UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 28, 2003 |
| ¨ | 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: 333-19495
RADNOR HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
23-2674715 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| Three Radnor Corporate Center, Suite 300 100 Matsonford Road, Radnor, Pennsylvania |
19087 | |
| (address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: 610-341-9600
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
The number of shares outstanding of the Registrant’s common stock as of May 8, 2003:
| Class |
Number of Shares | |
| Voting Common Stock; $.10 par value |
600 | |
| Nonvoting Common Stock; $.10 par value |
245 | |
| Class B Nonvoting Common Stock; $.01 par value |
5,400 |
PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| March 28, |
December 27, |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash |
$ |
1,130 |
|
$ |
4,059 |
| ||
| Accounts receivable, net |
|
41,749 |
|
|
36,165 |
| ||
| Inventories, net |
|
46,940 |
|
|
37,715 |
| ||
| Prepaid expenses and other |
|
8,142 |
|
|
7,115 |
| ||
| Deferred tax asset |
|
1,554 |
|
|
1,838 |
| ||
| Total current assets |
|
99,515 |
|
|
86,892 |
| ||
| PROPERTY, PLANT AND EQUIPMENT, at cost: |
|
254,059 |
|
|
249,417 |
| ||
| LESS – ACCUMULATED DEPRECIATION |
|
(77,987 |
) |
|
(73,921 |
) | ||
| NET PROPERTY, PLANT AND EQUIPMENT |
|
176,072 |
|
|
175,496 |
| ||
| OTHER ASSETS |
|
25,280 |
|
|
21,744 |
| ||
| Total assets |
$ |
300,867 |
|
$ |
284,132 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ |
35,956 |
|
$ |
34,141 |
| ||
| Accrued liabilities |
|
16,538 |
|
|
15,154 |
| ||
| Current portion of long-term debt |
|
10,979 |
|
|
6,548 |
| ||
| Current portion of capitalized lease obligations |
|
1,163 |
|
|
1,141 |
| ||
| Total current liabilities |
|
64,636 |
|
|
56,984 |
| ||
| LONG-TERM DEBT, net of current portion |
|
216,822 |
|
|
205,928 |
| ||
| CAPITALIZED LEASE OBLIGATIONS, net of current portion |
|
1,292 |
|
|
1,597 |
| ||
| DEFERRED TAX LIABILITY |
|
6,317 |
|
|
7,816 |
| ||
| OTHER NON-CURRENT LIABILITIES |
|
1,753 |
|
|
1,746 |
| ||
| COMMITMENTS AND CONTINGENCIES |
|
— |
|
|
— |
| ||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Common stock |
|
1 |
|
|
1 |
| ||
| Additional paid-in capital |
|
19,387 |
|
|
19,387 |
| ||
| Retained deficit |
|
(6,049 |
) |
|
(4,663 |
) | ||
| Cumulative translation adjustment |
|
(3,292 |
) |
|
(4,664 |
) | ||
| Total stockholders’ equity |
|
10,047 |
|
|
10,061 |
| ||
| Total liabilities and stockholders’ equity |
$ |
300,867 |
|
$ |
284,132 |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
| For the three months ended | |||||||
| March 28, |
March 29, | ||||||
| NET SALES |
$ |
80,253 |
|
$ |
71,448 | ||
| COST OF GOODS SOLD |
|
63,455 |
|
|
53,903 | ||
| GROSS PROFIT |
|
16,798 |
|
|
17,545 | ||
| OPERATING EXPENSES: |
|||||||
| Distribution |
|
4,883 |
|
|
5,125 | ||
| Selling, general and administrative |
|
6,704 |
|
|
7,187 | ||
| Other expenses (note 4) |
|
1,838 |
|
|
— | ||
| INCOME FROM OPERATIONS |
|
3,373 |
|
|
5,233 | ||
| OTHER EXPENSE: |
|||||||
| Interest, net |
|
5,418 |
|
|
5,012 | ||
| Other, net |
|
190 |
|
|
128 | ||
| INCOME (LOSS) BEFORE INCOME TAXES |
|
(2,235 |
) |
|
93 | ||
| PROVISION (BENEFIT) FOR INCOME TAXES: |
|||||||
| Current |
|
364 |
|
|
4 | ||
| Deferred |
|
(1,213 |
) |
|
31 | ||
|
|
(849 |
) |
|
35 | |||
| NET INCOME (LOSS) |
$ |
(1,386 |
) |
$ |
58 | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| For the three months ended |
||||||||
| March 28, 2003 |
March 29, 2002 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ |
(1,386 |
) |
$ |
58 |
| ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
|
5,176 |
|
|
4,270 |
| ||
| Deferred income taxes |
|
(1,213 |
) |
|
31 |
| ||
| Income from unconsolidated affiliates |
|
(828 |
) |
|
(342 |
) | ||
| Changes in operating assets and liabilities, net of effects of disposition of businesses: |
||||||||
| Accounts receivable, net |
|
(4,660 |
) |
|
(3,692 |
) | ||
| Inventories, net |
|
(8,888 |
) |
|
1,349 |
| ||
| Prepaid expenses and other |
|
(700 |
) |
|
16 |
| ||
| Accounts payable |
|
1,453 |
|
|
(6,412 |
) | ||
| Accrued liabilities and other |
|
1,151 |
|
|
773 |
| ||
| Net cash used in continuing operations |
|
(9,895 |
) |
|
(3,949 |
) | ||
| Net cash used in discontinued operations |
|
— |
|
|
(34 |
) | ||
| Net cash used in operating activities |
|
(9,895 |
) |
|
(3,983 |
) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
|
(2,866 |
) |
|
(1,836 |
) | ||
| Distributions from unconsolidated affiliates |
|
1,529 |
|
|
1,663 |
| ||
| Investments in unconsolidated affiliates |
|
(1,473 |
) |
|
(1,988 |
) | ||
| Increase in other assets |
|
(654 |
) |
|
(170 |
) | ||
| Net cash used in investing activities |
|
(3,464 |
) |
|
(2,331 |
) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from borrowings |
|
188,236 |
|
|
6,272 |
| ||
| Repayment of debt |
|
(172,527 |
) |
|
(2,981 |
) | ||
| Payments on capitalized lease obligations |
|
(283 |
) |
|
(244 |
) | ||
| Payment of financing costs |
|
(4,546 |
) |
|
— |
| ||
| Net cash provided by financing activities |
|
10,880 |
|
|
3,047 |
| ||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
(450 |
) |
|
(155 |
) | ||
