse public perceptions in general regarding our products or
our customers' products in our containers.
INTELLECTUAL PROPERTY PROTECTION -- WE ENJOY LIMITED PROTECTION FOR OUR
INTELLECTUAL PROPERTY, AND ARE SUBJECT TO A PATENT INFRINGEMENT CLAIM.
We have a number of patents covering design and construction of our products
and manufacturing equipment. Patents do not ensure that competitors will not
develop competing products or infringe upon our patents, or that the patents
will withstand challenge in litigation. The costs of litigation to defend our
patents could be substantial and may outweigh the benefits of enforcing our
rights under our patents. Patent laws of foreign countries may offer less
protection than the patent laws of the United States.
We also rely on unpatented proprietary technology, trade secrets and
know-how. Others may independently develop the same or similar technology or
otherwise obtain access to our unpatented technology. If we are unable to
maintain the proprietary nature of our technologies, we could be materially
adversely affected.
In 1999, North American Container filed a lawsuit against us and 41 other
defendants claiming some of our products infringe one of their patents and
requesting an unspecified amount in damages. See "Business -- Legal
Proceedings". Defendants prepared and filed a motion for summary disposition
that will be renewed and refiled due to a ruling by the court's special master
regarding claims construction, and the renewed and revised motion will be
presented as is appropriate under the court's schedule. If we do not prevail in
the litigation, our business and financial condition could be materially
adversely affected.
ITEM 2. PROPERTIES
We occupy a number of owned and leased properties located throughout the
United States, Brazil and Argentina for our technical centers, manufacturing
plants, corporate headquarters and sales offices. We currently utilize 41
facilities, 15 of which we own and 26 of which we lease. Our interests in all of
our U.S. facilities are pledged to secure our current credit facility.
The following table lists the location, square footage, principal use and
ownership interest in our facilities.
14
LOCATION SQUARE FOOTAGE PRINCIPAL USE OWNED/LEASED
-------------------------- -------------- ---------------------- -------------
Medina, OH 74,000 Packaging Owned
Development Center
Jackson Center, OH 66,000 Productivity Center Owned
Jackson Center, OH 952,000 Manufacturing Owned
Champaign, IL 692,000 Manufacturing Owned
East Longmeadow, MA 263,000 Manufacturing Owned
Medina, OH 222,000 Manufacturing Owned
Westland, MI 185,000 Manufacturing Owned
Paulinia, Brazil 161,000 Manufacturing Owned
Garland, TX 113,000 Manufacturing Owned
McCalla, AL 100,000 Manufacturing Owned
Dundee, MI 85,800 Manufacturing Owned
Highland, TX 82,500 Manufacturing Owned
Plant City, FL 78,500 Manufacturing Owned
Manaus, Brazil 70,000 Manufacturing Owned
Lima, OH 127,000 Warehouse Owned
Alsip, IL 165,000 Manufacturing, Leased
Warehouse
Atlanta, GA 30,000 Manufacturing Leased
Garland, TX 200,000 Warehouse Leased
Champaign, IL 187,000 Warehouse Leased
Champaign, IL 217,000 Warehouse Leased
Medina, OH 178,000 Warehouse Leased
Romulus, MI 150,000 Warehouse Leased
Houston, TX 140,000 Warehouse Leased
Houston, TX 40,000 Warehouse Leased
Dallas, TX 108,943 Warehouse Leased
Lima, OH 100,000 Warehouse Leased
Alsip, IL 100,000 Warehouse Leased
Ayer, MA 77,000 Warehouse Leased
West Springfield, MA 68,000 Warehouse Leased
Lodi, OH 68,000 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Plymouth, MI 59,000 Warehouse Leased
Champaign, IL 43,000 Warehouse Leased
Canton, MI 35,000 Warehouse Leased
Champaign, IL 59,800 Warehouse Leased
Westland, MI 12,000 Warehouse Leased
Medina, OH 6,000 Warehouse Leased
Plymouth, MI 32,000 Truck Garage Leased
Plymouth, MI 9,000 Office Leased
Plymouth, MI 31,000 Headquarters Leased
----------
We believe that our plants, which are of varying ages and types of
construction, are in good condition, are suitable for our operations and
generally provide sufficient capacity to meet our requirements for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various litigation matters arising in the ordinary course
of our business. We cannot estimate with certainty the ultimate legal and
financial liability of this litigation but we believe, based on our examination
of
15
these matters, experience to date and discussions with counsel, that the
ultimate liability will not be material to our business, financial condition or
results of operations.
In the fall of 1999, North American Container, Inc. ("NAC") filed suit in
the U.S. District Court for the Northern District of Texas (Civil Action No.
3-99CV1749-D), claiming damages in an unspecified amount against Plastipak and
41 other defendants for the alleged infringement of NAC U.S. Patent No.
5,072,841. On April 4, 2000 this patent reissued as patent RE 36,639, with 14
new claims. The new claims were the primary focus of NAC's case against
Plastipak and the major manufacturers, as well as major food and beverage
distributors. Plastipak is spending approximately $75,000 per month to
vigorously defend this suit for the alleged patent infringement of NAC's
"plastic container." The claim construction phase of the litigation is coming to
a close. The master proposed claim construction will eliminate a large number of
bottles produced by us from consideration in the lawsuit. The court has allowed
discovery. Defendants have filed a motion for summary disposition. Because the
Special Master changed his position on claims construction, the court is
permitting the defendants to refile the motion for summary disposition. In the
event defendants fail on the summary judgment motion, our cost of defending this
action for a protracted period of time could exceed $1.0 million.
Camplas, one of Plastipak Brazil's customers, failed to pay for bottles
supplied to it by Plastipak Brazil. In 1998, Plastipak Brazil filed suit for
payment. In response to Plastipak Brazil's suit, Camplas filed a counterclaim
alleging that the bottles were defective. Camplas seeks damages from Plastipak
Brazil in the amount of approximately R$12,200,000 (reais), which as of the date
of this Form 10K was approximately $3.4 million. The litigation is progressing
through their legal system. We do not believe this litigation presents the risk
of a material adverse effect on our business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANTS, COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for Plastipak Holdings common equity.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the four fiscal
years ended November 2, 2002 were derived from our audited consolidated
financial statements. The following selected financial data for the year ended
October 31, 1998 was derived from audited combined financial statements of the
predecessor companies. The selected consolidated financial data should be read
in conjunction with the consolidated financial statements and the related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this Form 10K.
YEAR ENDED
------------------------------------------------------------
1998 1999 2000 2001 2002
--------- --------- -------- --------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Total revenues.......................... $ 565,639 $ 565,527 $ 701,872 $ 809,774 $ 812,190
Costs and expenses...................... 501,644 491,009 625,691 709,013 697,001
Gross profit.......................... 63,995 74,518 76,181 100,762 115,189
Selling, general and administrative
expenses.............................. 48,352 50,253 50,958 64,477 68,506
Operating profit...................... 15,643 24,265 25,223 36,285 46,683
Interest expense........................ 21,253 26,021 27,028 28,956 35,099
Other expense (income).................. (3,080) (8,259) (1,418) (3,102) (1,840)
16
YEAR ENDED
------------------------------------------------------------
1998 1999 2000 2001 2002
--------- --------- -------- --------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Earnings (loss) before income taxes,
extraordinary item and change in accounting
principle............................. (2,530) 6,503 (387) 10,431 13,424
INCOME TAXES:
Current............................... 1,344 1,685 223 2,111 20
Deferred.............................. (2,585) 1,967 (2,403) 1,173 4,811
--------- --------- ---------- --------- ---------
(1,241) 3,652 (2,180) 3,284 4,831
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting
principle............................. (1,289) 2,851 1,792 7,147 8,593
Extraordinary item(a)................... -- (3,794) -- -- --
Cumulative effect of change in accounting
principle(b).......................... -- -- 3,125 -- --
Net earnings (loss)................... $ (1,289) $ (943) $4,917 $ 7,147 8,593
========== ========= ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(c)............................... $ 51,283 $ 71,915 $ 68,886 $ 84,099 $ 96,541
Ratio of earnings to fixed charges(d)(e) -- 1.21x -- 1.25x 1.29x
Ratio of net debt to EBITDA(f).......... 4.42x 3.76x 3.73x 3.32x 3.30x
Ratio of EBITDA to interest expense..... 2.41x 2.76x 2.55x 2.90x 2.75x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(g)...................... $ 32,938 $ 41,872 $ 23,920 $ 31,480 $ 28,272
Total assets............................ 357,786 398,997 421,108 505,055 569,598
Total debt.............................. 231,450 278,917 260,200 333,062 387,815
Stockholders' equity.................... 31,081 17,861 22,592 29,467 37,284
- ----------
(a) An extraordinary loss was recorded as a result of the early retirement
of senior subordinated notes and related warrants.
(b) A gain was recorded for a change in accounting principle due to a change
in accounting for parts and supplies. Through October 30, 1999,
Packaging expensed parts and supplies utilized in its manufacturing
facilities. Effective October 31, 1999, these items are inventoried and
are charged to expense when used. Due to increased volume of purchases
of such items, management believes that this method is preferable and it
provides for a better matching of revenues and expenses. The financial
statements for the years preceding the fiscal year ended October 28,
2000 have not been restated. See Note N to the consolidated financial
statements.
(c) EBITDA represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is not presented as, and should
not be considered an alternative measure of operating results or cash
flows from operations (as determined by generally accepted accounting
principles), but it is a widely accepted financial indicator of a
company's ability to incur and service debt. While commonly used,
however, EBITDA is not identically calculated by companies presenting
EBITDA and is, therefore, not necessarily an accurate means of
comparison and may not be comparable to similarly titled measures
disclosed by our competitors.
(d) The ratio of earnings to fixed charges was computed by dividing earnings
(loss) by fixed charges. For this purpose, earnings (loss) consists of
earnings (loss) before taxes extraordinary item and change in accounting
principle plus the portion of rents representative of the interest
factor, interest expense and capitalized interest. Fixed charges consist
of interest incurred (whether expensed or capitalized), the portion of
rent expense that is representative of the interest factor, and
amortization of debt discount and issuance costs.
(e) For the years ended October 31, 1998 and October 30, 2000, earnings were
inadequate to cover fixed charges by $2,530 and $1,631, respectively.
17
(f) Net debt equals total debt less cash and cash equivalents.
(g) Working capital represents current assets less cash and cash equivalents
minus current liabilities less short-term debt and current portion of
long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. Please refer to
the "Risk Related to Our Business" section for a summary of factors that could
cause actual results to differ materially from those projected in a
forward-looking statement. 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
Form 10K, 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.
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 fiscal
years ended November 2, 2002 and October 28, 2000 were 52 weeks long. The fiscal
year ended November 3, 2001 was 53 weeks long.
Listed in the table below are our revenues and related percentages of revenue
for the years ended November 2, 2002, November 3, 2001 and October 30, 2000. Our
historic revenue growth has been achieved organically due to increased business
with new and existing customers.
18
CONSOLIDATED REVENUE BY PRODUCT CATEGORY
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 2, 2002 NOVEMBER 3, 2001 (A) OCTOBER 28, 2000
----------------------- ----------------------- -----------------------
(dollar amounts in thousands)
Carbonated and non-
carbonated beverage revenue $362,678 44.7% $373,091 46.0% $320,987 45.7%
Consumer cleaning revenue $242,106 29.8% $233,223 28.8% $187,966 26.8%
Food and processed juice
revenue $110,146 13.6% $109,892 13.6% $104,728 14.9%
Industrial, agricultural and
automotive revenue $ 41,752 5.1% $ 45,280 5.6% $ 34,531 4.9%
Health, personal care and
distilled spirits revenue $ 10,999 1.4% $ 11,089 1.4% $ 12,498 1.8%
Other revenue (b) $ 44,509 5.4% $ 37,200 4.6% $ 41,162 5.9%
-------- ----- -------- ----- -------- -----
Total revenue $812,190 100.0% $809,775 100.0% $701,872 100.0%
======== ===== ======== ===== ======== =====
(a) The periods ended November 2, 2002 and October 28, 2000 were 52
weeks long. The period ended November 3, 2001 contained 53
weeks.
(b) Other revenue includes Clean Tech (recycling), Whiteline
(transportation and logistics) and other miscellaneous sources
of revenue.
YEAR ENDED NOVEMBER 2, 2002 COMPARED TO YEAR ENDED NOVEMBER 3, 2001
REVENUE
Revenue increased 0.3% to $812.2 million for the year ended November 2, 2002
while unit sales increased 5.1% for the period to 6.8 billion units compared to
the year ended November 3, 2001. The relatively flat revenue growth is due to
several factors. First, the year ended November 2, 2002 contained only 52 weeks,
while the year ended November 3, 2001 contained 53 weeks. If 2002 revenue were
restated for 53 weeks, 2002 revenue would have increased over the prior period
by approximately 2.4%. Second, resin prices (which represent a significant cost
of the product) have decreased in the year ended November 2, 2002 as compared to
the year ended November 3, 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 $28.0 million
reduction in revenue for fiscal year 2002. Finally, we exited a piece of
business through an asset sale in fiscal year 2001 which resulted in lower sales
revenue for fiscal year 2002.
Revenue and unit sales increases and decreases by category are discussed
more specifically below:
- Carbonated and non-carbonated beverage revenue decreased 2.8% to $362.7
million while unit sales during the year ended November 2, 2002
increased by 7.6% over the year ended November 3, 2001. Unit sales
growth was attributable to the U.S. market where unit sales increased
7.6% from the period 2001. Increased business in Brazil resulted in an
increase of 7.4% of unit sales over the period in 2001. 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, a product mix shift to more single
service packages that have lower selling prices, and currency
devaluations in Brazil.
19
- Consumer cleaning revenue increased 3.8% to $242.1 million. Unit sales
increased 3.0% over the prior year. Sales growth was driven by several
new packaging initiatives in this category.
- Food and processed juices revenue increased 0.2% to $110.1 million. Unit
sales during the year ended November 2, 2002 decreased 4.0% over the
year ended November 3, 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 7.8% to $41.8
million, while unit sales for the year ended November 2, 2002 increased
2.6% over the same period in 2001. New product awards in this category
primarily drove unit sales growth. In addition, the market successes of
large multi-use containers provided incremental volume growth in a
category that is otherwise flat. Dollar sales were impacted by the
change in resin pricing with revenue down for fiscal year 2002 compared
to the same period in 2001.
- Health, personal care and distilled spirits revenue decreased 0.8% to
$11.0 million. Unit sales for the year ended November 2, 2002 were down
7.4% over the year ended November 3, 2001. During 2002, our exit from a
piece of business in this sector resulted in the drop in sales units and
revenue.
- Other revenue increased 19.6% to $44.5 million. This increase is
attributable mainly to an increase in freight, recycling, and other
miscellaneous revenue.
GROSS PROFIT
Gross profit increased 14.3% to $115.2 million for the year ended November
2, 2002. Gross profit as a percent of revenue improved to 14.2% from 12.4% in
the prior period. 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 fiscal 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. In general, industry
practice and contractual arrangements with our customers permit price changes to
be passed through to customers. 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 6.2% to $68.5 million
for year ended November 2, 2002. As a percentage of revenue, selling, general
and administrative expenses increased slightly to 8.4% in the year ended
November 2, 2002 from 8.0% in the year ended November 3, 2001. The increase was
related to the reclassification of $1.3 million of site management wages from
manufacturing expenses a $1.2 million increase related to the implementation of
SAP. Increases in corporate labor contributed approximately $2.2 million to the
increase. The increase in corporate labor is mainly due to compensation expense
recorded for restricted stock options in the amount of approximately $2.4
million.
INTEREST EXPENSE
Interest expense increased by 21.2% to $35.1 million. The increase was due
to the sale of $275.0 million and $50 million of the 10.75% Senior Notes in
August 2001 and September 2002, respectively. In addition, our debt level was
approximately $54.8 million higher as compared to the prior year ending November
3, 2001.
20
OTHER (INCOME) AND EXPENSE
Other income decreased by $1.3 million to $(1.8) million principally due to
$0.8 decrease in sundry income and a $0.6 million decrease in foreign currency
exchange rate losses that were principally related to the devaluation of the
Peso in Argentina.
NET EARNINGS
Net earnings increased by $1.5 million from net earnings of $7.1 million for
the year ended November 1, 2001 to net earnings of $8.6 million for the year
ended November 2, 2002. The increase in net earnings was primarily due to
improvements in operating profit.
YEAR ENDED NOVEMBER 3, 2001 COMPARED TO YEAR ENDED OCTOBER 28, 2000
REVENUE
Revenue increased 15.4% to $809.8 million for the year ended November 3,
2001. Unit sales for the year ended November 3, 2001 increased 12.6% to
approximately 6.5 billion units from the year ended October 28, 2000. The
increases in revenue and unit sales are due to a number of factors:
- Carbonated and non-carbonated beverage revenue increased 16.2% to $373.1
million. Additional growth was driven by increased demand for water
containers along with new business commitments in the Northeast. Also,
we continue to develop the plastic beer bottle market with increased
sales to several regional breweries.
- Consumer cleaning revenue increased 24.1% to $233.2 million. The
increase in revenue was attributable primarily to our sales of
corrugated boxes and labels to Procter & Gamble. Procter & Gamble
previously purchased corrugated boxes and labels from another supplier,
but requested in June 2000 that we begin to sell these materials to them
in order to streamline their production process. As a result, we now
ship our plastic containers to Procter & Gamble in corrugated boxes with
labels in place. Procter & Gamble simply fills and caps the containers,
seals the cartons and ships the filled containers to their customers. We
began this arrangement with Procter & Gamble by purchasing their
existing inventory of corrugated boxes and labels, and we now purchase
these items from vendors approved by Procter & Gamble. The prices we
charge Procter & Gamble include an amount to cover our costs of boxing
and labeling the plastic containers we sell them. We estimate that $83
million of our increased revenue for 2001 was attributable to this new
arrangement with Procter & Gamble. Additional growth was attributable to
broad-based volume increases across all customers within the category.
- Food and processed juices revenue increased 4.9% to $109.9 million. This
growth is attributable to increased business in juice-type products,
pourable dressings, and squeezable mayonnaise containers. These volume
gains were partially offset by the divestiture of volume previously
supplied to Sunny Delight.
- Industrial, agricultural and automotive revenue increased 31.1% to $45.3
million. This increase was driven by growth primarily from F Style
gallons, motor oil quarts and our proprietary Handi-Grip container.
- Health, personal care and distilled spirits revenue decreased 11.3% to
$11.1 million. This decrease is attributable to reduced business
activity with customers within this product category and a shift to
smaller, lower priced packages within our product mix.
- Other revenue decreased 9.6% to $37.2 million. This decrease is
attributable to less project revenue with existing customers.
GROSS PROFIT
Gross profit increased 32.3% to $100.8 million for the year ended November
3, 2001. The increase in gross profit resulted primarily from the higher sales
unit volume as compared to the prior year period. Gross profit
21
increases were also the result of improved manufacturing reliability and
throughput in fiscal 2001. In addition, current process redesign initiatives
generated increased gross profit.
Gross profit as a percent of revenue improved to 12.5% from 10.9% 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 as a percent of revenue was also improved
by increased gross profit generated by current process redesign initiatives.
Increases in gross profit as a percent of revenue were partially offset by $50.3
million of additional sales of corrugated boxes and labels to Procter and
Gamble. These sales did not increase gross profit and therefore negatively
affected gross profit as a percent of revenue.
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. In general, 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 26.5% to $64.5
million for the year ended November 3, 2001. As a percentage of revenue,
selling, general and administrative expenses increased to 8.0% in the year ended
November 3, 2001 from 7.3% in the year ended October 28, 2000. The increase was
related to non-recurring charges including expenses related to the SAP
implementation and an increase in our reserve for doubtful accounts by
approximately $2.0 million related to our operations in South America. The
increase was also the result of higher spending on property taxes, state and
local taxes, deferred salary continuation, legal expenses and employee wages.
INTEREST EXPENSE
Interest expense increased by 7.1% to $29.0 million. The increase was due to
an increase in our working capital borrowings required to support our revenue
growth. The increase was also due to the sale on August 20, 2001 of $275.0
million of the outstanding notes. The average interest rate for the year ended
November 3, 2001 was approximately 9.44% compared to an average interest rate of
approximately 8.38% for the prior period.
OTHER (INCOME) AND EXPENSE
Other income increased to $3.1 million principally due to improvement in
foreign currency exchange rates.
NET EARNINGS
Net earnings increased $2.2 million from net earnings of $4.9 million for
the year ended October 28, 2000 to net earnings of $7.1 million for the year
ended November 3, 2001. This increase is largely due to increased gross profit
generated by additional sales unit volume and reduced manufacturing costs and
improved performance.
YEAR ENDED OCTOBER 28, 2000 COMPARED TO YEAR ENDED OCTOBER 30, 1999
REVENUE
Overall revenue increased 24.1% to $701.9 million for the year ended October
28, 2000. This increase is primarily attributable to an increase of
approximately 10% in unit volume while average resin prices significantly
increased. Specifically, our revenue by product category was as follows:
- Carbonated and non-carbonated beverage revenue increased 18% to $321.0
million. This growth is attributable to additional business from
Beverage Associates Cooperative, Dr Pepper and Pepsi.
- Consumer cleaning revenue increased 62.0% to $188.0 million. The
increase in revenue was attributable primarily to our sales of
corrugated boxes and labels to Procter & Gamble, which we began to sell
Procter & Gamble in June 2000 in order to streamline their production
process, as discussed above. We now ship our plastic containers to
Procter & Gamble in corrugated boxes with labels in place. Procter &
Gamble simply fills and caps the containers, seals the cartons and ships
the filled containers to their customers. We estimate that $32 million
of our increased revenue for 2000 was attributable to this new
arrangement with Procter & Gamble. Additional growth was gained by
incremental volume increases with Procter & Gamble and Reckitt
Benckiser.
22
- Food and processed juices revenue increased 11.0% to $104.7 million.
This growth is attributable to increased business with AC Humko, Ken's
Foods and Kraft Foods. Additional volume was gained through earning new
business with Marzetti.
- Industrial, automotive and agricultural revenue decreased 6.0% to $34.5
million. This decrease is attributable primarily to a weak antifreeze
market during the year.
- Health, personal care and distilled spirits revenue increased 16.0% to
$12.5 million. This growth is attributable to additional volume with
Johnson & Johnson and Procter & Gamble.
GROSS PROFIT
Gross profit for the year ended October 28, 2000 increased $1.7 million to
$76.2 million from the year ended October 30, 1999. This increase in gross
profit resulted primarily from the higher unit sales volume as compared to the
prior year period. The increase in gross profit was not in line with our 24.1%
increase in revenue for this period, primarily because of sales of lower-margin
corrugated boxes and labels as discussed above.
Gross profit as a percent of revenue decreased to 10.9% as compared to 13.2%
in the prior period. The decrease is partially the result of significant
increases in the cost of resin from the prior period. The decrease is also the
result of approximately $32.4 million of revenue generated from the sale of
corrugated boxes and labels to Procter and Gamble with no contribution to gross
profit. In addition, the decrease in gross profit as a percent of revenue was
also caused by the additional material scrap, introduction of new products and
increased transportation costs over the prior year period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 1.4% to $51.0 million
in fiscal 2000. As a percentage of revenue, selling, general and administrative
expenses decreased to 7.3% from 8.9% due to increased economies of scale in our
business.
INTEREST EXPENSE
Interest expense increased 3.9% to $27.0 million. This increase is primarily
due to an increase in interest rate during the period.
OTHER (INCOME) EXPENSE
Other income decreased 83.1% to $1.4 million for fiscal 2000. This resulted
primarily from the realization of an approximate $1.3 million loss from currency
devaluation versus a currency gain in fiscal 1999 of $5.9 million.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Through October 30, 1999, we expensed parts and supplies utilized in our
manufacturing facilities. Effective October 31, 1999, these items are
inventoried and are charged to expense when used. Due to the increased volume of
purchases of such items, management believes that this method is preferable and
it provides for a better matching of revenue and expenses. For these reasons,
the after-tax cumulative effect of the change in accounting principle was $3.1
million in fiscal 2000.
NET EARNINGS (LOSS)
Net earnings increased from a net loss of $0.9 million to net earnings of
$4.9 million for fiscal 2000. The increase is primarily due to an improvement in
operating profit of $1.0 million and the change in accounting principle of $3.1
million.
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.
23
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 phase I and phase II of our SAP enterprise
software project. We expect to spend an additional $1 to $2 million in the
aggregate on the remaining projects. During the year ended November 2, 2002, we
spent approximately $85 million to cover the capital requirements of our
operations. We expect to incur capital expenditures of approximately $105
million in fiscal 2003.
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 fiscal 2002. We had positive
cash flow from operating activities of $55.4 million, which in part funded our
capital expenditures of approximately $85 million. The remaining balance of
capital expenditures was covered cash and cash equivalents and by financing
activities.
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 year ended November 2, 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 Argentina 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 year ended November
2, 2002, resulting in a loss of approximately $0.6 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 November
2, 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 November 2, 2002, we
have completed phase I and II of the SAP implementation. We have incurred costs
of approximately $9.5 million to purchase, test and install SAP hardware and
software. Any additional enhancements implemented in phase III will be completed
with internal resources; therefore, the costs associated with phase III are
estimated at $1-2 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased 26.3% to $55.4 million
for the fiscal year ended November 2, 2002 as compared to the fiscal year ended
November 3, 2001. The increase in cash was primarily the result of a $6.4
million increase in non-cash expenses that include items such as depreciation
and amortization, bad debt
24
expense, deferred income tax expense, and foreign currency translation. Net
working capital and other asset and liability changes increased net cash by $3.6
million. Improved operating performance of $1.5 million also contributed to the
increase in cash. For the fiscal years ended 2001, 2000 and 1999 net cash
generated from operations was $43.8, $75.6 and $24.7 million, respectively. The
decrease in 2001 was primarily the result of net working capital and other asset
and liability changes. The increase in working capital resulted primarily from
decreases in accounts payable and accounts receivable. The reductions were
partially offset by improved operating performance with net earnings increasing
$2.2 million from fiscal 2000. The decrease was also offset by an increase in
depreciation and amortization of $2.5 million from fiscal 2000. The reduction
was also offset by increased deferred tax expense of $2.0 million from fiscal
2000. The increase in 2000 was primarily the result of net working capital an
other asset an liability improvements that increased net cash $46.3 million from
1999.
Net cash used in investing activities was $89.6 million and $52.8 million
for fiscal 2002 and 2001, respectively. Investing activities were primarily
attributed to the acquisition of property and equipment. For the years ended
November 2, 2002 and November 3, 2001, property and equipment acquisitions were
$84.6 million and $56.0 million, respectively. For the fiscal years 2001, 2000,
and 1999 net cash used in investing activities was $52.8, $55.7, and $38.1
million, respectively. Investing activities were primarily attributed to the
acquisition of property and equipment. In 2001, 2000, and 1999 property and
equipment acquisitions were $56.0, $58.0, and $61.0 million, respectively.
Net cash (used in) provided from financing activities was $50.4 million and
$59.1 million for the years ended November 2, 2002 and November 3, 2001,
respectively. In the year ended November 2, 2002, net cash of $9.1 million was
used to make principal payments on long-term obligations. The use of cash was
primarily offset by net proceeds from long-term obligations of $58.7 million. In
the year ended November 2, 2002, net cash provided from borrowings was partially
used to finance property and equipment acquisitions. The remaining net cash
provided from borrowings will be used for general corporate purposes, including
working capital and capital expenditures in fiscal year 2003. For the fiscal
years 2001, 2000, and 1999 net cash (used in) provided from financing activities
was $59.1, $(25.0), and $16.9 million, respectively. In 2001, cash provided from
borrowings was partially used to finance property and equipment acquisitions. In
2000, cash was used to pay $15.4 million of long-term obligations, $7.0 million
of revolving credit facility debt, and pay capitalized loan costs of $2.6
million. In 1999, net cash provided from borrowings was used to finance property
and equipment acquisitions.
On August 20, 2001 and September 25, 2002, we sold an aggregate total
principal amount of $275 million and $50 million, respectively, 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. 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.
The proceeds from the Senior Notes sold on August 20, 2001 were used to
pay off existing debt. We intend to use the net proceeds from the September 25,
2002 sale of Senior Notes for general corporate purposes, including working
capital, capital expenditures and technology development.
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 November 2, 2002, $54.1 million in letters
of credit were outstanding under the Amended Credit Agreement and we had $95.9
million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. Our overall capital expenditure budget in fiscal 2003 is approximately
$105 million and $90 million in 2004, a majority of which is
25
expected to be discretionary capital expenditures. Our new site in Florida began
production in 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 the net proceeds of the
offering of $50.0 million principal amount of 10.75% Senior Notes due 2011 that
closed in September 2002, and to cover any shortfalls with borrowings under the
Amended Credit Agreement.
In conjunction with negotiations with a major customer for a substantial
expansion of new business and extension of our current business, we have agreed
in principle to significant price reductions over a five-year period that will
begin in May 2003. We believe we will be able to partially or fully offset the
negative effect on our margins of these price reductions with the expansion of
our business with this customer and making more efficient the manufacturing
process associated with our business. If we are unable to offset the effects of
these price reductions through the expansion of our business with this customer
and through manufacturing products more efficiently, or otherwise offset the
effects of such price reductions, our margins will likely be materially
adversely affected.
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 November 2, 2002, we had approximately $69.7 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.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's financial statements, which
have been prepared in accordance with accounting principles accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. The significant accounting policies
are discussed in Note A of the Company's financial statements. These critical
accounting policies are subject to judgments and uncertainties, which affect the
application of these policies. The Company bases its estimates on historical
experience and on various other assumptions believed to be reasonable under the
circumstances. On an on-going basis, the Company evaluates its estimates. In the
event estimates or assumptions prove to be different from actual results,
adjustments are made in subsequent periods to reflect more current information.
