FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 2002
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 333-73552
PLASTIPAK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-2418126
- --------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9135 General Court, Plymouth, Michigan 48170
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(Address of principal executive offices)
(734) 455-3600
--------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---------------------------------------------------------
The number of shares of the registrant's common stock, $1.00 par value,
outstanding as of May 4, 2002 was 27,753.
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PLASTIPAK HOLDINGS, INC.
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION......................................................................1
Item 1. Financial Statements.....................................................................1
Condensed Consolidated Balance Sheets as of November 3, 2001
and May 4, 2002 (unaudited)..............................................................1
Condensed Consolidated Statements of Earnings (unaudited) for the
Three Month and Six Month Periods Ended May 4, 2002 and May 5, 2001......................3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended May 4, 2002 and May 5, 2001.............................................4
Notes to Condensed Consolidated Financial Statements.....................................6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................27
PART II - OTHER INFORMATION........................................................................27
Item 6. Exhibits and Reports on Form 8-K........................................................27
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
MAY 4, NOVEMBER 3,
ASSETS 2002 2001
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 26,196,004 $ 53,483,389
Accounts receivable
Trade (net of allowance of $5,287,803 and $6,111,236
at May 4, 2002 and November 3, 2001) 57,080,734 48,906,619
Related parties 6,799,110 6,695,143
Prepaid expenses 11,035,861 10,707,870
Inventories 83,143,987 77,930,887
Prepaid federal income taxes 1,126,346 1,100,000
Deferred income taxes 6,437,000 6,437,000
Other current assets 5,490,040 5,202,346
------------ ------------
Total Current Assets 197,309,082 210,463,254
PROPERTY, PLANT AND EQUIPMENT - NET 280,503,035 270,382,231
OTHER ASSETS
Cash surrender value of life insurance 1,650,845 1,650,845
Deposits 16,299,156 6,066,405
Capitalized loan costs 10,245,522 10,679,904
Intangible assets, (net of accumulated amortization of
$8,244,700 and $7,447,400 at May 4, 2002
and November 3, 2001) 5,484,985 3,282,302
Note receivable 2,366,991 2,529,736
------------ ------------
Total Other Assets 36,047,499 24,209,192
------------ ------------
$513,859,616 $505,054,677
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY MAY 4, NOVEMBER 3,
2002 2001
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 94,369,297 $ 95,649,181
Current portion of long-term obligations 6,869,840 6,615,597
Accrued liabilities
Taxes other than income 5,838,664 4,454,849
Other accrued expenses 25,940,389 23,761,086
Income taxes 757,560 1,081,560
------------ ------------
Total Current Liabilities 133,775,750 131,562,273
SENIOR NOTES (NET OF UNAMORTIZED DISCOUNT OF $3,850,417
AND $4,056,688 AT MAY 4, 2002 AND NOVEMBER 3, 2001) 271,149,583 270,943,312
LONG-TERM OBLIGATIONS 52,780,320 55,503,756
DEFERRED INCOME TAXES 13,938,000 11,238,000
OTHER NON-CURRENT LIABILITIES 3,621,504 3,399,352
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000
shares authorized; 27,753 shares
issued and outstanding 27,753 27,753
Retained earnings 38,566,706 32,380,231
------------ ------------
Total Stockholders' Equity 38,594,459 32,407,984
------------ ------------
$513,859,616 $505,054,677
============ ============
2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
MAY 4, MAY 5, MAY 4, MAY 5,
2002 2001 2002 2001
(13 WEEKS) (13 WEEKS) (26 WEEKS) (27 WEEKS)
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues $ 203,707,848 $ 207,255,264 $ 391,588,793 $ 405,049,385
Costs and expenses 168,950,345 175,470,752 330,653,353 353,297,052
