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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 2003
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)
Michigan 52-2186087
- --------------------------------------- ----------------------------
(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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes No [X]
--------------------------------------------------------------
The number of shares of the registrant's common stock, $1.00 par value,
outstanding as of May 3, 2003 was 28,316.
- --------------------------------------------------------------------------------
PLASTIPAK HOLDINGS, INC.
FORM 10-Q INDEX
PAGE
PART I - FINANCIAL INFORMATION...................................................................................1
Item 1. Financial Statements.................................................................................1
Condensed Consolidated Balance Sheets as of May 3, 2003 (unaudited)
and November 2, 2002 ...............................................................................1
Condensed Consolidated Statements of Earnings (unaudited) for the
Three Month and Six Month Periods Ended May 3, 2003 and May 4, 2002..................................3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended May 3, 2003 and May 4, 2002.........................................................4
Notes to Condensed Consolidated Financial Statements.................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................................................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................31
Item 4. Controls and Procedures.............................................................................31
PART II - OTHER INFORMATION.....................................................................................32
Item 6. Exhibits and Reports on Form 8-K....................................................................32
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 3, NOVEMBER 2,
ASSETS 2003 2002
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 34,147,296 $ 69,696,262
Accounts Receivable
Trade (net of allowance of $2,977,950 and $2,166,430
at May 3, 2003 and November 2, 2002) 46,769,431 46,086,007
Related parties 7,005,210 6,228,360
------------ ------------
53,774,641 52,314,367
Inventories 89,998,112 78,730,293
Prepaid expenses 11,824,160 8,523,505
Prepaid federal income taxes 1,935,157 3,808,730
Deferred income taxes 4,339,000 2,732,000
Other current assets 4,357,399 4,427,893
------------ ------------
Total Current Assets 200,375,765 220,233,050
PROPERTY, PLANT & EQUIPMENT- NET 347,013,828 310,913,565
OTHER ASSETS
Cash surrender value of life insurance 1,788,374 1,788,374
Deposits 14,984,526 15,711,204
Capitalized loan costs (net of accumulated amortization
of $2,589,578 and $1,729,634 at May 3, 2003 and
November 2, 2002) 10,401,669 11,261,613
Intangible assets (net of accumulated amortization of
of $11,461,761 and $9,376,111 at May 3, 2003
and November 2, 2002) 6,957,541 8,768,184
Prepaids 967,793 910,466
Sundry 257,964 11,894
------------ ------------
Total Other Assets 35,357,867 38,451,735
------------ ------------
Total Assets $582,747,460 $569,598,350
============ ============
1
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 3, NOVEMBER 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 93,097,113 $ 90,223,335
Current portion of long term obligation 4,921,344 5,180,231
Accrued liabilities
Taxes other than income 5,890,955 4,943,876
Other accrued expenses 27,378,917 25,709,607
Income taxes 1,375,442 1,388,244
------------ ------------
Total Current Liabilities 132,663,771 127,445,293
SENIOR NOTES (NET OF UNAMORTIZED (PREMIUM) AND
FV OF SWAPS OF ($2,360,276) AND $2,177,146 AT MAY 3,
2003 AND ($2,501,893) AND $0 AT NOVEMBER 2, 2002) 325,183,130 327,501,893
LONG-TERM OBLIGATIONS 57,556,512 55,132,393
DEFERRED INCOME TAXES 14,508,000 12,344,000
OTHER NON-CURRENT LIABILITIES 3,926,389 3,785,884
OBLIGATIONS UNDER STOCK BONUS PLAN 7,175,399 6,104,850
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares
authorized; 28,316 shares issued and outstanding 28,316 28,316
Retained earnings 41,705,943 37,255,721
------------ ------------
Total Stockholders' Equity 41,734,259 37,284,037
------------ ------------
Total Liabilities and Stockholders' Equity $582,747,460 $569,598,350
============ ============
2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
MAY 3, MAY 4, MAY 3, MAY 4,
2003 2002 2003 2002
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES $ 227,328,604 $ 203,394,217 $ 426,873,405 $ 390,896,633
COSTS AND EXPENSES 189,789,851 168,723,663 364,520,151 330,109,172
------------- ------------- ------------- -------------
Gross profit 37,538,753 34,670,554 62,353,254 60,787,461
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 19,176,906 15,706,245 36,862,864 31,991,454
------------- ------------- ------------- -------------
Operating profit 18,361,847 18,964,309 25,490,390 28,796,007
OTHER EXPENSE (INCOME)
Interest expense 8,731,773 8,770,649 19,019,604 17,903,406
Interest income (261,663) (151,604) (559,202) (557,290)
Royalty income (367,741) (173,635) (580,246) (225,208)
Loss on foreign currency
translation 597,113 729,187 786,425 2,752,561
Sundry (income) loss (17,914) 105,737 (34,585) 36,063
------------- ------------- ------------- -------------
8,681,568 9,280,334 18,631,996 19,909,532
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 9,680,279 9,683,975 6,858,394 8,886,475
INCOME TAX EXPENSE (BENEFIT)
Current 1,701,000 (646,000) 1,701,000 --
Deferred 1,558,000 3,651,000 557,000 2,700,000
------------- ------------- ------------- -------------
3,259,000 3,005,000 2,258,000 2,700,000
------------- ------------- ------------- -------------
NET EARNINGS $ 6,421,279 $ 6,678,975 $ 4,600,394 $ 6,186,475
============= ============= ============= =============
3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
----------------------------
MAY 3, MAY 4,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES (UNAUDITED) (UNAUDITED)
Net earnings $ 4,600,394 $ 6,186,475
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 27,168,479 22,933,418
Amortization of net (premium) / discount (141,617) 206,273
Bad debt expense 494,712 449,007
Deferred salaries 193,800 252,500
(Gain) loss on sale of equipment (200,533) 189,210
Deferred tax expense 557,000 2,700,000
Restricted stock option - compensation 920,377 -
Foreign currency translation loss (gain) 931,839 (144,164)
Change in assets and liabilities:
Increase in accounts receivable (2,279,438) (7,996,466)
Increase in inventories (11,267,819) (5,213,100)
Increase in prepaid expenses and other current assets (3,575,488) (813,686)
Decrease (increase) in prepaid federal income taxes 1,873,573 (26,346)
Increase in other liabilities 387,491 3,541,282
Decrease (increase) in deposits 726,678 (10,232,751)
Increase (decrease) in accounts payable 2,873,778 (1,279,884)
(Increase) decrease in sundry other assets (246,070) 162,745
Decrease in income taxes (12,802) (324,000)
------------ ------------
Net cash provided by operating activities 23,004,354 10,590,513