The material accounting policies that the Company believes are most critical to
the understanding of the Company's financial position and results of operations
that require significant management estimates and judgments are discussed below.
The Company provides for losses on accounts receivable based upon their
current status, historical experience and management's evaluation of existing
economic conditions. Significant changes in customer profitability or general
economic conditions may have a significant effect on the Company's allowance for
doubtful accounts.
Property, plant and equipment are recorded at cost. Depreciation is
computed principally using the straight-line method based upon estimated useful
lives ranging from 3 to 10 years for machinery and equipment and up to 39 years
for buildings. Amortization of leasehold improvements is provided over the terms
of the various leases. These estimates require assumptions that are believed to
be reasonable. Long-lived assets are tested for impairment annually and when an
event occurs that indicates an impairment may exist.
IMPACT OF NEW ACCOUNTING POLICIES
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 will be effective
for the fiscal year beginning November 3, 2002.
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 will be effective for the fiscal year beginning November 3, 2002.
The Company expects that the adoption of these standards will not have a
material impact on its financial position or results from operations.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At November 2, 2003 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 approximately $3.0 million cash. The proceeds were used to finance
capital expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (PENDING GRANT THORNTON)
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDING NOVEMBER 2, 2002,
NOVEMBER 3, 2001 AND OCTOBER 28, 2000
27
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants............................................... 29
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 2, 2002 and November 3, 2001...................... 30
Consolidated Statements of Earnings for the years ended November 2, 2002,
November 3, 2001 and October 28, 2000..................................................... 32
Consolidated Statements of Stockholders' Equity for the years ended November 2,
2002, November 3, 2001 and October 28, 2000............................................... 33
Consolidated Statements of Cash Flows for the years ended November 2, 2002,
November 3, 2001 and October 28, 2000..................................................... 34
Notes to the Consolidated Financial Statements............................................... 36
28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Plastipak Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Plastipak
Holdings, Inc. and Subsidiaries as of November 2, 2002 and November 3, 2001 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for the three years in the period ended November 2, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Plastipak Holdings,
Inc. and Subsidiaries as of November 2, 2002 and November 3, 2001 and the
results of their operations and their cash flows for each of the three years in
the period ended November 2, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note L, the accompanying consolidated financial statements for
the year ended November 3, 2001 and October 28, 2000 have been adjusted to
reflect an obligation for awards issued under a stock bonus plan. As discussed
in Note N to the consolidated financial statements, during the year ended
October 28, 2000, the Company changed its method of accounting for the purchase
of parts and supplies used in its manufacturing facilities.
We have also audited Schedule II of Plastipak Holdings, Inc. and Subsidiaries
for the years ended November 2, 2002, November 3, 2001 and October 28, 2000. In
our opinion these schedules present fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON LLP
Southfield, Michigan
January 8, 2003
29
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 2, NOVEMBER 3,
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 69,696,262 $ 53,483,389
Accounts receivable
Trade (net of allowance of $2,166,430 and $6,111,236
at November 2, 2002 and November 3, 2001) 46,086,007 48,906,619
Related parties 6,228,360 6,695,143
----------- -----------
52,314,367 55,601,762
Prepaid expenses 8,523,505 10,154,635
Inventories 78,730,293 77,930,887
Prepaid federal income taxes 3,808,730 1,100,000
Deferred income taxes 2,732,000 6,437,000
Other current assets 4,427,893 5,202,346
----------- -----------
Total Current Assets 220,233,050 209,910,019
PROPERTY, PLANT AND EQUIPMENT -- NET 310,913,565 270,382,231
OTHER ASSETS
Cash surrender value of life insurance 1,788,374 1,650,845
Deposits 15,711,204 6,066,405
Capitalized loan costs (net of accumulated amortization
of $1,729,634 and $267,508 at November 2, 2002 and
November 3, 2001) 11,261,613 10,679,904
Intangible assets, (net of accumulated amortization of
$9,376,000 and $7,447,400 at November 2, 2002
and November 3, 2001) 8,768,184 3,282,302
Prepaid expenses 910,466 553,235
Note receivable 11,894 2,529,736
----------- -----------
Total Other Assets 38,451,735 24,762,427
----------- -----------
$ 569,598,350 $ 505,054,677
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
NOVEMBER 2, NOVEMBER 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
----------- -----------
CURRENT LIABILITIES
Accounts payable
Trade $ 89,505,818 $ 95,498,517
Related parties 717,517 150,664
----------- -----------
90,223,335 95,649,181
Current portion of long-term obligations 5,180,231 6,615,597
Accrued liabilities
Taxes other than income 4,943,876 4,454,849
Other accrued expenses 25,709,607 23,761,086
Income taxes 1,388,244 1,081,560
----------- -----------
Total Current Liabilities 127,445,293 131,562,273
SENIOR NOTES (NET OF UNAMORTIZED DISCOUNT/PREMIUM)
OF ($2,501,893) AND $4,056,688 AT NOVEMBER 2, 2002
AND NOVEMBER 3, 2001, RESPECTIVELY 327,501,893 270,943,312
LONG-TERM OBLIGATIONS 55,132,393 55,503,756
DEFERRED INCOME TAXES 12,344,000 11,238,000
OTHER NON-CURRENT LIABILITIES 3,785,884 3,399,352
OBLIGATIONS UNDER STOCK BONUS PLAN 6,104,850 2,941,320
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares authorized;
28,316 and 27,753 shares issued and outstanding,
respectively 28,316 27,753
Retained earnings 37,255,721 29,438,911
----------- -----------
Total Stockholders' Equity 37,284,037 29,466,664
----------- -----------
$ 569,598,350 $ 505,054,677
=========== ===========
31
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED
----------------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
(52 WEEKS) (53 WEEKS) (52 WEEKS)
----------- ----------- -----------
Revenues $812,190,068 $809,774,598 $701,872,292
Costs and expenses 697,000,995 709,012,933 625,691,371
----------- ----------- -----------
Gross profit 115,189,073 100,761,665 76,180,921
Selling, general and administrative expenses 68,505,788 64,476,989 50,958,192
----------- ----------- -----------
Operating profit 46,683,285 36,284,676 25,222,729
Other expense (income)
Equity in affiliate earnings - (38,437) (200,078)
Interest expense 35,099,265 28,955,895 27,027,534
Interest income (1,221,145) (915,237) (526,105)
Royalty income (760,857) (883,599) (1,008,694)
(Gain) loss on foreign currency translation 128,510 (468,105) 1,297,853
Sundry 13,702 (797,217) (981,075)
----------- ----------- -----------
33,259,475 25,853,300 25,609,435
----------- ----------- -----------
Earnings (loss) before income taxes and
cumulative effect of change in accounting
principle 13,423,810 10,431,376 (386,706)
Income tax expense (benefit)
Current 20,000 2,111,000 223,000
Deferred 4,811,000 1,173,000 (2,403,000)
----------- ----------- -----------
4,831,000 3,284,000 (2,180,000)
----------- ----------- -----------
Earnings before cumulative effect of
change in accounting principle 8,592,810 7,147,376 1,793,294
Cumulative effect of change in accounting principle
(net of income taxes of $1,610,000) - - 3,124,946
----------- ----------- -----------
Net earnings $ 8,592,810 $ 7,147,376 $ 4,918,240
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON RETAINED
STOCK EARNINGS TOTAL
-------- ------------ ------------
Balance, October 30, 1999, as previously
reported (Note L) $ 27,753 $ 20,228,295 $ 20,256,048
Adjustment to reflect obligations under stock
bonus plan - (2,395,000) (2,395,000)
-------- ------------ ------------
27,753 17,833,295 17,861,048
Net earnings - 4,918,240 4,918,240
Increase in stock redemption value (Note L) - (187,000) (187,000)
-------- ------------ ------------
Balance, October 28, 2000 27,753 22,564,535 22,592,288
Net earnings - 7,147,376 7,147,376
Increase in stock redemption value (Note L) - (273,000) (273,000)
-------- ------------ ------------
Balance, November 3, 2001 27,753 29,438,911 29,466,664
Net earnings - 8,592,810 8,592,810
Issuance of 563 shares of common stock 563 - -
Increase in stock redemption value - (776,000) (776,000)
-------- ------------ ------------
Balance, November 2, 2002 $ 28,316 $ 37,255,721 $ 37,284,037
======== ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
33
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
----------------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
(52 WEEKS) (53 WEEKS) (52 WEEKS)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 8,592,810 $ 7,147,376 $ 4,918,240
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depreciation and amortization 48,017,593 44,711,621 42,166,057
Interest expense on senior notes
discount/premium 296,582 82,062 -
Stock Bonus Plan 2,387,530 - 79,076
Bad debt (recovery) expense 1,762,463 3,714,141 405,855
Deferred salaries 403,832 1,264,000 625,000
Deferred income tax expense (benefit) 4,811,000 1,173,000 (793,000)
(Gain) loss on sale of equipment (39,253) 10,862 130,853
Loss on investment in affiliate - 722,413 -
Equity in earnings affiliates' - (38,437) (200,078)
Change in accounting principle - - (4,734,946)
Foreign currency translation (gain) loss (2,660,787) (3,096,129) 520,592
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable 3,692,593 11,243,219 (16,474,321)
(Increase) in inventories (799,406) (12,047,595) (3,776,880)
Decrease (increase) in prepaid
expenses and other current assets 1,594,282 (4,385,648) 225,211
(Increase) decrease in cash surrender
value (137,529) (83,765) 52,440
(Increase) decrease in prepaid federal
income taxes (2,708,730) (829,366) 5,885,565
(Increase) decrease in deposits (9,644,799) (2,060,410) 10,374,903
Increase in other liabilities 2,392,731 6,307,863 9,202,787
(Decrease) increase in accounts payable (5,425,846) (8,807,414) 26,621,838
Decrease (increase) in sundry 2,517,842 (2,108,758) 222,887
Increase in income taxes 306,684 920,560 161,000
------------ ------------ ------------
Net cash provided by operating
activities 55,359,592 43,839,595 75,613,079
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (82,148,295) (50,469,057) (54,694,075)
Acquisition of intangible assets (7,414,600) (2,287,917) (1,008,084)
------------ ------------ ------------
Net cash used in investing activities (89,562,895) (52,756,974) (55,702,159)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
YEARS ENDED
----------------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
(52 WEEKS) (53 WEEKS) (52 WEEKS)
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving credit facility 5,381,858 (174,547,855) (7,018,557)
Payments on long-term obligations (9,103,298) (29,265,504) (15,362,913)
Proceeds from long-term obligations 53,271,503 273,142,417 -
Settlement of interest rate swap 3,012,000 - -
Issuance of common stock 563 - -
Capitalized loan costs (2,146,450) (10,275,260) (2,629,549)
------------ ------------ ------------
Net cash provided by (used in)
financing activities 50,416,176 59,053,798 (25,011,019)
------------ ------------ ------------
Net increase (decrease) in cash 16,212,873 50,136,419 (5,100,099)
Cash and cash equivalents at beginning
of period 53,483,389 3,346,970 8,447,069
------------ ------------ ------------
Cash and cash equivalents at end of period $ 69,696,262 $ 53,483,389 $ 3,346,970
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ 2,475,000 $ 2,120,000 $ 240,000
============ ============ ============
Cash paid for interest $ 37,600,000 $ 26,500,000 $ 25,000,000
============ ============ ============
SUPPLEMENTAL NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment through
the assumption of long-term obligations $ 2,413,850 $ 5,491,086 $ 3,099,382
============ ============ ============
Increase in Obligation Under Stock
Bonus Plan $ 776,000 $ 273,000 $ 187,000
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan corporation
that was formed in 1998 to act as a holding company for several companies which
were under common control. On October 30, 1999, Plastipak acquired all of the
equity interests in Plastipak Packaging, Inc. ("Packaging"), W.P. Young
Marketing, TABB Investments, Inc., 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 Brazil"),
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 Brazil. Whiteline is a trucking
company which serves 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, Clean Tech and Whiteline. Plastipak Brazil produces
injection-molded plastic performs, blow molds rigid plastic packaging in
Paulinia and Manaus. Plastipak Brazil also maintains a sales office in Buenos
Aires, Argentina. Other than Plastipak Brazil and its subsidiaries, all of the
Plastipak group of companies are headquartered in Plymouth, Michigan.
SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
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 periods ended November 2, 2002 and October 28, 2000 contained 52 weeks. The
period ended November 3, 2001 contained 53 weeks.
CASH EQUIVALENTS
For purposes of the statement of cash flows, all investments purchased with an
original maturity of three months or less are considered to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Plastipak provides an allowance for losses on accounts receivable based on a
review of the current status of existing receivables, historical collection
experience and management's evaluation of the effect of existing economic
conditions.
36
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally on the straight-line method based upon estimated useful lives
ranging from 3 to 10 years for machinery and equipment and up to 39 years for
buildings. Amortization of leasehold improvements is provided over the lesser of
the useful lives of the improvements or the terms of the various leases.
Interest costs associated with construction in process of approximately
$1,418,000, $1,550,000 and $1,362,000 were capitalized during the years ending
November 2, 2002, November 3, 2001 and October 28, 2000, respectively.
CAPITALIZED LOAN COSTS
Capitalized loan costs are amortized over the term of the related debt
agreement.
INTANGIBLE ASSETS
Periodically, Packaging acquires exclusive manufacturing contracts from a
customer. Consideration paid by Packaging for these arrangements is recorded as
an intangible asset and amortized over the term of the related contract. Other
intangibles relate to Brazil short falls on previous contracts which are being
amortized over the life of the new contract.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effects of tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
SELF-INSURANCE
Plastipak is self-insured for health costs and workers' compensation up to a
certain stop loss level. The estimated liability is based upon a review by
Plastipak and an independent broker of claims filed and claims incurred but not
reported.
STOCK-BASED COMPENSATION
For options granted to employees, the Company follows the provisions of
Accounting Principles Board No. 25, accounting for stock issued to employees,
and accordingly, recognizes compensation expense for option grants where the
purchase price is less than the fair market value at the date of grant.
37
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Plastipak's financial instruments include accounts receivable, accounts payable
and long-term obligations. The carrying amounts of financial instruments
approximate their fair values.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs were approximately $8,600,000, $7,100,000 and $6,300,000,
respectively for the years ended November 2, 2002, November 3, 2001 and October
28, 2000, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency for Plastipak Brazil is the U.S. dollar. The financial
statements for Plastipak Brazil are maintained in the functional currency. Gains
and losses associated with exchange rate fluctuations are reflected in
operations.
INDUSTRY SEGMENTS
Plastipak reports information about operating segments pursuant to SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information."
Plastipak is organized and managed on a geographic basis in two operating
segments: North America and South America. See Note P.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 and 2000 consolidated
financial statements in order for them to conform to the 2002 presentation.
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 will be effective for the
fiscal year beginning November 3, 2002.
38
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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 will be effective for the fiscal year beginning November
3, 2002.
