SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997 Commission file number 33-56048
KEY PLASTICS, INC.
MICHIGAN 38-2653726
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21333 Haggerty Rd., Suite 200, Novi, MI 48375
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 449-6100
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
As of November 13, 1997, 321,908 shares of the Company's Common Stock were
outstanding.
PART I - Financial Information
Item 1.
KEY PLASTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
For the For the
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
Net Sales $73,431,114 $52,883,090 $221,727,212 $155,655,944
Cost of Sales 58,319,549 43,090,480 177,483,055 125,419,015
---------- ---------- ----------- -----------
Gross Profit 15,111,565 9,792,610 44,244,157 30,236,929
Selling general
& administrative 8,084,401 4,112,665 21,224,105 11,481,437
Amortization 436,454 160,203 1,186,146 480,609
---------- ---------- ---------- -----------
Operating income 6,590,710 5,519,742 21,833,906 18,274,883
Interest expense, net 5,576,113 3,750,920 15,959,711 10,896,435
---------- --------- ---------- ----------
Net income before
foreign taxes 1,014,597 1,768,822 5,874,195 7,378,488
Foreign income taxes 121,000 -- 255,000 --
--------- --------- ---------- ---------
Net income before
extraordinary item 1,135,597 1,768,822 6,129,195 7,378,448
Extraordinary item--
debt refinancing -- -- (5,468,000) --
--------- --------- ---------- ---------
Net income (loss) $ 1,135,597 $ 1,768,822 $ 661,195 $ 7,378,448
========= ========= ========== =========
Earnings per share:
Net income before
extraordinary item $3.38 $5.33 $18.42 $22.20
---- ---- ----- -----
Net income (loss) $3.38 $5.33 $ 1.99 $22.20
==== ==== ===== =====
See notes to condensed consolidated financial statements
KEY PLASTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
---- ----
ASSETS (Unaudited)
Current assets:
Cash $ 569,976 $ --
Accounts receivable, net 72,570,384 43,131,344
Inventories 45,712,908 35,634,636
Prepaid expenses and other
current assets 5,879,918 2,075,589
---------- ----------
Total current assets 124,733,186 80,841,569
Property, plant and equipment, net 118,771,406 98,908,150
Intangibles, net 22,484,696 8,516,123
Other assets 7,137,577 4,938,500
----------- -----------
Total assets $273,126,865 $193,204,342
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term
debt $ 6,732,006 $ 64,484,121
Accounts payable 44,142,820 35,706,663
Accrued liabilities 13,953,707 20,873,671
---------- ----------
Total Current liabilities 64,828,533 121,064,455
Capital lease obligations 1,815,628 2,057,059
Long-term debt 217,073,799 82,520,618
Other long-term liabilities 2,600,779 3,124,779
Shareholders' deficit:
Common stock, par value $.30
Authorized: 450,000
Issued and outstanding:
321,908 and 315,908 respectively 96,572 94,772
Additional paid-in capital 12,445,196 9,786,603
Currency translation 16,300 259,300
Accumulated deficit (25,749,942) (25,703,244)
----------- -----------
Total shareholders' deficit (13,191,874) (15,562,342)
----------- -----------
Total liabilities and
shareholders' deficit $273,126,865 $193,204,342
See notes to condensed consolidated financial statements
KEY PLASTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the
Nine months
ended September 30,
------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income before extraordinary item $6,129,195 $7,378,448
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 11,194,889 5,779,654
Amortization 1,186,146 480,610
(Increase) Decrease in assets:
Accounts receivable (29,439,040) (11,376,470)
Inventories (10,078,272) (7,672,876)
Other current assets (3,804,329) (879,675)
Increase (Decrease) in liabilities:
Accounts payable 8,436,157 7,287,277
Accrued liabilities (6,919,964) 7,385,326
---------- ----------
Total adjustments (29,424,413) 1,003,846
----------- ----------
Net cash provided (used) by operating
activities (23,295,218) 8,382,294
----------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and
equipment (17,103,087) (8,457,382)
Property, plant and equipment of
acquired businesses (13,337,058) (7,236,188)
Increase in other assets (14,577,166) (1,087,566)
----------- ----------
Net cash used for investing activities (45,017,311) (16,781,136)
----------- ----------
Cash flows from financing activities:
Net borrowings under debt agreements 279,520,907 12,748,538
Principal payments under debt
agreements (202,961,272) (2,367,947)
Debt refinancing cost (9,398,720) --
Shareholder capital contribution 2,672,424 --
Dividend distributions (707,834) (1,669,862)
----------- ----------
Net cash provided by financing
activities 69,125,505 8,710,729
----------- ----------
Effect of exchange rate changes
on cash (243,000) (311,887)
Net increase in cash 569,976 --
Cash, beginning of period -- --
Cash, end of period $ 569,976 $ --
----------- --------
Supplemental disclosure of cash
flow information, cash paid
during the period for interest $16,987,197 $7,816,666
---------- ---------
See notes to condensed consolidated financial statements
KEY PLASTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statement Presentation:
These financial statements should be read in conjunction with the
Company's consolidated financial statements for the year ended
December 31, 1996 which contain a summary of the Company's
accounting principles and other information. The results of
operations for any interim period should not necessarily be
considered indicative of the results of operations for a full year.
