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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2004
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)
41605 Ann Arbor Road, Plymouth, Michigan 48170
-----------------------------------------------
(Address of principal executive offices)
(734) 455-3600
---------------
(Registrant's telephone number, including area code)
(Former address: 9135 General Court, Plymouth, Michigan 48170)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 January 31, 2004 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 January 31, 2004 (unaudited)
and November 1, 2003 .......................................................................... 1
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month Periods Ended January 31, 2004 and February 1, 2003................................. 3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended January 31, 2004 and February 1, 2003........................................ 4
Notes to Condensed Consolidated Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 26
Item 4. Controls and Procedures......................................................................... 26
PART II - OTHER INFORMATION ................................................................................. 27
Item 6. Exhibits and Reports on Form 8-K................................................................ 27
SIGNATURES.................................................................................................... 28
10-Q EXHIBIT INDEX............................................................................................ 29
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS JANUARY 31, NOVEMBER 1,
2004 2003
------------- -------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 15,209,122 $ 37,278,406
Accounts Receivable
Trade (net of allowance of $2,739,492 and $2,541,820
at January 31, 2004 and November 1, 2003) 66,376,578 54,531,831
Related parties 7,409,583 7,202,753
-------------- -------------
73,786,161 61,734,584
Inventories 88,625,618 90,020,742
Prepaid expenses 10,490,933 13,039,269
Prepaid federal income taxes 3,807,299 2,793,980
Deferred income taxes 2,239,000 1,843,000
Other current assets 2,774,883 3,688,059
-------------- -------------
Total current assets 196,933,016 210,398,040
PROPERTY, PLANT & EQUIPMENT- NET 398,473,273 366,920,226
OTHER ASSETS
Cash surrender value of life insurance 1,990,892 1,990,892
Deposits 17,934,888 10,716,360
Capitalized loan costs (net of accumulated amortization
of $3,879,496 and $3,449,524 at January 31, 2004
and November 1, 2003) 9,111,750 9,541,723
Intangible assets (net of accumulated amortization of
of $5,533,043 and $4,937,791 at January 31, 2004
and November 1, 2003) 10,346,716 6,429,468
Prepaids 904,905 936,658
Sundry 374,634 266,645
-------------- -------------
Total Other Assets 40,663,785 29,881,746
-------------- -------------
Total Assets $ 636,070,074 $ 607,200,012
============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, NOVEMBER 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
-------------- -------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 117,748,450 $ 115,125,413
Current portion of long term obligation 4,734,887 3,823,347
Accrued liabilities
Taxes other than income 6,442,816 4,740,907
Other accrued expenses 34,575,470 29,309,529
Income taxes 1,357,371 1,363,371
-------------- -------------
Total Current Liabilities 164,858,994 154,362,567
SENIOR NOTES (NET OF UNAMORTIZED PREMIUM AND
FV OF SWAPS OF $2,147,851 AND ($2,566,464) AT JANUARY 31,
2004 AND $2,218,660 AND ($4,748,452) AT NOVEMBER 1, 2003) 324,581,387 322,470,208
LONG-TERM OBLIGATIONS 80,068,172 60,601,547
DEFERRED INCOME TAXES 16,356,000 16,483,000
OTHER NON-CURRENT LIABILITIES 4,373,586 4,030,943
OBLIGATIONS UNDER STOCK BONUS PLANS 8,589,048 8,306,882
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares authorized;
28,316 shares issued and outstanding 28,316 28,316
Retained earnings 37,214,571 40,916,549
-------------- -------------
Total Stockholders' Equity 37,242,887 40,944,865
-------------- -------------
Total Liabilities and Stockholders' Equity $ 636,070,074 $ 607,200,012
============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
------------------------------------
JANUARY 31, FEBRUARY 1,
2004 2003
------------- -------------
(UNAUDITED) (UNAUDITED)
Revenues $ 225,967,628 $ 199,544,801
Cost and expenses 203,556,028 174,730,300
------------- -------------
Gross profit 22,411,600 24,814,501
Selling, general and administrative expenses 19,398,058 17,685,958
------------- -------------
Operating profit 3,013,542 7,128,543
Other expense (income)
Interest expense 8,944,164 10,287,831
Interest income (98,468) (297,539)
Royalty income (159,074) (212,505)
(Gain) loss on foreign currency translation (271,015) 189,312
Sundry income (217,022) (16,671)
------------- -------------
8,198,585 9,950,428
------------- -------------
Loss before income taxes (5,185,043) (2,821,885)