The Company expects that the adoption of these standards will not have a
material impact on its financial position or results from operations.
NOTE B - INVENTORIES
Inventories consisted of the following at:
NOVEMBER 2, NOVEMBER 3,
2002 2001
------------ ------------
Raw materials $29,585,642 $28,166,931
Finished goods 37,753,695 38,922,590
Parts and supplies 11,390,956 10,841,366
------------ ------------
$78,730,293 $77,930,887
============ ============
39
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment are as follows:
NOVEMBER 2, NOVEMBER 3,
2002 2001
------------- -------------
Land $ 6,974,961 $ 4,547,843
Buildings 73,969,116 64,031,367
Machinery and equipment 358,790,352 306,268,181
Tooling 80,733,626 72,898,842
Automobiles, trucks and trailers 3,702,463 3,120,292
Furniture and fixtures 2,805,098 2,706,263
Lease acquisition costs 299,293 299,293
Computers 19,153,629 14,552,961
Leasehold improvements 26,621,058 26,127,775
Construction in process 30,137,512 28,970,148
------------- -------------
603,187,108 523,522,965
Less accumulated depreciation and amortization 292,273,543 253,140,734
------------- -------------
$310,913,565 $270,382,231
============= =============
Construction in process represents expenditures for assets which have not been
placed in service. No depreciation or amortization expense is taken on these
assets until they become operational.
Depreciation and amortization for property, plant and equipment was
approximately $44,000,000, $41,000,000 and $40,000,000 for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000, respectively.
NOTE D -- LONG-TERM OBLIGATIONS
NOVEMBER 2, NOVEMBER 3,
2002 2001
------------ ------------
Revolving credit facility pursuant to which Plastipak is permitted to borrow up
to $150,000,000. Interest is payable quarterly at Eurodollar or prime-based
rates which varied from 4.75% to 5.50% at November 2, 2002. Principal is due on
August 20, 2006. The Company is required to pay facility and agency fees during
the year. The facility is secured by all assets of Plastipak. $ - $ -
Notes payable to banks with interest rates varying from 3.5% to 12%, and are
due at various times through August 2006. Borrowings are collateralized by
letters of credit. 50,956,307 45,972,834
Notes payable with interest rates varying from 2.4% to 7.5% due in various
installments at various dates through 2005, collateralized by certain
equipment and, in part, by letters of credit. 2,573,822 8,369,865
40
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE D -- LONG-TERM OBLIGATIONS (CONTINUED)
NOVEMBER 2, NOVEMBER 3,
2002 2001
----------- -----------
Subordinated notes payable to former stockholders due in
monthly installments ranging from $7,670 to $26,850, plus
interest ranging from 6% to 10%. Notes are due through
October 2003. 107,400 $ 1,040,300
Other 6,675,095 6,736,354
----------- -----------
60,312,624 62,119,353
Less current portion 5,180,231 6,615,597
----------- -----------
$55,132,393 $55,503,756
=========== ===========
Minimum principal payments on long-term obligations to maturity as of November
2, 2002 are as follows:
2003 $ 5,180,231
2004 2,575,968
2005 1,208,043
2006 51,348,382
-----------
$60,312,624
===========
The revolving credit facility contains various covenants pertaining to
maintenance of net worth and debt to equity ratios and various other
restrictions.
At November 2, 2002 and November 3, 2001, Plastipak has outstanding letters
aggregating $54,100,000 and $53,100,000, respectively.
41
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE E -- SENIOR NOTES
In August 2001 and September 2002, the Company issued $275,000,000 and
$50,000,000, respectively of 10.75% senior notes due in 2011. Interest is
payable semi-annually. The indentures under which the notes were issued place
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 and $51,800,000 for the years
ending November 3, 2001 and November 2, 2002, respectively.
The carrying amount of the senior notes were approximately $327,500,000 and
$271,000,000 as of November 2, 2002 and November 1, 2001, respectively. Based
upon current market rates primarily provided by outside investment bankers, the
fair value of the senior notes at November 2, 2002 and November 1, 2001 was
estimated at $334,000,000 and $288,578,000, respectively.
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.
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 which has been recorded as an increase in the senior notes and will
be amortized over the term of the notes.
42
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE G -- INCOME TAXES
The components of earnings (loss) before income taxes and cumulative effect are
as follows:
YEARS ENDED
-----------------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
------------ ------------ ------------
United States $ 26,225,605 $ 23,957,855 $ 5,572,834
Foreign (12,801,795) (13,526,479) (5,959,540)
------------ ------------ ------------
$ 13,423,810 $ 10,431,376 $ (386,706)
============ ============ ============
Deferred income tax assets and liabilities consist of the following:
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
------------ ------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 2,852,000 $ 2,254,000 $ 4,755,000
Insurance - 1,122,000 979,000
Allowance for doubtful accounts 1,020,000 2,077,000 1,200,000
Vacation 117,000 229,000 192,000
Inventory 577,000 589,000 44,000
Restricted stock options 367,000 368,000 368,000
Accrued expenses 1,313,000 575,000 1,381,000
Foreign tax credit 1,007,000 901,000 901,000
Contributions 78,000 - 56,000
Deferred salary 912,000 775,000 483,000
U.S. tax credits 5,924,000 5,797,000 3,861,000
Deposits received - 1,278,000 -
Loss in affiliates 139,000 - -
Interest swap 995,000 - -
------------ ------------ ------------
15,301,000 15,965,000 14,220,000
Deferred tax liabilities:
Earnings in affiliates - (513,000) (194,000)
Depreciation (21,546,000) (15,266,000) (13,059,000)
Repairs and maintenance (461,000) - -
Foreign exchange gain (1,543,000) (1,543,000) (1,460,000)
Capitalized interest (183,000) (183,000) (183,000)
Parts and supplies inventory (212,000) (2,861,000) (2,552,000)
Prepaids (402,000) - -
VEBA (346,000) - -
Other (220,000) (400,000) (400,000)
------------ ------------ ------------
(24,913,000) (20,766,000) (17,848,000)
------------ ------------ ------------
Net deferred tax liability $ (9,612,000) $ (4,801,000) $ (3,628,000)
============ ============ ============
Net operating loss carryforwards expire in years ending through 2022.
43
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE G -- INCOME TAXES (CONTINUED)
A reconciliation of the actual federal income tax expense to the expected
amounts computed by applying the statutory tax rate percent to earnings or
losses before income taxes and cumulative effect is as follows:
YEARS ENDED
-----------------------------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28,
2002 2001 2000
------------ ------------ ------------
Expected federal income tax (benefit) $ 4,565,000 $ 3,547,000 $ (115,000)
Effect of non-deductible items 643,000 46,000 69,000
Research and experimentation credits (300,000) (320,000) (2,200,000)
Foreign tax credit (167,000) - (100,000)
Other 90,000 11,000 166,000
------------ ------------ ------------
$ 4,831,000 $ 3,284,000 $ (2,180,000)
============ ============ ============
NOTE H -- COMMITMENTS
Plastipak leases office, equipment and warehouse and manufacturing facilities
under operating leases which expire at various dates through 2008. Long-term
lease commitments are as follows:
YEAR ENDING
-----------
2003 $25,585,217
2004 16,106,886
2005 11,996,419
2006 6,221,783
2007 2,484,444
Thereafter 1,524,331
The total rent expense for the years ended November 2, 2002, November 3, 2001
and October 28, 2000 was approximately $31,132,000, $36,154,000 and $42,411,000,
respectively.
NOTE I -- RELATED PARTY TRANSACTIONS
Included in revenues for the periods ended November 2, 2002, November 3, 2001
and October 28, 2000 are approximately $17,834,000, $20,363,000 and $16,083,000,
respectively, of sales to companies affiliated through common ownership.
Included in accounts receivable at November 2, 2002 and November 3, 2001 are
approximately $6,228,000 and $6,695,000, respectively, of receivables from these
companies.
A company affiliated through common ownership provides engineering services and
customizes machinery. During the fiscal years ended 2002, 2001 and 2000,
Packaging was invoiced $5,500,000, $2,385,000 and $6,673,000, respectively.
44
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE J -- PROFIT SHARING/401(k) PLAN
Plastipak has a profit sharing plan and a 401(k) plan which cover substantially
all employees. The profit sharing expense for the periods ended November 2,
2002, November 3, 2001 and October 28, 2000 was approximately $2,505,000,
$2,365,000 and $1,930,000, respectively.
NOTE K -- MAJOR CUSTOMERS
During the years ended November 2, 2002 and November 3, 2001 one customer in
each year generated revenues representing approximately 25% and 23% of total
revenues, respectively. Accounts receivable for this customer at November 2,
2002 and November 3, 2001, amounted to approximately $5,979,000 and $2,483,000,
respectively.
NOTE L -- STOCK COMPENSATION PLANS
Plastipak sponsors two Restricted Stock Bonus Plans. Pursuant to the terms of
the Amended and Restated Stock Bonus Plan the Company has reserved 5,450 common
shares for issuance. Vesting under the plan ranges from 0-5 years at the
discretion of the Board of Directors. Pursuant to the terms of awards granted in
1985, 1,379 shares had been acquired pursuant to the terms of this plan. At
November 3, 2001 and October 28, 2000 there were options outstanding to acquire
1,199 shares at a normal per share price. During the year ended November 2, 2002
the Company granted options to acquire an additional 872 shares, and options for
263 shares were exercised. At November 2, 2002, options to acquire 1,808 shares
were outstanding.
The Company adopted the 2002 Restricted Stock Bonus Plan on October 16, 2002.
Pursuant to the terms of this plan, the Company has reserved 5,450 shares for
issuance of which options to acquire 1,000 shares were granted at a nominal per
share price. The options vest over a period from 0-10 years at the discretion of
the Board of Directors. During the year certain employees exercised options to
acquire 300 shares of common stock.
Each of the above referenced plans require the Company, subject to certain
limitations, to repurchase the shares issued under the plans at a price based
upon a book value computation. The $2,395,000 adjustment to retained earnings as
of October 31, 1999 represents the stipulated value of the shares underlying the
awards at that date. Increases in the per share redemption value in 2000, 2001
and 2002, of $187,000, $273,000 and $776,000, respectively, associated with the
1,379 shares referred to above are treated as a reduction of retained earnings
and an increase to obligations under stock bonus plans. Included in general and
administrative expenses for the year ended November 3, 2002 is $2,387,530
representing the excess of the redemption value over the exercise price for
options granted during the year and the increase in redemption value associated
with unexercised options.
Amounts expensed approximate that which would have been expensed had the value
of the options granted been computed under the provisions of FAS 123.
45
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE M -- SALARY CONTINUATION PLAN
Packaging sponsors a nonqualified salary continuation plan that provides for the
payment of normal retirement and death benefits, and in some cases early
retirement benefits, to participants, as specified in the participant's adoption
agreement. An adoption agreement between the participant and Packaging sets
forth the age, years of service and other requirements a participant must attain
in order to receive a particular benefit. The plan provides a monthly benefit,
as defined by the participants' contract for a stated period of time, upon
reaching the age of 65. This Plan is noncontributory, although certain life
insurance policies have been acquired for the purpose of funding these benefits.
The life insurance policies are not assets of the Plan. The accumulated
postretirement obligation for the periods ended November 2, 2002 and November 3,
2001 was approximately $3,088,000 and $2,680,000, respectively.
NOTE N -- CHANGE IN ACCOUNTING PRINCIPLE
Through October 30, 1999, Plastipak expensed parts and supplies utilized in its
manufacturing facilities. Effective during the year ended October 28, 2000,
these items are inventoried and are charged to expense when used. Due to the
increased volume of purchases of such items, management believes that this
method is preferable and it provides for a better matching of revenues and
expenses.
The effect of this change in accounting principle in 2000 was to increase
earnings before cumulative effect of change in accounting principle by
approximately $1,836,000.
NOTE O -- 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.
NOTE P -- 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 November 2, 2002 and
November 3, 2001 and the three years in the period ending November 3,
2002, 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.