Information for the three and nine month periods ended
September 30, 1997 and 1996 is unaudited but includes all
adjustments, consisting of normal recurring adjustments,
which management of Key Plastics, Inc. (the "Company")
considers necessary for a fair presentation of the
consolidated financial position, results of operations and
cash flows. Certain information and footnotes necessary to
comply with generally accepted accounting principles have
been condensed or omitted. All significant intercompany
balances and transactions have been eliminated in
consolidation.
Certain items in the December 31, 1996 balance sheet have
been reclassified to conform to the current period
presentation.
During March of 1997 the Company completed several actions
to refinance its existing debt and secure additional
financing for the future, including:
1. A tender offer for all of its $65.0 million, 14%
Senior Notes due 1999 [$40.1 million of the notes
were tendered];
2. Issuing $125.0 million, of 10-1/4% Senior Subordinated Notes
due 2007; and
3. Entering into a new $140.0 million Senior
Credit Facility.
In 1996 the Company acquired injection molding, painting and
assembly operations primarily serving the automotive
industry in the United Kingdom (acquired May 1, 1996) and
Portugal (controlling interest acquired November 1, 1996).
On March 28, 1997 the Company acquired three injection
molding and assembly operations from Aeroquip Corporation, a
subsidiary of Aeroquip-Vickers Corporation (the Aeroquip
Acquisition). The Aeroquip Acquisition expands the
Company's existing decorative bezel business. On June 30,
1997 the Company acquired the screen printing and injection
molding operations of T.D. Shea Manufacturing, Inc. (the
T.D. Shea Acquisition). The T.D. Shea Acquisition gives the
Company the ability to control production of appliques used
in its decorative bezels and instrument cluster assemblies.
On September 5, 1997 the Company acquired Clearplas France
SA, located in Belleme, France. Clearplas supplies
injection molded interior trim, dashboard and under-the-hood
components to the European automotive industry. This
acquisition gives the Company wider exposure to customers
including Renault and Sommer Allibert. These acquisitions
have been accounted for using the purchase method. The
consolidated financial statements include the results of
operations and cash flows for the acquired companies from
the date of acquisition as well as the financial position at
September 30, 1997.
2. Inventories:
Inventories are stated at the lower of cost or market with
cost determined using the FIFO (first in, first out) method.
The components of inventories consisted of the following:
September 30, December 31,
1997 1996
------------- -----------
Raw materials $ 9,917,640 $ 7,859,701
Work in progress 2,220,654 2,584,080
Finished goods 8,325,153 7,586,917
Customer Tooling 25,249,461 17,603,938
---------- ----------
$45,712,908 $35,634,636
========== ==========
3. Earnings Per Share:
Earnings per share amounts for the three and nine month
periods ended September 30, 1997 and 1996 are computed by
using net income divided by the weighted average number of
shares of common and common equivalent shares outstanding
during the period using the treasury stock method.