| NET DECREASE IN CASH |
|
(2,929 |
) |
|
(3,422 |
) | ||
| CASH, beginning of period |
|
4,059 |
|
|
4,304 |
| ||
| CASH, end of period |
$ |
1,130 |
|
$ |
882 |
| ||
| SUPPLEMENTAL CASH FLOW DISCLOSURES: |
||||||||
| Cash paid during the period for interest |
$ |
939 |
|
$ |
694 |
| ||
| Cash paid during the period for income taxes paid |
$ |
430 |
|
$ |
257 |
| ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
SUMMARY BY OPERATING SEGMENTS
(In thousands)
(Unaudited)
| For the three months ended |
||||||||
| March 28, 2003 |
March 29, 2002 |
|||||||
| Net Sales to Unaffiliated Customers: |
||||||||
| Packaging |
$ |
44,972 |
|
$ |
47,258 |
| ||
| Specialty Chemicals |
|
37,055 |
|
|
26,230 |
| ||
| Corporate and Other |
|
— |
|
|
462 |
| ||
| Transfers Between Operating Segments (1) |
|
(1,774 |
) |
|
(2,502 |
) | ||
| Consolidated |
$ |
80,253 |
|
$ |
71,448 |
| ||
| Operating Income (Loss): |
||||||||
| Packaging |
$ |
6,449 |
|
$ |
8,190 |
| ||
| Specialty Chemicals |
|
405 |
|
|
(1,052 |
) | ||
| Corporate and Other |
|
(3,481 |
) |
|
(1,905 |
) | ||
| Consolidated |
$ |
3,373 |
|
$ |
5,233 |
| ||
| Income (Loss) Before Income Taxes: |
||||||||
| Packaging |
$ |
3,495 |
|
$ |
5,270 |
| ||
| Specialty Chemicals |
|
(1,019 |
) |
|
(2,353 |
) | ||
| Corporate and Other |
|
(4,711 |
) |
|
(2,824 |
) | ||
| Consolidated |
$ |
(2,235 |
) |
$ |
93 |
| ||
| (1) | Transfers between operating segments reflect the sale of expandable polystyrene (“EPS”) from the specialty chemicals operating segment to the packaging operating segment. |
5
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
SUMMARY BY GEOGRAPHIC REGION
(In thousands)
(Unaudited)
| For the three months ended |
||||||||
| March 28, 2003 |
March 29, 2002 |
|||||||
| Net Sales to Unaffiliated Customers: |
||||||||
| United States |
$ |
53,659 |
|
$ |
54,748 |
| ||
| Canada |
|
9,185 |
|
|
7,099 |
| ||
| Europe |
|
19,183 |
|
|
12,103 |
| ||
| Transfers Between Geographic Regions (1) |
|
(1,774 |
) |
|
(2,502 |
) | ||
| Consolidated |
$ |
80,253 |
|
$ |
71,448 |
| ||
| Operating Income (Loss): |
||||||||
| United States |
$ |
2,337 |
|
$ |
4,396 |
| ||
| Canada |
|
1,663 |
|
|
1,384 |
| ||
| Europe |
|
(627 |
) |
|
(547 |
) | ||
| Consolidated |
$ |
3,373 |
|
$ |
5,233 |
| ||
| Income (Loss) Before Income Taxes: |
||||||||
| United States |
$ |
(2,396 |
) |
$ |
(98 |
) | ||
| Canada |
|
1,274 |
|
|
1,084 |
| ||
| Europe |
|
(1,113 |
) |
|
(893 |
) | ||
| Consolidated |
$ |
(2,235 |
) |
$ |
93 |
| ||
| (1) | Transfers between geographic regions reflect the sale of EPS bead from the Company’s Canadian specialty chemicals operations to its domestic food packaging operations as well as the sale of product from the Company’s domestic food packaging operations to its European food packaging operations. |
6
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been prepared by Radnor Holdings Corporation and subsidiaries (collectively, “Radnor” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the statements include all adjustments (which include only normal recurring adjustments) required for a fair statement of financial position, results of operations and cash flows for such periods. The results of operations for the interim periods are not necessarily indicative of the results for a full year, due to the seasonality inherent in some of the Company’s operations and the possibility for general economic changes.
During fiscal 2002, the Company changed its reporting of sales and marketing rebates to include them as an offset to revenues in accordance with Emerging Issues Task Force Issue No. 00-22. Previously they were included in selling, general and administrative expenses. The statements of operations of the prior period have been adjusted to reflect this reclassification.
(2) DISCONTINUED OPERATIONS
Pursuant to an asset purchase agreement among Benchmark Holdings, Inc. (“Benchmark”), WinCup Holdings, Inc. (“WinCup”), and the Fort James Corporation, formerly James River Paper Company, Inc. (“Fort James”), dated October 31, 1995, Benchmark and WinCup sold to Fort James all of the assets of Benchmark’s cutlery and straws business and all of the assets of WinCup’s thermoformed cup business, except for cash, accounts receivable and prepaid assets. The operations of Benchmark’s cutlery and straws business and WinCup’s thermoformed cup business were accounted for as discontinued operations. Discontinued operations represent legal costs incurred in conjunction with the above mentioned business.
(3) INVENTORIES
The components of inventories were as follows (in thousands):
| March 28, 2003 |
December 27, 2002 | |||||
| Raw Materials |
$ |
10,781 |
$ |
8,378 | ||
| Work in Process |
|
2,102 |
|
1,442 | ||
| Finished Goods |
|
34,057 |
|
27,895 | ||
| $ |
46,940 |
$ |
37,715 | |||
7
(4) LONG-TERM DEBT
On March 11, 2003, the Company issued $135.0 million of 11.0% Senior Notes due 2010 and amended its domestic revolving credit facility to include a $45.0 million term loan and to increase the revolving credit commitment from $35.0 million to $45.0 million. The proceeds were used to repay the then outstanding $159.5 million 10% Series A and Series B Senior Notes due 2003 and outstanding borrowings under the existing revolving credit facilities.