46
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 44,619,480 $ 22,888,938 $ 2,187,844 $ - $ 69,696,262
Accounts receivable 5,086,992 44,941,401 8,757,490 (6,471,516) 52,314,367
Prepaid expenses - 6,273,988 2,249,517 - 8,523,505
Inventories - 62,985,057 15,745,236 - 78,730,293
Prepaid federal income taxes 796,000 3,012,730 - - 3,808,730
Deferred income taxes (2,019,000) 2,226,000 2,525,000 - 2,732,000
Other current assets - 4,057,036 370,857 - 4,427,893
------------ ------------ ------------ ------------ ------------
Total current assets 48,483,472 146,385,150 31,835,944 (6,471,516) 220,233,050
PROPERTY, PLANT AND EQUIPMENT -- NET - 255,598,323 55,715,242 (400,000) 310,913,565
OTHER ASSETS
Cash surrender value of life insurance - 1,788,374 - - 1,788,374
Deposits - 15,711,204 - - 15,711,204
Investments in and advances to affiliates 316,666,208 (254,504,681) - (62,161,527) -
Capitalized loan costs 1,155,757 10,105,856 - - 11,261,613
Intangible assets - 4,504,210 4,263,974 - 8,768,184
Deferred tax asset (86,000) 86,000 - - -
Prepaids - 910,466 - - 910,466
Note receivable - 5,011,894 - (5,000,000) 11,894
------------ ------------ ------------ ------------ ------------
Total other assets 317,735,965 (216,386,677) 4,263,974 (67,161,527) 38,451,735
------------ ------------ ------------ ------------ ------------
Total assets $366,219,437 $185,596,796 $ 91,815,160 $(74,033,043) $569,598,350
============ ============ ============ ============ ============
47
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ - $ 65,472,597 $ 31,222,254 $ (6,471,516) $ 90,223,335
Current portion of long-term liabilities - 3,459,728 1,720,503 - 5,180,231
Taxes other than income - 4,392,901 550,975 - 4,943,876
Deferred income tax liability (118,000) 118,000 - - -
Income taxes (168,440) 1,556,684 - - 1,388,244
Other accrued expenses 5,481,483 16,638,057 3,590,067 - 25,709,607
------------- ------------- ------------- ------------- -------------
Total current liabilities 5,195,043 91,637,967 37,083,799 (6,471,516) 127,445,293
SENIOR NOTES 331,146,037 (3,644,144) - - 327,501,893
LONG-TERM OBLIGATIONS - 2,981,314 57,151,079 (5,000,000) 55,132,393
DEFERRED INCOME TAXES (11,798,000) 22,705,000 1,437,000 - 12,344,000
OTHER LONG-TERM LIABILITIES - 3,147,418 638,466 - 3,785,884
OBLIGATIONS UNDER STOCK BONUS PLANS 4,392,320 1,712,530 - - 6,104,850
STOCKHOLDERS' EQUITY (DEFICIT) 37,284,037 67,056,711 (4,495,184) (62,561,527) 37,284,037
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders'
equity (deficit) $ 366,219,437 $ 185,596,796 $ 91,815,160 $ (74,033,043) $ 569,598,350
============= ============= ============= ============= =============
48
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION 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 - 5,089,370 5,065,265 - 10,154,635
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 6,186,005 166,831,529 43,884,401 (6,991,916) 209,910,019
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 - - -
Prepaid expenses - 553,235 - - 553,235
Sundry - 7,529,736 - (5,000,000) 2,529,736
------------- ------------- ------------- ------------- -------------
Total other assets 299,550,511 (222,284,811) 312,636 (52,815,909) 24,762,427
------------- ------------- ------------- ------------- -------------
Total assets $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
49
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- 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 ELIMINATION 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
OBLIGATIONS UNDER STOCK VALUE PLANS 2,941,320 - - - 2,941,320
STOCKHOLDERS' EQUITY (DEFICIT) 29,466,664 51,398,248 (3,582,339) (47,815,909) 29,466,664
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity (deficit) $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
50
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 748,587,324 $ 65,946,063 $ (2,343,319) $ 812,190,068
Cost and expenses - 630,435,701 68,638,613 (2,073,319) 697,000,995
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 118,151,623 (2,692,550) (270,000) 115,189,073
Selling, general and administrative expenses 63,487 61,909,025 6,803,276 (270,000) 68,505,788
------------- ------------- ------------- ------------- -------------
Operating (loss) profit (63,487) 56,242,598 (9,495,826) - 46,683,285
Other expense (income)
Equity in loss (earnings) of affiliates (5,017,029) 2,560,359 - 2,456,670 -
Interest expense 29,491,925 1,590,376 4,219,069 (202,105) 35,099,265
Interest income (28,781,238) 27,860,531 (502,543) 202,105 (1,221,145)
Royalty income - (760,857) - - (760,857)
Sundry (income) loss (671,955) 824,724 (539,067) 400,000 13,702
Gain on foreign currency translation - - 128,510 - 128,510
------------- ------------- ------------- ------------- -------------
(4,978,297) 32,075,133 3,305,969 2,856,670 33,259,475
------------- ------------- ------------- ------------- -------------
Earnings (loss) before income taxes 4,914,810 24,167,465 (12,801,795) (2,856,670) 13,423,810
Income taxes (benefit) expense (3,678,000) 8,509,000 - - 4,831,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 8,592,810 $ 15,658,465 $ (12,801,795) $ (2,856,670) $ 8,592,810
============= ============= ============= ============= =============
51
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 738,056,186 $ 74,218,412 $ (2,500,000) $ 809,774,598
Cost and expenses - 638,015,102 73,414,294 (2,416,463) 709,012,933
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 100,041,084 804,118 (83,537) 100,761,665
Selling, general and administrative expenses - 54,787,063 9,053,926 636,000 64,476,989
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 45,254,021 (8,249,808) (719,537) 36,284,676
Other expense (income)
Equity in loss (earnings) of affiliates (3,692,343) 2,617,859 - 1,036,047 (38,437)
Interest expense 6,240,972 16,827,424 6,248,803 (361,304) 28,955,895
Interest income (6,186,005) 5,365,248 (455,784) 361,304 (915,237)
Royalty income - (883,599) - - (883,599)
Sundry income - (748,974) (48,243) - (797,217)
Gain on foreign currency translation - - (468,105) - (468,105)
------------- ------------- ------------- ------------- -------------
(3,637,376) 23,177,958 5,276,671 1,036,047 25,853,300
------------- ------------- ------------- ------------- -------------
Earnings (loss) before income taxes 3,637,376 22,076,063 (13,526,479) (1,755,584) 10,431,376
Income taxes (benefit) expense (3,510,000) 7,039,000 (245,000) - 3,284,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 7,147,376 $ 15,037,063 $ (13,281,479) $ (1,755,584) $ 7,147,376
============= ============= ============= ============= =============
52
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE YEAR ENDED OCTOBER 28, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
Revenues $ - $639,576,090 $ 63,584,178 $ (1,287,976) $701,872,292
Cost and expenses - 569,615,545 57,363,802 (1,287,976) 625,691,371
------------ ------------ ------------ ------------ ------------
Gross profit - 69,960,545 6,220,376 - 76,180,921
Selling, general and administrative expenses - 45,164,192 5,794,000 - 50,958,192
------------ ------------ ------------ ------------ ------------
Operating profit - 24,796,353 426,376 - 25,222,729
Other expense (income)
Equity in loss (earnings) of affiliates (3,578,364) 990,459 - 2,387,827 (200,078)
Interest expense - 21,969,188 5,480,750 (422,404) 27,027,534
Interest income - (595,641) (352,868) 422,404 (526,105)
Royalty income - (1,008,694) - - (1,008,694)
Sundry income - (940,381) (39,819) (875) (981,075)
Loss on foreign currency translation - - 1,297,853 - 1,297,853
------------ ------------ ------------ ------------ ------------
(3,578,364) 20,414,931 6,385,916 2,386,952 25,609,435
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes and
change in accounting principle 3,578,364 4,381,422 (5,959,540) (2,386,952) (386,706)
Income taxes (benefit) expense (1,339,876) (884,000) 43,000 876 (2,180,000)
------------ ------------ ------------ ------------ ------------
Earnings (loss) before change in accounting
principle 4,918,240 5,265,422 (6,002,540) (2,387,828) 1,793,294
Change in accounting principle (net of tax) - 3,124,946 - - 3,124,946
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 4,918,240 $ 8,390,368 $ (6,002,540) $ (2,387,828) $ 4,918,240
============ ============ ============ ============ ============
53
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 2,529,702 $ 54,253,541 $ (483,602) $ (940,049) $ 55,359,592
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (76,509,171) (8,016,798) 2,377,674 (82,148,295)
Investment in and advances to affiliates (12,997,198) (3,088,950) - 16,086,148 -
Proceeds from sale of equipment - 1,977,673 (1,977,673) -
Acquisition of intangible assets - (3,000,000) (4,414,600) - (7,414,600)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (12,997,198) (82,598,121) (10,453,725) 16,486,149 (89,562,895)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - - 5,354,340 27,518 5,381,858
Principal payments on long-term
obligations - (9,358,164) (6,145,134) 6,400,000 (9,103,298)
Proceeds from long-term obligations 53,250,000 10,084,668 21,503 (10,084,668) 53,271,503
Capital increases 563 - 11,888,950 (11,888,950) 563
FV of interest rate swap 3,012,000 - - - 3,012,000
Capitalized loan costs (1,176,587) (969,863) - - (2,146,450)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 55,085,976 (243,359) 11,119,659 (15,546,100) 50,416,176
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash 44,618,480 (28,587,939) 182,332 - 16,212,873
Cash and cash equivalents at beginning
of year 1,000 51,476,877 2,005,512 - 53,483,389
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent at end of year $ 44,619,480 $ 22,888,938 $ 2,187,844 - 69,696,262
============ ============ ============ ============ ============
54
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 3,692,342 $ 52,410,552 $ (7,710,392) $ (4,552,907) $ 43,839,595
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (38,775,401) (11,693,656) - (50,469,057)
Investment in and advances to affiliates (278,691,342) (5,000,000) - 283,691,342 -
Acquisition of intangible assets - (2,287,917) - - (2,287,917)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (278,691,342) (46,063,318) (11,693,656) 283,691,342 (52,756,974)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - (190,633,463) 16,085,608 - (174,547,855)
Payments on long-term obligations - (22,627,228) (7,478,276) 840,000 (29,265,504)
Proceeds from long-term obligations 275,000,000 266,860,259 2,281,983 (270,999,825) 273,142,417
Capitalized loan costs - (10,275,260) - - (10,275,260)
Preferred stock - - 8,978,610 (8,978,610) -
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 275,000,000 43,324,308 19,867,925 (279,138,435) 59,053,798
------------ ------------ ------------ ------------ ------------
Net increase in cash 1,000 49,671,542 463,877 - 50,136,419
Cash and cash equivalents at beginning
of year - 1,805,335 1,541,635 - 3,346,970
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent at end of year $ 1,000 $ 51,476,877 $ 2,005,512 $ - $ 53,483,389
============ ============ ============ ============ ============
55
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED OCTOBER 28, 2000
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 3,666,121 $ 76,543,650 $ (2,247,351) $ (2,349,341) $ 75,613,079
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (48,509,404) (6,184,671) - (54,694,075)
Investment in and advances to affiliates (3,666,121) (3,929,465) 5,006,245 2,589,341 -
Acquisition of intangible assets - (1,008,084) - - (1,008,084)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (3,666,121) (53,446,953) (1,178,426) 2,589,341 (55,702,159)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - (18,681,869) 11,903,312 (240,000) (7,018,557)
Payments on long-term obligations - (6,572,913) (8,790,000) - (15,362,913)
Capitalized loan costs - (2,629,549) - - (2,629,549)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities - (27,884,331) 3,113,312 (240,000) (25,011,019)
------------ ------------ ------------ ------------ ------------
Net decrease in cash - (4,787,634) (312,465) - (5,100,099)
Cash and cash equivalents at beginning of year - 6,592,969 1,854,100 - 8,447,069
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent at end of year $ - $ 1,805,335 $ 1,541,635 $ - $ 3,346,970
============ ============ ============ ============ ============
56
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000
NOTE Q -- QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
FISCAL YEAR ENDED NOVEMBER 2, 2002
Revenues $187,502,416 $203,394,217 $208,359,282 $212,934,153
Gross profit 26,116,907 34,670,554 27,554,918 26,846,694
Net (loss) earnings (492,500) 6,678,975 3,052,898 (646,563)
FISCAL YEAR ENDED NOVEMBER 3, 2001
Revenues 197,794,121 207,255,264 205,539,141 199,186,072
Gross profit 19,724,317 31,602,123 21,566,573 27,868,652
Net (loss) earnings (473,693) 6,661,282 582,804 376,983
57
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COST AND TO OTHER DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS OF PERIOD
----------- ----------- ---------- ----------- ----------
Allowance for doubtful accounts:
Year ended:
November 2, 2002 $6,111,236 $1,762,463 $ - $5,707,269(1) $2,166,430
November 3, 2001 $3,529,283 $3,714,141 $ - $1,132,188(2) $6,111,236
October 28, 2000 $3,190,347 $ 405,855 $ - $ 66,919 $3,529,283
(1) Includes $2,168,000 decrease attributable to remeasurement of allowance for
doubtful accounts in South America.
(2) Includes $1,019,000 decrease attributable to remeasurement of allowance for
doubtful accounts in South America.
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COST AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ----------- ---------- ----------- ----------
Accumulated amortization
for intangible assets:
Year ended:
November 2, 2002 $7,447,400 $1,928,718 $ - $ - $9,376,118
November 3, 2001 $5,385,852 $2,061,548 $ - $ - $7,447,400
October 28, 2000 $3,859,189 $1,526,663 $ - $ - $5,385,852
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers, directors and certain key employees of Plastipak and its
subsidiaries.
NAME AGE POSITION
--------------------------- ---- ---------------------------------
William C. Young 62 Chairman and Director, President & Chief Executive
Officer, Manager
William A. Slat 55 Vice President-- Operations and Manufacturing
Michael J. Plotzke 45 Chief Financial Officer, Vice President-- Finance and
Treasurer and Assistant Secretary
Gene W. Mueller 45 Vice President-- Sales and Marketing
Thomas Busard 51 President-- Clean Tech
Pradeep Modi 47 Vice President-- Controller and Strategic Operation
Planning
Frank Pollock 47 Vice President-- International Sales/Marketing
Richard Darr 53 Vice President-- Packaging Development
J. Ronald Overbeck 54 Vice President-- Product Supply
Leann M. Underhill 57 Corporate Legal Counsel and Secretary
David Daugherty 47 Chief Information Officer
John Michel 53 Vice President-- Transportation
Thomas L. Schellenberg 56 Director
WILLIAM C. YOUNG has been the Chairman of the Board, President and the Chief
Executive Officer of Plastipak since its inception in 1998, and has been
Chairman and Chief Executive Officer of Packaging, Whiteline and Clean Tech
since he founded each company. Mr. Young has been the sole Manager of TABB since
its inception in 1999. Mr. Young is a Trustee of the University of Detroit --
Mercy, where he serves as chairman of the Enrollment Committee. He is also a
Director of Midwest Guaranty Bank.
WILLIAM A. SLAT has been our Vice President-- Operations and Manufacturing
since 1982. Prior to that he was Manufacturing Manager. He has been with us for
31 years and served in various capacities ranging from customer service to plant
and regional management. Mr. Slat holds more than 30 domestic patents with
corresponding international patents. Mr. Slat is a senior member of Society of
Plastic Engineers.
MICHAEL J. PLOTZKE, CPA has served as our Chief Financial Officer, Vice
President of Finance and Treasurer since 1988. Throughout his 18 years with us,
Mr. Plotzke has served in many capacities including his current role as
Treasurer for Packaging, Whiteline, Clean Tech and TABB, all of which he has
held since 1992. Mr. Plotzke serves on the President's Advisory Council of Walsh
College. Prior to joining us, Mr. Plotzke worked for Deloitte & Touche and KPMG
- -- Peat Marwick where he served as a Manager in the Financial Services division
of the consulting practice.
GENE W. MUELLER joined us in February 1997 and has served as our Vice
President -- Sales and Marketing since 1999. Before coming to us, Mr. Mueller
worked for Constar, a subsidiary of Crown, Cork & Seal for 18 years, where he
served as the Vice President of Sales until 1997.
THOMAS BUSARD is President-- Clean Tech and has served in that position
since 1989. Mr. Busard has been with us for over 26 years. Mr. Busard is a
member of the Board of the Michigan Recycling Coalition and is our
representative to the Council on Plastics and Packaging in the Environment. Mr.
Busard is a member of the Michigan Plastic Recycling Development Fund
Consortium.
59
PRADEEP MODI has been our Vice President -- Controller and Strategic
Operation Planning since 1999. Prior to that he was Vice-President/Controller
since 1993. He has been with us for 18 years and has served in various
capacities. Prior to joining us, Mr. Modi was a partner with Ampee Marble. Prior
to that he worked for Southland Corporation, a retail chain.
FRANK POLLOCK has served as our Vice President -- International
Sales/Marketing since 1997. He has been with us for seven years. Prior to
joining us, Mr. Pollock worked for Constar International, a subsidiary of Crown,
Cork and Seal, for 18 years, where he held positions as Sales Representative,
District Sales Manager and Regional Sales Manager, the latter until 1994, when
he began his career with us.
RICHARD DARR, our Vice President -- Packaging Development since 1993, is our
chief design and packaging engineer. He has worked in research and development
during his 23-year tenure with us.
J. RONALD OVERBECK, our Vice President -- Product Supply, has worked in that
position since 1999 and has been with us for over 26 years. Prior to joining us,
Mr. Overbeck worked for Anchor Glass where he served as a Marketing Manager.
LEANN M. UNDERHILL, J.D., has served as our Corporate Legal Counsel since
1985 and, since 1999, has served as Secretary to Plastipak, Packaging,
Whiteline, and TABB. She has been with us since 1984. Prior to joining us, Ms.
Underhill was in private law practice.
DAVID DAUGHERTY has served as our Chief Information Officer since February
2000. Prior to joining us, from 1977 to January 2000, Mr. Daugherty was Manager
of Data Processing for both Earle Equipment Corporation and Safran Printing
Corporation. He was IT Manager for Mohawk Liqueur Company, Director of the New
York Data Center for McKesson Corporation and held several positions with Allied
Domecq Spirits and Wine of Windsor, Ontario, Canada, including Director of ADSW
Global I.T. Development and Director of Global I.T. Architecture.
JOHN MICHEL, has been our Vice President -- Transportation since 1998. He
has been with us for eight years. Prior to joining us he owned his own business.
THOMAS L. SCHELLENBERG has been a Director of Plastipak since its inception and
has served as a Director of Packaging since 1996, of Whiteline since 1999 and of
Clean Tech since 1998. Mr. Schellenberg is a tax attorney, certified public
accountant and President of Schellenberg & Associates, P.C., a tax and business
consulting firm. Prior to founding Schellenberg & Associates, Mr. Schellenberg
worked for Deloitte & Touche for over 8 years. He is also a director of The
Private Bank, Bloomfield Hills, Michigan.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid to the Chief
Executive Officer and the four other most highly compensated executives of
Plastipak (the "Named Executives") for services rendered in all capacities to
Plastipak and its subsidiaries during the last three fiscal years.
60
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------------------
Other Annual
Name and Principal Position Fiscal Year Salary(a) Bonus Compensation(b)
--------------------------- ----------- --------- ----- ---------------
William C. Young 2002 $601,248 $210,897
Chairman and Director, 2001 $601,248 $594,532
President and Chief Executive Officer 2000 $601,248 $992,000
William A. Slat 2002 $209,560 $173,445
Vice President-- Operations 2001 $204,560 $178,550
and Manufacturing 2000 $204,560 $85,000
Michael J. Plotzke 2002 $213,667 $182,248
Chief Financial Officer, 2001 $202,667 $188,000
Vice President - Finance, and 2000 $200,000 $115,000
Treasurer
Gene W. Mueller 2002 $183,537 $153,123
Vice President-- Sales and Marketing 2001 $168,720 $147,420
Thomas Busard 2000 $164,935 $83,640
President-- Clean Tech 2002 $189,547 $144,415
2001 $178,313 $154,700
2000 $174,811 $123,133
- ----------
(a) Salary includes amounts deferred, if any, under our 401(k) plan.
(b) Other Annual Compensation for fiscal 2000 consists of payments we made
to Mr. Young to satisfy his income tax liability for S corporation and
limited liability company income that we and our affiliates attributed
to him.
OPTION GRANTS IN FISCAL 2002
The following table sets forth information concerning options granted to
Gene W. Mueller, the only Named Executive who was granted options in fiscal
2002. These options were granted under the 2002 Restricted Stock Bonus Plan.
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise or Grant Date
Name Option Granted Fiscal Year Base Price Expiration Date Value
---- --------------- ------------ ----------- --------------- -----
Gene W. Mueller 500 32.36% $1.00 December 15, 2006 $743,500
AGGREGATE OPTION EXERCISES IN FISCAL 2002 AND 2002 FISCAL YEAR-END OPTION VALUES
During fiscal 2002, Michael Plotzke, Gene Mueller and Thomas Busard
exercised 45, 200 and 118 options. The following table sets forth, for each of
the Named Executives holding unexercised options, certain information regarding
the value of options held at November 2, 2002:
Value of Unexercised
Number of Unexercised in-the-Money Options at
Shares Acquired Options at Fiscal Year End Fiscal Year End
Name on Exercise Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ----------- ------------------ --------------------------- ---------------------------
Michael J. Plotzke 45 $65,860 500/0 $ 961,500/0 (a)
Gene W. Mueller 200 $118,760 300/0 $ 459,600/0 (b)
Thomas Busard 118 $177,944 100/327 $192,300/$628,821 (a)
(a) None of Plastipak's common stock is currently publicly traded. The
values reflect the adjusted per share book value of Plastipak's common
stock (as defined in the Restricted Stock Bonus Plan under which these
options were granted) at November 2, 2002, less the exercise price.
(b) None of Plastipak's common stock is currently publicly traded. The
values reflect the adjusted per share book value of Plastipak's common
stock (as defined in the 2002 Restricted Stock Bonus Plan under which
the options were granted) at November 2, 2002, less the exercise price.
61
RESTRICTED STOCK BONUS PLAN
The board of directors of Plastipak adopted the Restricted Stock Bonus Plan
(the "Restricted Stock Bonus Plan") effective as of October 30, 1999,which was
amended and restated effective July 31, 2002 and subsequently amended effective
August 15, 2002. All of our employees are eligible to participate in the
Restricted Stock Bonus Plan, subject to the board's discretion. The board makes
all administrative decisions under the Restricted Stock Bonus Plan. The board
has reserved 5,450 shares of Plastipak's common stock for distribution under the
Restricted Stock Bonus Plan. As of November 2, 2002, 3,450 of the 5,450 reserved
shares had been allocated to our employees and 2,000 shares remain available for
allocation.
Once the board has allocated restricted shares to an employee, the employee
must satisfy all of the following terms and conditions prior to receiving
certificates representing bonus shares:
- The period of time specified by the board, in its sole discretion, not
to exceed five years, must have lapsed since the date that the board
allocated the shares to the employee;
- The employee must have remained in continuous employment with us or one
of our affiliates during this period;
- The employee must have paid us $1.00 for each bonus share; and
- If required, we must have received the written consent of our secured
creditors.
Shares issued under the Restricted Stock Bonus Plan are non-transferable
and, once received, the difference between the price paid for the shares and the
adjusted book value of the shares are taxed to the employee as non-qualified
deferred compensation.
Employees who have received certificates representing restricted stock
pursuant to the Restricted Stock Benefits Plan are required to sell those shares
back to us upon the occurrence of certain "trigger events". These "trigger
events" include the employee's death and the employee's employment termination,
whether because of resignation, retirement, dismissal or otherwise. The
redemption price is based upon our per share book value, subject to certain
adjustments.
The amendment and restatement of the Restricted Stock Bonus Plan in 2002
effected the following material changes in the Plan:
- A "change in control" provision was added, which provides that all
bonus shares vest immediately upon change in control, subject to the
golden parachute payment limitations of Code Section 280G.
- "Bring along" and "come along" provisions were added so that holders of
the restricted stock are (1) entitled to participate in any voluntary
sale of our capital stock; and (2) required to participate in certain
voluntary sales of our capital stock.
- A covenant not to compete and a confidentiality agreement were added as
a condition to participation in the Restricted Stock Bonus Plan.
- A provision was added granting employees who are issued bonus shares
under the plan certain "piggy back" registration rights in the event we
initiate an SEC registered public offering of our common stock.
62
2002 RESTRICTED STOCK BONUS PLAN
The board of directors of Plastipak adopted the 2002 Restricted Stock
Bonus Plan (the "2002 Plan") on October 16, 2002. All of our employees
(including employees who are directors, as well as non-employees who serve as
directors or who otherwise provide services to us) are eligible to participate
in the 2002 Plan. The Plan is administered by the board (or any committee
established by the board for that purpose). The board has reserved 5,450 shares
of Plastipak's common stock for grant under the 2002 Plan. There are 1,000 of
the 5,450 reserved shares that have been granted to our employees, and 4,450
shares remain available for grant. Participants in the 2002 Plan are required to
pay us a per share purchase price, as set by the board from time to time, for
each restricted share.
The vested percentage of a participant's restricted stock award will be
no more restrictive than as follows:
YEARS OF PARTICIPATION IN PLAN VESTED PERCENTAGE
------------------------------ -----------------
Less than 6 years 0%
6 years but less than 7 years 20%
7 years but less than 8 years 40%
8 years but less than 9 years 60%
9 years but less than 10 years 80%
10 years or more 100%
The restrictions on outstanding restricted stock awards immediately lapse
(except as may be provided in the participant's restricted stock agreement with
us) in the event of a change of control, subject to the golden parachute payment
limitations of Code Section 280G. In addition, a participant's restricted stock
award becomes 100% vested in the event of his or her retirement at or after age
65, death or disability. During the restriction period, participants holding
shares of restricted stock granted under the 2002 Plan are entitled to exercise
full voting rights with respect to such shares, and to receive all dividends and
other distributions paid with respect to such shares.
Prior to the issuance of any common stock certificates under the 2002
Plan, participants are required to enter into a shareholder agreement with us
with ""bring along" and ""come along" provisions which (1) entitle the
participant to participate in any voluntary sale of our capital stock, and (2)
require the participant to participate in certain voluntary sales of our capital
stock. In addition, we may require a participant to enter into a confidentiality
agreement and/or a noncompetition agreement as a condition precedent to any
award of restricted stock under the 2002 Plan.
A participant's restricted stock award is subject to forfeiture if the
participant is "terminated for cause" as defined in the 2002 Plan. Participants
who have received certificates for restricted shares issued under the 2002 Plan
are required to sell those shares back to us upon the occurrence of certain
""trigger events." These trigger events include: termination of employment;
death; disability; institution of certain litigation against us; and the breach
or threatened breach of the participant's non-competition or confidentiality
agreement. The redemption price is based on our per share book value, subject to
certain adjustments; provided, however, that if the participant is ""terminated
for cause" or if the participant institutes certain litigation against us, the
redemption price will be reduced to $1.00 per share. A participant's obligation
to sell his/her restricted stock to us, and our obligation to purchase such
restricted stock, terminates upon an initial public offering of our common
stock.
SALARY CONTINUATION PLAN
The board of directors of Packaging adopted a Salary Continuation Plan
effective September 1985, which has been amended from time to time (the "Salary
Continuation Plan"). The Salary Continuation Plan is a non-qualified deferred
compensation plan administered by an administrative committee comprised of
William C. Young and Michael J. Plotzke. All of Packaging's employees are
eligible to participate in the Salary Continuation Plan, subject to selection by
the administrative committee.
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The Salary Continuation Plan provides for the payment of normal retirement
and death benefits, and in some cases early retirement benefits, to
participants, as specified in the participant's adoption agreement. An adoption
agreement between the participant and Packaging sets forth the age, years of
service and other requirements a participant must attain in order to receive a
particular benefit. In general, a participant must have participated in the
Salary Continuation Plan for at least 10 years, and must have attained the age
of at least 59, but not age 65, in order to receive early retirement benefits. A
participant generally must have participated in the Salary Continuation Plan for
at least 10 years, and must have attained the age of 65, in order to receive
normal retirement benefits. The Salary Continuation Plan does not specify
minimum age or years of service requirements for death benefits.
Following satisfaction of all eligibility requirements and a notice by the
participant or his or her representative requesting the payment of benefits, we
are required to pay the early retirement, normal retirement or death benefits
specified in the participant's adoption agreement. Participants do not vest
ratably in any benefit over the term of their employment with Packaging.
Participants are entitled to receive only one benefit (early retirement, normal
retirement or death), and each benefit is payable on a monthly basis for a
period of 180 months. Packaging's obligation to pay benefits to a participant
ceases if the participant violates the terms of a non-competition agreement
contained in his or her adoption agreement. Packaging may amend or terminate the
Salary Continuation Plan at any time, unless a participant has fully vested in
his or her benefits. All benefits payable under the Salary Continuation Plan are
paid out of Packaging's general assets, and Packaging has purchased life
insurance to fund death benefits for the participants.
Named Executives William A. Slat, Michael J. Plotzke, Gene W. Mueller and
Thomas Busard are participants in the Salary Continuation Plan, and Messrs.
Slat, Plotzke and Busard have each participated in the Salary Continuation Plan
for over 10 years and therefore are fully vested for purposes of retirement
benefits. Mr. Mueller began his 10-year vesting requirement for retirement
benefits in February 1997. The monthly early retirement and pre-retirement death
benefits for Messrs. Plotzke, Mueller and Busard currently are $5,292, $3,967
and $3,967, respectively, and the monthly pre-retirement death benefits for Mr.
Slat are $5,292. The monthly normal retirement and post-retirement death
benefits for Messrs. Slat, Plotzke, Mueller and Busard currently are $8,333,
$8,333, $6,250 and $6,250, respectively.
DIRECTOR COMPENSATION
Mr. Young receives no cash consideration for serving on the board of
directors of any of our companies. Mr. Schellenberg receives compensation in the
amount of $245 per hour for his service on the board of directors of our
companies, plus out-of-pocket expenses incurred in connection with his duties as
a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended November 2, 2002, compensation for our Named Executives
was determined by William C. Young, our President and Chief Executive Officer.
For information regarding transactions between us and Mr. Young, his affiliates
and entities he controls, see "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the outstanding capital stock of Plastipak with respect to the following:
- each person known by Plastipak to own more than 5% of its outstanding
capital stock;
- each director;
- each Named Executive; and
- the directors and executive officers of Plastipak, as a group.
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Each shareholder has sole voting and investment power with respect to the
shares beneficially owned. The address for each shareholder is c/o Plastipak
Holdings, Inc., 9135 General Court, P.O. Box 2500C, Plymouth, Michigan
48170-0907.
SHARES OF
COMMON PERCENTAGE OF
NAME OF SHAREHOLDER STOCK COMMON STOCK
----------------------------------------------------------- ---------- -------------
William C. Young........................................... 21,414(a) 75.63%
Multi-Investments Limited Partnership(b)................... 3,936 13.90%
William A. Slat............................................ 725 2.56%
Michael J. Plotzke......................................... 545(c) 1.89%
Thomas Busard.............................................. 218(d) 0.77%
Gene W. Mueller............................................ 500(e) 1.78%
Thomas L. Schellenberg..................................... 0 0.00%
Directors and executive officers as a group (6 persons).... 27,338(f) 93.57%
- ----------
(a) Represents 21,414 shares held by the Revocable Trust Agreement of
William C. Young dated 12/23/88, as amended.
(b) Multi-Investments Limited Partnership is a Michigan limited partnership
that is owned by the Young family. The partnership is comprised of one
General Partner and four Limited Partners. The General Partner is
William C. Young, Trustee of the Revocable Trust Agreement of William C.
Young dated 12/23/88. The Limited Partners are: (i) W.C. Young Trust FBO
W. Patrick Young dated 12/23/89, or successors in trust, W.C. Young and
W. Patrick Young, Trustees; (ii) W.C. Young Trust FBO Amy L. Young dated
12/23/89, or successors in trust, W.C. Young and Amy L. Morgan,
Trustees; (iii) W.C. Young Trust FBO Tracey L. Young dated 12/23/89, or
successors in trust, W.C. Young and Tracey L. Deal, Trustees; and (iv)
W.C. Young Trust FBO Brittany M.G. Young dated 12/29/92, or successors
in interest, W. Patrick Young, Amy L. Morgan and Tracey L. Deal,
Trustees.
(c) Includes options to acquire 500 shares which are presently exercisable.
(d) Includes options to acquire 100 shares which are presently exercisable.
(e) Includes options to acquire 300 shares which are presently exercisable.
(f) Includes the shares and presently exercisable options described in
footnotes (a), (b), (c), (d) and (e) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REORGANIZATION
On October 30, 1999, Packaging, Clean Tech, Whiteline, TABB and Plastipak
Brazil were placed under a holding company structure and became subsidiaries of
Plastipak, a newly organized corporation (the "Reorganization"). In the
Reorganization, TABB Investment, Inc. ("TABB Investment") and W.P. Young
Marketing, Inc. ("Marketing"), both of which were formerly Michigan
corporations, were merged into Packaging. Immediately prior to the
Reorganization, each of Packaging, Clean Tech, Whiteline, TABB, Plastipak
Brazil, TABB Investment and Marketing were owned by William C. Young and members
of his immediate family, with no outside investors other than certain other
security holders of Packaging, as described below. Packaging is our principal
operating company, which began operations in 1967 as a division of Absopure
Water Company. Beatrice Foods acquired Absopure in 1973, and retained William C.
Young to manage Absopure and Packaging as divisions of Beatrice Foods. In 1982,
the Young family reacquired Absopure and Packaging from Beatrice Foods. Later in
1982, Packaging was incorporated in the State of Delaware as a separate entity.
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As a result of the Reorganization, all of the outstanding shares of
Packaging common stock, as well as all outstanding options to acquire shares of
Packaging common stock, were exchanged for shares and options of Plastipak.
Clean Tech had outstanding 5,000 shares of common stock, all of which were
held by the William C. Young Trust prior to the Reorganization. These shares
were exchanged for 856 shares of the common stock of Plastipak.
Whiteline had outstanding 10,000 shares of common stock, all of which were
held by the William C. Young Trust prior to the Reorganization. These shares
were exchanged for 122 shares of the common stock of Plastipak.
TABB's limited liability company membership interests were owned 51% by the
William C. Young Trust and 49% by the W.P. and M.E. Young Trust prior to the
Reorganization. Prior to the Reorganization, TABB redeemed the 49% membership
interest owned by the W.P. and M.E. Young Trust. As partial consideration for
the membership interest, TABB issued to the W.P. and M.E. Young Trust a
promissory note in the principal amount of $6,024,000 (the "TABB Note"). The
TABB Note accrued interest at a rate of 6.4% per annum and was payable in
monthly installments of $37,680.72. Although the maturity date was October 1,
2009, the TABB Note was paid in full on August 20, 2001. In connection with the
Reorganization, the remaining outstanding membership interest held by the
William C. Young Trust was exchanged for 4,489 shares of Plastipak common stock.
Plastipak Brazil was owned 80% by Multi-Investment Limited Partnership, a
Michigan limited partnership ("Multi-Investment"), and 20% by Packaging, prior
to the Reorganization. William C. Young is the general partner of
Multi-Investment and members of the Young family own all of the limited
partnership interests in this company. In connection with the Reorganization,
Multi-Investment exchanged its 80% equity in Plastipak Brazil for 3,936 shares
of the common stock of Plastipak.
Marketing had outstanding 50,000 shares of common stock, 25,000 of which
were held by the William C. Young Trust and 25,000 of which were held by the
W.P. and M.E. Young Trust, prior to the Reorganization. Before the
Reorganization occurred, the W.P. and M.E. Young Trust sold their shares in
Marketing to the William P. and Mary E. Young Irrevocable Trust, dated October
27, 1999 (the "Irrevocable Trust"). Following this sale, Marketing redeemed all
of the shares held by the Irrevocable Trust. As partial consideration for these
shares, Marketing issued to the Irrevocable Trust its promissory note in the
principal amount of $1,226,244.62 (the "Marketing Note"). The Marketing Note
also accrued interest at a rate of 6.4% per annum and was payable in monthly
installments of $7,670. Although the maturity date for the Marketing Note was
October 2009, the Marketing Note was paid in full on August 20, 2001. The amount
of the payoff was $1,205,470, including principal and interest. As part of the
Reorganization, Marketing was merged with and into Packaging, with Packaging as
the surviving entity. As consideration for its 25,000 shares, the William C.
Young Trust was issued 2,175 shares of the common stock of Packaging. These
2,175 shares were subsequently exchanged for shares of Plastipak at an exchange
ratio of .9175 to 1.
TABB Investment had outstanding 5,000 shares of common stock, all of which
were held by the William C. Young Trust, prior to the Reorganization. In
connection with the Reorganization, TABB Investment was merged with and into
Packaging, with Packaging as the surviving entity. As consideration for its
5,000 shares, the William C. Young Trust was given 1,076 shares of the common
stock of Packaging. These 1,076 shares were subsequently exchanged for shares of
Plastipak at an exchange ratio of .9175 to 1.
BUSINESS RELATIONSHIPS AND TRANSACTIONS
We have maintained business relationships and entered into business
transactions with companies owned or controlled by Mr. William C. Young or
managed by members of his immediate family (each an "affiliate" and collectively
"affiliates"). A brief summary of the agreements, leases, and arrangements
between the affiliates and us follows. We believe, based on our general
awareness of market pricing and standards, that transactions with our affiliates
are on terms no less favorable to us than those that would be available to us in
arm's-length transactions with unaffiliated third parties for similar products
and services, with the exception of extended payment terms afforded to Absopure
Water Company (as discussed below). As a result of the Reorganization, certain
transactions which would formerly have been transactions with affiliates are now
intercompany transactions among our
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subsidiaries, which are eliminated in consolidation in our consolidated
financial statements and are not disclosed separately in this Form 10K.
FACILITIES, EQUIPMENT RENTAL AND MANUFACTURING, AND RELATED SERVICES
TABB owns and leases to us most of our manufacturing locations and some
warehouse facilities. Prior to the Reorganization, the real estate we now lease
from TABB had been owned by either William P. Young (William C. Young's father)
and William C. Young as partners, or by William C. Young individually. All of
these properties were transferred to TABB in anticipation of the Reorganization.
Written leases with terms expiring on April 1 and December 31, 2003 are
currently in effect (the "Affiliate Real Estate Leases") for all of the
properties now leased from TABB (now an intercompany transaction eliminated in
consolidation in our consolidated financial statements). In addition, we lease a
warehouse in Westland, MI from WCY Realty, LLC, a limited liability company
which is wholly owned by a trust that is controlled by William C. Young, our
chief executive officer and largest shareholder. William C. Young is also the
manager (chief executive officer) of WCY Realty, LLC. In fiscal 1999, Packaging
made lease payments of $2,998,110 to TABB (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements),
$2,376,103 to William P. and William C. Young (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements), and
$106,500 to William C. Young. In fiscal 2000, 2001 and 2002, Packaging made
lease payments to WCY Realty, LLC of $120,000, $144,000 and $144,000,
respectively.
Packaging subleased warehouse space in Plymouth, Michigan to Absopure Water
Company on a rent pass-through basis for monthly rental payments of $11,500.
Recently, Whiteline has assumed the warehouse lease. Absopure is a corporation
owned by William C. Young, members of his immediate family and trusts they
control. William C. Young serves as President and a director of Absopure.
Members of his immediate family also serve as officers and directors of
Absopure.
WPY Co. is owned by the William C. Young family. William C. Young
serves as President and as a director of WPY Co. Pursuant to an agreement among
WPY Co., Packaging, Whiteline and Clean Tech, WPY Co. provides engineering,
planning, design, equipment manufacturing, marketing consultation, logistic
services and equipment rental on a project-by-project basis. The fees WPY Co.
charges Packaging, Whiteline and Clean Tech for services are comparable to those
it charges unaffiliated third parties. WPY Co. invoiced Packaging $6,673,081,
$2,385,435 and $5,530,880 for engineering and machine services in fiscal 2000,
2001 and 2002, respectively. WPY Co. invoiced Clean Tech $53,332 for equipment
and services in fiscal 2000.
TABB Investment (which was merged into Packaging in connection with the
Reorganization) purchased equipment and entered into month-to-month operating
leases for the equipment with Packaging (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements). Packaging
paid equipment rent expense to TABB Investment in fiscal 1999 in the amount of
$6,776,241.
Marketing (which was also merged into Packaging in connection with the
Reorganization) provided equipment leasing and outside sales services to
Packaging (now an intercompany transaction eliminated in consolidation in our
consolidated financial statements). Packaging paid equipment rent expense and
sales commissions to Marketing in fiscal 1999 in the amount of $7,472,817.
TRANSPORTATION SERVICES
Whiteline, a fully licensed ICC common carrier, operates a fleet of
approximately 275 trucks and 900 trailers and is Packaging's primary supplier of
trucking and shipping services. Whiteline services approximately 70% of
Packaging's trucking needs, and also leases trucks and provides empty trailers
under a "drop trailer" arrangement with Packaging to facilitate distribution and
transportation services to Packaging's customers. Whiteline also supplies
trucking and other transportation-related personnel to Packaging on an
as-requested basis. Whiteline invoiced Packaging $26,401,484 for services in
fiscal 1999 (now an intercompany transaction eliminated in consolidation in our
consolidated financial statements). Whiteline also provides shipping services to
Clean Tech. Whiteline invoiced Clean Tech $161,689 for services in fiscal 1999
(now an intercompany transaction eliminated in consolidation in our consolidated
financial statements).
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Whiteline also provides shipping services to affiliates Absopure and Buffalo
Don's Artesian Wells, Ltd. Buffalo Don's is a corporation owned by William C.
Young, members of his immediate family and trusts they control. William C. Young
serves as Chairman and a director of Buffalo Don's. Members of his immediate
family are also officers and directors of Buffalo Don's. Whiteline has entered
into a transportation contract with each of Buffalo Don's and Absopure under
which it provides shipping services at standard rates comparable to those it
charges unaffiliated third parties. These transportation contracts are
terminable by either party upon 30 days' notice. Whiteline invoiced Buffalo
Don's $583,351, $516,499 and $609,316 for services in fiscal 2000, 2001 and
2002, respectively. Whiteline invoiced Absopure $3,258,211, $3,331,100 and
$4,406,686 for services in fiscal 2000, 2001 and 2002, respectively.
RECYCLING SERVICES
Clean Tech recycles post-consumer plastics and provides Packaging with
post-consumer recycled materials for use in its products. Approximately 90% of
Packaging's post-consumer recycled material needs are supplied by Clean Tech.
Clean Tech invoiced Packaging $9,180,300 for products and recycling services in
fiscal 1999 (now an intercompany transaction eliminated in consolidation in our
consolidated financial statements).
PLASTIC CONTAINER SALES
Packaging sells plastic containers to affiliate Absopure for its bottled
water business. The sales by Packaging to Absopure are not covered by a written
agreement; however, sales to Absopure are at prices no less favorable to
Packaging than those with unaffiliated third parties. Packaging invoiced
Absopure for containers in the amounts of $9,016,227, $8,302,489 and $8,497,662
in fiscal 2000, 2001 and 2002, respectively. There is currently an outstanding
balance of $3,162,598 due from Absopure to Packaging, out of which $1,452,227
was over 90 days old at November 2, 2002.
Packaging also sells plastic containers to affiliate Buffalo Don's under a
sales agreement dated February 2, 1993. The sales agreement has a term of four
years with automatic annual extensions, subject to a 90-day cancellation notice.
Sales to Buffalo Don's under the sales agreement are on terms no less favorable
to Packaging than those with unaffiliated third parties. Packaging invoiced
Buffalo Don's $2,372,164, $2,173,748 and $2,091,965 in fiscal 2000, 2001 and
2002, respectively. Buffalo Don's currently owes Packaging $682,972, out of
which $62,251 was over 90 days old at November 2, 2002.
Packaging sells plastic containers to Waters of America, LLC for its bottled
water business under a five-year product supply agreement dated July 1, 2000.
The agreement is a full requirements contract for all of Waters' HDPE and PET
container needs. Sales to Waters are on terms are no less favorable to Packaging
than those with unaffiliated third parties. Waters of America is a Delaware
limited liability company that was organized in 2000. Fifty percent of the
ownership interests of Waters of America is held by the Clean Drink Company, a
Michigan limited liability company, which is in turn 100% owned by members of
William C. Young's immediate family, or by trusts controlled by William C.
Young. Packaging invoiced Waters for plastic containers in the amounts of
$791,151, $3,019,466 and $2,227,885 in fiscal 2000, 2001 and 2002, respectively.
There is currently an outstanding balance due of $361,403.
ADMINISTRATIVE SERVICES AND INSURANCE
Packaging provided administrative services (i.e., marketing, accounting,
legal services) to the companies that became subsidiaries of Plastipak in the
Reorganization. Packaging billed each of these companies according to a formula
based upon the company's use of these services and for their share of items such
as insurance. Packaging invoiced Whiteline $150,000 for administrative services
in fiscal 1999 (now an intercompany transaction eliminated in consolidation in
our consolidated financial statements). Packaging invoiced Clean Tech $99,600
for administrative services in fiscal 1999 (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements).
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Plastipak and Packaging provided and continue to provide administrative
services to several affiliated companies. Packaging invoiced Absopure $60,000
for administrative services in each of fiscal 2000, 2001 and 2002, pursuant to a
service agreement dated September 12, 1994. The service agreement continues
until written notice of cancellation by either party. There is currently
outstanding a balance of $15,000 due to us from Absopure. Packaging invoiced
Buffalo Don's $30,000, for administrative services in each of fiscal 2000, 2001
and 2002, pursuant to a service agreement dated September 12, 1994. The service
agreement continues until written notice of cancellation by either party. There
is currently outstanding a balance of $10,000 due to us from Buffalo Don's.
Packaging purchased and provided insurance to all of the companies which
became subsidiaries of Plastipak in the Reorganization. Packaging billed each
company for the amounts due from them for their coverage, and purchased
insurance for these companies (together with affiliated companies). We believe
that combining our insurance buying power with that of the affiliated companies
helps us to get lower premiums. Whiteline reimbursed Packaging for insurance
premiums in the amount of $1,512,721 for fiscal 1999 (now an intercompany
transaction eliminated in consolidation in our consolidated financial
statements). Clean Tech reimbursed Packaging for insurance premiums in the
amount of $171,194 for fiscal 1999 (now an intercompany transaction eliminated
in consolidation in our consolidated financial statements).
Plastipak and Packaging provided and continue to provide insurance to
several affiliated companies. Plastipak and/or Packaging invoiced Absopure for
insurance premiums in the amounts of $1,093,301, $1,229,591 and $1,183,978 in
fiscal 2000, 2001 and 2002, respectively. Absopure currently owes us $625,690
for insurance premiums. Plastipak and/or Packaging invoiced Buffalo Don's for
insurance premiums in the amounts of $164,750, $182,523 and $172,471 in fiscal
2000, 2001 and 2002, respectively. Buffalo Don's currently owes us $71,842 for
insurance premiums. Plastipak and/or Packaging invoiced WPY Co. for insurance
premiums in the amounts of $51,936, $61,707 and $61,097 for fiscal 2000, 2001
and 2002, respectively.
CERTAIN FINANCING TRANSACTIONS
In June 2001, Dresdner Bank loaned Plastipak Brazil $4.9 million for working
capital purposes. This loan was backed by a letter of credit guaranteed by
William C. Young. This loan was repaid with the net proceeds of our 2001
offering of 10.75% Senior Notes due 2011, and the related letter of credit and
guarantee were extinguished.
At various dates from December 1991 to December 1993, Whiteline issued to a
trust controlled by William C. Young several demand notes (the "Whiteline
Notes"), which accrued interest at annual rates ranging from 6 to 7% per annum.
Interest only was payable in quarterly installments. The loan proceeds were used
by Whiteline for working capital purposes. The Whiteline Notes were paid in full
in December 2001, and the amount of the payoff was $740,000.
In 1994, Packaging redeemed 7,680 shares of common stock that were owned by
the W.P. and M.E. Young Trust. As partial consideration for the shares,
Packaging issued a secured promissory note in the principal amount of
$13,289,472 (the "Packaging Note"). The Packaging Note accrued interest at a
rate of 6.55% per annum and was payable in monthly installments of $84,436.
Although the maturity date of the Packaging Note was March 31, 2009, a portion
of the net proceeds from our offering of 10.75% Senior Notes due 2011 was used
to pay the Packaging Note in full. The amount of the payoff was $12,014,871. The
Packaging Note was secured by the pledge of the shares acquired from the W.P.
and M.E. Young Trust. Since the Packaging Note was paid in full, these shares
have been canceled.
In March 2001, Madras Packaging, L.L.C., a Delaware limited liability
company, redeemed Packaging's 49% membership interest. In connection with the
redemption, Packaging sold certain equipment to Madras. As partial consideration
for this equipment, Madras issued to Packaging a secured promissory note in the
principal amount of $3,000,000 (the "Madras Note"). The Madras Note accrues
interest at a rate of 8% per annum and is payable in monthly installments of
$25,000 with a balloon payment of $2,400,000 due in March 2003. Currently,
Madras is in arrears in the amount of approximately $142,000 on this Note and
approximately $259,00 on other obligations. We are in the process of discussing
a restructuring of their obligations to us.
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OTHER
Packaging sold pallets to Absopure and to certain of the companies that
became subsidiaries of Plastipak in the Reorganization. Packaging invoiced Clean
Tech $28,303 for pallets in fiscal 1999 (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements). Packaging
invoiced Whiteline $97,560 for pallets in fiscal 1999 (now an intercompany
transaction eliminated in consolidation in our consolidated financial
statements). Packaging invoiced Absopure $231,000 for pallets in each of fiscal
1999 and 2000, $277,000 in fiscal 2001 and $112,000 in fiscal 2002.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after evaluating
the effectiveness of our controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) of the Securities and Exchange Act of 1934, as amended) within 90
days prior to filing this report, have concluded that as of such date the
disclosure controls and procedures were adequate and effective in ensuring that
material information relating to Plastipak would be made known to them by others
in the company.
There were no significant changes in internal controls or other factors that
could significantly affect Plastipak's disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any significant
deficiencies or material weaknesses in Plastipak's internal controls. As a
result, no corrective actions were required or undertaken.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Consolidated Balance Sheets as of November 2, 2002 and
November 3, 2001
Consolidated Statements of Earnings for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000
Consolidated Statements of Stockholders' Equity for the years
ended November 2, 2002, November 3, 2001 and October 28, 2000
Consolidated Statements of Cash Flows for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules are inapplicable or have been disclosed in the Notes to the
Consolidated Financial Statements and, therefore, have been omitted.
(a)(3) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
3.1(a) Articles of Incorporation of Plastipak Holdings, Inc.
(incorporated by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-4 (File No. 333-73552) as
filed on February 19, 2002)
3.1(b) Bylaws of Plastipak Holdings, Inc. (incorporated by reference
to Exhibit 3.1(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
3.2(a) Certificate of Incorporation of Plastipak Packaging, Inc.
(incorporated by reference to Exhibit 3.2(a) to the
Registration Statement on Form S-4 (File No. 333-73552) as
filed on February 19, 2002)
3.2(b) Bylaws of Plastipak Packaging, Inc. (incorporated by reference
to Exhibit 3.2(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
3.3(a) Certificate of Incorporation of Whiteline Express, Ltd.
(incorporated by reference to Exhibit 3.3(a) to the
Registration Statement on Form S-4 (File No. 333-73552) as
filed on February 19, 2002)
3.3(b) Bylaws of Whiteline Express, Ltd. (incorporated by reference
to Exhibit 3.3(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
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3.4(a) Articles of Incorporation of Clean Tech, Inc. (incorporated by
reference to Exhibit 3.4(a) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.4(b) Bylaws of Clean Tech, Inc. (incorporated by reference to
Exhibit 3.4(b) to the Registration Statement on Form S-4 (File
No. 333-73552) as filed on February 19, 2002)
3.5(a) Articles of Organization of TABB Realty, LLC (incorporated by
reference to Exhibit 3.5(a) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.5(b) Bylaws of TABB Realty, LLC (incorporated by reference to
Exhibit 3.5(b) to the Registration Statement on Form S-4 (File
No. 333-73552) as filed on February 19, 2002)
4.1 Indenture dated as of August 20, 2001, by and among Plastipak
Holdings, Inc., Plastipak Packaging, Inc., Whiteline Express,
Ltd., TABB Realty, LLC and Wells Fargo Bank Minnesota,
National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-4 (File
No. 333-73552) as filed on February 19, 2002)
4.2 Form of 10.75% Senior Note due 2011 and annexed guaranty
incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 (File No. 333-101098) as filed on
November 8, 2002)
4.3 Exchange and Registration Rights Agreement dated August 20,
2001 among Plastipak Holdings, Inc., Plastipak Packaging,
Inc., Whiteline Express, Ltd., Clean Tech, Inc., TABB Realty,
LLC, Goldman, Sachs & Co., ABN AMRO Incorporated, Fleet
Securities, Inc. and NatCity Investments, Inc. (incorporated
by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
4.4 Exchange and Registration Rights Agreement dated September 25,
2002 among Plastipak Holdings, Inc., Plastipak Packaging,
Inc., Whiteline Express, Ltd., Clean Tech, Inc., TABB Realty,
LLC and Goldman, Sachs & Co. (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-4 (File
No. 333-101098) as filed on November 8, 2002)
10.1 Fourth Amended and Restated Credit Agreement dated as of
August 20, 2001 by and among Plastipak Holdings, Inc.,
Plastipak Packaging, Inc., Clean Tech, Inc., Whiteline
Express, Ltd., TABB Realty, LLC, various banks, Comerica Bank
(as Lead Arranger and Administrative Agent), Bank One Michigan
(as Syndications Agent), Standard Federal Bank (as
Syndications Agent) and Fleet National Bank (as Documentation
Agent) (incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 (File No. 333-73552) as
filed on February 19, 2002)
10.2 First Amendment to Fourth Amended and Restated Revolving
Credit Agreement dated as of November 16, 2001 (incorporated
by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
10.3 Second Amendment to Fourth Amended and Restated Revolving
Credit Agreement dated as of September 18, 2002 (incorporated
by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 (File No. 333-101098) as filed on November 8, 2002)
10.4* Restricted Stock Bonus Plan of Plastipak Holdings, Inc.
(incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form S-4 (File No. 333-73552) as filed on
February 19, 2002)
10.5* Amended and Restated Restricted Stock Bonus Plan of Plastipak
Holdings, Inc. (incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended August
3, 2002 as filed on September 17, 2002)
10.6* First Amendment to Amended and Restated Restricted Stock Bonus
Plan of Plastipak Holdings, Inc.
71
10.7* 2002 Restricted Stock Bonus Plan of Plastipak Holdings, Inc.
10.8* Plastipak Packaging, Inc. Amended and Restated Salary
Continuation Plan (incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-4 (File No. 333-73552)
as filed on February 19, 2002)
21 List of subsidiaries of the registrants (incorporated by
reference to Exhibit 21 to the Registration Statement on Form
S-4 (File No. 333-101098) as filed on November 8, 2002)
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
- ----------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to Form 10-K pursuant to Item 15(c).
(b) Current reports on Form 8-K. During the fourth quarter of
2002, we filed one Form 8-K Report dated September 19, 2002. The Report, made
under cover of Item 5, discusses an amendment to our Amended Credit Agreement.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By: /s/ Michael J. Plotzke
------------------------
Michael J. Plotzke,
Treasurer and
Chief Financial Officer
Dated: January 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the dates indicated below.
SIGNATURE TITLE DATE
/s/ William C. Young President and Chief Executive January 31, 2003
- ------------------------------------------------ Officer and a Director (Principal
William C. Young Executive Officer)
/s/ Michael J. Plotzke Treasurer and Chief Financial
- ------------------------------------------------ Officer (Principal Financial January 31, 2003
Michael J. Plotzke Officer and Principal Accounting
Officer)
/s/ Thomas L. Schellenberg Director January 31, 2003
- ------------------------------------------------
Thomas L. Schellenberg
73
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, William C. Young, the principal executive officer of Plastipak Holdings,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Plastipak Holdings, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. Plastipak's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for Plastipak and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to Plastipak, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of Plastipak's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. Plastipak's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Plastipak's board
of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Plastipak's ability to record,
process, summarize and report financial data and have identified for
Plastipak's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Plastipak's internal controls;
and
6. Plastipak's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 31, 2003 /s/ William C. Young
----------------------------
William C. Young
Chief Executive Officer
Plastipak Holdings, Inc.
74
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, Michael J. Plotzke, the principal financial officer of Plastipak Holdings,
Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Plastipak Holdings, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. Plastipak's other certifying officers and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for Plastipak and we have:
(d) designed such disclosure controls and procedures to ensure that material
information relating to Plastipak, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(e) evaluated the effectiveness of Plastipak's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(f) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. Plastipak's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Plastipak's board
of directors (or persons performing the equivalent functions):
(c) all significant deficiencies in the design or operation of internal
controls which could adversely affect Plastipak's ability to record,
process, summarize and report financial data and have identified for
Plastipak's auditors any material weaknesses in internal controls; and
(d) any fraud, whether or not material, that involves management or other
employees who have a significant role in Plastipak's internal controls;
and
6. Plastipak's other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 31, 2003 /s/ Michael J. Plotzke
--------------------------------
Michael J. Plotzke
Chief Financial Officer
Plastipak Holdings, Inc.
75
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
3.1(a) Articles of Incorporation of Plastipak Holdings, Inc.
(incorporated by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-4 (File No. 333-73552)
as filed on February 19, 2002)
3.1(b) Bylaws of Plastipak Holdings, Inc. (incorporated by
reference to Exhibit 3.1(b) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.2(a) Certificate of Incorporation of Plastipak Packaging, Inc.
(incorporated by reference to Exhibit 3.2(a) to the
Registration Statement on Form S-4 (File No. 333-73552)
as filed on February 19, 2002)
3.2(b) Bylaws of Plastipak Packaging, Inc. (incorporated by
reference to Exhibit 3.2(b) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.3(a) Certificate of Incorporation of Whiteline Express, Ltd.
(incorporated by reference to Exhibit 3.3(a) to the
Registration Statement on Form S-4 (File No. 333-73552)
as filed on February 19, 2002)
3.3(b) Bylaws of Whiteline Express, Ltd. (incorporated by reference
to Exhibit 3.3(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
3.4(a) Articles of Incorporation of Clean Tech, Inc. (incorporated by
reference to Exhibit 3.4(a) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.4(b) Bylaws of Clean Tech, Inc. (incorporated by reference to
Exhibit 3.4(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
3.5(a) Articles of Organization of TABB Realty, LLC (incorporated by
reference to Exhibit 3.5(a) to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
3.5(b) Bylaws of TABB Realty, LLC (incorporated by reference to
Exhibit 3.5(b) to the Registration Statement on Form S-4
(File No. 333-73552) as filed on February 19, 2002)
4.1 Indenture dated as of August 20, 2001, by and among Plastipak
Holdings, Inc., Plastipak Packaging, Inc., Whiteline Express,
Ltd., TABB Realty, LLC and Wells Fargo Bank Minnesota,
National Association, as trustee (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-4 (File
No. 333-73552) as filed on February 19, 2002)
4.2 Form of 10.75% Senior Note due 2011 and annexed guaranty
incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 (File No. 333-101098)
as filed on November 8, 2002)
4.3 Exchange and Registration Rights Agreement dated August 20,
2001 among Plastipak Holdings, Inc., Plastipak Packaging,
Inc., Whiteline Express, Ltd., Clean Tech, Inc., TABB Realty,
LLC, Goldman, Sachs & Co., ABN AMRO Incorporated, Fleet
Securities, Inc. and NatCity Investments, Inc. (incorporated
by reference to Exhibit 4.3 to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
4.4 Exchange and Registration Rights Agreement dated September 25,
2002 among Plastipak Holdings, Inc., Plastipak Packaging,
Inc., Whiteline Express, Ltd., Clean Tech, Inc., TABB Realty,
LLC and Goldman, Sachs & Co. (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-4 (File
No. 333-101098) as filed on November 8, 2002)
10.1 Fourth Amended and Restated Credit Agreement dated as of
August 20, 2001 by and among Plastipak Holdings, Inc.,
Plastipak Packaging, Inc., Clean Tech, Inc., Whiteline
Express, Ltd., TABB Realty, LLC, various banks, Comerica
Bank (as Lead Arranger and Administrative Agent), Bank One
Michigan (as Syndications Agent), Standard Federal Bank (as
Syndications Agent) and Fleet National Bank (as
Documentation Agent) (incorporated by reference to Exhibit
10.1 to the Registration Statement on Form S-4 (File No.
333-73552) as filed on February 19, 2002)
10.2 First Amendment to Fourth Amended and Restated Revolving
Credit Agreement dated as of November 16, 2001 (incorporated
by reference to Exhibit 10.4 to the Registration Statement on
Form S-4 (File No. 333-73552) as filed on February 19, 2002)
10.3 Second Amendment to Fourth Amended and Restated Revolving
Credit Agreement dated as of September 18, 2002 (incorporated
by reference to Exhibit 10.5 to the Registration Statement on
Form S-4 (File No. 333-101098) as filed on November 8, 2002)
10.4 Restricted Stock Bonus Plan of Plastipak Holdings, Inc.
(incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4 (File No. 333-73552)
as filed on February 19, 2002)
10.5 Amended and Restated Restricted Stock Bonus Plan of Plastipak
Holdings, Inc. (incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter ended August
3, 2002 as filed on September 17, 2002)
10.6 First Amendment to Amended and Restated Restricted
Stock Bonus Plan of Plastipak Holdings, Inc.
10.7 2002 Restricted Stock Bonus Plan of Plastipak Holdings, Inc.
10.8 Plastipak Packaging, Inc. Amended and Restated Salary
Continuation Plan (incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-4 (File No.
333-73552) as filed on February 19, 2002)
21 List of subsidiaries of the registrants (incorporated by
reference to Exhibit 21 to the Registration Statement on Form
S-4 (File No. 333-101098) as filed on November 8, 2002)
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