The weighted average number of shares used in computing
earnings per share are 335,709 and 332,105 for the three
months ended September 30, 1997 and 1996, respectively, and
332,709 and 332,335 for the nine months ended September 30,
1997 and 1996, respectively.
The Company is closely held and, accordingly, there is no
public market for the Company's common stock. For purposes
of computing the incremental common equivalent shares
outstanding under the treasury stock method, the Company
utilized management's estimate of fair value of the
Company's Common Stock.
4. Accounting Changes:
Statement of Financial Accounting Standards No. 128 ("SFAS
128"), Earnings per share, was issued by the Financial
Accounting Standards Board in February 1997. Adoption of
SFAS 128, effective for periods ending after December 15,
1997 is not expected to have a material effect on reported
earnings.
Statement of Financial Accounting Standards No. 130 ("SFAS
130"), Reporting Comprehensive Income and Statement of
Financial Accounting Standards No. 131, Disclosures About
Segments of an Enterprise, were issued by the Financial
Accounting Standards Board in September 1997. The effect of
adopting these standards is not expected to be material.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
KEY PLASTICS, INC.
This report contains forward-looking statements which involve known and
unknown risks, uncertainties and other factors including, without
limitation, the Risk Factors set forth in the Company's 1996 Form 10-K that
may cause the actual results of the Company to be materially different from
the results expressed or implied in such forward-looking statements.
RESULTS OF OPERATIONS
Below is a summary of period-to-period changes in the principal
items of the condensed statements of operations. This is followed by a
discussion and analysis of significant factors affecting the Company's
earnings for the period.
Comparison of Results of Operations
Increase(Decrease)
($ in 000's)
Three Months Ended Nine Months Ended
September 30, 1997 vs. September 30, 1997 vs.
September 30, 1996 September 30, 1996
Net sales $20,548 39% $66,071 42%
Cost of sales 15,229 35% 52,064 42%
Selling, general and
administrative expenses 3,972 97% 9,742 85%
Amortization 276 172% 705 147%
Interest expense, net 1,825 49% 5,064 46%
Net income (loss) before
extraordinary item (633) (36%) (1,249) (17%)
Acquisitions
On March 28, 1997 the Company acquired three injection molding and
assembly operations from Aeroquip Corporation, a subsidiary of Aeroquip-
Vickers Corporation (the Aeroquip Acquisition). The Aeroquip Acquisition
expands the Company's existing decorative bezel business. On June 30, 1997
the Company acquired the screen printing and injection molding operations of
T.D. Shea Manufacturing, Inc. (the T.D. Shea Acquisition). The T.D. Shea
Acquisition gives the Company the ability to control production of appliques
used in its decorative bezels and instrument cluster assemblies. On
September 5, 1997 the Company acquired Clearplas France SA, located in
Belleme, France. Clearplas supplies injection molded interior trim,
dashboard and under-the-hood components to the European automotive industry.
This acquisition gives the Company greater exposure to European customers.
These acquisitions have been accounted for using the purchase method.
Three months ended September 30, 1997 compared to three months ended
September 30, 1996. Net sales for the three month period ended September
30, 1997 were $73.4 million; an increase of approximately $20.5 million or
39% over the same period last year. The increase was attributable to
acquired businesses including the full year effect of 1996 acquisitions
($16.2 million) and volume related increases in existing injection molding,
paint and assembly operations ($3.6 million).
Gross profit increased $5.3 million in the third quarter of 1997
compared to the Third quarter of 1996 primarily as a result of the
aforementioned sales increases.
Selling, general and administrative expenses in the third quarter of
1997 increased by $3.9 million over the same period last year. The increase
is primarily related to 1996 and 1997 acquisitions. Several of the
businesses acquired were stand-alone entities. As a result, the Company
believes synergistic opportunities exist in both Europe and North America.
Those opportunities will be pursued in the course of integrating the
acquired businesses.
Operating income increased over the prior year third quarter by $1.1
million primarily as a result of the foregoing.
Interest expense increased because of higher average debt
outstanding, the higher debt was partially offset by lower rates obtained as
a result of the refinancing that took place in March 1997.