The Company recorded $1.8 million of other expenses related to the extinguishment of the long-term debt described above, which included the $1.0 million write-off of deferred financing costs and debt premium related to the Company’s 10% Series A and Series B Senior Notes due 2003, as well as $0.8 million of personnel costs directly related to the debt extinguishment.
(5) INTEREST EXPENSE
Included in interest expense was $375,000 of amortization of deferred financing costs for the three months ended March 28, 2003 and March 29, 2002. Premium amortization related to the issuance of the Company’s 10% Series B Senior Notes due 2003 of $105,000 for the three months ended March 28, 2003 and March 29, 2002 was also included in interest expense.
(6) COMPREHENSIVE INCOME
Comprehensive income is the total of net income (loss) and non-owner changes in equity. The Company had comprehensive loss as follows (in thousands):
| Three Months Ended |
||||||||
| March 28, 2003 |
March 29, 2002 |
|||||||
| Net Income (Loss) |
$ |
(1,386 |
) |
$ |
58 |
| ||
| Foreign Currency Translation Adjustment |
|
1,372 |
|
|
(390 |
) | ||
| Comprehensive Loss |
$ |
(14 |
) |
$ |
(332 |
) | ||
(7) NEW ACCOUNTING STANDARDS
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities an interpretation of ARB No. 51.” This Interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an entity holds a variable interest that it acquired prior to February 1, 2003. The Company is currently evaluating the impact, if any, that adopting FASB Interpretation No. 46 may have on its consolidated financial statements.
In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” to require more prominent and frequent disclosures in financial statements. Also, SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company has included the interim disclosures prescribed by SFAS No. 148.
8
(8) STOCK-BASED COMPENSATION
At March 28, 2003, the Company had a stock-based compensation plan as described in Note 7 to the consolidated financial statements in the Company’s Form 10-K for fiscal 2002. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plan. As of March 28, 2003, all previously issued stock options were fully vested. Accordingly, no compensation expense has been recognized in net income for stock options, as options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123 to its stock option plan (in thousands).
| Three Months Ended |
||||||||
| March 28, 2003 |
March 29, 2002 |
|||||||
| Net Income (Loss): |
||||||||
| As reported |
$ |
(1,386 |
) |
$ |
58 |
| ||
| Pro forma |
|
(1,386 |
) |
|
(14 |
) | ||
(9) SUPPLEMENTAL FINANCIAL INFORMATION
Radnor Holdings Corporation is a holding company that has no operations separate from its investment in subsidiaries. The Company’s $135.0 million of 11.0% Senior Notes due 2010 are guaranteed by substantially all of the Company’s domestic subsidiaries. The following consolidating financial statements of Radnor Holdings Corporation and subsidiaries have been prepared pursuant to Rule 3-10 of Regulation S-X:
9
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 28, 2003
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Gurantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
| ASSETS |
||||||||||||||||||||
| CURRENT ASSETS: |
||||||||||||||||||||
| Cash |
$ |
— |
|
$ |
139 |
|
$ |
991 |
|
$ |
— |
|
$ |
1,130 |
| |||||
| Accounts receivable, net |
|
24 |
|
|
22,827 |
|
|
24,471 |
|
|
(5,573 |
) |
|
41,749 |
| |||||
| Inventories, net |
|
— |
|
|
36,537 |
|
|
10,403 |
|
|
— |
|
|
46,940 |
| |||||
| Intercompany receivable |
|
— |
|
|
— |
|
|
21,647 |
|
|
(21,647 |
) |
|
— |
| |||||
| Prepaid expenses and other |
|
1,840 |
|
|
6,905 |
|
|
1,242 |
|
|
(1,845 |
) |
|
8,142 |
| |||||
| Deferred tax asset |
|
(29 |
) |
|
1,960 |
|
|
(377 |
) |
|
— |
|
|
1,554 |
| |||||
| Total current assets |
|
1,835 |
|
|
68,368 |
|
|
58,377 |
|
|
(29,065 |
) |
|
99,515 |
| |||||
| PROPERTY, PLANT AND EQUIPMENT, at cost: |
|
— |
|
|
201,753 |
|
|
52,306 |
|
|
— |
|
|
254,059 |
| |||||
| LESS – ACCUMULATED DEPRECIATION |
|
— |
|
|
(62,543 |
) |
|
(15,444 |
) |
|
— |
|
|
(77,987 |
) | |||||
| NET PROPERTY, PLANT AND EQUIPMENT |
|
— |
|
|
139,210 |
|
|
36,862 |
|
|
— |
|
|
176,072 |
| |||||
| INTERCOMPANY RECEIVABLE |
|
31,891 |
|
|
19,581 |
|
|
— |
|
|
(51,472 |
) |
|
— |
| |||||
| INVESTMENT IN SUBSIDIARIES |
|
106,153 |
|
|
25,078 |
|
|
— |
|
|
(131,231 |
) |
|
— |
| |||||
| OTHER NON-CURRENT ASSETS |
|
3,571 |
|
|
5,481 |
|
|
16,228 |
|
|
— |
|
|
25,280 |
| |||||
| Total assets |
$ |
143,450 |
|
$ |
257,718 |
|
$ |
111,467 |
|
$ |
(211,768 |
) |
$ |
300,867 |
| |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||
| CURRENT LIABILITIES: |
||||||||||||||||||||
| Accounts payable |
$ |
— |
|
$ |
22,495 |
|
$ |
14,198 |
|
$ |
(737 |
) |
$ |
35,956 |
| |||||
| Accrued liabilities |
|
2,518 |
|
|
12,128 |
|
|
3,855 |
|
|
(1,963 |
) |
|
16,538 |
| |||||
| Intercompany payable |
|
— |
|
|
9,734 |
|
|
— |
|
|
(9,734 |
) |
|
— |
| |||||
| Current portion of long-term debt and capitalized lease obligations |
|
— |
|
|
11,244 |
|
|
898 |
|
|
— |
|
|
12,142 |
| |||||
| Total current liabilities |
|
2,518 |
|
|
55,601 |
|
|
18,951 |
|
|
(12,434 |
) |
|
64,636 |
| |||||
| LONG-TERM DEBT, net of current portion |
|
135,000 |
|
|
87,355 |
|
|
11,027 |
|
|
(16,560 |
) |
|
216,822 |
| |||||
| CAPITALIZED LEASE OBLIGATIONS, net of current portion |
|
— |
|
|
1,292 |
|
|
— |
|
|
— |
|
|
1,292 |
| |||||
| INTERCOMPANY PAYABLE |
|
58,193 |
|
|
(1,395 |
) |
|
16,055 |
|
|
(72,853 |
) |
|
— |
| |||||
| DEFERRED TAX LIABILITY |
|
(8,558 |
) |
|
11,139 |
|
|
3,617 |
|
|
119 |
|
|
6,317 |
| |||||
| OTHER NON-CURRENT LIABILITIES |
|
— |
|
|
1,752 |
|
|
1 |
|
|
— |
|
|
1,753 |
| |||||
| COMMITMENTS AND CONTINGENCIES |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| |||||
| STOCKHOLDERS’ EQUITY: |
||||||||||||||||||||
| Common stock |
|
1 |
|
|
4 |
|
|
22 |
|
|
(26 |
) |
|
1 |
| |||||
| Additional paid-in capital |
|
9,164 |
|
|
97,604 |
|
|
22,620 |
|
|
(110,001 |
) |
|
19,387 |
| |||||
| Retained earnings (deficit) |
|
(52,868 |
) |
|
9,686 |
|
|
37,126 |
|
|
7 |
|
|
(6,049 |
) | |||||
| Cumulative translation adjustment |
|
— |
|
|
(5,320 |
) |
|
2,048 |
|
|
(20 |
) |
|
(3,292 |
) | |||||
| Total stockholders’ equity (deficit) |
|
(43,703 |
) |
|
101,974 |
|
|
61,816 |
|
|
(110,040 |
) |
|
10,047 |
| |||||
| Total liabilities and stockholders’ equity |
$ |
143,450 |
|
$ |
257,718 |
|
$ |
111,467 |
|
$ |
(211,768 |
) |
$ |
300,867 |
| |||||
10
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended March 28, 2003
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
|||||||||||||||
| NET SALES |
$ |
— |
|
$ |
54,363 |
|
$ |
28,368 |
$ |
(2,478 |
) |
$ |
80,253 |
| |||||
| COST OF GOODS SOLD |
|
— |
|
|
42,252 |
|
|
23,981 |
|
(2,778 |
) |
|
63,455 |
| |||||
| GROSS PROFIT |
|
— |
|
|
12,111 |
|
|
4,387 |
|
300 |
|
|
16,798 |
| |||||
| OPERATING EXPENSES: |
|||||||||||||||||||
| Distribution |
|
— |
|
|
3,283 |
|
|
1,600 |
|
— |
|
|
4,883 |
| |||||
| Selling, general and administrative |
|
4 |
|
|
5,790 |
|
|
910 |
|
— |
|
|
6,704 |
| |||||
| Other Expenses |
|
1,013 |
|
|
825 |
|
|
— |
|
— |
|
|
1,838 |
| |||||
| INCOME (LOSS) FROM OPERATIONS |
|
(1,017 |
) |
|
2,213 |
|
|
1,877 |
|
300 |
|
|
3,373 |
| |||||
| OTHER EXPENSE: |
|||||||||||||||||||
| Interest, net |
|
1,649 |
|
|
3,280 |
|
|
489 |
|
— |
|
|
5,418 |
| |||||
| Other, net |
|
— |
|
|
(196 |
) |
|
386 |
|
— |
|
|
190 |
| |||||
| INCOME (LOSS) BEFORE INCOME TAXES |
|
(2,666 |
) |
|
(871 |
) |
|
1,002 |
|
300 |
|
|
(2,235 |
) | |||||
| PROVISION (BENEFIT) FOR INCOME TAXES: |
|||||||||||||||||||
| Current |
|
— |
|
|
(18 |
) |
|
382 |
|
— |
|
|
364 |
| |||||
| Deferred |
|
(944 |
) |
|
(322 |
) |
|
53 |
|
— |
|
|
(1,213 |
) | |||||
|
|
(944 |
) |
|
(340 |
) |
|
435 |
|
— |
|
|
(849 |
) | ||||||
| NET INCOME (LOSS) |
$ |
(1,722 |
) |
$ |
(531 |
) |
$ |
567 |
$ |
300 |
|
$ |
(1,386 |
) | |||||
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the three months ended March 28, 2003
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
| Net cash provided by (used in) operating activities: |
$ |
(2,328 |
) |
$ |
(7,017 |
) |
$ |
(672 |
) |
$ |
122 |
|
$ |
(9,895 |
) | |||||
| Cash flows from investing activities: |
||||||||||||||||||||
| Capital expenditures |
|
— |
|
|
(2,500 |
) |
|
(366 |
) |
|
— |
|
|
(2,866 |
) | |||||
| Change in other assets |
|
288 |
|
|
(945 |
) |
|
59 |
|
|
— |
|
|
(598 |
) | |||||
| Net cash provided by (used in) investing activities |
|
288 |
|
|
(3,445 |
) |
|
(307 |
) |
|
— |
|
|
(3,464 |
) | |||||
| Cash flows from financing activities: |
||||||||||||||||||||
| Net borrowings (payments) on bank financed debt and unsecured notes payable |
|
(24,500 |
) |
|
34,290 |
|
|
5,919 |
|
|
— |
|
|
15,709 |
| |||||
| Net payments on capitalized lease obligations |
|
— |
|
|
(283 |
) |
|
— |
|
|
— |
|
|
(283 |
) | |||||
| Payment of financing costs |
|
(3,173 |
) |
|
(1,373 |
) |
|
— |
|
|
— |
|
|
(4,546 |
) | |||||
| Change in intercompany, net |
|
29,713 |
|
|
(21,910 |
) |
|
(7,741 |
) |
|
(62 |
) |
|
— |
| |||||
| Net cash provided by (used in) financing activities |
|
2,040 |
|
|
10,724 |
|
|
(1,822 |
) |
|
(62 |
) |
|
10,880 |
| |||||
| Effect of exchange rate changes on cash |
|
— |
|
|
(384 |
) |
|
(6 |
) |
|
(60 |
) |
|
(450 |
) | |||||
| Net decrease in cash |
|
— |
|
|
(122 |
) |
|
(2,807 |
) |
|
— |
|
|
(2,929 |
) | |||||
| Cash, beginning of period |
|
— |
|
|
392 |
|
|
3,667 |
|
|
— |
|
|
4,059 |
| |||||
| Cash, end of period |
$ |
— |
|
$ |
270 |
|
$ |
860 |
|
$ |
— |
|
$ |
1,130 |
| |||||
11
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 27, 2002
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Gurantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
| ASSETS |
||||||||||||||||||||
| CURRENT ASSETS: |
||||||||||||||||||||
| Cash |
$ |
— |
|
$ |
261 |
|
$ |
3,798 |
|
$ |
— |
|
$ |
4,059 |
| |||||
| Accounts receivable, net |
|
— |
|
|
21,390 |
|
|
20,188 |
|
|
(5,413 |
) |
|
36,165 |
| |||||
| Inventories, net |
|
— |
|
|
29,578 |
|
|
8,137 |
|
|
— |
|
|
37,715 |
| |||||
| Intercompany receivable |
|
— |
|
|
(1,660 |
) |
|
10,791 |
|
|
(9,131 |
) |
|
— |
| |||||
| Prepaid expenses and other |
|
1,840 |
|
|
6,280 |
|
|
840 |
|
|
(1,845 |
) |
|
7,115 |
| |||||
| Deferred tax asset |
|
— |
|
|
1,838 |
|
|
— |
|
|
— |
|
|
1,838 |
| |||||
| Total current assets |
|
1,840 |
|
|
57,687 |
|
|
43,754 |
|
|
(16,389 |
) |
|
86,892 |
| |||||
| PROPERTY, PLANT AND EQUIPMENT, at cost: |
|
— |
|
|
199,253 |
|
|
50,164 |
|
|
— |
|
|
249,417 |
| |||||
| LESS – ACCUMULATED DEPRECIATION |
|
— |
|
|
(59,742 |
) |
|
(14,179 |
) |
|
— |
|
|
(73,921 |
) | |||||
| NET PROPERTY, PLANT AND EQUIPMENT |
|
— |
|
|
139,511 |
|
|
35,985 |
|
|
— |
|
|
175,496 |
| |||||
| INTERCOMPANY RECEIVABLE |
|
32,641 |
|
|
1,990 |
|
|
(266 |
) |
|
(34,365 |
) |
|
— |
| |||||
| INVESTMENT IN SUBSIDIARIES |
|
106,153 |
|
|
24,235 |
|
|
843 |
|
|
(131,231 |
) |
|
— |
| |||||
| OTHER NON-CURRENT ASSETS |
|
1,809 |
|
|
4,408 |
|
|
15,527 |
|
|
— |
|
|
21,744 |
| |||||
| Total assets |
$ |
142,443 |
|
$ |
227,831 |
|
$ |
95,843 |
|
$ |
(181,985 |
) |
$ |
284,132 |
| |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||||||||||
| CURRENT LIABILITIES: |
||||||||||||||||||||
| Accounts payable |
$ |
— |
|
$ |
23,008 |
|
$ |
11,601 |
|
$ |
(468 |
) |
$ |
34,141 |
| |||||
| Accrued liabilities |
|
1,161 |
|
|
13,725 |
|
|
2,231 |
|
|
(1,963 |
) |
|
15,154 |
| |||||
| Intercompany payable |
|
— |
|
|
8,601 |
|
|
(3,171 |
) |
|
(5,430 |
) |
|
— |
| |||||
| Current portion of long-term debt and capitalized lease obligations |
|
— |
|
|
6,811 |
|
|
878 |
|
|
— |
|
|
7,689 |
| |||||
| Total current liabilities |
|
1,161 |
|
|
52,145 |
|
|
11,539 |
|
|
(7,861 |
) |
|
56,984 |
| |||||
| LONG-TERM DEBT, net of current portion |
|
159,886 |
|
|
57,824 |
|
|
4,778 |
|
|
(16,560 |
) |
|
205,928 |
| |||||
| CAPITALIZED LEASE OBLIGATIONS, net of current portion |
|
— |
|
|
1,597 |
|
|
— |
|
|
— |
|
|
1,597 |
| |||||
| INTERCOMPANY PAYABLE |
|
25,736 |
|
|
5,074 |
|
|
16,553 |
|
|
(47,363 |
) |
|
— |
| |||||
| DEFERRED TAX LIABILITY |
|
(3,991 |
) |
|
7,521 |
|
|
4,167 |
|
|
119 |
|
|
7,816 |
| |||||
| OTHER NON-CURRENT LIABILITIES |
|
— |
|
|
1,745 |
|
|
1 |
|
|
— |
|
|
1,746 |
| |||||
| COMMITMENTS AND CONTINGENCIES |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| |||||
| STOCKHOLDERS’ EQUITY: |
||||||||||||||||||||
| Common stock |
|
1 |
|
|
4 |
|
|
22 |
|
|
(26 |
) |
|
1 |
| |||||
| Additional paid-in capital |
|
9,164 |
|
|
96,761 |
|
|
23,463 |
|
|
(110,001 |
) |
|
19,387 |
| |||||
| Retained earnings (deficit) |
|
(49,514 |
) |
|
10,928 |
|
|
34,216 |
|
|
(293 |
) |
|
(4,663 |
) | |||||
| Cumulative translation adjustment |
|
— |
|
|
(5,768 |
) |
|
1,104 |
|
|
— |
|
|
(4,664 |
) | |||||
| Total stockholders’ equity (deficit) |
|
(40,349 |
) |
|
101,925 |
|
|
58,805 |
|
|
(110,320 |
) |
|
10,061 |
| |||||
| Total liabilities and stockholders’ equity |
$ |
142,443 |
|
$ |
227,831 |
|
$ |
95,843 |
|
$ |
(181,985 |
) |
$ |
284,132 |
| |||||
12
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended March 29, 2002
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | ||||||||||||||
| NET SALES |
$ |
— |
|
$ |
55,187 |
|
$ |
18,763 |
$ |
(2,502 |
) |
$ |
71,448 | |||||
| COST OF GOODS SOLD |
|
— |
|
|
41,124 |
|
|
15,281 |
|
(2,502 |
) |
|
53,903 | |||||
| GROSS PROFIT |
|
— |
|
|
14,063 |
|
|
3,482 |
|
— |
|
|
17,545 | |||||
| OPERATING EXPENSES: |
||||||||||||||||||
| Distribution |
|
— |
|
|
4,033 |
|
|
1,092 |
|
— |
|
|
5,125 | |||||
| Selling, general and administrative |
|
(96 |
) |
|
6,261 |
|
|
1,022 |
|
— |
|
|
7,187 | |||||
| INCOME FROM OPERATIONS |
|
96 |
|
|
3,769 |
|
|
1,368 |
|
— |
|
|
5,233 | |||||
| OTHER EXPENSE: |
||||||||||||||||||
| Interest, net |
|
— |
|
|
4,679 |
|
|
333 |
|
— |
|
|
5,012 | |||||
| Other, net |
|
— |
|
|
(161 |
) |
|
289 |
|
— |
|
|
128 | |||||
| INCOME (LOSS) BEFORE INCOME TAXES |
|
96 |
|
|
(749 |
) |
|
746 |
|
— |
|
|
93 | |||||
| PROVISION (BENEFIT) FOR INCOME TAXES: |
||||||||||||||||||
| Current |
|
5 |
|
|
(1 |
) |
|
— |
|
— |
|
|
4 | |||||
| Deferred |
|
31 |
|
|
— |
|
|
— |
|
— |
|
|
31 | |||||
|
|
36 |
|
|
(1 |
) |
|
— |
|
— |
|
|
35 | ||||||
| NET INCOME (LOSS) |
$ |
60 |
|
$ |
(748 |
) |
$ |
746 |
$ |
— |
|
$ |
58 | |||||
RADNOR HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the three months ended March 29, 2002
(In thousands)
| Holding Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
|||||||||||||||
| Net cash provided by (used in) operating activities: |
$ |
2,618 |
|
$ |
(3,618 |
) |
$ |
(2,983 |
) |
$ |
— |
$ |
(3,983 |
) | |||||
| Cash flows from investing activities: |
|||||||||||||||||||
| Capital expenditures |
|
— |
|
|
(1,745 |
) |
|
(91 |
) |
|
— |
|
(1,836 |
) | |||||
| Change in other assets |
|
276 |
|
|
(856 |
) |
|
85 |
|
|
— |
|
(495 |
) | |||||
| Net cash provided by (used in) investing activities |
|
276 |
|
|
(2,601 |
) |
|
(6 |
) |
|
— |
|
(2,331 |
) | |||||
| Cash flows from financing activities: |
|||||||||||||||||||
| Net borrowings (payments) on bank financed debt and unsecured notes payable |
|
(404 |
) |
|
3,084 |
|
|
611 |
|
|
— |
|
3,291 |
| |||||
| Net payments on capitalized lease obligations |
|
— |
|
|
(244 |
) |
|
— |
|
|
— |
|
(244 |
) | |||||
| Change in intercompany, net |
|
(2,490 |
) |
|
654 |
|
|
1,836 |
|
|
— |
|
— |
| |||||
| Net cash provided by (used in) financing activities |
|
(2,894 |
) |
|
3,494 |
|
|
2,447 |
|
|
— |
|
3,047 |
| |||||
| Effect of exchange rate changes on cash |
|
— |
|
|
(147 |
) |
|
(8 |
) |
|
— |
|
(155 |
) | |||||
| Net decrease in cash |
|
— |
|
|
(2,872 |
) |
|
(550 |
) |
|
— |
|
(3,422 |
) | |||||
| Cash, beginning of period |
|
— |
|
|
3,020 |
|
|
1,284 |
|
|
— |
|
4,304 |
| |||||
| Cash, end of period |
$ |
— |
|
$ |
148 |
|
$ |
734 |
|
$ |
— |
$ |
882 |
| |||||
13
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Radnor Holdings Corporation, through acquisition and internal development, has established itself as a leading worldwide manufacturer and distributor of specialty chemical and foam packaging products for the foodservice, insulation and packaging industries.
The packaging business segment manufactures and distributes foam cup and container products for the foodservice industry, through its WinCup Holdings, Inc. (“WinCup”) subsidiary. WinCup is the second largest producer in the United States of foam cups and containers for the foodservice industry. The specialty chemicals business segment primarily manufactures and distributes expandable polystyrene (“EPS”) bead for internal consumption and distribution to the insulation and packaging industries. Through its Radnor Chemical Corporation subsidiary, the Company is a leading worldwide producer of EPS.
Results of Operations
CONSOLIDATED
| Three Months Ended | ||||||
| (Millions of dollars) |
March 28, 2003 |
March 29, 2002 | ||||
| Net sales |
$ |
80.3 |
$ |
71.4 | ||
| Gross profit |
|
16.8 |
|
17.5 | ||
| Operating expenses |
|
13.4 |
|
12.3 | ||
| Income from operations |
|
3.4 |
|
5.2 | ||
Net sales for the three months ended March 28, 2003 were $80.3 million, an increase of $8.9 million from the three months ended March 29, 2002. This increase was primarily due to higher sales volumes and selling prices at the specialty chemicals segment, resulting from increased styrene monomer prices as compared to the same quarter in the prior year, partially offset by decreased sales volumes at the domestic packaging operations.
Gross profit for the three months ended March 28, 2003 decreased by $0.7 million to $16.8 million from $17.5 million for the comparable period in 2002. This decrease was primarily caused by the reduction in sales volume in the packaging segment, as described above, as well as higher raw material and energy-related costs.
Operating expenses for the three months ended March 28, 2003 increased by $1.1 million to $13.4 million from $12.3 million for the comparable period in 2002. Excluding the other expenses of $1.8 million related to the extinguishment of long-term debt as described in note 4 to the condensed consolidated financial statements included elsewhere herein, operating expenses decreased by $0.7 million from the three months ended March 29, 2002. This decrease was due to lower distribution costs, primarily at the domestic packaging operations, as well as a $0.4 million reduction in depreciation and amortization. Excluding the $1.8 million in other expenses related to the debt extinguishment, income from operations for the three months ended March 28, 2003 was the same as the comparable period in the prior year.
14
SEGMENT ANALYSIS
Packaging
| Three Months Ended | ||||||
| (Millions of dollars) |
March 28, 2003 |
March 29, 2002 | ||||
| Net sales |
$ |
45.0 |
$ |
47.3 | ||
| Gross profit |
|
12.2 |
|
14.7 | ||
| Operating expenses |
|
5.8 |
|
6.5 | ||
| Income from operations |
|
6.4 |
|
8.2 | ||
Net sales in the packaging business segment decreased by $2.3 million to $45.0 million for the three months ended March 28, 2003 from $47.3 million during the comparable period last year. This decrease was due to a 3.9% decline in sales volumes at the domestic packaging operations. This decline was caused by a reduction in sales to institutional customers, including national fast food franchises, due in part to the escalation of hostilities in the Middle East and its impact on the economy.
Gross profit decreased by $2.5 million to $12.2 million for the three months ended March 28, 2003 from $14.7 million for the comparable three-month period in 2002. This decrease was primarily due to an increase in raw material and energy-related costs, as well as the reduction in sales volumes described above.
Operating expenses of $5.8 million for the three months ended March 28, 2003 decreased by $0.7 million from $6.5 million for the comparable period in 2002 due to lower distribution costs resulting from lower sales. For the reasons described above, income from operations decreased by $1.8 million to $6.4 million for the three months ended March 28, 2003.
Specialty Chemicals
| Three Months Ended |
|||||||
| (Millions of dollars) |
March 28, 2003 |
March 29, 2002 |
|||||
| Net sales |
$ |
37.1 |
$ |
26.2 |
| ||
| Gross profit |
|
4.6 |
|
2.4 |
| ||
| Operating expenses |
|
4.1 |
|
3.5 |
| ||
| Income (loss) from operations |
|
0.4 |
|
(1.1 |
) | ||
Net sales for the three months ended March 28, 2003 were $37.1 million, an increase of $10.9 million or 41.6% from the three months ended March 29, 2002. This was due to a 6.4% increase in sales volumes combined with higher selling prices resulting from increased styrene monomer prices as compared to the same period in the prior year. Net sales for the three months ended March 28, 2003 and March 29, 2002 included sales to the packaging segment of $1.8 million and $2.5 million, respectively.
Gross profit increased by $2.2 million to $4.6 million for the three months ended March 28, 2003. This increase was primarily caused by higher sales, as described above, partially offset by the impact of higher raw material and energy-related costs
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For the three months ended March 28, 2003, operating expenses decreased to 11.1% of net sales from 13.4% of net sales in the same period in the prior year. This reduction was due to lower distribution, selling and general and administrative costs, as a percentage of sales, in both the North American and European specialty chemicals operations. For the reasons described above, income from operations increased by $1.5 million to $0.4 million for the three months ended March 28, 2003.
Corporate & Other
Corporate operating expenses increased by $1.1 million to $3.5 million for the three months ended March 28, 2003. Excluding the other expenses of $1.8 million related to the extinguishment of long-term debt as described in note 4 to the condensed consolidated financial statements included elsewhere herein, operating expenses decreased by $0.7 million primarily due to an increase in investment income and lower depreciation and amortization expense, partially offset by higher employee-related costs.
Interest Expense
| Three Months Ended | ||||||
| (Millions of dollars) |
March 28, 2003 |
March 29, 2002 | ||||
| Interest expense, net |
$ |
5.4 |
$ |
5.0 | ||
Interest expense for the three months ended March 28, 2003 increased by $0.4 million over the same period in the prior year. This increase was primarily due to higher average debt levels, partially offset by lower interest rates as compared to the same period in the prior year.
Income Taxes
| Three Months Ended | |||||||
| (Millions of dollars) |
March 28, 2003 |
March 29, 2002 | |||||
| Income tax benefit |
$ |
(0.8 |
) |
$ |
— | ||
The effective tax rate for the three month periods ended March 28, 2003 and March 29, 2002 was 38.0% of pre-tax income. As of March 28, 2003, the Company had approximately $71.3 million of net operating loss carryforwards for federal income tax purposes, which expire through 2023.
Liquidity and Capital Resources
During the three months ended March 28, 2003 and March 29, 2002, the Company’s principal source of funds consisted of cash from financing activities. During the 2003 period, after-tax cash flow of $1.7 million, net borrowings from financing activities of $10.9 million, and a $2.9 million reduction in cash were used to fund capital expenditures of $2.9 million and an $11.6 million increase in working capital.
On March 11, 2003, the Company issued $135.0 million of 11% Senior Notes due 2010 and amended its domestic revolving credit facility to include a $45.0 million term loan and to increase the revolving credit commitment from $35.0 million to $45.0 million. The proceeds were used to repay the then outstanding $159.5 million of 10% Series A and Series B Senior Notes due 2003 and outstanding borrowings under the existing revolving credit facilities.
As of March 28, 2003, the Company had $28.4 million outstanding and, including cash on hand, had $16.3 million of availability under its credit facilities. The principal uses of cash for the next several years will be working capital requirements, capital expenditures and debt service.
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As a holding company, Radnor Holdings Corporation is dependent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its obligations. Subject to certain limitations under applicable state law and the Company’s credit agreements, Radnor Holdings Corporation is, and will continue to be, able to control its receipt of dividends and other payments from its subsidiaries. Management believes that cash generated from operations, together with available borrowings under the revolving credit facilities, will be sufficient to meet the Company’s expected operating needs, planned capital expenditures and debt service requirements.
Contractual Obligations and Commercial Commitments
The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and unconditional purchase obligations, and has certain contingent commitments, including letters of credit. There have been no material changes to Contractual Obligations and Commercial Commitments as reflected in the Management’s Discussion and Analysis in the Company’s 2002 annual report on Form 10-K. Reference is made to Notes 3 and 4 to the consolidated financial statements in the Company’s 2002 annual report on Form 10-K for additional information on long-term debt, leases and commitments and contingencies.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of the Financial Condition and Results of Operations of the Company is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Included in the Company’s 2002 annual report on Form 10-K are the significant accounting policies of the Company, which are described in Note 2 to the consolidated financial statements and the critical accounting policies and estimates, which are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Information concerning the Company’s implementation and impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is included in the notes to the consolidated financial statements included herein. Otherwise, there were no changes in the Company’s accounting policies and estimates in the current period that had a material impact on the Company’s financial condition, change in financial condition, liquidity or results of operations.
Forward Looking Statements
All statements contained herein that are not historical facts are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties. Such risks and uncertainties are described in detail in the Company’s annual report on Form 10-K for the year ended December 27, 2002, Commission File No. 333-19495, to which reference is hereby made.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s market risk is the potential loss arising from adverse changes in interest rates. The Company’s long-term debt obligations are mostly at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Market risk is estimated as the potential increase in fair value of the Company’s long-term debt obligations resulting from a hypothetical one-percent decrease in interest rates and amounts to approximately $6.7 million over the term of the debt.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing of this Form 10-Q (“the Evaluation Date”), concluded that such disclosure controls and procedures are effective to ensure that material information relating to the Company, including its consolidated subsidiaries, is being made known to them, particularly during the period for which the periodic reports are being prepared.
(b) Changes in Internal Controls
No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.
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PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel’s evaluation of such actions, management believes that these actions will not have a material effect on the Company’s financial position, results of operations or liquidity.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
| 4.1 | Indenture, dated as of March 11, 2003, among Radnor Holdings Corporation, Radnor Chemical Corporation, Radnor Delaware II, Inc., Radnor Management Delaware, Inc., Radnor Management, Inc., StyroChem Delaware, Inc., StyroChem Europe Delaware, Inc., StyroChem U.S., Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup Europe Delaware, Inc., WinCup GP, L.L.C., WinCup LP, L.L.C., WinCup Texas, Ltd. and WinCup Holdings, Inc. and Wachovia Bank, National Association, as trustee, including form of Notes and Guarantees |
| 4.2 | Exchange and Registration Rights Agreement, dated as of March 11, 2003, among Radnor Holdings Corporation, Radnor Chemical Corporation, Radnor Delaware II, Inc., Radnor Management Delaware, Inc., Radnor Management, Inc., StyroChem Delaware, Inc., StyroChem Europe Delaware, Inc., StyroChem U.S., Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup Europe Delaware, Inc., WinCup GP, L.L.C., WinCup LP, L.L.C., WinCup Texas, Ltd. and WinCup Holdings, Inc. and Deutsche Bank Securities Inc., UBS Warburg LLC, Fleet Securities, Inc. and PNC Capital Markets, Inc. |
| 10.1 | Second Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement dated as of March 5, 2003, among WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. and PNC Bank, National Association. |
| 10.2 | Amended and Restated Revolving Credit Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of PNC Bank, National Association |
| 10.3 | Amended and Restated Revolving Credit Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of Fleet Capital Corporation |
| 10.4 | Amended and Restated Revolving Credit Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of LaSalle Business Credit, LLC |
19
| 10.5 | Term Loan Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of PNC Bank, National Association |
| 10.6 | Term Loan Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of Fleet Capital Corporation |
| 10.7 | Term Loan Note dated March 5, 2003, made by WinCup Holdings, Inc., Radnor Chemical Corporation, StyroChem U.S., Ltd., Radnor Holdings Corporation, Radnor Delaware II, Inc., StyroChem Delaware, Inc., WinCup Texas, Ltd., StyroChem GP, L.L.C., StyroChem LP, L.L.C., WinCup GP, L.L.C., and WinCup LP, L.L.C. in favor of LaSalle Business Credit, LLC |
| 10.8 | Affirmation of Guaranty dated as of March 5, 2003, by Radnor Management Delaware, Inc. in favor of PNC Bank, National Association |
| 10.9 | Affirmation of Guaranty dated as of March 5, 2003, by WinCup Europe Delaware, Inc. in favor of PNC Bank, National Association |
| 10.10 | Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing between WinCup Holdings, Inc. and PNC Bank, National Association with respect to Metuchen, New Jersey property |
| 10.11 | Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing between WinCup Holdings, Inc. and PNC Bank, National Association with respect to West Chicago, Illinois property |
| 10.12 | Plant Lease 195 Tamal Vista Boulevard, Corte Madera, California, between Hunt Brothers Leasing, L.L.C. and WinCup Holdings, Inc. dated February 10, 2003 |
| 10.13 | Amendment to Lease 201 Tamal Vista Boulevard, Corte Madera, California, between Hunt Brothers Leasing, L.L.C. and WinCup Holdings, Inc. dated February 10, 2003 |
| 10.14 | Warehouse Lease 205 Tamal Vista Boulevard, Corte Madera, California, between Hunt Brothers Leasing, L.L.C. and WinCup Holdings, Inc. dated February 10, 2003 |
| 10.15 | Amendment to Lease by and between CenterPoint Properties Trust and WinCup Holdings, Inc. dated April 1998 |
| 10.16 | Second Amendment to Lease by and between CenterPoint Properties Trust and WinCup Holdings, Inc. dated February 4, 2003 |
| 99.1 | Statement of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code |
| 99.2 | Statement of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the United States Code |
20
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K under Items 7 and 9 on February 19, 2003 related to the issuance of a February 13, 2003 press release announcing its consolidated financial results for the fourth quarter and year ended December 27, 2002 as well as the details of a comprehensive refinancing plan.
21
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.
| RADNOR HOLDINGS CORPORATION | ||||||||
| By: |
/s/ MICHAEL V. VALENZA | |||||||
| Date: May 8, 2003 |
Michael V. Valenza Senior Vice President–Finance and Chief Financial Officer | |||||||
22
CERTIFICATIONS
I, Michael T. Kennedy certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Radnor Holdings Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ MICHAEL T. KENNEDY | ||
| Michael T. Kennedy President and Chief Executive Officer (Principal Executive Officer) | ||
23
I, Michael V. Valenza certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Radnor Holdings Corporation; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ MICHAEL V. VALENZA | ||
| Michael V. Valenza Senior Vice President-Finance and Chief Financial Officer (Principal Financial Officer) | ||
24