Income tax benefit
Deferred (523,000) (1,001,000)
Current (1,087,000) -
------------- -------------
(1,610,000) (1,001,000)
------------- -------------
Net loss $ (3,575,043) $ (1,820,885)
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
-------------------------------
JANUARY 31, FEBRUARY 1,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES (UNAUDITED) (UNAUDITED)
Net loss $ (3,575,043) $ (1,820,885)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 15,145,513 13,577,992
Amortization of net premium on Senior Notes (70,810) (70,807)
Bad debt expense 314,701 259,118
Deferred salaries 382,300 96,900
(Gain) loss on sale of equipment (103,555) 28,875
Deferred tax benefit (523,000) (1,001,000)
Restricted stock option - compensation 155,231 279,973
Foreign currency translation (gain) loss (100,336) 116,795
Change in assets and liabilities:
Increase in accounts receivable (12,366,278) (3,249,087)
Decrease (increase) in inventories 1,395,124 (4,513,945)
Decrease in prepaid expenses and other current assets 3,349,265 1,971,053
Increase in prepaid federal income taxes (1,013,319) (309,003)
Increase in other liabilities 9,109,872 7,671,014
Increase in deposits (7,218,528) (5,165,350)
Increase in accounts payable 2,623,035 193,910
Increase in sundry other assets (107,989) (210,338)
Decrease in income taxes (6,000) (6,825)
------------ ------------
Net cash provided by operating activities 7,390,183 7,848,390
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (38,517,981) (21,798,947)
Proceeds from sale of equipment 797,669 --
Acquisition of intangible assets (4,512,500) --
------------ ------------
Net cash used in investing activities (42,232,812) (21,798,947)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net borrowings under revolving credit facility 14,681,384 1,842,377
Principal payments on long-term obligations (2,134,558) (2,085,769)
Proceeds from long-term obligations 226,519 --
------------ ------------
Net cash provided by (used in) financing activities 12,773,345 (243,392)
------------ ------------
Net decrease in cash and cash equivalents (22,069,284) (14,193,949)
Cash and cash equivalents at beginning of the year 37,278,406 66,196,262
------------ ------------
Cash and cash equivalents at end of the period $ 15,209,122 $ 52,002,313
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
THREE MONTHS ENDED
--------------------------------------
JANUARY 31, 2004 FEBRUARY 1, 2003
---------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION: (UNAUDITED) (UNAUDITED)
Cash paid for interest $1,530,000 $1,394,000
========== ==========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of equipment through the assumption of
long-term obligations $7,936,000 $1,456,000
========== ==========
Increase in fair value of interest rate swaps $2,181,988 $ --
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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 three months ended January 31, 2004 are
not necessarily indicative of the results that may be expected for the year
ending October 30, 2004.
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 29, 2004.
Reclassifications
Certain reclassifications have been made to the 2003 financial information
in order for them to conform to the classifications at January 31, 2004.
Employee Compensation Plans
The Company has two stock-based employee compensation plans. The Company
accounts for these 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 in net income as a component
of general and administrative expenses, as all options granted under those plans
had an exercise price less than the market value of the underlying common stock
on the date of grant. 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 January 31, 2004 and February 1, 2003
contained 13 weeks.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
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. In December 2003, the Financial Accounting Standards
Board issued FASB Interpretation 46(R), Consolidation of Variable Interest
Entities. FIN 46(R) replaces FIN 46 and clarifies the accounting for interests
in variable interest entities.
6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
FIN 46(R) should be applied to entities considered to be Special Purpose
Entities (SPE's) no later than the end of the first reporting period after
December 15, 2003 and by the end of the first reporting period that ends after
March 15, 2004 to entities other than SPE's. The adoption of this standard did
not have a material impact on the Company's financial position or results of
operations.
NOTE D - INVENTORIES
Inventories consisted of the following at:
JANUARY 31, NOVEMBER 1,
2004 2003
------------- -------------
Raw Materials $ 37,516,539 $ 34,835,429
Finished Goods 37,853,198 41,984,322
Parts & Supplies 13,255,881 13,200,991
------------- -------------
$ 88,625,618 $ 90,020,742
============= =============
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.
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.
7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE F - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - CONTINUED
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 January 31, 2004, the Company recorded an
increase of $2,566,464 in other accrued expenses to recognize the fair value of
the swap and a $2,566,464 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 balance sheets as of January 31, 2004 and
November 1, 2003 and statements of operations and cash flows for the
three months ended January 31, 2004 and February 1, 2003 of (a)
Plastipak the parent; (b) the guarantor subsidiaries (North American
Operating Segment); (c) the nonguarantor subsidiaries (South American
Operating Segment and European 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 and European 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 JANUARY 31, 2004
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash $ 10,246,371 $ 2,931,867 $ 2,030,884 $ 15,209,122
Accounts receivable 16,124,282 50,965,180 13,044,211 (6,347,512) 73,786,161
Inventories -- 74,250,777 14,374,841 88,625,618
Prepaid expenses -- 7,694,068 2,796,865 10,490,933
Prepaid federal income taxes 2,062,392 1,648,234 96,673 3,807,299
Deferred income taxes (3,283,000) 2,997,000 2,525,000 2,239,000
Other current assets -- 2,541,394 233,489 2,774,883
------------- ------------- ------------- ------------- -------------
Total Current Assets 25,150,045 143,028,520 35,101,963 (6,347,512) 196,933,016
PROPERTY, PLANT &
EQUIPMENT- NET -- 347,387,349 51,285,924 (200,000) 398,473,273
OTHER ASSETS
Cash surrender value
of life insurance -- 1,990,892 -- 1,990,892
Deposits -- 17,934,888 -- 17,934,888
Investment in and advances --
to affiliates 346,379,386 (286,583,436) -- (59,795,950) --
Capitalized loan costs 992,207 8,119,543 -- 9,111,750
Intangible assets -- 7,752,211 2,594,505 10,346,716
Deferred tax asset -long term (429,556) 429,556 -- --
Prepaids -- 904,905 -- 904,905
Sundry -- 5,000,000 374,634 (5,000,000) 374,634
------------- ------------- ------------- ------------- -------------
Total Other Assets 346,942,037 (244,451,441) 2,969,139 (64,795,950) 40,663,785
------------- ------------- ------------- ------------- -------------
Total Assets $ 372,092,082 $ 245,964,428 $ 89,357,026 $ (71,343,462) $ 636,070,074
============= ============= ============= ============= =============
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 JANUARY 31, 2004
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ -- $ 86,276,638 $ 37,802,524 $ (6,330,712) $ 117,748,450
Current portion of long
term obligation -- 3,921,520 813,367 -- 4,734,887
Taxes other than income -- 5,133,530 1,309,286 -- 6,442,816
Other accrued expenses 16,098,835 17,269,870 1,224,315 (17,550) 34,575,470
Income taxes (168,440) 1,525,811 -- -- 1,357,371
------------- ------------- ------------- ------------- -------------
Total Current Liabilities 15,930,395 114,127,369 41,149,492 (6,348,262) 164,858,994
SENIOR NOTES 327,709,850 (3,128,463) -- -- 324,581,387
LONG-TERM OBLIGATIONS -- 25,629,168 59,439,004 (5,000,000) 80,068,172
DEFERRED INCOME TAXES (17,380,098) 31,211,098 2,525,000 -- 16,356,000
OTHER NON-CURRENT
LIABILITIES -- 3,861,587 511,999 -- 4,373,586
OBLIGATIONS UNDER
STOCK BONUS PLAN 8,589,048 -- -- -- 8,589,048
STOCKHOLDERS'
EQUITY (DEFICIT) 37,242,887 74,263,669 (14,268,469) (59,995,200) 37,242,887
------------- ------------- ------------- ------------- -------------
Total Liabilities and
Stockholders' Equity $ 372,092,082 $ 245,964,428 $ 89,357,026 $ (71,343,462) $ 636,070,074
============= ============= ============= ============= =============
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 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Current Assets
Cash $ 23,104,119 $ 12,750,772 $ 1,423,515 $ -- $ 37,278,406
Accounts receivable 9,090,858 47,835,342 11,085,537 (6,277,153) 61,734,584
Inventories -- 71,520,128 18,500,614 -- 90,020,742
Prepaid expenses -- 10,075,312 2,963,957 -- 13,039,269
Prepaid federal income taxes 975,392 1,719,048 99,540 -- 2,793,980
Deferred income taxes (3,679,000) 2,997,000 2,525,000 -- 1,843,000
Other current assets -- 3,336,833 351,226 -- 3,688,059
------------- ------------- ------------- ------------- -------------
Total Current Assets 29,491,369 150,234,435 36,949,389 (6,277,153) 210,398,040
PROPERTY, PLANT &
EQUIPMENT- NET -- 315,739,770 51,430,456 (250,000) 366,920,226
OTHER ASSETS
Cash surrender value
of life insurance -- 1,990,892 -- -- 1,990,892
Deposits -- 10,716,360 -- -- 10,716,360
Investment in and advances
to affiliates 337,670,382 (271,963,985) -- (65,706,397) --
Capitalized loan costs 1,024,917 8,516,806 -- -- 9,541,723
Intangible assets -- 3,527,915 2,901,553 -- 6,429,468
Deferred tax asset - long term (429,556) 429,556 -- -- --
Prepaids -- 936,658 -- -- 936,658
Sundry -- 5,001,699 264,946 (5,000,000) 266,645
------------- ------------- ------------- ------------- -------------
Total Other Assets 338,265,743 (240,844,099) 3,166,499 (70,706,397) 29,881,746
------------- ------------- ------------- ------------- -------------
Total Assets $ 367,757,112 $ 225,130,106 $ 91,546,344 $ (77,233,550) $ 607,200,012
============= ============= ============= ============= =============
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 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ 17,159 $ 85,093,312 $ 36,292,095 $ (6,277,153) $ 115,125,413
Current portion of long
term obligation -- 2,970,955 852,392 -- 3,823,347
Taxes other than income -- 4,006,848 734,059 -- 4,740,907
Other accrued expenses 10,207,937 17,755,822 1,345,770 -- 29,309,529
Income taxes (168,440) 1,531,811 -- -- 1,363,371
------------- ------------- ------------- ------------- -------------
Total Current Liabilities 10,056,656 111,358,748 39,224,316 (6,277,153) 154,362,567
SENIOR NOTES 325,701,807 (3,231,599) -- -- 322,470,208
LONG-TERM OBLIGATIONS -- 5,562,807 60,038,740 (5,000,000) 60,601,547
DEFERRED INCOME TAXES (17,253,098) 31,211,098 2,525,000 -- 16,483,000
OTHER NON-CURRENT
LIABILITIES -- 3,480,939 550,004 -- 4,030,943
OBLIGATIONS UNDER
STOCK BONUS PLAN 8,306,882 -- -- -- 8,306,882
STOCKHOLDERS'
EQUITY (DEFICIT) 40,944,865 76,748,113 (10,791,716) (65,956,397) 40,944,865
------------- ------------- ------------- ------------- -------------
Total Liabilities and
Stockholders' Equity $ 367,757,112 $ 225,130,106 $ 91,546,344 $ (77,233,550) $ 607,200,012
============= ============= ============= ============= =============
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 JANUARY 31, 2004
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ -- $ 197,217,215 $ 28,815,554 $ (65,141) $ 225,967,628
Cost and expenses -- 173,825,008 29,846,913 (115,893) 203,556,028
------------- ------------- ------------- ------------- -------------
Gross profit (loss) -- 23,392,207 (1,031,359) 50,752 22,411,600
Selling, general and
administrative expenses 202,862 17,198,789 1,996,407 -- 19,398,058
------------- ------------- ------------- ------------- -------------
Operating (loss) profit (202,862) 6,193,418 (3,027,766) 50,752 3,013,542
Other expense (income)
Equity in loss (earnings)
of affiliates 5,290,996 829,618 -- (6,120,614) --
Interest expense 7,898,941 133,708 951,517 (40,002) 8,944,164
Interest income (8,072,756) 7,951,245 (16,959) 40,002 (98,468)
Royalty income -- (159,074) -- -- (159,074)
Gain on foreign currency
translation -- -- (271,015) -- (271,015)
Sundry income (135,000) (77,635) (4,387) -- (217,022)
------------- ------------- ------------- ------------- -------------
4,982,181 8,677,862 659,156 (6,120,614) 8,198,585
------------- ------------- ------------- ------------- -------------
(Loss) earnings before
income taxes (5,185,043) (2,484,444) (3,686,922) 6,171,366 (5,185,043)
Income taxes (1,610,000) -- -- -- (1,610,000)
------------- ------------- ------------- ------------- -------------
Net (loss) earnings $ (3,575,043) $ (2,484,444) $ (3,686,922) $ 6,171,366 $ (3,575,043)
============= ============= ============= ============= =============
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 FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ -- $ 180,044,685 $ 21,843,435 $ (2,343,319) $ 199,544,801
Cost and expenses -- 156,603,760 20,199,859 (2,073,319) 174,730,300
------------- ------------- ------------- ------------- -------------
Gross profit (loss) -- 23,440,925 1,643,576 (270,000) 24,814,501
Selling, general and
administrative expenses 94,911 16,409,230 1,451,817 (270,000) 17,685,958
------------- ------------- ------------- ------------- -------------
Operating (loss) profit (94,911) 7,031,695 191,759 -- 7,128,543
Other expense (income)
Equity in loss (earnings)
of affiliates 1,723,634 199,889 -- (1,923,523) --
Interest expense 8,657,478 590,071 1,085,787 (45,505) 10,287,831
Interest income (7,519,138) 7,255,934 (79,840) 45,505 (297,539)
Royalty income -- (212,505) -- -- (212,505)
Loss on foreign currency
translation -- -- 189,312 -- 189,312
Sundry (income) loss (135,000) 122,381 (4,052) -- (16,671)
------------- ------------- ------------- ------------- -------------
2,726,974 7,955,770 1,191,207 (1,923,523) 9,950,428
------------- ------------- ------------- ------------- -------------
(Loss) earnings before
income taxes (2,821,885) (924,075) (999,448) 1,923,523 (2,821,885)
Income taxes (1,001,000) -- -- -- (1,001,000)
------------- ------------- ------------- ------------- -------------
Net (loss) earnings $ (1,820,885) $ (924,075) $ (999,448) $ 1,923,523 $ (1,820,885)
============= ============= ============= ============= =============
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 THREE MONTHS ENDED JANUARY 31, 2004
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash provided by
operating activities $ 1,142,252 $ 3,502,718 $ 2,745,213 $ -- $ 7,390,183
CASH FLOWS (USED IN) PROVIDED
BY INVESTING ACTIVITIES
Acquisition of property
and equipment -- (36,708,081) (1,809,900) -- (38,517,981)
Proceeds from sale of equipment -- 797,669 -- -- 797,669
Investment in and advances
to affiliates (14,000,000) (210,169) -- 14,210,169 --
Acquisition of intangible assets -- (4,512,500) -- -- (4,512,500)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by investing activities (14,000,000) (40,633,081) (1,809,900) 14,210,169 (42,232,812)
CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES
Net borrowings (repayments)
under revolving credit facility -- 14,971,953 (290,569) -- 14,681,384
Principal payments on long-term
obligations -- (1,660,495) (474,063) -- (2,134,558)
Proceeds from long-term obligations -- 14,000,000 226,519 (14,000,000) 226,519
Capital increases -- -- 210,169 (210,169) --
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing activities -- 27,311,458 (327,944) (14,210,169) 12,773,345
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash (12,857,748) (9,818,905) 607,369 -- (22,069,284)
Cash and cash equivalents at
the beginning of the year 23,104,119 12,750,772 1,423,515 -- 37,278,406
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 10,246,371 $ 2,931,867 $ 2,030,884 $ -- $ 15,209,122
============ ============ ============ ============ ============
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 CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT TOTAL SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 170,075 $ 10,113,233 $ (2,434,918) $ -- $ 7,848,390
CASH FLOWS (USED IN) PROVIDED
BY INVESTING ACTIVITIES
Acquisition of property
and equipment -- (21,301,376) (497,571) -- (21,798,947)
Investment in and advances
to affiliates (4,100,000) (400,000) -- 4,500,000 --
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided
by investing activities (4,100,000) (21,701,376) (497,571) 4,500,000 (21,798,947)
CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES
Net borrowings under revolving
credit facility -- -- 1,842,377 -- 1,842,377
Principal payments on long-term
obligations -- (1,032,965) (1,052,804) -- (2,085,769)
Proceeds from long-term obligations -- 2,500,000 -- (2,500,000) --
Capital increases -- -- 2,000,000 (2,000,000) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities -- 1,467,035 2,789,573 (4,500,000) (243,392)
------------ ------------ ------------ ------------ ------------
Net decrease in cash (3,929,925) (10,121,108) (142,916) -- (14,193,949)
Cash and cash equivalents at
the beginning of the year 44,619,480 19,388,938 2,187,844 -- 66,196,262
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
the end of the period $ 40,689,555 $ 9,267,830 $ 2,044,928 $ -- $ 52,002,313
============ ============ ============ ============ ============
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 - CONTINUED
SUPPLEMENTAL CASH FLOW INFORMATION:
DEPRECIATION AND AMORTIZATION EXPENSE GUARANTOR NONGUARANTOR
PERIOD ENDED SUBSIDIARIES SUBSIDIARIES TOTAL
- ------------------------------------- ----------- ----------- -----------
1/31/04 $12,884,036 $ 2,261,477 $15,145,513
=========== =========== ===========
2/1/03 $11,171,946 $ 2,406,046 $13,577,992
=========== =========== ===========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Management's discussion and analysis should be read in conjunction with
the consolidated financial statements and the accompanying notes. Please refer
to the "Risk Related to Our Business" section, in our Form 10-K for the year
ended November 1, 2003, 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 and the
impact of such competition on pricing, revenues and margins), 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. In
2003, Plastipak Czech Republic, s.r.o. was established as a wholly-owned
subsidiary of Packaging. This entity will serve as a bottle manufacturing
facility in Central Europe. 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. In 2003, Clean Tech Slovakia, s.r.o. was established as a
wholly-owned subsidiary of Clean Tech. Clean Tech Slovakia, s.r.o. will serve as
a post-consumer recycling operation in Central Europe. 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, Brazil and produces injection-molded plastic preforms in Manaus,
Brazil. Plastipak Brasil also maintains a sales office in Buenos Aires,
Argentina. Other than Plastipak Czech Republic, s.r.o., Clean Tech Slovakia,
s.r.o. and Plastipak Brasil and its subsidiaries, all of the Plastipak group of
companies are headquartered in Plymouth, Michigan.
18
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 January 31, 2004 and February 1, 2003 were 13 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the three months ended January 31, 2004 and February 1, 2003 in each
of our product categories.
CONSOLIDATED REVENUE BY PRODUCT CATEGORY
Three Months Ended Three Months Ended
January 31, 2004 February 1, 2003
---------------- ----------------
(dollar amounts in thousands)
2004 % 2003 %
-------- ----- -------- -----
Carbonated and non-carbonated beverage revenue $105,049 46.5% $ 86,826 43.5%
Consumer cleaning revenue 69,533 30.8 64,125 32.1
Food and processed juice revenue 27,790 12.3 26,255 13.2
Industrial, agricultural and automotive revenue 12,476 5.5 12,037 6.0
Other revenue (a) 11,120 4.9 10,302 5.2
-------- ----- -------- -----
Total revenue $225,968 100.0% $199,545 100.0%
======== ===== ======== =====
(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 JANUARY 31, 2004 COMPARED TO THREE MONTHS ENDED FEBRUARY 1,
2003
REVENUE
Revenue increased 13.2% to $226.0 million for the three months ended
January 31, 2004 with unit sales increasing 17.2%. Consistent performance in the
U.S. combined with significant gains in Brazil helped drive these results. All
business categories posted revenue gains for the first quarter versus the same
period in 2003 with the largest growth coming from our carbonated and
non-carbonated beverage category, which represented 21.0% growth for the
period. Revenues in Brazil increased significantly during the period with
revenue up over 30% and unit sales increasing 34.5%. In the U.S., volume gains
were attributable primarily to the addition of new products and new customers
served by our new manufacturing facilities in Florida and Alabama. The increases
in revenue were partially offset by price reductions implemented for new
business and the extension of current business. In addition, using industry
standard price data, we estimate that higher resin prices resulted in
approximately a $10.0 million increase in revenues for the three months ended
January 31, 2004.
Revenue and unit sales increases and decreases by product category are
discussed more specifically below:
- Carbonated and non-carbonated beverage revenue increased 21.0% to
$105.0 million during the three-month period ended January 31, 2004
with unit volume up 20.4% over the same period in 2003. Sales in
Brazil were fueled by strong promotional activity by current
customers in the region. U.S. sales were driven primarily by
continued strength in the water category.
19
- Consumer cleaning revenue increased 8.4% to $69.5 million in the
first quarter of 2004, with unit volume up over 13.0%. These gains
were primarily a result of two factors: new product sales to
existing customers during the period that were not shipped in the
first quarter of 2003 and the addition of new customers to the
sector and the additional volume these customers represented.
- Our food and processed juice category reported sales increases in
both revenue and unit volume for the first quarter compared to the
same period of 2003. During the first quarter, unit volume increased
6.6% and sales revenue improved by 5.8%. Areas of strength in this
category included squeezable sauces, relishes and other condiments
along with juice and specialty drinks.
- Industrial, agricultural and automotive category revenue increased
3.6% during the first quarter of 2004, while unit volume decreased
for the period. For the three months ended January 31, 2004, sales
revenue increased to $12.5 million and unit sales softened,
decreasing by approximately 6.5%. The changes for the quarter were
driven primarily by a continued mix shift to larger multi-quart
packages sold primarily through the "big box" retailers and a
reduction in the market for small quart sized containers in this
category.
- Other revenue increased 7.9% to $11.1 million. Other revenue, which
includes our health, personal care, distilled spirits, freight and
other miscellaneous revenue, posted increases in both revenue and
sales units during the first quarter 2004 over the same period in
2003. The increase was primarily attributable to increases in
freight and other miscellaneous revenue. In addition, revenue from
the sales of distilled spirit containers contributed approximately
$0.3 million to the increase in other revenue. This increase was
primarily a result of increases in our shipments of distilled spirit
containers as the market trend shifts back towards distilled spirits
and away from wine and beer.
GROSS PROFIT
Gross profit decreased 9.7% to $22.4 million for the three-month period
ended January 31, 2004. Gross profit was adversely affected by customer price
reductions implemented to extend customer contracts. During the first quarter of
2004, these price reductions were approximately $4.9 million. We have not been
able, through efficiencies in production to date, to offset price reductions
implemented. The decrease in gross profit was also attributable to increased
operating costs of approximately $1.2 million associated with the start-up of
several new product lines. A decrease in operating performance related to our
South American operations contributed to the decrease as well. Gross profit as a
percent of revenue decreased to 9.9% as compared to 12.4% in the prior period.
The erosion of gross profit as a percentage of revenue was due to the factors
mentioned above and 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, except where we have firm
pricing, 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. Currently, we have been notified of resin price increases which will
take effect in the second quarter of 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses (SG&A) for the three months
ended January 31, 2004 increased 9.7% to $19.4 million. As a percentage of
revenue, selling, general and administrative expenses decreased to 8.6% for the
three months ended January 31, 2004 from 8.9% for the three months ended
February 1, 2003. Increases in compensation, benefits and travel expenses of
approximately $1.1 million were the primary factors contributing to the change.
Increases in insurance, legal, taxes and professional fees contributed
approximately $0.6 million to the increase in SG&A.
20
INTEREST EXPENSE
Interest expense decreased $1.3 million to $8.9 million for the
three-month period ended January 31, 2004, as compared to $10.2 million for the
three-month period ended February 1, 2003. The decrease in interest expense was
primarily attributable to interest earned from interest rate swaps, an increase
in capitalized interest and a decrease in interest rates and interest expense
associated with our South American operations.
OTHER (INCOME) AND EXPENSE
Other income increased by $0.4 million to $0.7 million for the three-month
period ended January 31, 2004. The increase was related to a decrease of $0.5
million in foreign currency exchange rate losses and a gain of approximately
$0.1 million on the disposition and sale of fixed assets offset by a decrease in
interest income of $0.2 million.
INCOME TAX BENEFIT
Provision for income taxes was a $1.6 million benefit for the three months
ended January 31, 2004 as compared to a $1.0 million benefit for the three
months ended February 1, 2003. Loss before income taxes was $5.2 million in the
first quarter of 2004 compared to $2.8 million in the first quarter of 2003. The
effective rate was 31.1% in the first quarter of 2004 as compared to 35.5% in
the first quarter of 2003.
NET LOSS
Net loss increased by $1.8 million from a net loss of $1.8 million for the
three-month period ended February 1, 2003 to a net loss of $3.6 million for the
three-month period ended January 31, 2004. A decrease in gross profit and an
increase in selling, general and administrative expenses offset by a decrease in
interest expense along with other factors mentioned above resulted in an
increase in net losses 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 and capital leases.
Future capital expenditures will be used in the same manner as past
expenditures.
During the three months ended January 31, 2004, we spent approximately
$38.5 million and assumed $7.9 million in capital lease obligations to cover the
capital requirements of our operations. We expect to incur capital expenditures
of approximately $120.0 million in fiscal 2004 and $70.0 million in 2005.
We continue to use technology that will allow us to pursue opportunities
in the condiment, sauce and beverage markets. South America provides significant
opportunities with our current customer base. Additionally, we are in the early
stages of establishing three facilities in Central Europe, Plastipak Czech
Republic, s.r.o., Plastipak Slovakia, s.r.o., and Clean Tech Slovakia, s.r.o.
Plastipak Czech Republic, s.r.o. will serve as a bottle manufacturing facility.
Plastipak Slovakia will serve as the technical and design center and provide
sales, marketing and administrative services for Central Europe. We believe this
to be one of, if not the only dedicated rigid packaging technical center,
located in Central Europe. Our search is underway for top engineers and graphic
designers to assist us in the development of new Slovak suppliers for machinery
parts, machinery development, and bottle design. We expect to invest
approximately $3.6 million in this project.
21
Clean Tech Slovakia s.r.o. has completed our negotiations with the city of
Kechnec, in their modern industrial park, for a parcel of land on which to
construct a world class recycling operation for PET and HDPE resins. The initial
phase of this project will include a building of approximately 7,500 sq. meters
and an investment of approximately $15.0 million contingent upon the amount of
funds received from a government grant from a recycling fund established by the
Slovakian government. This initial phase will be able to recycle over 14,000
metric tons of plastic bottles. Further expansion is planned for PET preforms
and additional recycling, subject to certain standard incentives discussions
that are ongoing. Our employment during this initial phase will employ 50 to 60
people, which is also subject to considerable growth with planned expansions.
Our expansions will allow Slovakia to be a net exporter of high grade, recycled
plastics and a true technology leader to neighboring European Union members.
We had positive cash flow from operating activities of $7.4 million, which
in part funded our capital expenditures of approximately $38.5 million. The
remaining balance of capital expenditures was covered by cash and cash
equivalents and by financing activities including the assumption of capital
lease obligations.
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 a major portion of our cost of goods sold in the
three-month period ended January 31, 2004, 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 multi-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. In addition, any change in value of the euro as
compared to the U.S. dollar may impact start-up costs associated with our new
facilities in Central Europe. For the three months ended January 31, 2004,
exchange rate fluctuations resulted in a gain of approximately $0.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities decreased by 5.8% to $7.4
million for the three months ended January 31, 2004 as compared to the three
months ended February 1, 2003. The decrease in cash was primarily due to a
decrease in operating performance of $1.8 million over the prior period. The
decrease is also due to adjusted net working capital and other asset and
liability changes of $0.6 million for the three months ended January 31, 2004.
An increase of $1.9 million in non-cash expenses that include items such as
depreciation, amortization and foreign currency translation (gain)/loss offset
the decrease in operating performance and changes in adjusted net working
capital and other asset and liability changes.
22
Net cash used in investing activities was $42.2 million and $21.8 million
for the three months ended January 31, 2004 and February 1, 2003, respectively.
Investing activities were primarily attributable to the acquisition of property,
plant and equipment. For the three months ended January 31, 2004 and February 1,
2003, property, plant and equipment acquisitions were $38.5 million and $21.8
million, respectively. During the first quarter of 2004, we also acquired $4.5
million in intangible assets related to the extension of customer contracts.
Net cash provided by (used in) financing activities was $12.8 million and
($0.2) million for the three months ended January 31, 2004 and February 1, 2003,
respectively. During the first quarter of 2004, we borrowed approximately $14.9
million which was primarily used to fund capital expenditures.
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. During fiscal 2003 we used the net proceeds from the
September 25, 2002 sale of Senior Notes for general corporate purposes,
including working capital, capital expenditures and technology development.
In conjunction with our first sale of Senior Notes, we entered into an
Amended Credit Agreement effective August 20, 2001 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
January 31, 2004, $57.6 million and $15.0 million in letters of credit and
borrowings, respectively, were outstanding under the Amended Credit Agreement
and we had $77.4 million available for borrowing subject to covenant
restrictions.
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 4.25 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 January 31, 2004,
we were 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 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
other companies.
23
Our Amended Credit Agreement defines EBITDA as net earnings (loss) plus
income tax expense, interest expense, depreciation and amortization. A
reconciliation between net earnings and EBITDA is calculated as follows:
THREE MONTHS ENDED YEARS ENDED LAST TWELVE MONTHS (LTM)
------------------ ----------- ------------------------
JANUARY 31, FEBRUARY 1, NOVEMBER 1, NOVEMBER 2, JANUARY 31, FEBRUARY 1,
2004 2003 2003 2002 2004 2003
------------ ------------ ------------ ------------ ------------ ------------
Net earnings (loss) earnings
(per GAAP basis) $ (3,575,043) $ (1,820,885) $ 4,361,056 $ 8,592,810 $ 2,606,898 $ 7,264,425
Income tax expense (1,610,000) (1,001,000) 4,543,000 4,831,000 3,934,000 4,135,000
Interest expense 8,944,166 10,287,831 36,902,209 35,099,265 35,558,544 36,254,339
Depreciation 13,976,288 11,961,199 49,859,253 44,070,064 51,874,342 45,503,262
Amortization 1,169,225 1,616,792 6,490,262 3,947,529 6,042,695 4,575,536
------------ ------------ ------------ ------------ ------------ ------------
EBITDA $ 18,904,636 $ 21,043,937 $102,155,780 $ 96,540,668 $100,016,479 $ 97,732,562
============ ============ ============ ============ ============ ============
We have contractual obligations and commercial commitments that may affect
our financial condition. The following tables identify material obligations and
commitments as of January 31, 2004.
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------------------
LESS THAN 1 1-3 3-5 MORE THAN
CONTRACTUAL CASH OBLIGATIONS TOTAL YEAR YEARS YEARS 5 YEARS
- ---------------------------- ------------ ------------ ------------ ------------ ------------
Long Term Debt Obligations $ 55,252,371 $ 813,367 $ 54,439,004 $ -- $ --
Capital Lease Obligations 14,578,735 3,921,520 9,392,176 1,265,039 --
Operating Lease Obligations 53,554,333 20,773,076 29,553,326 3,227,931 --
Capital Expenditure Commitments 26,353,000 26,353,000 -- -- --
Revolving Credit Facility (a) 14,971,953 -- 14,971,953 -- --
Salary Continuation Plan 3,857,732 -- -- -- 3,857,732
Obligations Under Stock Bonus Plans 8,589,048 -- -- -- 8,589,048
Senior Notes 325,000,000 -- -- -- 325,000,000
------------ ------------ ------------ ------------ ------------
Total Contractual Cash Obligations $502,157,172 $ 51,860,963 $108,356,459 $ 4,492,970 $337,446,780
============ ============ ============ ============ ============
COMMITMENT EXPIRATION BY PERIOD
-------------------------------
LESS THAN 1-3 3-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------------ ------------ ------------ ------------ ------------
OTHER COMMERCIAL COMMITMENTS
Standby Letters of Credit $ 57,648,748 $ 57,648,748 $ -- $ -- $ --
Revolving Credit Facility (b) 77,379,299 -- 77,379,299 -- --
------------ ------------ ------------ ------------ ------------
Total Commercial Commitments $135,028,047 $ 57,648,748 $ 77,379,299 $ -- $ --
============ ============ ============ ============ ============
(a) The revolving credit facility's actual outstanding balance as of
January 31, 2004. The revolving credit facility expires in August
2006.
(b) The revolving credit facility's unused borrowing balance as of
January 31, 2004.
24
Looking forward, we have the following short-term and medium-term capital
needs. Our overall capital expenditure budget in fiscal 2004 is approximately
$120.0 million and $70.0 million in 2005, a majority of which is expected to be
discretionary capital expenditures. We expect to have a new site in Louisiana
beginning production in mid to late fiscal 2004. We expect to finance all of our
capital expenditures with operating cash flows and to cover any shortfalls with
borrowings under the Amended Credit Agreement.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of January 31, 2004, we had approximately $15.2 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 accepted in the United States of
America. The preparation of these financial statements requires that we make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Please refer to Note A of our annual audited
financial statements included in the "Financial Statements and Supplementary
Data" section, in our Form 10-K for the year ended November 1, 2003, for a
description of our significant accounting policies. These 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 represent a significant portion of our total
assets. We record property, plant and equipment 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
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
25
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. In December 2003, the Financial Accounting
Standards Board issued FASB Interpretation 46(R), Consolidation of Variable
Interest Entities. FIN 46(R) replaces FIN 46 and clarifies the accounting for
interests in variable interest entities. FIN 46(R) should be applied to entities
considered to be Special Purpose Entities (SPE's) no later than the end of the
first reporting period after December 15, 2003 and by the end of the first
reporting period that ends after March 15, 2004 to entities other than SPE's.
The adoption of this standard did not have a material impact on our financial
position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At January 31, 2004 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
was determined via linear interpolation. As of January 31, 2004, we recorded an
increase of $2,566,464 in other accrued expenses to recognize the decrease in
fair value of the swap and a $2,566,464 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) as of the
end of the period covered by 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.
26
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and Securities
and Exchange Commission Release 34-46427
31.2 Certification of Principal Financial Officer Pursuant Section
to 302 of the Sarbanes-Oxley Act of 2002 and Securities and
Exchange Commission Release 34-46427
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K. None.
27
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: March 16, 2004 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
28
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX-31.1 Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and Securities
and Exchange Commission Release 34-46427
EX-31.2 Certification of Principal Financial Officer Pursuant Section
to 302 of the Sarbanes-Oxley Act of 2002 and Securities and
Exchange Commission Release 34-46427
EX-32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
EX-32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
29