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (55,834,431) (31,438,543)
Proceeds from sale of equipment 557,733 -
Acquisition of intangible assets (275,000) (3,000,000)
------------ ------------
Net cash used in investing activities (55,551,698) (34,438,543)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net borrowings under revolving credit facility 371,485 1,453,186
Principal payments on long-term obligations (3,373,107) (4,538,854)
Proceeds from long-term obligations - 21,503
Capitalized loan costs - (375,190)
------------ ------------
Net cash used in financing activities (3,001,622) (3,439,355)
------------ ------------
Net decrease in cash and cash equivalents (35,548,966) (27,287,385)
Cash and cash equivalents at beginning of the year 69,696,262 53,483,389
------------ ------------
Cash and cash equivalents at end of the period $ 34,147,296 $ 26,196,004
============ ============
4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
MAY 3, MAY 4,
2003 2002
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION (UNAUDITED) (UNAUDITED)
Cash paid for interest $20,084,000 $18,753,000
=========== ===========
CASH PAID FOR INCOME TAXES $ 723,000 $ -
=========== ===========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment through the assumption of
long-term obligations $ 4,557,924 $ -
=========== ===========
Increase in Obligation Under Stock Bonus Plan $ 1,070,549 $ -
=========== ===========
Decrease in fair value of interest rate swaps $ 2,177,146 $ -
=========== ===========
5
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and estimated provisions for bonus and
profit-sharing arrangements) considered necessary for a fair presentation have
been included. Operating results for the six months ended May 3, 2003, are not
necessarily indicative of the results that may be expected for the year ended
November 1, 2003.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in the
Company's Form 10-K filed by Plastipak Holdings, Inc. (Plastipak) with the
Securities and Exchange Commission on January 31, 2003.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 financial information in
order for them to conform to the classifications at May 3, 2003.
EMPLOYEE COMPENSATION PLANS
The Company has two stock-based employee compensation plans. The Company
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. The plans are considered to be variable plans and therefore,
stock-based employee compensation cost is reflected as a component of general
and administrative expenses.
Amounts expensed approximate that which would have been expensed had the value
of the options granted been computed under provisions of FAS 123.
NOTE B - FISCAL PERIOD
Plastipak has elected a 52/53 week fiscal period for tax and financial reporting
purposes. Plastipak's fiscal period ends on the Saturday closest to October 31.
The three month periods ended May 3, 2003 and May 4, 2002 contained 13 weeks.
The six month periods ended May 3, 2003 and May 4, 2002 contained 26 weeks.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
On November 3, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), Accounting for Goodwill and Other Intangibles,
which requires that goodwill and certain other intangible assets no longer be
amortized to earnings but instead be reviewed periodically for potential
impairment. The Company determined that the intangible assets had finite lives
and there was no change in the lives, therefore, there is no proforma disclosure
requirement. Statement 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 long-lived
assets; and Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
Accounting for Stock Based Compensation-Transition and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
The adoption of these standards did not have a material impact on the Company's
financial position or results from operations.
6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46
clarifies the applications of Accounting Research Bulletin 51, Consolidated
Financial Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support from other parties or in which equity investors do not have
the characteristics of a controlling financial interest ("variable interest
entities"). Variable interest entities within the scope of FIN 46 will be
required to be consolidated by their primary beneficiary. The primary
beneficiary of a variable interest entity is determined to be the party that
absorbs a majority of the entity's expected losses, receives a majority of its
expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 149 ("SFAS 149"), Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149
requires that contracts with comparable characteristics be accounted for
similarly. This Statement is effective for contracts entered into or modified
after June 30, 2003. All provisions of this Statement should be applied
prospectively, except as stated below and for hedging relationships designated
after June 30, 2003. All provisions of this Statement that relate to Statement
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates.
In May 2003, Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 150 ("SFAS 150"), Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). This Statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003.
The Company is currently evaluating the impact, if any, from these standards on
our results of operations and financial position.
NOTE D - INVENTORIES
Inventories consisted of the following at: MAY 3, NOVEMBER 2,
2003 2002
----------- -----------
Raw materials $35,583,883 $29,585,642
Finished goods 41,213,946 37,753,695
Parts and supplies 13,200,283 11,390,956
----------- -----------
$89,998,112 $78,730,293
=========== ===========
NOTE E - LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the ordinary
course of business. The ultimate legal and financial liability of this
litigation cannot be estimated with certainty, but management believes, based on
their examination of these matters, experience to date and discussions with
counsel, that the ultimate liability will not be material to the Company's
business, financial condition or results of operations.
7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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 March 11, 2003, the Company entered into two interest rate swap agreements.
In connection with the Senior Notes, the Company exchanged fixed rate interest
of 10.75% for variable rate interest. The interest rate swap agreements have
notional amounts of $50,000,000 million each. The variable rates are equal to
six month LIBOR plus 6.46% and 6.66%, respectively, for an 8 year period ending
September 1, 2011. As of May 3, 2003, the Company recorded an increase of
$2,177,146 in other accrued expenses to recognize the fair value of the swap and
a $2,177,146 decrease in the Senior Notes to recognize the difference between
the carrying value and fair value of the related hedge liability.
NOTE G - 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 May 3, 2003 and
November 2, 2002 and the three and six months ending May 3, 2003 and
May 4, 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.
8
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 3, 2003
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------ -------------
CURRENT ASSETS
Cash and cash equivalents $ 30,814,877 $ 2,610,392 $ 722,027 $ - $ 34,147,296
Accounts receivable 5,414,013 45,544,903 10,752,010 (7,936,285) 53,774,641
Inventories - 74,165,461 15,832,651 - 89,998,112
Prepaid expenses - 9,134,269 2,689,891 - 11,824,160
Prepaid federal income taxes (905,000) 2,741,774 98,383 - 1,935,157
Deferred income taxes (412,000) 2,226,000 2,525,000 - 4,339,000
Other current assets - 4,091,542 265,857 - 4,357,399
------------- ------------- ------------- ------------- -------------
Total Current Assets 34,911,890 140,514,341 32,885,819 (7,936,285) 200,375,765
PROPERTY, PLANT &
EQUIPMENT- NET - 293,916,946 53,446,882 (350,000) 347,013,828
Other Assets
Cash surrender value
of life insurance - 1,788,374 - - 1,788,374
Deposits - 14,984,526 - - 14,984,526
Investment in and advances
to affiliates 336,143,797 (263,896,516) - (72,247,281) -
Capitalized loan costs 1,090,337 9,311,332 - - 10,401,669
Intangible assets - 3,396,867 3,560,674 - 6,957,541
Deferred tax asset (86,000) 86,000 - - -
Prepaids - 967,793 - - 967,793
Sundry - 5,006,796 251,168 (5,000,000) 257,964
------------- ------------- ------------- ------------- -------------
Total Other Assets 337,148,134 (228,354,828) 3,811,842 (77,247,281) 35,357,867
------------- ------------- ------------- ------------- -------------
Total Assets $ 372,060,024 $ 206,076,459 $ 90,144,543 $ (85,533,566) $ 582,747,460
============= ============= ============= ============= =============
9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF MAY 3, 2003
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ - $ 69,389,721 $ 31,643,678 $ (7,936,286) $ 93,097,113
Current portion of long
term obligation - 3,841,214 1,080,130 - 4,921,344
Taxes other than income - 4,973,351 917,604 - 5,890,955
Deferred income tax
liability current (118,000) 118,000 - - -
Other accrued expenses 7,232,883 19,325,992 820,042 - 27,378,917
Income taxes (168,440) 1,543,882 - - 1,375,442
------------- ------------- ------------- ------------- -------------
Total Current Liabilities 6,946,443 99,192,160 34,461,454 (7,936,286) 132,663,771
SENIOR NOTES 328,621,002 (3,437,872) - - 325,183,130
LONG-TERM OBLIGATIONS - 4,968,257 57,588,255 (5,000,000) 57,556,512
DEFERRED INCOME TAXES (9,634,000) 22,705,000 1,437,000 - 14,508,000
OTHER NON-CURRENT
LIABILITIES - 3,314,179 612,210 - 3,926,389
OBLIGATIONS UNDER
STOCK BONUS PLAN 4,392,320 2,783,079 - - 7,175,399
STOCKHOLDERS'
EQUITY (DEFICIT) 41,734,259 76,551,656 (3,954,376) (72,597,280) 41,734,259
------------- ------------- ------------- ------------- -------------
Total Liabilities and
Stockholders' Equity $ 372,060,024 $ 206,076,459 $ 90,144,543 $ (85,533,566) $ 582,747,460
============= ============= ============= ============= =============
10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2002
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS 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
Inventories - 62,985,057 15,745,236 - 78,730,293
Prepaid expenses - 6,273,988 2,249,517 - 8,523,505
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 &
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
Investment 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 - long term (86,000) 86,000 - - -
Prepaids - 910,466 - - 910,466
Sundry - 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
============= ============= ============= ============= =============
11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF NOVEMBER 2, 2002
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ - $ 65,472,597 $ 31,222,254 $ (6,471,516) $ 90,223,335
Current portion of long
term obligation - 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 current (118,000) 118,000 - - -
Other accrued expenses 5,481,483 16,638,057 3,590,067 - 25,709,607
Income taxes (168,440) 1,556,684 - - 1,388,244
------------- ------------- ------------- ------------- -------------
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 PLAN 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 $ 366,219,437 $ 185,596,796 $ 91,815,160 $ (74,033,043) $ 569,598,350
============= ============= ============= ============= =============
12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 3, 2003
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
REVENUES $ - $ 206,154,040 $ 20,822,396 $ 352,168 $ 227,328,604
COST AND EXPENSES - 171,077,622 18,680,062 32,167 189,789,851
------------- ------------- ------------- ------------- -------------
Gross profit - 35,076,418 2,142,334 320,001 37,538,753
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 70,708 17,610,254 1,225,944 270,000 19,176,906
------------- ------------- ------------- ------------- -------------
Operating (loss) profit (70,708) 17,466,164 916,390 50,001 18,361,847
OTHER EXPENSE (INCOME)
Equity in loss (earnings)
of affiliates (10,251,395) 91,948 - 10,159,447 -
Interest expense 8,054,342 (300,501) 861,189 116,743 8,731,773
Interest income (7,418,934) 7,352,637 (78,623) (116,743) (261,663)
Royalty income - (367,741) - - (367,741)
Loss on foreign currency
translation - - 597,113 - 597,113
Sundry (income) loss (135,000) 120,631 (3,545) - (17,914)
------------- ------------- ------------- ------------- -------------
(9,750,987) 6,896,974 1,376,134 10,159,447 8,681,568
------------- ------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 9,680,279 10,569,190 (459,744) (10,109,446) 9,680,279
INCOME TAXES 3,259,000 - - - 3,259,000
------------- ------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 6,421,279 $ 10,569,190 $ (459,744) $ (10,109,446) $ 6,421,279
============= ============= ============= ============= =============
13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 4, 2002
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
REVENUES $ - $ 189,838,001 $ 14,375,247 $ (819,031) $ 203,394,217
COST AND EXPENSES - 154,315,301 15,227,393 (819,031) 168,723,663
------------- ------------- ------------- ------------- -------------
Gross profit (loss) - 35,522,700 (852,146) - 34,670,554
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - 13,704,553 2,001,692 - 15,706,245
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 21,818,147 (2,853,838) - 18,964,309
OTHER EXPENSE (INCOME)
Equity in loss (earnings)
of affiliates (9,665,161) 944,360 - 8,720,801 -
Interest expense 7,308,507 268,821 1,243,069 (49,748) 8,770,649
Interest income (7,144,125) 6,968,062 (25,289) 49,748 (151,604)
Royalty income - (173,635) - - (173,635)
Loss on foreign currency
translation - - 729,187 - 729,187
Sundry (income) loss (183,196) 367,937 (79,004) - 105,737
------------- ------------- ------------- ------------- -------------
(9,683,975) 8,375,545 1,867,963 8,720,801 9,280,334
------------- ------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 9,683,975 13,442,602 (4,721,801) (8,720,801) 9,683,975
INCOME TAXES 3,005,000 - - - 3,005,000
------------- ------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 6,678,975 $ 13,442,602 $ (4,721,801) $ (8,720,801) $ 6,678,975
============= ============= ============= ============= =============
14
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 3, 2003
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
REVENUES $ - $ 386,198,725 $ 42,665,831 $ (1,991,151) $ 426,873,405
COST AND EXPENSES - 327,681,382 38,879,921 (2,041,152) 364,520,151
------------- ------------- ------------- ------------- -------------
Gross profit - 58,517,343 3,785,910 50,001 62,353,254
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 165,619 34,019,484 2,677,761 - 36,862,864
------------- ------------- ------------- ------------- -------------
Operating (loss) profit (165,619) 24,497,859 1,108,149 50,001 25,490,390
OTHER EXPENSE (INCOME)
Equity in loss (earnings)
of affiliates (8,527,761) 291,837 - 8,235,924 -
Interest expense 16,711,820 446,170 1,946,976 (85,362) 19,019,604
Interest income (14,938,072) 14,451,971 (158,463) 85,362 (559,202)
Royalty income - (580,246) - - (580,246)
Loss on foreign currency
translation - - 786,425 - 786,425
Sundry (income) loss (270,000) 243,012 (7,597) - (34,585)
------------- ------------- ------------- ------------- -------------
(7,024,013) 14,852,744 2,567,341 8,235,924 18,631,996
------------- ------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 6,858,394 9,645,115 (1,459,192) (8,185,923) 6,858,394
INCOME TAXES 2,258,000 - - - 2,258,000
------------- ------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 4,600,394 $ 9,645,115 $ (1,459,192) $ (8,185,923) $ 4,600,394
============= ============= ============= ============= =============
15
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 4, 2002
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
REVENUES $ - $ 357,439,303 $ 34,276,361 $ (819,031) $ 390,896,633
COST AND EXPENSES - 295,635,820 35,292,383 (819,031) 330,109,172
------------- ------------- ------------- ------------- -------------
Gross profit - 61,803,483 (1,016,022) - 60,787,461
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES - 28,276,128 3,715,326 - 31,991,454
------------- ------------- ------------- ------------- -------------
Operating profit - 33,527,355 (4,731,348) - 28,796,007
OTHER EXPENSE (INCOME)
Equity in loss (earnings)
of affiliates (8,841,383) 1,926,346 - 6,915,037 -
Interest expense 14,781,250 788,075 2,438,330 (104,249) 17,903,406
Interest income (14,508,146) 14,050,188 (203,581) 104,249 (557,290)
Royalty income - (225,208) - - (225,208)
Loss on foreign currency
translation - - 2,752,561 - 2,752,561
Sundry (income) loss (318,196) 441,187 (86,928) - 36,063
------------- ------------- ------------- ------------- -------------
(8,886,475) 16,980,588 4,900,382 6,915,037 19,909,532
------------- ------------- ------------- ------------- -------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 8,886,475 16,546,767 (9,631,730) (6,915,037) 8,886,475
INCOME TAXES 2,700,000 - - - 2,700,000
------------- ------------- ------------- ------------- -------------
NET EARNINGS (LOSS) $ 6,186,475 $ 16,546,767 $ (9,631,730) $ (6,915,037) $ 6,186,475
============= ============= ============= ============= =============
16
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 3, 2003
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash (used in) provided by
operating activities $ (2,704,603) $ 26,573,174 $ (864,217) $ - $ 23,004,354
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment - (54,044,489) (1,789,942) - (55,834,431)
Proceeds from sale of equipment - 557,266 467 - 557,733
Investment in and advances
to affiliates (11,100,000) (400,000) - 11,500,000 -
Acquisition of intangible assets - (275,000) - - (275,000)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by investing activities (11,100,000) (54,162,223) (1,789,475) 11,500,000 (55,551,698)
CASH FLOWS USED IN
FINANCING ACTIVITIES
Net borrowings under line of credit - - 371,485 - 371,485
Principal payments on long-term
obligations - (2,189,497) (1,183,610) - (3,373,107)
Proceeds from long-term obligations - 9,500,000 - (9,500,000) -
Capital increases - - 2,000,000 (2,000,000) -
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities - 7,310,503 1,187,875 (11,500,000) (3,001,622)
------------ ------------ ------------ ------------ ------------
Net decrease in cash (13,804,603) (20,278,546) (1,465,817) - (35,548,966)
Cash and cash equivalents at
the beginning of the year 44,619,480 22,888,938 2,187,844 - 69,696,262
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 30,814,877 $ 2,610,392 $ 722,027 $ - $ 34,147,296
============ ============ ============ ============ ============
17
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 4, 2002
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 2,400,000 $ 8,376,488 $ (185,975) $ - $ 10,590,513
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment - (30,036,085) (2,979,651) 1,577,193 (31,438,543)
Proceeds from sale of equipment - - 1,577,193 (1,577,193) -
Investment in and advances
to affiliates (2,400,000) (990,000) - 3,390,000 -
Acquisition of intangible assets - (3,000,000) - (3,000,000)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by investing activities (2,400,000) (34,026,085) (1,402,458) 3,390,000 (34,438,543)
CASH FLOWS USED IN
FINANCING ACTIVITIES
Net borrowings under line of credit - - 1,453,186 1,453,186
Principal payments on long-term
obligations - (1,867,336) (2,671,518) (4,538,854)
Proceeds from long-term obligations - - 21,503 21,503
Capitalized loan costs - (375,190) - - (375,190)
Capital increases - - 3,390,000 (3,390,000) -
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by financing activities - (2,242,526) 2,193,171 (3,390,000) (3,439,355)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash - (27,892,123) 604,738 - (27,287,385)
Cash and cash equivalents at
the beginning of the year 1,000 51,476,877 2,005,512 - 53,483,389
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 1,000 $ 23,584,754 $ 2,610,250 $ - $ 26,196,004
============ ============ ============ ============ ============
18
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE G- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
SUPPLEMENTAL CASH FLOW INFORMATION
DEPRECIATION AND AMORTIZATION EXPENSE GUARANTOR NONGUARANTOR
PERIOD ENDED SUBSIDIARIES SUBSIDIARIES TOTAL
---------------- ---------------- ----------------
05/03/03 $ 22,407,344 $ 4,761,135 $ 27,168,479
---------------- ---------------- ----------------
05/04/02 $ 18,845,616 $ 4,087,802 $ 22,933,418
================ ================ ================
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. Please refer to
the "Risk Related to Our Business" section, in our Form 10-K for the year ended
November 2, 2002, 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 10-Q, including statements regarding our future financial position,
economic performance and results of operations, as well as our business
strategy, budgets and projected costs and plans and objectives of management for
future operations are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe",
or "continue" or the negative thereof or variations thereon or similar
terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include, without
limitation, risks associated with our Brazilian operations, competition in our
product categories, including the impact of possible new technologies, our high
degree of leverage and substantial debt service obligations, the restrictive
covenants contained in instruments governing our indebtedness, our exposure to
fluctuations in resin and energy prices, our dependence on significant customers
and the risk that customers will not purchase our products in the amounts we
expect, our dependence on key management and our labor force and the material
adverse effect that could result from the loss of their services. All
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the cautionary statements set forth
in this paragraph.
OVERVIEW
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan
corporation that was formed in 1998 to act as a holding company for several
related companies. On October 30, 1999, Plastipak acquired all of the equity
interests in Plastipak Packaging, Inc. ("Packaging"), Whiteline Express, Ltd.
("Whiteline"), Clean Tech, Inc. ("Clean Tech") and TABB Realty, LLC ("TABB"),
and a portion of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brasil"), through a reorganization (the "Reorganization").
Packaging, our principal operating company whose business commenced operations
in 1967, designs and manufactures rigid plastic containers, and was incorporated
in Delaware in 1982. Packaging also owns the remainder of Plastipak Brasil.
Whiteline is a trucking company serving our transportation and logistics needs,
and was incorporated in Delaware in 1982. Clean Tech, a plastics recycling
operation, provides a source of clean, high quality post-consumer recycled
plastic raw material, and was incorporated in Michigan in 1989. TABB owns real
estate and leases it to Packaging, Whiteline, and Clean Tech. Plastipak Brasil
produces injection-molded plastic preforms and blow molds rigid plastic
packaging in Paulinia and produces injection-molded plastic preforms in Manaus.
Plastipak Brasil also maintains a sales office in Buenos Aires, Argentina. Other
than Plastipak Brasil and its subsidiaries, all of the Plastipak group of
companies are headquartered in Plymouth, Michigan.
20
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 three
months ended May 3, 2003 and May 4, 2002 were 13 weeks long. The six months
ended May 3, 2003 and May 4, 2002 were 26 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the three and six months ended May 3, 2003 and May 4, 2002 in each
of our product categories.
Consolidated Revenue By Product Category
Three Months Ended May 3, 2003 Six Months Ended May 23,2003
and May 4, 2002 and May 4, 2002
2003 % 2002 % 2003 % 2002 %
------------------------------------------------ --------------------------------------------
(dollar amounts in thousands)
Carbonated and non-
carbonated beverage revenue $ 98,112 43.2% $ 85,737 42.2% $ 184,938 43.3% $ 171,129 43.8%
Consumer cleaning revenue $ 70,874 31.2% $ 61,673 30.3% $ 134,999 31.6% $ 118,870 30.4%
Food and processed juice
revenue $ 32,121 14.1% $ 30,467 15.0% $ 58,376 13.7% $ 55,182 14.1%
Industrial, agricultural and
automotive revenue $ 12,706 5.6% $ 9,649 4.7% $ 24,742 5.8% $ 19,634 5.0%
Other revenue (a) $ 13,516 5.9% $ 15,868 7.8% $ 23,818 5.6% $ 26,082 6.7%
------------------------------------------------ --------------------------------------------
Total revenue $227,329 100.0% $203,394 100.0% $ 426,873 100.0% $ 390,897 100.0%
(a) Other revenue includes Clean Tech (recycling), Whiteline
(transportation and logistics), health, personal care and distilled
spirits revenue and other miscellaneous sources of revenue.
THREE MONTHS ENDED MAY 3, 2003 COMPARED TO THREE MONTHS ENDED MAY 4, 2002
REVENUE
Revenue increased 11.8% to $227.3 million for the three months ended May 3,
2003 while unit sales increased for the period by 10.2%. These results were
driven by consistent performance in our core businesses combined with the start
up of additional sales activity from two new manufacturing sites. Resin prices
(which represent a significant cost of the product) have increased in the
three-month period ended May 3, 2003 as compared to the three-month period ended
May 4, 2002. Using industry standard price data, we estimate that higher resin
prices resulted in approximately a $19.0 million increase in revenues for the
three months ended May 3, 2003.
Revenue and unit sales increases and decreases by product category are
discussed more specifically below:
21
o Carbonated and non-carbonated beverage revenue increased 14.4% to $98.1
million while unit sales during the three-month period ended May 3, 2003
increased by 10.2% over the same period in 2002. Revenue generated by
the U.S. market increased 9.2% while revenue generated by Brazil
increased 42.5%. Unit sales growth in the U.S. market increased 7.9%
while unit sales in Brazil increased 18.2% over the prior period. This
growth was a result of strong preform sales in Brazil combined with
increased demand for water containers in the U.S. market. Additionally,
we began shipping product to new customers from our facilities in
Alabama and Florida during the period which contributed to the volume
increase.
o Consumer cleaning revenue increased 14.9% to $70.9 million. Unit sales
during the three-month period ended May 3, 2003 increased 5.9% over the
three-month period ended May 4, 2002. The significant growth in revenue
during the period was attributable to primarily two factors: higher HDPE
material prices passed through in the form of higher selling prices and
a mix shift towards larger and heavier containers sold primarily through
discount retailers. Several new projects began shipping during this
period including items in the automatic dishwash and hard surface
cleaner area.
o Our food and processed juice category posted increases in both revenue
and unit volume for the second quarter of 2003. Food and processed
juices revenue increased 5.4% to $32.1 million. Unit sales during the
three-month period ended May 3, 2003 increased 14.0% over the
three-month period ended May 4, 2002. This performance was the result of
broad based activity across all customers combined with the start up of
several key initiatives, including a new multi-layer barrier oil
package.
o Industrial, agricultural and automotive revenue increased 31.7% to $12.7
million. Unit sales for the three-month period ended May 3, 2003
increased 37.9% from the three-month period ended May 4, 2002. This
increase was driven primarily from increased large bottle sales used in
the multi-quart oil market and anti-freeze market, along with higher HDPE
material prices that resulted in higher selling prices during the period.
o Other revenue decreased 14.8% to $13.5 million. This decrease is
attributable mainly to a decrease in sales volume in the health, personal
care and distilled spirits revenue. Decreases in freight and other
miscellaneous revenue also contributed to the decrease.
GROSS PROFIT
Gross profit increased 8.3% to $37.5 million for the three-month period
ended May 3, 2003. The increase in gross profit is primarily attributable to
higher unit sales volume and improved operating performance related to our South
American operations, offset by increased operating costs associated with the
start-up of several new product lines, the addition of two new facilities and
the expansion of two existing facilities. Gross profit as a percent of revenue
decreased to 16.5% as compared to 17.0% in the prior period. The erosion of
gross profit as a percentage of revenue was due to higher resin costs that
increased revenue without increasing associated 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, unaffected by these fluctuations. In general, industry practice and
contractual arrangements with our customers permit price changes to be passed
22
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 for the three months ended May
3, 2003 increased 22.1% to $19.2 million. As a percentage of revenue, selling,
general and administrative expenses increased to 8.4% for the three months ended
May 3, 2003 from 7.7% for the three months ended May 4, 2002. Increases in
insurance, corporate labor and legal expenses contributed approximately $2.5
million to the increase. Compensation expense recorded for restricted stock
options contributed approximately $0.7 million to the increase as well.
INTEREST EXPENSE
Interest expense remained flat at approximately $8.7 million and $8.8
million for the three months ended May 3, 2003 and May 4, 2002, respectively.
OTHER (INCOME) AND EXPENSE
Other income increased by $0.6 million to ($50,000) for the three-month
period ended May 3, 2003. The increase was primarily attributable to increased
income from the sale of equipment, interest income, royalty income and a
decrease in foreign currency losses.
NET EARNINGS
Net earnings decreased by $0.3 million from net earnings of $6.7 million for
the three-month period ended May 4, 2002 to net earnings of $6.4 million for the
three-month period ended May 3, 2003. As previously discussed, start-up costs
associated with new product lines and the addition of two new facilities along
with an increase in selling, general and administrative expenses, partially
offset by an increase in other (income) and expense, were factors which resulted
in a reduction in net earnings over the prior period.
SIX MONTHS ENDED MAY 3, 2003 COMPARED TO SIX MONTHS ENDED MAY 4, 2002
REVENUE
Revenue increased 9.2% to $426.9 million for the six months ended May 3,
2003 while unit sales increased for the period by 8.4%. These results were
driven by consistent performance in our core businesses combined with the start
up of additional sales activity from two new manufacturing sites. Resin prices
(which represent a significant cost of the product) have increased in the
six-month period ended May 3, 2003 as compared to the six-month period ended May
4, 2002. Using industry standard price data, we estimate that higher resin
prices resulted in approximately a $21.0 million increase in revenues for the
six months ended May 3, 2003.
Revenue and unit sales increases and decreases by product category are
discussed more specifically below:
23
o Carbonated and non-carbonated beverage revenue increased 8.1% to $184.9
million while unit sales during the six-month period ended May 3, 2003
increased by 8.9% over the same period in 2002. Revenue generated by the
U.S. market increased 4.8% while revenue generated by Brazil increased
21.6%. Unit sales growth in the U.S. market increased 4.3% while unit
sales in Brazil increased 23.1% over the prior period. This growth was a
result of strong preform sales in Brazil combined with increased demand
for water containers in the U.S. market. Additionally, we began shipping
product to new customers from our facilities in Alabama and Florida
during the period which contributed to the volume increase achieved
during the first half of 2003.
o Consumer cleaning revenue increased 13.6% to $135.0 million. Unit sales
during the six-month period ended May 3, 2003 increased 3.3% over the
six-month period ended May 4, 2002. The significant growth in revenue
during the period was attributable to primarily two factors: higher HDPE
material prices passed through in the form of higher selling prices and
a mix shift towards larger and heavier containers sold primarily through
discount retailers. Several new projects began shipping during the first
half including items in the automatic dishwash and hard surface cleaner
area.
o Our food and processed juice category posted increases in both revenue
and unit volume for the first half of 2003. Food and processed juices
revenue increased 5.8% to $58.4 million. Unit sales during the six-month
period ended May 3, 2003 increased 13.1% over the six-month period ended
May 4, 2002. This performance was the result of broad based activity
across all customers combined with the start up of several key
initiatives, including a new multi-layer barrier oil package that began
shipping in the first half of the year.
o Industrial, agricultural and automotive revenue increased 26.0% to $24.7
million. Unit sales for the six-month period ended May 3, 2003 increased
15.2% from the six-month period ended May 4, 2002. This increase was
driven primarily from increased large bottle sales used in the
multi-quart oil market and anti-freeze market along with higher HDPE
material prices that resulted in higher selling prices during the
period.
o Other revenue decreased 8.7% to $23.8 million. This decrease is
attributable mainly to a decrease in sales volume in the health,
personal care and distilled spirits revenue. Decreases in freight and
other miscellaneous revenue also contributed to the decrease.
GROSS PROFIT
Gross profit increased 2.6% to $62.4 million for the six-month period ended
May 3, 2003. The increase in gross profit is primarily attributable to higher
unit sales volume and improved operating performance related to our South
American operations, offset by increased operating costs associated with the
start-up of several new product lines, the addition of two new facilities and
the expansion of two existing facilities. Gross profit as a percent of revenue
decreased to 14.6% as compared to 15.6% in the prior period. The erosion of
gross profit as a percentage of revenue was due to higher resin costs that
increased revenue without increasing associated 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, 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.
24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended May 3,
2003 increased 15.2% to $36.9 million. As a percentage of revenue, selling,
general and administrative expenses increased to 8.6% for the six months ended
May 3, 2003 from 8.2% in the six months ended May 4, 2002. Increases in
insurance, corporate labor, legal, depreciation and research and development
expenses contributed approximately $3.2 million to the increase. Compensation
expense recorded for restricted stock options of approximately $1.0 million
contributed to the increase as well.
INTEREST EXPENSE
Interest expense increased 6.2% to $19.0 million. The increase was primarily
due to the sale, on September 25, 2002, of $50.0 million of the 10.75% Senior
Notes, which contributed to the approximately $56.9 million increase in our debt
level over the prior period ending May 4, 2002. The increase in interest expense
related to the Senior Notes was partially offset by a decrease in interest rates
and interest expense associated with our South American operations.
OTHER (INCOME) AND EXPENSE
Other income increased by $2.4 million to $(0.4) million for the six month
period ended May 3, 2003. The increase was primarily attributable to a $2.0
million decrease in foreign currency losses over the prior period. During the
first half of 2002, we experienced foreign currency losses primarily related to
the devaluation of the Peso in Argentina. An increase in royalty income
contributed approximately $0.4 million to the increase.
NET EARNINGS
Net earnings decreased by $1.6 million from net earnings of $6.2 million for
the six-month period ended May 4, 2002 to net earnings of $4.6 million for the
six-month period ended May 3, 2003. As previously discussed, start-up costs
associated with new product lines, the addition of two new facilities and
expansion of two existing facilities along with an increase in selling, general
and administrative expenses, partially offset by a decrease in loss on foreign
currency, were factors which resulted in a reduction in net earnings over the
prior period.
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.
During the period ended May 3, 2003, we spent approximately $55.8 million to
cover the capital requirements of our operations. We expect to incur capital
expenditures of approximately $103 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
25
base. Additionally, we are currently exploring opportunities in Eastern
Europe.
We had positive cash flow from operating activities of $23.0 million, which
in part funded our capital expenditures of approximately $55.8 million. The
remaining balance of capital expenditures was covered by 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 six-month period ended May 3, 2003, 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 Argentine customers in the
Brazilian Real and Argentine Peso, respectively. A portion of those invoices are
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 to a
lesser extent the 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 to a lesser extent the Argentine Peso can have a negative
effect on our profitability. Exchange rate fluctuations resulted in a loss of
approximately $0.8 million for the period ended May 3, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased $12.4 million to $23.0
million for the six months ended May 3, 2003 as compared to the six months ended
May 4, 2002. The increase in cash was primarily the result of approximately
$10.7 million in net working capital and other asset and liability changes. The
increase in net working capital was due to a decrease in accounts receivable and
an increase in accounts payable offset by increased spending on inventories. An
increase of $3.3 million in non-cash expenses that include items such as
depreciation and amortization, bad debt expense, deferred income tax expense,
and foreign currency translation contributed to the increase in cash. The
increase in non-cash expenses was offset by a decrease in operating performance
of $1.6 million.
Net cash used in investing activities was $55.6 million and $34.4 million
for the six-month periods ending May 3, 2003 and May 4, 2002, respectively.
Investing activities were primarily attributable to
26
the acquisition of property and equipment. For the six months ended May 3, 2003
and May 4, 2002, property and equipment acquisitions were $55.8 million and
$31.4 million, respectively. Net cash used in investing activities was offset by
proceeds from the sale of equipment of $0.6 million in the current period.
Net cash used in financing activities was $3.0 million and $3.4 million for
the six-month periods ended May 3, 2003 and May 4, 2002, respectively. In the
six months ended May 3, 2003 and May 4, 2002, net cash of $3.4 million and $4.5
million, respectively, was used to make principal payments on long-term
obligations. In the six months ended May 3, 2003 and May 4, 2002, cash was
provided from long-term obligations of $0.4 million and $1.5 million,
respectively.
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 continue 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 our first sale of 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 May 3, 2003,
$55.9 million in letters of credit were outstanding under the Amended Credit
Agreement and we had $94.1 million available for borrowing.
Under the Amended Credit Agreement we are required to calculate EBITDA
because covenants in our debt agreement are tied to ratios based on that
measure. For instance, the covenants under the Amended Credit Agreement
incorporate EBITDA for the most recent last four fiscal quarters (last twelve
months), as a component of the following ratios: debt service ratio (minimum
1.25 to 1), senior secured debt ratio (maximum 2.00 to 1), leverage ratio
(maximum 4.50 to 1) and interest coverage ratio (minimum 2.25 to 1). Our ability
to incur additional debt is tied to our bank covenants. As of May 3, 2003, we
are in compliance with our covenants. EBITDA should not be considered an
alternative measure of operating results or cash flows from operations (as
determined by generally accepted accounting principles), but 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
other companies.
Our Amended Credit Agreement defines EBITDA as earnings (loss) before
interest expense, income taxes, depreciation and amortization. A reconciliation
between net earnings and EBITDA is calculated as follows:
27
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------- ------------------------------------
MAY 3, MAY 4, MAY 3, MAY 4,
2003 2002 2003 2002
Net earnings $ 6,421,279 $ 6,678,975 $ 4,600,394 $ 6,186,475
Income tax expense 3,259,000 3,005,000 2,258,000 2,700,000
Interest Expense 8,731,773 8,770,649 19,019,604 17,903,406
Depreciation 11,973,691 10,600,530 23,934,889 21,128,530
Amortization 1,616,797 816,102 3,233,590 1,804,888
----------- ----------- ----------- -----------
EBITDA $32,002,540 $29,871,256 $53,046,477 $49,723,299
=========== =========== =========== ===========
YEARS ENDED LAST TWELVE MONTHS (LTM)
----------------------------------- ------------------------------------
NOVEMBER 2, NOVEMBER 3, MAY 3, MAY 4,
2002 2001 2003 2002
Net earnings $ 8,592,810 $ 7,147,376 $ 7,006,729 $ 7,146,262
Income tax expense 4,831,000 3,284,000 4,389,000 3,302,000
Interest Expense 35,099,265 28,955,895 36,215,463 32,607,988
Depreciation 44,070,064 40,701,845 46,876,423 42,000,980
Amortization 3,947,529 4,009,775 5,376,231 4,134,751
----------- ----------- ----------- -----------
EBITDA $96,540,668 $84,098,891 $99,863,846 $89,191,981
=========== =========== =========== ===========
Looking forward, we have the following short-term and medium-term capital
needs. Our overall capital expenditure budget in fiscal 2003 is approximately
$103 million and $90 million in 2004, a majority of which is expected to be
discretionary capital expenditures. Our new sites in Florida and Alabama began
production in December 2002 and March 2003, respectively. 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.
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 May 3, 2003, we had approximately $34.1 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
Discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally
28
accepted in the United States. The preparation of these financial statements
requires that we 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 our annual financial statements. These
critical accounting policies are subject to judgments and uncertainties, which
affect the application of these policies. We base our estimates on historical
experience and on various other assumptions believed to be reasonable under the
circumstances. On an on-going basis, we evaluate 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 we believe are most critical to the understanding of
our financial position and results of operations that require significant
management estimates and judgments are discussed below.
Losses on accounts receivable are 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 our 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 impairment may exist.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
On November 3, 2002, we adopted Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), Accounting for Goodwill and Other Intangibles, which
requires that goodwill and certain other intangible assets no longer be
amortized to earnings but instead be reviewed periodically for potential
impairment; Statement 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 long-lived
assets. The Company determined that the intangible assets had finite lives and
there was no change in the lives, therefore, there is no proforma disclosure
requirement. Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
Accounting for Stock Based Compensation-Transition and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
The adoption of these standards did not have a material impact on our
financial position or results of operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46
clarifies the applications of Accounting Research Bulletin 51, Consolidated
Financial Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support from other parties or in which equity investors do not have
the characteristics of a controlling financial interest ("variable interest
entities"). Variable interest entities within the scope of FIN 46 will be
required to be consolidated by their primary beneficiary. The primary
beneficiary of a variable interest entity is determined to be the party that
absorbs a majority of the entity's expected losses, receives a majority of its
expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that
29
date. It applies in the first fiscal year or interim period beginning after June
15, 2003 to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 149 ("SFAS 149"), Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. SFAS 149
requires that contracts with comparable characteristics be accounted for
similarly. This Statement is effective for contracts entered into or modified
after June 30, 2003. All provisions of this Statement should be applied
prospectively, except as stated below and for hedging relationships designated
after June 30, 2003. The provisions of this Statement that relate to Statement
133 Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 ("SFAS 150"), Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
150 requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.
We are currently evaluating the impact, if any, from these standards on our
results of operations and financial position.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At May 3, 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 March 11, 2003, we entered into two interest rate swap agreements for an
8-year period ending September 1, 2011. In connection with the Senior Notes, we
exchanged fixed rate interest of 10.75% for variable rate interest. The interest
rate swap agreements have notional amounts of $50.0 million each. The variable
rates are equal to six month LIBOR plus 6.46% and 6.66%, respectively; except
for the initial period from March 11, 2003 to September 1, 2003, which will be
determined via linear interpolation. As of May 3, 2003, we recorded an increase
of $2,177,146 in other accrued expenses to recognize the decrease in fair value
of the swap and a $2,177,146 reduction in the Senior Notes to recognize the
difference between the carrying value and fair value of the related hedge
liability.
ITEM 4. 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.
31
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Chief Executive Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Executive Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. On May 20, 2003, Plastipak Holdings, Inc., filed a Current
Report on Form 8-K pursuant to Item 5. Other Events and
Required FD Disclosure concerning Plastipak's obligation to
pay an aggregate $10,000 of special interest to holders of its
Senior Notes trading under CUSIP No. 72710AA5 pursuant to the
Exchange and Registration Rights Agreement dated September 25,
2002. Plastipak paid the special interest on June 6, 2003.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASTIPAK HOLDINGS, INC.
Dated: June 16, 2003 By: /s/ William C. Young
--------------------
William C. Young
President and Chief Executive Officer
By: /s/ Michael J. Plotzke
----------------------
Michael J. Plotzke,
Treasurer and Chief Financial Officer
33
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 quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 quarterly
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: June 16, 2003 /s/ William C. Young
--------------------------------
William C. Young
Chief Executive Officer
Plastipak Holdings, Inc.
34
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 quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 quarterly
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: June 16, 2003 /s/ Michael J. Plotzke
----------------------------
Michael J. Plotzke
Chief Financial Officer
Plastipak Holdings, Inc.
35
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002