Nine months ended September 30, 1997 compared to nine months ended
September 30, 1996. Net sales for the nine month period ended September 30,
1997 increased $66.1 million or 42% over the same period last year. The
increase was attributable to acquired businesses, including the full year
effect of 1996 acquisitions ($49.1 million) and volume related increases in
existing injection molding, paint and assembly operations ($15.0 million).
Tooling revenues increased $2.0 million over the prior year making up the
balance of the $66.1 million increase.
Gross profit increased $14.0 million in the three quarters ended
September 30, 1997 compared to the same period of 1996 primarily as a result
of the aforementioned sales increases.
Selling, general and administrative expenses in the nine months ended
September 30, 1997 increased by $9.7 million over the same period last year.
The increase is primarily related to 1996 and 1997 acquisitions. Several of
the businesses acquired were stand-alone entities. As a result, the Company
believes synergistic opportunities exist in both Europe and North America.
Those opportunities will be pursued in the course of integrating the
acquired businesses.
The increase in amortization relates to costs incurred refinancing the
Company's debt, completed in March and discussed more fully below, and
amortization of goodwill related to the Company's acquisitions.
Operating income increased by $3.6 million as a result of the
foregoing.
Interest expense increased $5.1 million for the reasons discussed in
the three month comparison above.
The extraordinary item of $5.5 million represents the amount paid for the
tender offer and related consent fees for the retirement of $40.1 million of
the 14% Senior Notes due 1999 and the write-off of the related unamortized
original issue costs.
FINANCIAL POSITION
During March 1997 the following actions to refinance the Company's
debt were completed:
1. A tender offer for all of its $65.0 million, 14% Senior
Notes due 1999 [$40.1 million of the notes were tendered];
2. $125.0 million, of 10-1/4% Senior Subordinated Notes due
2007 were issued; and
3. A new $140.0 million Senior Credit Facility was established.
The proceeds from the Senior Subordinated Notes were
principally used to fund the tender and replace existing bank debt.
Borrowings on the Senior Credit Facility were for general corporate
purposes, including acquisitions, discussed above.
Accounts receivable increased by $29.4 million comparing
September 30, 1997 to December 31, 1996. $5.0 million is due to
increased parts sales at the Company's existing facilities. Accounts
receivable at operations acquired during 1997 added $17.5 million to
accounts receivable at September 30, 1997. Customer tooling related
receivables increased by $6.9 million over the December 31, 1996
level primarily as a result of increased tooling programs.
The inventory increase of $10.1 million from December 31,
1996 to September 30, 1997 was due in part to the inventory from
acquired companies of $5.3 million and $7.6 million related to
increases in customer tooling inventory related to the design and
building of tooling for programs expected to launch in 1998.
Inventory at the Company's existing operations decreased $2.8
million as a result of efficiencies and enhanced cooperation with
suppliers.
Accrued liabilities decreased by $6.9 million from December
31, 1996 due primarily to the $5.9 million payout of all accrued
interest for the debt refinanced.
Property, plant and equipment increased $19.9 million due
primarily to acquisitions ($13.3 million) and purchases of capital
items at existing operating locations ($17.1 million), net of the
increases in the depreciation reserve for the nine month period
($11.2 million).
The Company believes its existing sources of liquidity are
adequate to meet its operating requirements in fiscal 1997.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) On July 7, 1997, the Company commenced an offer to exchange up
to an aggregate principal amount of $125 million of its 10-1/4%
Senior Subordinated Notes Series B due 2007, which were registered
under the Securities Act of 1933, as amended, for up to an aggregate
principal amount of $125 million of its outstanding 10-1/4% Senior
Subordinated Notes due 2007. The exchange offer expired on August
8, 1997. All of the outstanding notes were exchanged pursuant to
the offer.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit--27 Financial Data Schedule (EDGAR
version only).
(b) Reports on Form 8-K--None.
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.
KEY PLASTICS, INC.
By: /S/ E. R. Autry
------------------------
E.R. Autry
Vice President, Finance &
Procurement
(on behalf of the registrant
and as Principal Financial Officer)
And: /S/ David M. Smith
-------------------------
David M. Smith
Corporate Controller
(Principal Accounting
Officer)
Dated: November 14, 1997
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule