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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-40067
PLIANT CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0496065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1475 WOODFIELD ROAD, SUITE 700
SCHAUMBURG, IL 60173
(847) 969-3300
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On May 9, 2005, there were
571,711 outstanding shares of the registrant's Common Stock.
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PLIANT CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 3
2005 AND DECEMBER 31, 2004
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR 4
THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 5
THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' 6
DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2005
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 23
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
ITEM 4. CONTROLS AND PROCEDURES 31
PART II. OTHER INFORMATION 32
ITEM 1. LEGAL PROCEEDINGS 32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS 32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32
ITEM 5. OTHER INFORMATION 32
ITEM 6. EXHIBITS 32
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004 (DOLLARS IN THOUSANDS)
MARCH 31, 2005 DECEMBER 31, 2004
------------------- ----------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,080 $ 5,580
Receivables, net of allowances of $4,476 and $4,489 respectively 133,534 125,395
Inventories (Note 2) 102,741 94,300
Prepaid expenses and other 3,962 4,032
Income taxes receivable, net 558 361
Deferred income taxes 10,283 11,961
------------------- ----------------------
Total current assets 255,158 241,629
PLANT AND EQUIPMENT, net 294,238 297,145
GOODWILL 182,226 182,237
INTANGIBLE ASSETS, net 16,420 17,076
OTHER ASSETS 37,935 39,005
------------------- ----------------------
TOTAL ASSETS $ 785,977 $ 777,092
=================== ======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable $ 101,051 $ 96,282
Accrued liabilities:
Interest payable 17,212 12,985
Customer rebates 6,364 8,391
Other 40,429 43,462
Current portion of long-term debt 1,300 1,994
------------------- ----------------------
Total current liabilities 166,356 163,114
LONG-TERM DEBT, net of current portion 864,462 840,354
OTHER LIABILITIES 28,655 26,454
DEFERRED INCOME TAXES 29,524 31,433
SHARES SUBJECT TO MANDATORY REDEMPTION (Note 11) 239,217 229,910
------------------- ----------------------
Total Liabilities 1,328,214 1,291,265
------------------- ----------------------
MINORITY INTEREST -- 33
REDEEMABLE PREFERRED STOCK
Series B - 720 shares authorized, no par value, 672 and 720 shares outstanding as
of March 31, 2005 and December 31, 2004, respectively 109 117
------------------- ----------------------
REDEEMABLE COMMON STOCK - no par value; 60,000 shares authorized; 10,873 shares
outstanding as of March 31, 2005 and December 31, 2004, respectively, net of
related stockholders' notes receivable of $1,827 at March 31, 2005 and December
31, 2004, respectively 6,645 6,645
------------------- ----------------------
STOCKHOLDERS' DEFICIT:
Common stock - no par value; 10,000,000 shares authorized, 542,638 shares
outstanding at March 31, 2005 and December 31, 2004 103,376 103,376
Warrants to purchase common stock 39,133 39,133
Accumulated deficit (676,402) (650,974)
Stockholders' notes receivable (660) (660)
Accumulated other comprehensive loss (14,438) (11,843)
------------------- ----------------------
Total stockholders' deficit (548,991) (520,968)
------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 785,977 $ 777,092
=================== ======================
See notes to condensed consolidated financial statements.
3
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
NET SALES $ 262,888 $ 236,799
COST OF SALES 228,938 198,466
---------------- ---------------
Gross profit 33,950 38,333
OPERATING EXPENSES:
Sales, General and Administrative 20,115 19,903
Research and Development 2,010 1,832
Restructuring and Other Costs (Note 3) 132 --
---------------- ---------------
Total operating expenses 22,257 21,735
---------------- ---------------
OPERATING INCOME 11,693 16,598
INTEREST EXPENSE-Current and Long-term debt (Note 5, 9) (26,384) (34,594)
INTEREST EXPENSE-Dividends and accretion on Redeemable Preferred Stock (Note 11) (9,306) (8,367)
OTHER INCOME(EXPENSE) - Net (206) (138)
---------------- ---------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (24,203) (26,501)
INCOME TAX EXPENSE 887 1,652
---------------- ---------------
LOSS FROM CONTINUING OPERATIONS (25,090) (28,153)
---------------- ---------------
LOSS FROM DISCONTINUED OPERATIONS (338) (2,606)
---------------- ---------------
NET LOSS $ (25,428) $ (30,759)
================ ===============
See notes to condensed consolidated financial statements.
4
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (IN THOUSANDS) (UNAUDITED)
2005 2004
---------------- -----------------
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net loss $ (25,428) $ (30,759)
Adjustments to reconcile net loss to net cash (used in)/ provided by continuing operating
activities:
Depreciation and amortization 10,134 11,035
Amortization of deferred financing costs and accretion of debt discount 8,052 12,227
Deferred dividends and accretion on preferred shares 9,306 8,367
Deferred income taxes (209) 715
Loss from discontinued operations 338 2,606
Gain or loss on disposal of assets 91 48
Changes in assets and liabilities:
Receivables (7,614) (11,250)
Inventories (8,366) 3,470
Prepaid expenses and other 60 695
Income taxes payable/receivable (488) 767
Other assets 226 (32)
Trade accounts payable 4,873 (868)
Accrued liabilities (452) 3,160
Other liabilities 2,136 243
Other (33) (59)
---------------- -----------------
Net cash (used in) / provided by continuing operating activities (7,374) 365
---------------- -----------------
CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES:
Proceeds from sale of assets 378 --
Capital expenditures for plant and equipment (8,954) (3,047)
---------------- -----------------
Net cash used in continuing investing activities (8,576) (3,047)
---------------- -----------------
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES:
Repurchase of preferred stock (5) --
Net proceeds from issuance of senior secured discount notes -- 225,299
Payment of financing fees (107) (8,664)
Repayments of term debt and revolver -- (219,575)
Repayment of capital leases and other, net (1,080) (470)
Proceeds from revolving debt - net 17,400 8,300
---------------- -----------------
Net cash provided by/(used in) continuing financing activities 16,208 4,890
---------------- -----------------
CASH USED IN DISCONTINUED OPERATIONS (195) (1,636)
---------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1,563) (534)
---------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,500) 38
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 5,580 3,308
---------------- -----------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 4,080 $ 3,346
================ =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 14,150 $ 20,854
Income taxes 1,179 819
Other non-cash disclosure:
Preferred Stock dividends accrued but not paid $ 8,770 $ 7,922
See notes to condensed consolidated financial statements.
5
PLIANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2005 (IN THOUSANDS) (UNAUDITED)
ACCUMULATED
COMMON STOCK WARRANTS STOCKHOLDERS' OTHER
-------------------- TO PURCHASE ACCUMULATED NOTES COMPREHENSIVE
SHARES AMOUNT COMMON STOCK DEFICIT RECEIVABLE LOSS TOTAL
--------- ---------- ------------------ ------------------- ------------------ --------------- -------------
BALANCE, DECEMBER 31,
2004 543 $ 103,376 $ 39,133 $ (650,974) $ (660) $ (11,843) $ (520,968)
Net loss (25,428) (25,428)
Foreign currency
translation
adjustment (2,595) (2,595)
--------- ---------- ------------------ ------------------- ------------------ --------------- -------------
BALANCE, MARCH 31,
2005 543 $ 103,376 $ 39,133 $ (676,402) $ (660) $ (14,438) $ (548,991)
========= ========== ================== =================== ================== =============== =============
See notes to condensed consolidated financial statements.
6
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without audit, in accordance with U.S. generally accepted
accounting principles and pursuant to the rules and regulations of the
Securities and Exchange Commission. The information reflects all normal
recurring adjustments that, in the opinion of management, are necessary for
a fair presentation of the financial position, results of operations and
cash flows of Pliant Corporation and its subsidiaries ("Pliant," the
"Company" or "we") as of the dates and for the periods presented. Results
of operations for the period ended March 31, 2005 are not necessarily
indicative of results of operations to be expected for the full fiscal
year.
Certain information in footnote disclosures normally included in financial
statements presented in accordance with U.S. generally accepted accounting
principles has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 2004 and the Company's Registration
Statement on Form S-4, as amended (File No 333-114608) filed on April 20,
2004. Certain reclassifications have been made to the condensed
consolidated financial statements for the periods ended March 31, 2004 for
comparative purposes.
2. INVENTORIES
Inventories are valued at the lower of cost (using the first-in, first-out
method) or market value. Inventories as of March 31, 2005 and December 31,
2004 consisted of the following (in thousands):
MARCH 31, 2005 DECEMBER 31, 2004
-------------------- ---------------------
Finished goods $ 55,530 $ 47,259
Raw materials 36,377 37,595
Work-in-process 10,834 9,446
-------------------- ---------------------
Total $ 102,741 $ 94,300
==================== =====================
3. RESTRUCTURING AND OTHER COSTS
Restructuring and other costs include plant closing costs (including costs
related to relocation of manufacturing equipment), office closing costs and
other costs related to workforce reductions.
The following table summarizes restructuring and other costs for the three
months ended March 31 (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
--------------------------
PLANT CLOSING COSTS:
Severance $ 67 $ --
Other plant closure costs 65 --
--------------------------
TOTAL RESTRUCTURING AND OTHER COSTS $ 132 $ --
==========================
7
The following table summarizes the roll-forward of the reserve from
December 31, 2004 to March 31, 2005:
ACCRUALS FOR THE THREE MONTHS ENDED
MARCH 31, 2005
--------------------------------------
12/31/2004 OTHER 3/31/2005
-------------------- PLANT PAYMENTS ---------------------
# EMPLOYEES ACCRUAL ADDITIONAL CLOSURE / # EMPLOYEES ACCRUAL
TERMINATED BALANCE EMPLOYEES SEVERANCE COSTS TOTAL CHARGES TERMINATED BALANCE
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
PLANT CLOSING COSTS:
Merced 54 $ 1,000 -- -- -- $ -- $ -- 54 $ 1,000
Shelbyville 8 1,087 -- -- -- -- (130) 8 957
Leases -- 1,614 -- -- -- -- (167) -- 1,447
Rhode Island 49 14 -- 67 65 132 (125) 49 21
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
111 $ 3,715 -- 67 65 $ 132 $ (422) 111 $ 3,425
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
OFFICE CLOSING AND
WORKFORCE REDUCTION
COSTS:
Leases -- $ 610 -- -- -- $ -- $ (84) -- $ 526
Severance 114 84 -- -- -- -- -- 114 84
Singapore -- 127 -- -- -- -- -- 127
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
114 $ 821 -- -- -- $ -- $ (84) 114 737
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
TOTAL PLANT & OFFICE
CLOSING 225 $ 4,536 -- 67 65 $ 132 $ (506) 225 $ 4,162
FIXED ASSET IMPAIRMENTS
RELATED TO PLANT CLOSING $ -- -- -- $ --
----------- ------- --------- ---------- ------- ----- -------- ----------- --------
TOTAL 225 $ 4,536 -- 67 65 $ 132 $ (506) 225 $ 4,162
=========== ======= ========= ========== ======= ===== ======== =========== ========
PLANT CLOSING COSTS
2005 - During the first quarter of 2005, we incurred $0.1 million of
security, severance and other plant closure costs associated with our
Harrisville, Rhode Island facility.
2004 - During the third quarter of 2004, we closed our Harrisville, Rhode
Island facility and moved its production to more modern and efficient
facilities. This restructuring plan resulted in a workforce reduction of 49
positions. All restructuring plan costs are attributable to our Engineered Films
segment and are anticipated to total $2.7 million, consisting primarily of fixed
asset impairment of $1.4 million, equipment relocation costs of $0.4 million,
severance and other personnel related costs of $ 0.3 million and other costs of
$0.6 million.
2003 - During 2003, we accrued the present value of future lease payments
on three buildings we no longer occupied. As of March 31, 2005 $1.4 million of
these accruals are remaining.
OFFICE CLOSING AND WORKFORCE REDUCTION COSTS
2002 - During 2002, we implemented four workforce reduction programs
whereby 111 employees were terminated. Total severance costs including benefits,
for these terminations was included as part of restructuring and other costs in
our consolidated statement of operations for 2002. The accruals remaining at
March 31, 2005 and December 31, 2004 was $0.1 million.
8
4. DISCONTINUED OPERATIONS
On September 30, 2004, we sold substantially all of the assets of our
wholly-owned subsidiary, Pliant Solutions Corporation. Pliant Solutions,
previously reported as a separate operating segment, manufactured decorative and
surface coverings through the conversion of various films into consumer packaged
goods. These products were sold through retailers to consumers for a wide range
of applications, including shelf-lining, decorative accents, glass coverings,
surface repair, resurfacing and arts and crafts projects.
In accordance with SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS, Pliant Solutions is being accounted for as a discontinued
operation and, accordingly, its operating results are segmented and reported as
discontinued operations in the accompanying condensed consolidated statement of
operations. Net sales for the three month period ended March 31, 2004 were $7.4
million. No tax benefits were recorded on the losses from discontinued
operations or the loss on sale of discontinued operations as realization of
these tax benefits is not certain.
5. INTEREST EXPENSE - CURRENT AND LONG-TERM DEBT
Interest expense - current and long-term debt in the statement of
operations for the three months ended March 31, 2005 and 2004 is as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2005 2004
------------------- -------------------
Interest expense accrued, net $ 25,205 $ 23,328
Recurring amortization of financing fees 1,179 1,148
Write-off of previously capitalized financing fees and interest rate derivatives
costs(a) -- 10,118
------------------- -------------------
TOTAL $ 26,384 $ 34,594
=================== ===================
Cash interest payments $ 14,150 $ 20,854
=================== ===================
- -----------------
(a) This write-off resulted from the repayment of our previous credit facilities
in February 2004, from the net proceeds from the issuance of the senior secured
discount notes and borrowings under our revolving credit facility.
6. EQUITY
STOCK OPTION PLANS
During the three months ended March 31, 2005, options to purchase 1,835
shares of our common stock were forfeited in connection with employee
terminations.
We apply Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock-based compensation plans as they relate
to employees and directors. We did not have compensation expense related to
stock options for the three month periods ended March 31, 2005 and March 31,
2004. Had the compensation cost for all the outstanding options been determined
in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," our
net income (loss) for the three month periods ended March 31, 2005 and 2004
would have been the following pro forma amounts (in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2005 2004
------------------ ----------------
As reported $ (25,428) $ (30,759)
Pro forma stock compensation expense (249) (200)
------------------ ----------------
Pro forma $ (25,677) $ (30,959)
================== ================
9
In December 2004, the FASB issued SFAS 123(R) (revised December 2004),
"SHARE-BASED PAYMNET", which is a revision of SFAS 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION", and supersedes APB Opinion No. 25, "ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES". This statement requires that the fair value at the
grant date resulting from all share-based payment transactions be recognized in
the financial statements. Further, SFAS 123(R) requires entities to apply a
fair-value based measurement method in accounting for these transactions. The
minimum value method currently used by the Company is not allowed and the
Company will be required to adopt the prospective method as proscribed by SFAS
123(R). This value is recorded over the service period, which typically is the
vesting period. This statement is effective no later than the beginning of the
first fiscal year beginning after June 15, 2005. We are currently evaluating the
provisions of SFAS 123(R), and the impact on our consolidated financial position
and results of operations.
RESTRICTED STOCK
On September 24, 2004, we adopted a 2004 Restricted Stock Incentive Plan,
pursuant to which we sold shares of a newly-created, non-voting Series B
Redeemable Preferred Stock for a cash purchase price of $162 per share to our
President and Chief Executive Officer and selected additional officers of the
Company. The purchase price was considered to approximate fair value. These
shares were issued in private transactions with officers of the Company and
therefore were exempt from the registration requirements of the Securities Act
of 1933. The Series B Preferred Stock will be automatically converted into
common equity of the Company upon the consummation of a Qualified Public
Offering, defined as a sale in an underwritten public offering registered under
the Securities Act of shares of capital stock of the Company resulting in
aggregate proceeds (net of underwriters discounts and commissions) to the
Company of not less than $100 million. During the first quarter of 2005, 48 of
the total 720 shares issued to management were repurchased for $162 per share.
7. INCOME TAXES
For the three months ended March 31, 2005, income tax expense was $0.9
million on pretax losses from continuing operations of $24.2 million as compared
to income tax expense of $1.7 million on pretax loss from continuing operations
of $26.5 million for the three months ended March 31, 2004. Income tax benefits
related to net operating losses in the United States are offset by a valuation
allowance as the realization of these tax benefits is not certain. Therefore,
the income tax expense in the statements of operations primarily reflects
foreign income taxes. No income taxes are included in the loss from discontinued
operations of $0.4 million and $2.6 million for the three months ended March 31,
2005 and March 31, 2004, respectively.
8. COMPREHENSIVE LOSS
Other comprehensive loss for the three months ended March 31, 2005 and 2004
was ($28.0) million and ($29.3) million, respectively. The components of other
comprehensive loss are net income (loss), the change in cumulative unrealized
losses on derivatives recorded in accordance with Statement of Financial
Accounting Standards No. 133 and foreign currency translation.
10
9. REVOLVING CREDIT FACILITY AND ISSUANCE OF SENIOR SECURED DISCOUNT NOTES DUE
2009
Long-term debt as of March 31, 2005 and December 31, 2004 consists of
the following (in thousands):
MARCH 31, DECEMBER 31,
2005 2004
---------------- -----------------
Credit Facilities:
Revolving credit facility $ 41,400 $ 24,000
Senior secured discount notes at 11 1/8%, net of unamortized issue discount 254,514 247,641
Senior secured notes, interest at 11 1/8% 250,000 250,000
Senior subordinated notes, interest at 13.0% (net of unamortized issue discount, premium and
discount related to warrants) 313,435 313,214
Obligations under capital leases 6,413 6,778
Insurance financing -- 715
---------------- -----------------
Total 865,762 842,348
Less current portion (1,300) (1,994)
---------------- -----------------
Long-term portion $ 864,462 $ 840,354
================ =================
REVOLVING CREDIT FACILITY
On February 17, 2004, we entered into a revolving credit facility providing
up to $100 million (subject to the borrowing base and other limitations
described below). The revolving credit facility includes a $15 million letter of
credit sub-facility, with letters of credit reducing availability under the
revolving credit facility.
The revolving credit facility is secured by a first priority security
interest in substantially all our inventory, receivables and deposit accounts,
100% of the capital stock of, or other equity interests in existing and future
domestic subsidiaries and foreign subsidiaries that are note guarantors, 65% of
the capital stock of, or other equity interests in existing and future
first-tier foreign subsidiaries, investment property and certain other assets of
the Company and the note guarantors (the "Second - Priority Collateral") and a
second-priority security interest in our real property, fixtures, equipment,
intellectual property and other assets ("First - Priority Collateral").
The revolving credit facility matures on February 17, 2009. The interest
rates are at LIBOR plus 2.5% to 3.0% or ABR plus 1.5% to 2.0%. The average rate
on borrowings outstanding during the first quarter of 2005 was 6.95%. The
commitment fee for the unused portion of the revolving credit facility is 0.50%
per annum.
The borrowings under the revolving credit facility may be limited to a
reduced availability. Reduced Availability is defined as: if the borrowing base
is less than $110,000,000 and the Fixed Charge Coverage Ratio (FCCR) is less
than 1.1, the reduced availability is the borrowing base minus $10,000,000.
Furthermore, if the FCCR is less than that prescribed in our credit agreement,
RA is the lessor of the commitment or the borrowing base minus $15,000,000. As
of March 31, 2005, we had approximately $49.7 million available for borrowing
under our revolving credit agreement.
ISSUANCE OF 11 1/8% SENIOR SECURED DISCOUNT NOTES DUE 2009
On February 17, 2004 we completed the sale of $306 million ($225.3 million
of proceeds) principal amount at maturity of 11 1/8% Senior Secured Discount
Notes due 2009. The proceeds of this offering and the borrowing under the new
revolving credit facility (discussed above) were used to repay and terminate the
credit facilities that existed at December 31, 2003.
The Senior Secured Discount Notes are secured by a first priority security
interest in the First-Priority Collateral and a second priority security
interest in the Second - Priority Collateral. The Senior Secured Discount Notes
are guaranteed by our existing and future domestic restricted subsidiaries and
certain foreign subsidiaries.
Unless we elect to pay cash interest as described below, and except under
certain limited circumstances, the notes will accrete from the date of issuance
at the rate of 11 1/8% until December 15, 2006, compounded semiannually on each
June 15 and December 15, commencing June 15, 2004, to an aggregate principal
amount of $1,000 per note ($306.0 million in the aggregate assuming no
redemption or other repayments). Commencing on December 15, 2006, interest on
the notes will accrue at the rate of 11 1/8% per annum and will be payable in
cash semiannually on June 15 and December 15, commencing on June 15, 2007.
11
On any interest payment date prior to December 15, 2006, we may elect to
commence paying cash interest (from and after such interest payment date) in
which case (i) we will be obligated to pay cash interest on each subsequent
interest payment date, (ii) the notes will cease to accrete after such interest
payment date and (iii) the outstanding principal amount at the stated maturity
of each note will equal the accreted value of such note as of such interest
payment date.
On or after June 15, 2007, we may redeem some or all of the notes at the
following redemption prices (expressed as a percentage of principal amount),
plus accrued and unpaid interest: 105.563% if redeemed prior to June 15, 2008;
102.781% if redeemed prior to June 15, 2009; and 100% if redeemed on or after
June 15, 2009. Prior to such date, we may not redeem the notes except as
described in the following paragraph.
At any time prior to June 15, 2007, we may redeem up to 35% of the accreted
value of the notes with the net cash proceeds of certain equity offerings by us
at a redemption price equal to 111.125% of the accreted value thereof plus
accrued interest, so long as (i) at least 65% of the accreted value of the notes
remains outstanding after such redemption and (ii) any such redemption by us is
made within 120 days after such equity offering.
10. OPERATING SEGMENTS
Operating segments are components of our business for which separate
financial information is available that is evaluated regularly by our chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance.
We have four operating segments: Engineered Films, Performance Films,
Industrial Films and Specialty Products Group. Sales and transfers between our
segments are eliminated in consolidation. We evaluate the performance of our
operating segments based on net sales (excluding inter-company sales) and
segment profit. The segment profit reflects income before interest expense,
income taxes, depreciation, amortization, restructuring costs and other non-cash
charges and net adjustments for certain unusual items. Our reportable segments
are managed separately with separate management teams, because each segment has
differing products, customer requirements, technology and marketing strategies.
Segment profit and segment assets as of and for the periods ended March 31,
2005 and 2004 are presented in the following table (in thousands). Certain
reclassifications have been made to the prior year amounts to be consistent with
the 2005 presentation.
SPECIALTY
ENGINEERED PERFORMANCE INDUSTRIAL PRODUCTS CORPORATE/
FILMS FILMS FILMS GROUP OTHER TOTAL
------------ ------------- -------------- ------------- ----------- ------------
THREE MONTHS ENDED MARCH 31, 2005
Net sales to customers $ 59,600 $ 25,027 $ 72,795 $ 102,826 $ 2,640 $ 262,888
Intersegment sales 1,617 558 3,378 1,511 (7,064) --
------------ ------------- -------------- ------------- ----------- ------------
Total net sales 61,217 25,585 76,173 104,337 (4,424) 262,888
Depreciation and amortization 1,766 848 1,759 4,661 1,100 10,134
Interest expense 163 5 86 1,317 34,119 35,690
Segment profit 8,141 3,644 6,351 11,284 (7,667) 21,753
Capital expenditures 794 1,253 1,180 4,913 814 8,954
Segment assets 129,767 69,216 112,544 379,356 95,094 785,977
THREE MONTHS ENDED MARCH 31, 2004
Net sales to customers $ 55,385 $ 25,783 $ 58,277 $ 96,089 $ 1,265 $ 236,799
Intersegment sales 1,445 43 924 2,948 (5,360) 0
------------ ------------- -------------- ------------- ----------- ------------
Total net sales 56,830 25,826 59,201 99,037 (4,095) 236,799
Depreciation and amortization 1,663 849 1,316 4,726 2,481 11,035
Interest expense 158 4 0 778 42,021 42,961
Segment profit 9,887 4,413 6,715 13,402 (6,920) 27,495
Capital expenditures 336 102 808 1,555 246 3,047
AS OF DECEMBER 31, 2004
Segment assets 140,799 68,190 105,543 375,033 87,527 777,092
12
A reconciliation of the totals reported for the operating segments to the
totals reported in the consolidated financial statements for the three months
ended March 31, 2004 and 2005 and as of March 31, 2005 and December 31, 2004 is
as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
---------------- ---------------
PROFIT OR LOSS
Total segment profit $ 21,753 $ 27,495
Depreciation and amortization (10,134) (11,035)
Restructuring and other costs (132) --
Interest expense (35,690) (42,961)
---------------- ---------------
Income (loss) from continuing operations before income taxes $ (24,203) $ (26,501)
================ ===============
MARCH 31, DECEMBER 31,
2005 2004
---------------- ---------------
ASSETS
Total assets for reportable segments 690,883 689,565
Other unallocated assets 95,094 87,527
---------------- ---------------
Total consolidated assets $ 785,977 $ 777,092
================ ===============
Net sales and long-lived assets of our US and foreign operations are as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2005 2004
---------------- ---------------
Net Sales
United States $ 210,560 $ 191,690
Foreign countries(a) 52,328 45,109
---------------- ---------------
Total $ 262,888 $ 236,799
================ ===============
MARCH 31, DECEMBER 31,
2005 2004
---------------- ---------------
Long-lived assets
United States 438,209 434,645
Foreign countries 58,249 61,813
---------------- ---------------
Total $ 496,458 $ 496,458
================ ===============
Total assets
United States 666,307 655,885
Foreign countries 119,670 121,207
---------------- ---------------
Total $ 785,977 $ 777,092
================ ===============
(a) Foreign countries include Australia, Canada, Germany and Mexico, none of
which individually represents 10% of consolidated net sales or long-lived
assets.
13
11. SHARES SUBJECT TO MANDATORY REDEMPTION
The Company adopted Statement of Financial Accounting Standard No. 150 (
"SFAS 150"), ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS
OF BOTH LIABILITIES AND EQUITY, effective January 1, 2004. As a result, our
redeemable preferred stock, which contains an unconditional mandatory redemption
feature, is reflected as a liability on the balance sheet and the associated
dividends and accretion are included as a part of interest expense in the
statement of operations.
In addition, as a result of adopting SFAS 150, the Company's redeemable common
shares that have been put for redemption by a shareholder are reflected as a
liability at fair value. The fair value was computed using the agreed upon price
of the redemption times the number of shares put by the shareholder.
The shares subject to mandatory redemption are as follow (in thousands):
AS OF MARCH 31, AS OF
DECEMBER 31,
2005 2004
----------------- -----------------
Redeemable Preferred Shares 167,000 shares authorized, 140,973 shares $ 232,855 $ 223,548
outstanding as of March 31, 2005 and 2004, designated as Series A, no par
value with a redemption value of $1,000 per share plus accumulated dividends.
18,200 Redeemable Common Shares that have been put for redemption by a
shareholder, net of a shareholder note of $2,431 6,362 6,362
----------------- -----------------
Total shares subject to mandatory redemption $ 239,217 $ 229,910
================= =================
The maximum cash settlement at the redemption date of June 1, 2011 (assuming no
cash dividends are paid through the redemption date) is $ 680.6 million for the
redeemable preferred shares and $ 6.4 million (net of the note receivable of $
2.4 million) for the redeemable common shares that have been put for redemption
by the shareholder.
12. DEFINED BENEFIT PLANS
The company sponsors three noncontributory defined benefit pension plans
(the "United States Plans") covering domestic employees with 1,000 or more hours
of service. The company funds these in accordance with the funding requirements
of the Employee Retirement Income Security Act of 1974. Contributions are
intended to not only provide for benefits attributed to service to date but also
for those expected to be earned in the future. We also sponsor a defined benefit
plan in Germany (the "Germany Plan"). For information on the Germany Plan please
refer to the Company's Form 10-K for the year ended December 31, 2004. In the
second quarter of 2004, the Company redesigned its retirement programs which led
to the curtailment and "freeze" of the pension plan for U.S. salaried employees
effective June 30, 2004.
The consolidated accrued net pension expense for the three months ended
March 31, 2005 and 2004 includes the following components (in thousands):
THREE MONTHS ENDED
MARCH 31,
2005 2004
----------------- ----------------
UNITED STATES PLANS
Service cost-benefits earned during the period $ 104 $ 1,189
Interest cost on projected benefit obligation 1,195 1,374
Expected return on assets (1,286) (1,105)
Other 28 184
----------------- ----------------
Total accrued pension expense $ 41 $ 1,642
----------------- ----------------
14
13. CONTINGENCIES
LITIGATION We are involved in various litigation matters from time to time
in the ordinary course of our business, including matters described in previous
filings. In our opinion, none of such litigation is material to our financial
condition or results of operations.
14. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Pliant Corporation (on a parent
only basis) with its investment in its subsidiaries recorded under the equity
method, (ii) guarantor subsidiaries (as specified in the Indenture dated May 31,
2000 (the "2000 Indenture") relating to Pliant's $220 million senior
subordinated notes due 2010 (the "2000 Notes"), the Indenture dated April 10,
2002 (the "2002 Indenture" and, together with the 2000 Indentures the
"Indentures") relating to Pliant's $100 million senior subordinated notes due
2010 (the "2002 Notes" and, together with the 2000 Notes, the "Notes"), on a
combined basis, with any investments in non-guarantor subsidiaries specified in
the Indentures recorded under the equity method, (iii) direct and indirect
non-guarantor subsidiaries on a combined basis, (iv) the eliminations necessary
to arrive at the information for Pliant Corporation and its subsidiaries on a
consolidated basis, and (v) Pliant Corporation on a consolidated basis, in each
case as of March 31, 2005 and December 31, 2004 and for the three months ended
March 31, 2005 and 2004. The Notes are fully and unconditionally guaranteed on a
joint and several basis by each guarantor subsidiary and each guarantor
subsidiary is wholly owned, directly or indirectly, by Pliant Corporation. There
are no contractual restrictions limiting transfers of cash from guarantor and
non-guarantor subsidiaries to Pliant Corporation, within the meaning of Rule
3-10(h)(1) of Regulation S-X. There are no contractual restrictions limiting
transfers of cash from guarantor and non-guarantor subsidiaries to Pliant
Corporation. The condensed consolidating financial statements are presented
herein, rather than separate financial statements for each of the guarantor
subsidiaries, because management believes that separate financial statements
relating to the guarantor subsidiaries are not material to investors
15
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2005 (IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED ELIMINATIONS CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES CORPORATION
--------------- ---------------- ---------------- ---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 845 $ 3,235 $ -- $ 4,080
Receivables - net 101,320 7,624 24,590 -- 133,534
Inventories 82,110 8,439 12,192 -- 102,741
Prepaid expenses and other 2,552 645 765 -- 3,962
Income taxes receivable (payable) 120 (54) 492 -- 558
Deferred income taxes 10,663 -- (380) -- 10,283
--------------- ---------------- ---------------- ---------------- ----------------
Total current assets 196,765 17,499 40,894 -- 255,158
PLANT AND EQUIPMENT, Net 241,579 16,074 36,585 -- 294,238
GOODWILL 167,583 13,331 1,312 -- 182,226
INTANGIBLE ASSETS, Net 4,966 11,404 50 -- 16,420
INVESTMENT IN SUBSIDIARIES (33,344) -- -- 33,344 --
OTHER ASSETS 34,620 -- 3,315 -- 37,935
--------------- ---------------- ---------------- ---------------- ----------------
TOTAL ASSETS $ 612,169 $ 58,308 $ 82,156 33,344 $ 785,977
=============== ================ ================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 83,418 $ 6,219 $ 11,414 $ -- $ 101,051
Accrued liabilities 56,802 3,510 3,693 -- 64,005
Current portion of long-term debt 1,300 -- -- -- 1,300
Due to (from) affiliates (138,906) 73,915 64,991 -- --
--------------- ---------------- ---------------- ---------------- ----------------
Total current liabilities 2,614 83,644 80,098 166,356
LONG-TERM DEBT - Net of current portion 864,462 -- -- -- 864,462
OTHER LIABILITIES 25,852 -- 2,803 -- 28,655
DEFERRED INCOME TAXES 22,261 4,085 3,178 -- 29,524
SHARES SUBJECT TO MANDATORY REDEMPTION 239,217 -- -- -- 239,217
--------------- ---------------- ---------------- ---------------- ----------------
Total Liabilities 1,154,406 87,729 86,079 -- 1,328,214
--------------- ---------------- ---------------- ---------------- ----------------
REDEEMABLE STOCK:
Preferred Stock 109 -- -- -- 109
Common Stock 6,645 -- -- -- 6,645
--------------- ---------------- ---------------- ---------------- ----------------
Total redeemable stock 6,754 -- -- -- 6,754
--------------- ---------------- ---------------- ---------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 103,376 -- -- -- 103,376
Additional paid-in capital -- 14,020 29,302 (43,322) --
Warrants 39,133 -- -- -- 39,133
Retained earnings (deficit) (676,402) (44,861) (25,341) 70,202 (676,402)
Stockholders' note receivable (660) -- -- -- (660)
Accumulated other comprehensive loss (14,438) 1,420 (7,884) 6,464 (14,438)
--------------- ---------------- ---------------- ---------------- ----------------
Total stockholders' equity (deficit) (548,991) (29,421) (3,923) 33,344 (548,991)
--------------- ---------------- ---------------- ---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 612,169 $ 58,308 $ 82,156 $ 33,344 $ 785,977
=============== ================ ================ ================ ================
16
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2004 (IN THOUSANDS) (UNAUDITED)
PLIANT CONSOLIDATED
CORPORATION COMBINED COMBINED PLIANT
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
--------------- ---------------- ---------------- ---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 704 $ 4,876 $ -- $ 5,580
Receivables - net 95,439 7,861 22,095 -- 125,395
Inventories 74,672 7,411 12,217 -- 94,300
Prepaid expenses and other 2,764 370 898 -- 4,032
Income taxes receivable 138 223 -- -- 361
Deferred income taxes 12,741 -- (780) -- 11,961
--------------- ---------------- ---------------- ---------------- ----------------
Total current assets 185,754 16,569 39,306 -- 241,629
PLANT AND EQUIPMENT, Net 240,599 17,127 39,419 -- 297,145
GOODWILL 167,583 13,331 1,323 -- 182,237
INTANGIBLE ASSETS, Net 5,328 11,692 56 -- 17,076
INVESTMENT IN SUBSIDIARIES (28,793) -- -- 28,793 --
OTHER ASSETS 35,588 -- 3,417 -- 39,005
--------------- ---------------- ---------------- ---------------- ----------------
TOTAL ASSETS $ 606,059 $ 58,719 $ 83,521 $ 28,793 $ 777,092
=============== ================ ================ ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 76,515 $ 5,848 $ 13,919 $ -- $ 96,282
Accrued liabilities 56,639 3,554 4,645 -- 64,838
Current portion of long-term debt 1,994 -- -- -- 1,994
Due to (from) affiliates (133,109) 75,190 57,919 -- --
--------------- ---------------- ---------------- ---------------- ----------------
Total current liabilities 2,039 84,592 76,483 -- 163,114
LONG-TERM DEBT, Net of current portion 840,354 -- -- -- 840,354
OTHER LIABILITIES 23,608 -- 2,846 -- 26,454
DEFERRED INCOME TAXES 24,354 3,938 3,141 -- 31,433
SHARES SUBJECT TO MANDATORY REDEMPTION 229,910 -- -- -- 229,910
--------------- ---------------- ---------------- ---------------- ----------------
Total liabilities 1,120,265 88,530 82,470 -- 1,291,265
--------------- ---------------- ---------------- ---------------- ----------------
MINORITY INTEREST -- -- 33 -- 33
REDEEMABLE STOCK:
Preferred stock 117 -- -- -- 117
Common stock 6,645 -- -- -- 6,645
--------------- ---------------- ---------------- ---------------- ----------------
Total redeemable stock 6,762 -- -- -- 6,762
--------------- ---------------- ---------------- ---------------- ----------------
STOCKHOLDERS' (DEFICIT):
Common stock 103,376 14,020 29,302 (43,322) 103,376
Warrants to purchase common stock 39,133 -- -- -- 39,133
Retained earnings (deficit) (650,974) (45,237) (22,767) 68,004 (650,974)
Stockholders' notes receivable (660) -- -- -- (660)
Accumulated other comprehensive loss (11,843) 1,406 (5,517) 4,111 (11,843)
--------------- ---------------- ---------------- ---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (520,968) (29,811) 1,018 28,793 (520,968)
--------------- ---------------- ---------------- ---------------- ----------------
Total liabilities and stockholders'
(deficit) $ 606,059 $ 58,719 $ 83,521 $ 28,793 $ 777,092
=============== ================ ================ ================ ================
17
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2005 (IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
---------------- --------------- ------------------ --------------- ---------------
SALES , Net $ 219,268 $ 16,706 $ 34,012 $ (7,098) $ 262,888
COST OF SALES 188,438 14,901 32,697 (7,098) 228,938
---------------- --------------- ------------------ --------------- ---------------
GROSS PROFIT 30,830 1,805 1,315 -- 33,950
OPERATING EXPENSES 19,395 660 2,202 -- 22,257
---------------- --------------- ------------------ --------------- ---------------
OPERATING INCOME 11,435 1,145 (887) -- 11,693
INTEREST EXPENSE (34,210) (163) (1,317) -- (35,690)
EQUITY IN EARNINGS OF SUBSIDIARIES (2,198) -- -- 2,198 --
OTHER INCOME (EXPENSE), Net (112) (68) (26) -- (206)
---------------- --------------- ------------------ --------------- ---------------
NET INCOME (LOSS) BEFORE INCOME TAXES (25,085) 914 (2,230) 2,198 (24,203)
INCOME TAX PROVISION 5 538 344 -- 887
---------------- --------------- ------------------ --------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (25,090) 376 (2,574) 2,198 (25,090)
LOSS FROM DISCONTINUED OPERATIONS (338) -- -- -- (338)
---------------- --------------- ------------------ --------------- ---------------
NET INCOME (LOSS) $ (25,428) $ 376 $ (2,574) $ 2,198 $ (25,428)
================ =============== ================== =============== ===============
18
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
---------------- ---------------- ---------------- ---------------- ----------------
SALES , Net $ 194,065 $ 20,034 $ 28,169 $ (5,469) $ 236,799
COST OF SALES 160,059 17,090 26,786 (5,469) 198,466
---------------- ---------------- ---------------- ---------------- ----------------
GROSS PROFIT 34,006 2,944 1,383 -- 38,333
OPERATING EXPENSES 19,034 284 2,417 -- 21,735
---------------- ---------------- ---------------- ---------------- ----------------
OPERATING INCOME 14,972 2,660 (1,034) -- 16,598
INTEREST EXPENSE (42,025) (158) (778) -- (42,961)
EQUITY IN EARNINGS OF SUBSIDIARIES (3,272) -- -- 3,272 --
OTHER INCOME (EXPENSE), Net (305) 6 161 -- (138)
---------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (30,630) 2,508 (1,651) 3,272 (26,501)
INCOME TAX PROVISION (BENEFIT) 129 779 744 -- 1,652
---------------- ---------------- ---------------- ---------------- ----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (30,759) 1,729 (2,395) 3,272 (28,153)
---------------- ---------------- ---------------- ---------------- ----------------
LOSS FROM DISCONTINUED OPERATIONS -- (2,606) -- -- (2,606)
---------------- ---------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) $ (30,759) $ (877) $ (2,395) $ 3,272 $ (30,759)
================ ================ ================ ================ ================
19
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 (IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
TABLE BE UPDATED (PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ (7,552) $ 834 $ (656) $ -- $ (7,374)
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- 378 -- -- 378
Capital expenditures for plant and equipment (8,233) (143) (578) -- (8,954)
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities (8,233) 235 (578) -- (8,576)
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of financing fees (107) -- -- -- (107)
Repayment of capital leases and other, net (1,080) -- -- -- (1,080)
Proceeds from revolving debt, net 17,400 -- -- -- 17,400
Proceeds from issuance (repurchase) of
preferred stock (5) -- -- -- (5)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in) financing
activities 16,208 -- -- 16,208
--------------- --------------- --------------- --------------- ---------------
CASH TO DISCONTINUED OPERATIONS (195) -- -- -- (195)
--------------- --------------- --------------- --------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (228) (928) (407) -- (1,563)
--------------- --------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -- 141 (1,641) -- (1,500)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD -- 704 4,876 -- 5,580
--------------- --------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ -- $ 845 $ 3,235 $ -- $ 4,080
=============== =============== =============== =============== ===============
20
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (IN THOUSANDS) (UNAUDITED)
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ (27,096) $ 350 $ 27,111 $ -- $ 365
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (1,705) (59) (1,283) -- (3,047)
--------------- --------------- --------------- --------------- ---------------
Net cash used in investing activities (1,705) (59) (1,283) -- (3,047)
--------------- --------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of senior discount
notes 225,299 -- -- -- 225,299
Payment of financing fees (8,664) -- -- -- (8,664)
Repayment of capital leases and other, net (470) -- -- -- (470)
Borrowings under revolver 8,300 -- -- -- 8,300
Repayment of term debt and revolver (195,412) -- (24,163) -- (219,575)
--------------- --------------- --------------- --------------- ---------------
Net cash provided by (used in) financing 29,053 -- (24,163) -- 4,890
activities
--------------- --------------- --------------- --------------- ---------------
CASH TO DISCONTINUED OPERATIONS -- (1,636) -- -- (1,636)
--------------- --------------- --------------- --------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (252) 380 (662) -- (534)
--------------- --------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -- (965) 1,003 -- 38
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD -- 1,192 2,116 -- 3,308
--------------- --------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ -- $ 227 $ 3,119 $ -- $ 3,346
=============== =============== =============== =============== ===============
14. SUBSEQUENT EVENTS
ALLIANT JOINT VENTURE
On January 5, 2005, we terminated our joint venture with Supreme Plastics
Group PLC by purchasing all of the equity interests in the joint venture Supreme
Plastics Group PLC owned for $400,000. As of January 5, 2005, Alliant Company
LLC became a wholly-owned subsidiary of the Company. On April 13, 2005, Pliant
Corporation sold the intellectual property, working capital, and equipment
assets used in the Alliant operation to an independent third party for a
purchase price of $6.3 million, subject to certain adjustments with $4.6 million
paid in cash at closing, $0.6 million paid 10 days after closing and $0.5
million to be paid within 70 days of closing. The remaining purchase price of
$0.63 million will be paid in equal installments twelve and twenty-four months
after closing. Net sales and net loss for this business during the three months
ended March 31, 2005 were $0.6 million and $0.3 million, respectively, and net
sales and net loss for the three months ended March 31, 2004 were $0.7 million
and $0.3 million, respectively.
CONSENT SOLICITATION - 11 1/8% SENIOR SECURED DISCOUNT NOTES DUE 2009
On April 8, 2005, Pliant Corporation commenced a consent solicitation
relating to its 11 1/8% Senior Secured Discount Notes due 2009 seeking consents,
among other things, to (i) eliminate the current requirement to pay cash
interest on the notes beginning in 2007 and, in lieu thereof, pay non-cash
interest in the form of additional notes through maturity and (ii) increase the
interest rate and redemption prices of the notes for which consents are
received. On May 6, 2005, the Company consummated this solicitation as consents
to the proposed amendments were delivered with respect to $298.2 million
aggregate principal amount at maturity of the notes, all of which were accepted
by the company.
21
As of May 6, 2005, the aggregate principal amount of the amended notes was
approximately $250.6 million and equaled their accreted value immediately prior
to such consummation. In addition, $7.8 million aggregate principal amount at
maturity of notes with respect to which consents were not delivered remain
outstanding. The company, certain of its subsidiaries and the trustee also
executed an amended and restated indenture governing the amended notes and the
notes with respect to which consents were not delivered. The company, certain of
its subsidiaries and J.P. Morgan Securities Inc., the solicitation agent for the
consent solicitation, executed a registration rights agreement with respect to
the amended notes.
As a result of the amendments approved in the consent solicitation, the
interest rate of the amended notes was increased from 11 1/8% per annum to 11
5/8% per annum. The amended notes no longer require payment of cash interest
beginning in 2007. Instead, they require payment of non-cash interest in the
form of additional notes through maturity. The amendments also increased the
redemption prices of the amended notes. In addition, the amended and restated
indenture eliminates substantially all the restrictive covenants contained in
the indenture, as they relate to holders of the notes with respect to which
consents were not delivered. In conjunction with these consents, the Company
paid aggregate consideration of approximately $4.8 million to the consenting
noteholders. The notes for which we receive the holder's consent to the proposed
amendments will not be registered under the Securities Act of 1933, as amended,
or any state securities laws and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements of the Securities Act and any applicable state securities laws.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated financial
condition, liquidity and capital resources and results of operations. This
analysis should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in our Annual Report
on Form 10-K for the year ended December 31, 2004 (the "2004 10-K") and our
Registration Statement on Form S-4, as amended (file No. 333-114608) filed on
April 20, 2004. This section contains certain forward-looking statements within
the meaning of federal securities laws that involve risks and uncertainties,
including statements regarding our plans, objectives, goals, strategies and
financial performance. Our actual results could differ materially from the
results anticipated in these forward-looking statements as a result of factors
set forth under "Cautionary Statement for Forward-Looking Information" below and
elsewhere in this report.
GENERAL
We generate our revenues, earnings and cash flows from the sale of film and
flexible packaging products throughout the world. We manufacture these products
at 24 facilities located in the United States, Australia, Canada, Germany and
Mexico. Our sales have grown primarily as a result of strategic acquisitions
made over the past several years, increased levels of production at acquired
facilities, return on capital expenditures and the overall growth in the markets
for film and flexible packaging products.
OVERVIEW
We recorded sales of $262.9 million in the first quarter of 2005. This is a
11.0% increase from sales of $236.8 million in the first quarter of 2004, stated
on a comparable basis excluding the results of the Pliant Solutions segment
(which was sold during the third quarter of 2004 and accounted for as a
discontinued operation) for both periods. First quarter 2005 sales measured in
pounds were 213.7 million, which represents a 3.3% decrease from the first
quarter of 2004.
Total segment profit was $21.7 million for the first quarter of 2005,
compared to $27.5 million for the first quarter of 2004, presented on a
comparable basis excluding the results of the Pliant Solutions segment (which
was sold during the third quarter of 2004 and accounted for as a discontinued
operation) for both periods. Segment profit, presented in accordance with
generally accepted accounting principles (GAAP), reflects income from continuing
operations adjusted for interest expense, income taxes, depreciation,
amortization, and restructuring charges. The decrease in segment profit of $5.8
between periods is primarily attributable to the impact of resin price
increases, a decline in sales volume, increased freight costs and an unfavorable
shift in product sales mix.
Average sales price ("ASP") for the three months ended March 31, 2005 was
$1.230 per pound as compared to $1.073 per pound for the three months ended
March 31, 2004. This 14.7% increase generated approximately $35 million in
incremental sales. However, our raw material costs, of which 60% are resin
related, increased approximately $34 million. Furthermore, while our waste in
absolute terms declined nearly 25% due to internal waste reduction programs,
waste in dollars increased approximately $3 million due to higher resin costs.
The sales volume decline between periods yielded approximately $1 million less
segment profit. Freight costs increased approximately $1 million between periods
due to suppliers passing along energy cost increases. Finally, product mix
shifts to more commodity based products contributed approximately $2 million to
the decline in segment profit.
RAW MATERIAL COSTS
The primary raw materials used in the manufacture of most of our products
are polypropylene resin, polyethylene resin and PVC resin. The prices of these
materials are primarily a function of the price of crude oil and natural gas
liquids. Prices for these commodities have risen dramatically over the last year
and could continue to rise in the second quarter of 2005 and beyond. We have not
historically hedged our exposure to raw material increases, but have attempted
to move more customer programs to cost-plus type contracts, which would allow us
to pass through any cost increases in raw materials. Raw material costs as a
percentage of sales have increased to 58.9% for the first quarter of 2005, from
50.3% for the comparable period of 2004.
To the extent we are not able to pass along price increases of raw
materials, or to the extent any such price increases are delayed, our cost of
goods sold would continue to increase and our gross profit and operating income
would correspondingly decrease. Significant increases in raw material prices
that cannot be passed on to customers could have a material adverse effect on
our results of operations and financial condition.
23
RESULTS OF OPERATIONS
The following table sets forth net sales, operating expenses, and operating
income, and such amounts as a percentage of net sales, for the three months
ended March 31, 2005 and 2004 (dollars in millions).
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
2005 2004
------------------------------ ----------------------------
$ % OF $ % OF
SALES SALES
-------------- -------------- ----------- ---------------
Net sales $ 262.9 100.0% $ 236.8 100.0%
Cost of sales 228.9 87.1 198.5 83.8
-------------- -------------- ----------- ---------------
Gross profit 34.0 12.9 38.3 16.2
Operating expenses before restructuring
and other costs 22.2 8.4 21.7 9.2
Restructuring and other costs 0.1 -- -- --
-------------- -------------- ----------- ---------------
Total operating expenses 22.3 8.4 21.7 9.2
-------------- -------------- ----------- ---------------
Operating income $ 11.7 4.5% $ 16.6 7.0%
-------------- -------------- ----------- ---------------
THREE MONTHS ENDED MARCH 31, 2005 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2004
NET SALES
Net sales increased by $26.1 million, or 11.0%, to $262.9 million for the
first quarter of 2005 from $236.8 million for the three months ended March 31,
2005. The increase consisted of a 3.3% decrease in our in sales volume and a
14.7% increase in our average selling prices. See "Operating Segment Review"
below for a detailed discussion of sales volumes and selling prices by segment
and division.
GROSS PROFIT
Gross profit decreased by $4.3 million, or 11.2%, to $34.0 million for the
first quarter of 2005, from $38.3 million for the first quarter of 2004. This
decrease was primarily due to selling price increasing at rates that were
insufficient to compensate for increased resin prices, decreased sales volumes,
and mix change in customer purchasing to more commodity based products. See
"Operating Segment Review" below for a detailed discussion of the margin
variances by segment.
TOTAL OPERATING EXPENSES BEFORE RESTRUCTURING AND OTHER COSTS
Total operating expenses before restructuring and other costs increased
$0.5 million, or 2.3%, to $22.2 million for the first quarter of 2005, from
$21.7 million for the first quarter of 2004. This increase was attributable to a
$0.2 million, or 1.1% increase in selling and administrative expenses and $0.2
million, or 9.7% increase in research and development costs.
24
RESTRUCTURING AND OTHER COSTS
Restructuring and other costs were $0.1 million for the first quarter of
2005, compared to none for the first quarter of 2004. The costs for the first
quarter of 2005 included $0.1 million of period costs related to the closure of
our Harrisville, Rhode Island plant.
OPERATING INCOME
Operating income decreased by $ 4.9 million, to $11.7 million for the first
quarter of 2005, from $ 16.6 million for the first quarter of 2004, due to the
factors discussed above.
INTEREST EXPENSE
Interest expense on current and long-term debt decreased by $8.2 million,
or 23.7%, to $26.4 million for the first quarter of 2004, from $34.6 million for
the first quarter of 2004. This decrease was principally due to a charge of
$10.1 million in the first quarter of 2004 for the write-off of previously
capitalized financing fees and interest rate derivative costs. Excluding this
prior year write-off interest expense increased $1.9 million due to higher
interest costs resulting from the accretion of the issue discount associated
with our senior secured discount notes issued in February 2004 used to repay
bank debt that carried a lower interest rate.
Interest expense on preferred stock for the first quarter of 2005 and 2004
of $9.3 million and $8.4 million, respectively, reflects the dividends and
accretion on our redeemable preferred stock of the Company that are classified
as interest expense pursuant to SFAS 150.
INCOME TAX EXPENSE
Income tax expense for the first quarter of 2005 was $0.9 million on pretax
losses of $24.2 million, compared to income tax expense of $1.7 million on
pretax losses of $26.5 million for the same period in 2004. Income tax benefits
related to net operating losses in the United States were offset by a valuation
allowance as the realization of these tax benefits is not certain. The income
tax expense in the statements of operations primarily reflects foreign income
taxes.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations decreased by $3.0 million to $25.1 million
for the first quarter of 2005, from $28.1 million for the first quarter of 2004,
due to the factors discussed above.
DISCONTINUED OPERATIONS
On September 30, 2004, we sold substantially all of the assets of our
wholly-owned subsidiary, Pliant Solutions Corporation. Losses from these
discontinued operations for the three months ended March 31, 2005 and March 31,
2004 were $0.4 million and $2.6 million, respectively.
25
OPERATING SEGMENT REVIEW
GENERAL
We evaluate the performance of our operating segments based on net sales
(excluding inter-company sales) and segment profit. The segment profit reflects
income from continuing operations adjusted for interest expense, income taxes,
depreciation, amortization, restructuring and other costs and other non-cash
charges (principally the impairment of goodwill, intangible assets and fixed
assets). For more information on our operating segments, including a
reconciliation of segment profit to income before taxes, see Note 10 to the
condensed consolidated financial statements included elsewhere in this report.
We have four reporting segments: Engineered Films, Performance Films, Industrial
Films and Specialty Products Group.
Summary of segment information (in millions of dollars):
SPECIALTY
ENGINEERED PERFORMANCE INDUSTRIAL PRODUCTS CORPORATE/
FILMS FILMS FILMS GROUP OTHER TOTAL
------------ ------------- -------------- ------------- ----------- ------------
THREE MONTHS ENDED MARCH 31,
2005
Total net sales $ 59.6 $ 25.0 $ 72.8 $ 102.8 $ 2.7 $ 262.9
Segment profit 8.1 3.6 6.4 11.3 (7.6) 21.8
THREE MONTHS ENDED MARCH 31, 2004
Total net sales $ 55.4 $ 25.8 $ 58.3 $ 96.1 $ 1.2 $ 236.8
Segment profit 9.9 4.4 6.7 13.4 (6.9) 27.5
THREE MONTHS ENDED MARCH 31, 2005 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2004
ENGINEERED FILMS
NET SALES. Net sales in Engineered Films increased by $4.2 million, or 7.6%, to
$59.6 million for the quarter ended March 31, 2005 from $55.4 million for 2004.
This increase was due to an increase in our average selling prices of 14.7%,
principally due to the pass-through of raw material price increases and
improvements in our sales mix, offset by a 6.2% decrease in sales volume,
primarily in our converter films and Canadian markets.
SEGMENT PROFIT. The Engineered Films segment profit was $8.1 million for the
quarter ended March 31, 2005, as compared to $9.9 million for the same period in
2004. This decrease in segment profit was primarily due to lower gross margins
from sales volume declines and compression between our average selling price and
average raw material costs related to contractual customers and the competitive
environment with customers who are not parties to purchase agreements.
PERFORMANCE FILMS
NET SALES. The net sales of our Performance Films segment decreased $0.8
million, or 3.1%, to $25.0 million for the quarter ended March 31, 2005 from
$25.8 million for 2004. This decrease was principally due to a decrease in our
sales volumes of 10.8%, primarily in our custom and industrial films markets due
to competitive pressures. This volume decrease was partially offset by an
increase in our average selling prices of 8.8%, primarily due to the pass
through of resin price increases to customers.
SEGMENT PROFIT. Performance Films segment profit was $3.6 million for the
quarter ended March 31, 2005, as compared to $4.4 million for the same period in
2004. This decrease in segment profit was primarily due to sales volume declines
and lower gross margins from compression between our average selling price and
average raw material costs to contractual customers.
26
INDUSTRIAL FILMS
NET SALES. The net sales of our Industrial Films segment increased by $14.5
million, or 24.9%, to $72.8 million for the quarter ended March 31, 2005 from
$58.3 million for the quarter ended March 31, 2004. This increase was
principally due to an increase in our sales volumes of 4.6% and an increase in
our average selling prices of 19.5%, primarily due to the pass through of raw
material price increases and increased sales of value added products.
SEGMENT PROFIT. The Industrial Films segment profit was $6.4 million for the
quarter ended March 31, 2005, as compared to $6.7 million for the same period in
2004. This $0.3 million decrease in segment profit was due to increased labor
and freight costs associated with volume increases and higher commission costs.
SPECIALTY PRODUCTS GROUP
NET SALES. The net sales of our Specialty Products Group segment increased $6.7
million, or 7.0% to $102.8 million for the quarter ended March 31, 2005 from
$96.1 million for the quarter ended March 31, 2004. This increase reflects a
14.7 % increase in our average selling prices, offset by a sales volume decrease
of 6.7%.
Net sales in our Specialty Films division increased $2.3 million, or 4.9%, to
$49.9 million for the quarter ended March 31, 2005 from $47.6 million for the
quarter ended March 31, 2004. This increase reflects an increase in our average
selling prices of 12.1% offset by a decrease in sales volume of 6.4% as a result
of market share loss of a major client and Asian competition. Net sales in our
Printed Products Films division increased $4.4 million, or 9.1%, to $52.9
million for the quarter ended March 31, 2005 from $48.5 million for the quarter
ended March 31, 2004. This increase reflects an increase in our average selling
prices of 17.4% offset by a decrease in sales volume of 7.0% primarily in our
Mexican plant, and as a result of competitive pricing in our flexible products
markets.
SEGMENT PROFIT. The Specialty Products Group segment profit was $11.3 million
for the quarter ended March 31, 2005, as compared to $13.4 million for the
quarter ended March 31, 2004. This $2.1 million decrease is primarily
attributable to sales volume decline and increased labor and freight costs.
CORPORATE/OTHER
Corporate/Other includes our corporate headquarters and our research and
development facility in Newport News, Virginia. Unallocated corporate expenses
increased by $0.7 million to $7.6 million for the quarter ended March 31, 2005,
from $6.9 million for the quarter ended March 31, 2004. This increase was
primarily due to an increase of $0.5 million in payroll related costs.
27
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CAPITAL
Our principal sources of funds are cash generated by our operations and
borrowings under our revolving credit facility. As of March 31, 2005, our
outstanding long-term debt consisted of: $41.4 million of borrowings under our
revolving credit facility; $313.4 million of our 13% Senior Subordinated Notes;
$250.0 million of our 11 1/8% Senior Secured Notes; and $254.5 million of our 11
1/8% Senior Secured Discount Notes.
REVOLVING CREDIT FACILITY
On February 17, 2004, we entered into a revolving credit facility providing
up to $100 million (subject to the borrowing base and other limitations
described below). The revolving credit facility includes a $15 million letter of
credit sub-facility, with letters of credit reducing availability under the
revolving credit facility.
The revolving credit facility is secured by a first priority security
interest in substantially all our inventory, receivables and deposit accounts,
100% of the capital stock of, or other equity interests in, our existing and
future domestic subsidiaries and foreign subsidiaries that are note guarantors,
65% of the capital stock of, or other equity interests in existing and future
first-tier foreign subsidiaries, investment property and certain other assets of
the Company and the note guarantors (the "Second - Priority Collateral") and a
second-priority security interest in our real property, fixtures, equipment,
intellectual property and other assets ("First - Priority Collateral").
The revolving credit facility matures on February 17, 2009. The interest
rates are at LIBOR plus 2.5% to 3.0% or ABR plus 1.5% to 2.0%. The average rate
on borrowings outstanding during the first quarter of 2005 was 6.95%. The
commitment fee for the unused portion of the revolving credit facility is 0.50%
per annum.
The borrowings under the revolving credit facility may be limited to a
reduced availability. Reduced Availability is defined as: if the borrowing base
is less than $110,000,000 and the Fixed Charge Coverage Ratio (FCCR) is less
than 1.1, the reduced availability is the borrowing base minus $10,000,000.
Furthermore, if the FCCR is less than that prescribed in our credit agreement,
RA is the lessor of the commitment or the borrowing base minus $15,000,000. As
of March 31, 2005, we had approximately $49.7 million available for borrowing
under our revolving credit agreement.
SENIOR SECURED DISCOUNT NOTES DUE 2009
The Senior Secured Discount Notes mature on June 15, 2009 and are secured
by a first-priority security interest in the First-Priority Collateral and a
second-priority security interest in the Second-Priority Collateral. The Senior
Secured Discount Notes are guaranteed by our existing and future domestic
restricted subsidiaries and certain foreign subsidiaries.
Unless we elect to pay cash interest as described below, and except under
certain limited circumstances, the Senior Secured Discount Notes will accrete
from the date of issuance at the rate of 11 1/8% until December 15, 2006,
compounded semiannually on each June 15 and December 15 commencing June 15,
2004, to an aggregate principal amount of $1,000 per note ($306.0 million in the
aggregate assuming no redemption or other repayments). Commencing on December
15, 2006, interest on the Senior Secured Discount Notes will accrue at the rate
of 11 1/8% per annum and will be payable in cash semiannually on June 15 and
December 15, commencing on June 15, 2007.
On any interest payment date prior to December 15, 2006, we may elect to
commence paying cash interest (from and after such interest payment date) in
which case (i) we will be obligated to pay cash interest on each subsequent
interest payment date, (ii) the notes will cease to accrete after such interest
payment date and (iii) the outstanding principal amount at the stated maturity
of each note will equal the accreted value of such note as of such interest
payment date.
At any time prior to June 15, 2007, we may redeem up to 35% of the accreted
value of the Senior Secured Discount Notes with the net cash proceeds of certain
equity offerings by us at a redemption price equal to 111.125% of the accreted
value thereof plus accrued interest, so long as (i) at least 65% of the accreted
value of the notes remains outstanding after such redemption and (ii) any such
redemption by us is made within 120 days after such equity offering.
28
11 1/8% SENIOR SECURED NOTES DUE 2009
The 11 1/8% Senior Secured Notes due 2009 rank equally with our existing
and future senior debt and rank senior to our existing and future subordinated
indebtedness, including the 13% Senior Subordinated Notes due 2010. The 11 1/8%
Senior Secured Notes due 2009 are secured by a first priority security interest
in the First Priority Collateral and a second priority security interest in the
Second Priority Collateral. The 11 1/8% Senior Secured Notes due 2009 are
guaranteed by some of our subsidiaries.
Prior to June 1, 2007, we may, on one or more occasions, redeem up to a
maximum of 35% of the original aggregate principal amount of the 11 1/8% Senior
Secured Notes due 2009 with the net cash proceeds of one or more equity
offerings by us at a redemption price equal to 111.125% of the principal amount
thereof, plus accrued and unpaid interest. Otherwise, we may not redeem the 11
1/8% Senior Secured Notes due 2009 prior to June 1, 2007. On or after that date,
we may redeem some or all of the 11 1/8% Senior Secured Notes due 2009 at the
following redemption prices (expressed as a percentage of principal amount),
plus accrued and unpaid interest: 105.563% if redeemed prior to June 1, 2008;
102.781% if redeemed prior to June 1, 2009; and 100% if redeemed on or after
June 1, 2009.
13% SENIOR SUBORDINATED NOTES DUE 2010
The 13% Senior Subordinated Notes due 2010 are subordinated to all of our
existing and future senior debt, rank equally with any future senior
subordinated debt, and rank senior to any future subordinated debt. The 13%
Senior Subordinated Notes due 2010 are guaranteed by some of our subsidiaries.
The 13% Senior Subordinated Notes due 2010 are unsecured.
PREFERRED STOCK
We have approximately $232.9 million of Series A Cumulative Exchangeable
Redeemable Preferred Stock outstanding. The Series A preferred stock accrues
dividends at the rate of 14% per annum; however, our board of directors has
never declared or paid any dividends on the Series A preferred stock. Unpaid
dividends accumulate and are added to the liquidation amount of the Series A
preferred stock. After May 31, 2005 the annual dividend rate increases to 16%
unless we pay dividends in cash. The dividend rate also increases to 16% if we
fail to comply with certain of our obligations or upon certain events of
bankruptcy. The Series A preferred stock is mandatorily redeemable on May 31,
2011.
In addition, we have $0.1 million of Series B Redeemable Preferred Stock
outstanding. During 2004, we adopted a 2004 Restricted Stock Incentive Plan,
pursuant to which we sold to our President and Chief Executive Officer and
selected additional officers of the Company, all 720 shares of a newly-created,
non-voting Series B Redeemable Preferred Stock (the "Series B Preferred Stock")
for a cash purchase price of $162 per share. These shares of Series B Preferred
Stock were issued in private transactions with officers of the Company and
therefore were exempt from the registration requirements of the Securities Act
of 1933. On February 14, 2005, the remaining 48 authorized shares of Series B
Preferred Stock were repurchased from an officer for $162 per share.
NET CASH PROVIDED BY/USED IN OPERATING ACTIVITIES
Net cash used in operating activities was $7.4 million for the three months
ended March 31, 2005, a decrease of $7.8 million, compared to net cash provided
by operating activities of $0.4 million for the same period in 2004. This
increase was due primarily to reductions in working capital items of $5.8
million.
NET CASH USED IN INVESTING ACTIVITIES
Net cash used in investing activities increased $5.5 million to $8.6
million for the three months ended March 31, 2005, from $3.1 million for the
three months ended March 31, 2004 primarily due to an increase in capital
expenditures of $5.9 million.
NET CASH PROVIDED BY/USED IN FINANCING ACTIVITIES
Net cash provided by financing activities was $16.2 million for the three
months ended March 31, 2005, compared to net cash provided by financing
activities of $4.9 million for the three months ended March 31, 2004. The
activity for the first three months of 2005 include borrowings under the
revolving credit facility of $17.4 million, offset by payments of $0.1 million
in financing fees and $1.1 million repayments of capital lease and insurance
financing. The activity for the first three months of 2004 includes the net
proceeds from the issuance of senior secured discount notes of $225.3 million
net of financing fees paid of $8.7 million, the repayment of the old credit
facilities of $ 219.6 million and repayment of capital leases and insurance
financing of $0.5 million.
29
Liquidity
As of March 31, 2005, we had $90.1 million of working capital, excluding
current maturities of long term debt. As of March 31, 2005, we had $49.7 million
available for borrowings under our revolving credit facility, with $41.4 million
of outstanding borrowings under this agreement and approximately $6.7 million of
letters of credit issued under our revolving credit facility. Daily borrowings
outstanding under the revolving credit facility averaged $32.6 million during
the first quarter. Our outstanding borrowings under our revolving credit
facility fluctuate significantly during each quarter as a result of the timing
of payments for raw materials, capital and interest, as well as the timing of
customer collections.
As of March 31, 2005, we had approximately $4.1 million in cash and cash
equivalents. A portion of this amount was held by our foreign subsidiaries.
Repatriation tax rates may limit our ability to access cash and cash equivalents
generated by our foreign operations for use in our U.S. operations, including to
pay principal and interest on outstanding borrowings.
We expect that our total capital expenditures will be approximately $35
million in each of 2005 and 2006. These expenditures will consist primarily of
ongoing capital expenditures for operating improvements and limited capacity
additions.
Our revolving credit facility and the indentures relating to our
outstanding notes impose certain restrictions on us, including restrictions on
our ability to incur indebtedness, pay dividends, make investments, grant liens,
sell our assets and engage in certain other activities.
In an attempt to manage our liquidity needs, we and our affiliates are
analyzing and formulating potential strategic alternatives to reduce our
leverage. In this regard, we or our affiliates may repurchase all or a portion
of our Notes, through an exchange offer, a tender offer or open-market or
privately-negotiated purchases, or through a combination of any of these or
other alternatives. The funds for any such repurchases may be raised by selling
additional equity, seeking additional capital contributions from our existing
equity holders or by other means. There can be no assurance that any plan to
reduce our indebtedness, if commenced, would be successfully completed.
Based on our current level of operations, we believe that cash flow from
operations and available cash, together with available borrowings under our
revolving credit facility, will be adequate to meet liquidity needs and fund
planned capital expenditures for the next 12 months.
However, our ability to borrow under our revolving credit facility at any
time will be subject to the borrowing base in effect at that time (which will
vary depending upon the value of our accounts receivable and inventory). Our
ability to make borrowings under our revolving credit facility will also be
conditioned upon our compliance with other covenants in our revolving credit
agreement, including financial covenants that apply when our borrowings exceed
certain amounts. In addition, the terms of our indentures currently limit the
amount we may borrow under our revolving credit facility.
Changes in raw material costs can significantly affect the amount of cash
provided by our operating activities, which can affect our liquidity. Over the
past year, we have experienced a period of extreme uncertainty with respect to
resin supplies and prices. High crude oil and natural gas pricing have had a
significant impact on the price and supply of resins. During the same period,
many major suppliers of resin have announced price increases to cover their
increases in feedstock costs. While the prices of our products generally
fluctuate with the prices of resins, certain of our customers have contracts
that limit our ability to pass the full cost of higher resin pricing through to
our customers immediately. Further, competitive conditions in our industry may
make it difficult for us to sufficiently increase our selling prices for all
customers to reflect the full impact of increases in raw material costs. If this
period of high resin pricing continues, we may be unable to pass on the entire
effect of the price increases to our customers, which would adversely affect our
profitability and working capital. In addition, further increases in crude oil
and natural gas prices could make it difficult for us to obtain an adequate
supply of resin from manufacturers affected by these factors.
If (a) we are not able to increase prices to cover historical and future
raw materials cost increases, (b) we are unable to obtain adequate supply of
resin, (c) volume growth does not continue as expected, or (d) we experience any
significant negative effects to our business, we may not have sufficient
available cash and borrowing capacity in the near term to operate our business,
make expected capital expenditures or meet foreseeable liquidity requirements.
In that event, we would have to seek modifications to our credit agreements,
raise other debt or equity capital, sell assets, or take other steps to create
additional working capital. There is no assurance, however, that these efforts
would be successful and, if they were not, these working capital limitations
could constrain the scope of our business operations and have a significant
negative effect on our business and results of operations.
Further, we may need to refinance all or a portion of the principal amount
of our long-term debt and/or revolving credit facility borrowings, on or prior
to maturity, to meet liquidity needs in later years. If it is determined that
refinancing is necessary, and we are unable to secure such financing on
acceptable terms, we may have insufficient liquidity to carry on our operations
and meet our obligations at such time.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital expenditures,
financing needs, plans or intentions relating to acquisitions, business trends,
and other information that is not historical information. When used in this
report, the words "estimates," "expects," "anticipates," "forecasts," "plans,"
"intends," "believes" and variations of such words or similar expressions are
intended to identify forward-looking statements. We may also make additional
forward-looking statements from time to time. All such subsequent
forward-looking statements, whether written or oral, by us or on our behalf, are
also expressly qualified by these cautionary statements.
All forward-looking statements, including, without limitation, management's
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections
are expressed in good faith and we believe there is a reasonable basis for them.
But, there can be no assurance that management's expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply
only as of the date made. We undertake no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.
There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in or
contemplated by this report. These risks include, but are not limited to:
general economic and business conditions, particularly an economic downturn;
industry trends; increases in our leverage; interest rate increases; changes in
our ownership structure; raw material costs and availability, particularly
resin; competition; the loss of any of our significant customers; changes in the
demand for our products; new technologies; changes in distribution channels or
competitive conditions in the markets or countries in which we operate; costs of
integrating any future acquisitions; loss of our intellectual property rights;
operational difficulties at any of our plants; foreign currency fluctuations and
devaluations and political instability in our foreign markets; changes in our
business strategy or development plans; availability, terms and deployment of
capital; availability of qualified personnel; and increases in the cost of
compliance with laws and regulations, including environmental laws and
regulations. Each of these risks and certain other uncertainties are discussed
in more detail in the 2004 Form 10-K and in our Registration Statement on Form
S-4 (file no. 333-114608), as amended, filed with the Securities and Exchange
Commission on April 20, 2004. There may be other factors, including those
discussed elsewhere in this report that may cause our actual results to differ
materially from the forward-looking statements. Any forward-looking statements
should be considered in light of these factors.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to resin price risks that arise in the normal course of
business. Significant increases in the price of resins could adversely affect
our operating margins, results of operations and ability to service our
indebtedness. We may be limited in our ability to pass increases in resin price
on to certain of our customers due to provisions in our contracts with those
customers.
Since the repayment of $219.6 million of variable rate term debt with the
proceeds of our Senior Secured Discount Notes and borrowings under our new
revolving credit facility on February 17, 2004 our interest rate risk has
decreased substantially.
Our revolving credit facility is at a variable rate of interest. An
increase of 1% in interest rates would result in an additional $100,000 of
annual interest expense for each $10.0 million in borrowings under our revolving
credit facility. We will thus continue to be exposed to interest rate risk to
the extent of our borrowings under the revolving credit facility.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
periods specified in the rules and forms of the Securities and Exchange
Commission. This information is accumulated and communicated to our management,
including our principal executive officer and our principal financial officer,
as appropriate, to allow timely decisions regarding required disclosure. Our
management, including our principal executive officer and our principal
financial officer, recognizes that any set of controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective in alerting them on a timely basis to material
information required to be disclosed in our periodic filings.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls during the quarter or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced in the foregoing paragraph.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) The following exhibits are filed with this report.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer furnished pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification of Chief Financial Officer furnished pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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.
PLIANT CORPORATION
/s/ Harold Bevis
-----------------------------------------------
HAROLD BEVIS
Chief Financial Officer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 10, 2005
33
INDEX TO EXHIBITS
EXHIBITS
- -------------
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer furnished pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer furnished pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
34