------------- ------------- ------------- -------------
Gross profit 34,757,503 31,784,512 60,935,440 51,752,333
Selling, general and administrative expenses 15,896,331 15,847,782 32,345,706 30,204,753
------------- ------------- ------------- -------------
Operating profit 18,861,172 15,936,730 28,589,734 21,547,580
Other expense (income)
Equity in affiliate earnings - - - (38,437)
Interest expense 8,667,512 7,166,641 17,697,133 14,251,313
Interest income (151,604) (191,635) (557,290) (300,214)
Royalty income (173,635) (281,922) (225,208) (356,362)
Loss (gain) on sale of equipment 176,122 (9,373) 189,210 (9,355)
Loss (gain) on foreign currency translation 729,187 43,886 2,752,561 (279,367)
Sundry income (70,385) (469,151) (153,147) (589,587)
------------- ------------- ------------- -------------
9,177,197 6,258,446 19,703,259 12,677,991
------------- ------------- ------------- -------------
Earnings before income taxes 9,683,975 9,678,284 8,886,475 8,869,589
Income tax expense (benefit)
Current (646,000) 335,000 - -
Deferred 3,651,000 2,682,000 2,700,000 2,682,000
------------- ------------- ------------- -------------
3,005,000 3,017,000 2,700,000 2,682,000
------------- ------------- ------------- -------------
Net earnings $ 6,678,975 $ 6,661,284 $ 6,186,475 $ 6,187,589
============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
----------------------------
MAY 4, MAY 5,
2002 2001
(26 WEEKS) (27 WEEKS)
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,186,475 $ 6,187,589
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 23,139,691 21,509,308
Bad debt (recovery) expense (281,617) 925,689
Deferred salaries 252,500 212,500
Deferred income tax expense 2,700,000 2,788,000
Loss (gain) on sale of equipment 189,210 (9,355)
Loss on investment in affiliate - 722,413
Equity in earnings of affiliate - (38,437)
Foreign currency translation loss (gain) 586,460 (840,529)
Changes in assets and liabilities:
Increase in accounts receivable (7,996,466) (7,754,161)
Increase in inventories (5,213,100) (12,852,334)
(Increase) decrease in prepaid expenses and
other current assets (813,686) 3,591,453
Increase in prepaid federal income taxes (26,346) (4,720,565)
Increase (decrease) in other liabilities 3,541,281 (895,880)
(Increase) decrease in deposits (10,232,751) 652,382
(Decrease) increase in accounts payable (1,279,883) 4,500,999
Decrease (increase) in sundry 162,745 (3,578,611)
Decrease in income taxes (324,000) -
------------ ------------
Net cash provided by operating activities 10,590,513 10,400,461
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (31,438,543) (28,600,786)
Proceeds from sale of equipment - -
Acquisition of intangible assets (3,000,000) (2,500,000)
------------ ------------
Net cash used in investing activities (34,438,543) (31,100,786)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
----------------------------
MAY 4, MAY 5,
2002 2001,
(26 WEEKS) (27 WEEKS)
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit facility 1,453,186 26,436,219
Payments on long-term obligations (4,538,854) (5,009,580)
Proceeds from long-term obligations 21,503 -
Capitalized loan costs (375,190) -
------------ ------------
Net cash (used in) provided by financing activities (3,439,355) 21,426,639
------------ ------------
Net (decrease) increase in cash (27,287,385) 726,314
Cash and cash equivalents at beginning of period 53,483,389 3,346,970
------------ ------------
Cash and cash equivalents at end of period $ 26,196,004 $ 4,073,284
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ 220,000
============ ============
Cash paid for interest $ 18,753,000 $ 14,636,000
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and estimated provisions
for bonus and profit-sharing arrangements) considered necessary for a fair
presentation have been included. Operating results for the six months ended May
4, 2002 and May 5, 2001, are not necessarily indicative of the results that may
be expected for the year ended November 2, 2002.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Registration Statement on Form S-4 filed by Plastipak Holdings,
Inc. (Plastipak) with the Securities and Exchange Commission on February 25,
2002.
NOTE B - FISCAL PERIOD
Plastipak has elected a 52/53 week fiscal period for tax and financial
reporting purposes. Plastipak's fiscal period ends on the Saturday closest to
October 31. The six month period ending May 4, 2002 and May 5, 2001 contained 26
and 27 weeks, respectively. The three month period ending May 4, 2002 and May 5,
2001 contained 13 weeks.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Accounting for
Goodwill and Other Intangibles. SFAS 142 requires that goodwill and certain
other intangible assets no longer be amortized to earnings, but instead be
reviewed periodically for potential impairment. The standard is effective for
fiscal years beginning after December 15, 2001.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," it retains many of the fundamental provisions of that
statement. The standard is effective for fiscal years beginning after December
15, 2001.
The Company expects that the adoption of these standards will not have
a material impact on its financial position or results from operations.
NOTE D - INVENTORIES
Inventories consisted of the following at:
MAY 4, NOVEMBER 3,
2002 2001
----------- -----------
Raw materials $31,169,182 $28,166,931
Finished goods 39,472,425 38,922,590
Parts and supplies 12,502,380 10,841,366
----------- -----------
$83,143,987 $77,930,887
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6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
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NOTE E - SENIOR NOTES
On August 20, 2001, the Company issued $275,000,000 of 10.75% senior
notes due in 2011. Interest is payable semi-annually. The indenture under which
the notes were issued places restrictions on the payment of dividends, the
acquisition of our common stock, the payment of indebtedness that is subordinate
to the notes, asset sales, and the incurrence of debt and issuance of preferred
stock. The senior notes are unconditionally guaranteed by all of the Company's
domestic subsidiaries. Prior to September 1, 2004, subject to certain
limitations, in the event of a common stock offering, the Company may redeem up
to 35% of the outstanding notes at a redemption price of 110.75% of the
principal amount plus accrued interest. After September 1, 2006, the Company may
redeem all or any portion of the outstanding notes at premiums which decline
from 105.375% at September 1, 2006 to 101.792% at September 1, 2008. On or after
September 1, 2009, the notes may be redeemed at par. The net proceeds received,
after underwriting discounts and other fees and expenses, were approximately
$263,200,000.
NOTE F - LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the ordinary
course of business. The ultimate legal and financial liability of this
litigation cannot be estimated with certainty, but management believes, based on
their examination of these matters, experience to date and discussions with
counsel, that the ultimate liability will not be material to the Company's
business, financial condition or results of operations.
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
The Senior Notes are unsecured, and guaranteed by each of Plastipak's current
and future material domestic subsidiaries.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of November 3, 2001 and
May 4, 2002 and the six and three months period ending May 4, 2002 and
May 5, 2001, respectively of (a) Plastipak the parent; (b) the guarantor
subsidiaries; (North American Operating Segment) (c) the nonguarantor
subsidiaries (South American Operating Segment); (d) Plastipak on a
consolidated basis, and
(2) Elimination entries necessary to consolidate Plastipak Holdings, Inc.,
the parent, with the guarantor (North American operating segment) and
nonguarantor (South American operating segment) subsidiaries.
Each subsidiary guarantor is wholly-owned by Plastipak, all guarantees are full
and unconditional; and all guarantees are joint and several.
7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 4, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 1,000 $ 23,584,754 $ 2,610,250 $ - $ 26,196,004
Accounts receivable 5,327,799 57,968,205 8,772,975 (8,189,135) 63,879,844
Prepaid expenses - 6,525,912 4,509,949 - 11,035,861
Inventories - 66,140,199 17,003,788 - 83,143,987
Prepaid federal income taxes - 1,126,346 - - 1,126,346
Deferred income taxes (1,000) 3,760,000 2,678,000 - 6,437,000
Other current assets - 1,170,292 4,319,748 - 5,490,040
------------- ------------- ------------- ------------- -------------
Total current assets 5,327,799 160,275,708 39,894,710 (8,189,135) 197,309,082
PROPERTY, PLANT AND EQUIPMENT - NET - 225,905,191 54,597,844 - 280,503,035
OTHER ASSETS
Cash surrender value of life insurance - 1,650,845 - - 1,650,845
Deposits - 16,299,156 - - 16,299,156
Investments in and advances to affiliates 309,205,892 (251,084,950) - (58,120,942) -
Capitalized loan costs - 10,245,522 - - 10,245,522
Intangible assets - 5,261,553 223,432 - 5,484,985
Deferred tax asset - long-term (814,000) 814,000 - - -
Note receivable - 7,366,991 - (5,000,000) 2,366,991
------------- ------------- ------------- ------------- -------------
Total other assets 308,391,892 (209,446,883) 223,432 (63,120,942) 36,047,499
------------- ------------- ------------- ------------- -------------
Total assets $ 313,719,691 $ 176,734,016 $ 94,715,986 $ (71,310,077) $ 513,859,616
============= ============= ============= ============= =============
8
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF MAY 4, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable $ - $ 65,197,166 $ 37,361,266 $ (8,189,135) $ 94,369,297
Current portion of long-term liabilities - 2,103,242 4,766,598 - 6,869,840
Taxes other than income - 4,686,545 1,152,119 - 5,838,664
Income taxes (168,440) 926,000 - - 757,560
Other accrued expenses 5,337,672 16,286,716 4,316,001 - 25,940,389
------------- ------------- ------------- ------------- -------------
Total current liabilities 5,169,232 89,199,669 47,595,984 (8,189,135) 133,775,750
SENIOR NOTES (LESS DISCOUNT $3,850,417) 275,000,000 (3,850,417) - - 271,149,583
LONG-TERM OBLIGATIONS - 3,014,776 54,765,544 (5,000,000) 52,780,320
DEFERRED INCOME TAXES (5,044,000) 17,392,000 1,590,000 - 13,938,000
OTHER LONG-TERM LIABILITIES - 3,032,977 588,527 - 3,621,504
------------- ------------- ------------- ------------- -------------
Total liabilities 275,125,232 108,789,005 104,540,055 (13,189,135) 475,265,157
STOCKHOLDERS' EQUITY (DEFICIT) 38,594,459 67,945,011 (9,824,069) (58,120,942) 38,594,459
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity $ 313,719,691 $ 176,734,016 $ 94,715,986 $ (71,310,077) $ 513,859,616
============= ============= ============= ============= =============
9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 1,000 $ 51,476,877 $ 2,005,512 $ - $ 53,483,389
Accounts receivable 6,186,005 43,977,603 12,430,070 (6,991,916) 55,601,762
Prepaid expenses - 5,642,605 5,065,265 - 10,707,870
Inventories - 60,687,715 17,243,172 - 77,930,887
Prepaid federal income taxes - 1,100,000 - - 1,100,000
Deferred income taxes (1,000) 3,760,000 2,678,000 - 6,437,000
Other current assets - 739,964 4,462,382 - 5,202,346
------------- ------------- ------------- ------------- -------------
Total current assets 6,186,005 167,384,764 43,884,401 (6,991,916) 210,463,254
PROPERTY, PLANT AND EQUIPMENT - NET - 213,264,728 57,117,503 - 270,382,231
OTHER ASSETS
Cash surrender value of life insurance - 1,650,845 - - 1,650,845
Deposits - 6,066,405 - - 6,066,405
Investments in and advances to affiliates 300,364,511 (252,548,602) - (47,815,909) -
Capitalized loan costs - 10,679,904 - - 10,679,904
Intangible assets - 2,969,666 312,636 - 3,282,302
Deferred tax asset - long-term (814,000) 814,000 - - -
Note receivable - 7,529,736 - (5,000,000) 2,529,736
------------- ------------- ------------- ------------- -------------
Total other assets 299,550,511 (222,838,046) 312,636 (52,815,909) 24,209,192
------------- ------------- ------------- ------------- -------------
Total assets $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF NOVEMBER 3, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Accounts payable - $ 64,500,951 $ 38,140,146 $ (6,991,916) $ 95,649,181
Current portion of long-term liabilities - 2,230,150 4,385,447 - 6,615,597
Taxes other than income - 3,993,001 461,848 - 4,454,849
Income taxes (168,440) 1,250,000 - - 1,081,560
Other accrued expenses 6,240,972 13,531,214 3,988,900 - 23,761,086
------------- ------------- ------------- ------------- -------------
Total current liabilities 6,072,532 85,505,316 46,976,341 (6,991,916) 131,562,273
SENIOR NOTES 275,000,000 (4,056,688) - - 270,943,312
LONG-TERM OBLIGATIONS - 4,755,203 55,748,553 (5,000,000) 55,503,756
DEFERRED INCOME TAXES (7,744,000) 17,392,000 1,590,000 - 11,238,000
OTHER LONG-TERM LIABILITIES - 2,817,367 581,985 - 3,399,352
------------- ------------- ------------- ------------- -------------
Total liabilities 273,328,532 106,413,198 104,896,879 (11,991,916) 472,646,693
STOCKHOLDERS' EQUITY (DEFICIT) 32,407,984 51,398,248 (3,582,339) (47,815,909) 32,407,984
------------- ------------- ------------- ------------- -------------
Total liabilities and
stockholders' equity $ 305,736,516 $ 157,811,446 $ 101,314,540 $ (59,807,825) $ 505,054,677
============= ============= ============= ============= =============
11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED MAY 4, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 190,151,632 $ 14,375,247 $ (819,031) $ 203,707,848
Cost and expenses - 154,541,983 15,227,393 (819,031) 168,950,345
------------- ------------- ------------- ------------- -------------
Gross profit - 35,609,649 (852,146) - 34,757,503
Selling, general and administrative expenses - 13,894,639 2,001,692 - 15,896,331
------------- ------------- ------------- ------------- -------------
Operating profit - 21,715,010 (2,853,838) - 18,861,172
Other expense (income)
Equity in loss (earnings) of affiliates (9,665,161) 2,750,124 - 6,915,037 -
Interest expense 7,308,507 165,684 1,243,069 (49,748) 8,667,512
Interest income (7,144,125) 6,968,062 (25,289) 49,748 (151,604)
Royalty income - (173,635) - - (173,635)
Gain on sale of equipment - 252,600 (76,478) - 176,122
Sundry income (183,196) 115,337 (2,526) - (70,385)
(Gain) loss on foreign currency translation - - 729,187 - 729,187
------------- ------------- ------------- ------------- -------------
(9,683,975) 10,078,172 1,867,963 6,915,037 9,177,197
Earnings (loss) before income taxes 9,683,975 11,636,838 (4,721,801) (6,915,037) 9,683,975
Income taxes 3,005,000 - - - 3,005,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 6,678,975 $ 11,636,838 $ (4,721,801) $ (6,915,037) $ 6,678,975
============= ============= ============= ============= =============
12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED MAY 5, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- ------------- ------------- -------------
Revenues $ - $ 191,448,670 $ 19,191,847 $ (3,385,253) $ 207,255,264
Cost and expenses - 158,346,085 18,534,726 (1,410,059) 175,470,752
------------- ------------- ------------- ------------- -------------
Gross profit - 33,102,585 657,121 (1,975,194) 31,784,512
Selling, general and administrative expenses - 14,397,049 2,086,733 (636,000) 15,847,782
------------- ------------- ------------- ------------- -------------
Operating profit (loss) - 18,705,536 (1,429,612) (1,339,194) 15,936,730
Other expense (income)
Equity in loss (earnings) of affiliates (9,678,284) 1,589,036 - 8,089,248 -
Interest expense - 5,471,045 1,790,070 (94,474) 7,166,641
Interest income - (128,357) (157,752) 94,474 (191,635)
Royalty income - (281,922) - - (281,922)
Gain on sale of equipment - (10,089) 716 - (9,373)
Sundry income - (488,796) (616,355) 636,000 (469,151)
(Gain) loss on foreign currency translation - - 43,886 - 43,886
------------- ------------- ------------- ------------- -------------
(9,678,284) 6,150,917 1,060,565 8,725,248 6,258,446
Earnings (loss) before income taxes 9,678,284 12,554,619 (2,490,177) (10,064,442) 9,678,284
Income taxes 3,017,000 - - - 3,017,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 6,661,284 $ 12,554,619 $ (2,490,177) $ (10,064,442) $ 6,661,284
============= ============= ============= ============= =============
13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE SIX MONTHS ENDED MAY 4, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
Revenues $ - $358,131,463 $ 34,276,361 $ (819,031) $391,588,793
Cost and expenses - 296,180,001 35,292,383 (819,031) 330,653,353
----------- ------------ ------------ ----------- ------------
Gross profit - 61,951,462 (1,016,022) - 60,935,440
Selling, general and administrative expenses - 28,630,380 3,715,326 - 32,345,706
----------- ------------ ------------ ----------- ------------
Operating profit (loss) - 33,321,082 (4,731,348) - 28,589,734
Other (income) expense
Equity in (earnings) loss of affiliates (8,841,383) 1,926,346 - 6,915,037 -
Interest expense 14,781,250 581,802 2,438,330 (104,249) 17,697,133
Interest income (14,508,146) 14,050,188 (203,581) 104,249 (557,290)
Royalty income - (225,208) - - (225,208)
Gain on sale of equipment - 266,936 (77,726) - 189,210
Sundry income (318,196) 174,251 (9,202) - (153,147)
Loss on foreign currency translation - - 2,752,561 - 2,752,561
----------- ------------ ------------ ----------- ------------
(8,886,475) 16,774,315 4,900,382 6,915,037 19,703,259
Earnings (loss) before income taxes 8,886,475 16,546,767 (9,631,730) (6,915,037) 8,886,475
Income taxes 2,700,000 - - - 2,700,000
----------- ------------ ------------ ----------- ------------
Net earnings (loss) $ 6,186,475 $ 16,546,767 $ (9,631,730) $(6,915,037) $ 6,186,475
=========== ============ ============ =========== ============
14
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE SIX MONTHS ENDED MAY 5, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
Revenues $ - $366,234,035 $ 42,200,603 $(3,385,253) $405,049,385
Cost and expenses - 316,278,662 40,403,643 (3,385,253) 353,297,052
----------- ------------ ------------ ----------- ------------
Gross profit - 49,955,373 1,796,960 - 51,752,333
Selling, general and administrative expenses - 27,042,034 3,798,719 (636,000) 30,204,753
----------- ------------ ------------ ----------- ------------
Operating profit (loss) - 22,913,339 (2,001,759) 636,000 21,547,580
Other expense (income)
Equity in (earnings) loss of affiliates (8,869,589) 741,906 - 8,089,246 (38,437)
Interest expense - 11,380,414 3,082,357 (211,458) 14,251,313
Interest income - (276,908) (234,764) 211,458 (300,214)
Royalty income - (356,362) - - (356,362)
(Loss) gain on sale of equipment - (10,071) 716 - (9,355)
Sundry income - (556,598) (668,989) 636,000 (589,587)
(Gain) on foreign currency translation - - (279,367) - (279,367)
----------- ------------ ------------ ----------- ------------
(8,869,589) 10,922,381 1,899,953 8,725,246 12,677,991
Earnings (loss) before income taxes 8,869,589 11,990,958 (3,901,712) (8,089,246) 8,869,589
Income taxes 2,682,000 - - - 2,682,000
----------- ------------ ------------ ----------- ------------
Net (loss) earnings $ 6,187,589 $ 11,990,958 $ (3,901,712) $(8,089,246) $ 6,187,589
=========== ============ ============ =========== ============
15
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE SIX MONTHS ENDED MAY 4, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $2,400,000 $ 8,376,488 $ (185,975) $ - $ 10,590,513
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (30,036,085) (2,979,651) 1,577,193 31,438,543
Proceeds from sale of equipment - - 1,577,193 (1,577,193) -
Investment in and advances to affiliates (2,400,000) (990,000) - 3,390,000 -
Acquisition of intangible assets - (3,000,000) - - (3,000,000)
---------- ------------ ------------ ---------- ------------
Net cash (used in) provided by
investing activities (2,400,000) (34,026,085) (1,402,458) 3,390,000 (34,438,543)
CASH FLOWS USED IN FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - - 1,453,186 - 1,453,186
Principal payments on long-term obligations - (1,867,336) (2,671,518) - (4,538,854)
Proceeds from long-term obligations - - 21,503 - 21,503
Capital increases - - 3,390,000 (3,390,000) -
Capitalized loan costs - (375,190) - - (375,190)
---------- ------------ ------------ ---------- ------------
Net cash used in
financing activities - (2,242,526) 2,193,171 (3,390,000) (3,439,355)
---------- ------------ ------------ ---------- ------------
Net (decrease) increase in cash - (27,892,123) 604,738 - (27,287,385)
Cash and cash equivalents at beginning
of period 1,000 51,476,877 2,005,512 - 53,483,389
---------- ------------ ------------ ---------- ------------
Cash and cash equivalent at end of period $ 1,000 $ 23,584,754 $ 2,610,250 $ - $ 26,196,004
========== ============ ============ ========== ============
16
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -
CONTINUED
- --------------------------------------------------------------------------------
NOTE G - GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE SIX MONTHS ENDED MAY 5, 2001
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
---------- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities$ - $ 8,601,165 $ 1,799,296 $ - $ 10,400,461
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (24,423,628) (4,177,158) - (28,600,786)
Investment in and advances to affiliates - 21,390 - (21,390) -
Acquisition of intangible assets - (2,500,000) - - (2,500,000)
---------- ------------ ------------ ---------- ------------
Net cash (used in) provided by
investing activities - (26,902,238) (4,177,158) (21,390) (31,100,786)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under revolving credit
facility - 20,490,000 5,946,219 - 26,436,219
Capital decreases - - (21,390) 21,390 -
Principal payments on long-term obligations - (1,091,920) (3,917,660) - (5,009,580)
---------- ------------ ------------ ---------- ------------
Net cash provided by (used in)
financing activities - 19,398,080 2,007,169 21,390 21,426,639
---------- ------------ ------------ ---------- ------------
Net increase (decrease) in cash - 1,097,007 (370,693) - 726,314
Cash and cash equivalents at beginning of period - 1,805,335 1,541,635 - 3,346,970
---------- ------------ ------------ ---------- ------------
Cash and cash equivalent at end of period $ - $ 2,902,342 $ 1,170,942 $ - $ 4,073,284
========== ============ ============ ========== ============
DEPRECIATION AND AMORTIZATION EXPENSE GUARANTOR NONGUARANTOR
PERIOD ENDED SUBSIDIARIES SUBSIDIARIES TOTAL
- ------------------------------------- ------------ ------------ -----------
05/04/02 $19,051,889 $4,087,802 $23,139,691
=========== ========== ===========
05/05/01 $17,876,963 $3,632,345 $21,509,308
=========== ========== ===========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. As you read the
material below, we urge you to carefully consider our financial statements and
related information provided herein.
All statements other than statements of historical fact included in this
report, including statements regarding our future financial position, economic
performance and results of operations, as well as our business strategy, budgets
and projected costs and plans and objectives of management for future operations
are forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as
"may", "will", "expect", "intend", "estimate", "anticipate", "believe", or
"continue" or the negative thereof or variations thereon or similar terminology.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from our expectations include, without limitation, risks
associated with our Brazilian operations, competition in our product categories,
including the impact of possible new technologies, our high degree of leverage
and substantial debt service obligations, the restrictive covenants contained in
instruments governing our indebtedness, our exposure to fluctuations in resin
and energy prices, our dependence on significant customers and the risk that
customers will not purchase our products in the amounts we expect, our
dependence on key management and our labor force and the material adverse effect
that could result from the loss of their services. All forward-looking
statements attributable to us, or persons acting on our behalf, are expressly
qualified in their entirety by the cautionary statements set forth in this
paragraph.
OVERVIEW
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan
corporation that was formed in 1998 to act as a holding company for several
related companies. On October 30, 1999, Plastipak acquired all of the equity
interests in Plastipak Packaging, Inc. ("Packaging"), Whiteline Express, Ltd.
("Whiteline"), Clean Tech, Inc. ("Clean Tech") and TABB Realty, LLC ("TABB"),
and a portion of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brasil"), through a reorganization (the "Reorganization").
Packaging, our principal operating company whose business commenced operations
in 1967, designs and manufactures rigid plastic containers, and was incorporated
in Delaware in 1982. Packaging also owns the remainder of Plastipak Brasil.
Whiteline is a trucking company serving our transportation and logistics needs,
and was incorporated in Delaware in 1982. Clean Tech, a plastics recycling
operation, provides a source of clean, high quality post-consumer recycled
plastic raw material, and was incorporated in Michigan in 1989. TABB owns real
estate and leases it to Packaging and Clean Tech. Plastipak Brasil produces
injection-molded plastic preforms and blow molds rigid plastic packaging in
Paulinia and produces injection-molded plastic preforms in Manaus. Plastipak
Brasil also maintains a sales office in Buenos Aires, Argentina. Other than
Plastipak
18
Brasil and its subsidiaries, all of the Plastipak group of companies are
headquartered in Plymouth, Michigan.
RESULTS OF OPERATIONS
We report our results of operations on the basis of a 52-53 week period. Our
fiscal year end is the closest Saturday to October 31 each year. The six months
ended May 4, 2002 and May 5, 2001 were 26 and 27 weeks long, respectively. The
three months ended May 4, 2002 and May 5, 2001 were 13 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the three months and six months ended May 4, 2002 and May 5, 2001.
CONSOLIDATED REVENUE BY STRATEGIC SECTOR
Three Months Ended May 4, 2002 and May Six Months Ended May 4, 2002 and May 5,
5, 2001 2001 (b)
(dollar amounts in thousands)
2002 % 2001 % 2002 % 2001 %
----------------------------------------- -----------------------------------------
Carbonated and non-
carbonated beverage revenue $ 85,975 42.1% $ 89,302 43.1% $ 171,733 43.8% $ 179,699 44.4%
Consumer cleaning revenue $ 61,673 30.3% $ 58,912 28.4% $ 118,870 30.4% $ 116,986 28.9%
Food and processed juice
revenue $ 30,467 15.0% $ 34,623 16.7% $ 55,182 14.1% $ 60,166 14.9%
Industrial, agricultural and
automotive revenue $ 9,727 4.8% $ 10,706 5.2% $ 19,738 5.0% $ 21,868 5.4%
Health, personal care and
distilled spirits revenue $ 3,211 1.6% $ 2,682 1.3% $ 5,887 1.5% $ 5,333 1.3%
Other revenue (a) $ 12,655 6.2% $ 11,030 5.3% $ 20,179 5.2% $ 20,997 5.1%
----------------------------------------- -----------------------------------------
Total revenue $ 203,708 100.0% $207,255 100.0% $ 391,589 100.0% $ 405,049 100.0%
(a) Other revenue includes Clean Tech (recycling), Whiteline
(transportation and logistics) and other miscellaneous sources of
revenue.
(b) The six months ended May 4, 2002 and May 5, 2001 were 26 and 27 weeks
long, respectively.
THREE MONTHS ENDED MAY 4, 2002 COMPARED TO THREE MONTHS ENDED MAY 5, 2001
REVENUE
Revenue decreased 1.7% to $203.7 million for the three months ended May 4,
2002 while unit sales increased for the period by 4.6%. The decrease in revenue
was due primarily to a decrease in resin pricing along with the exit of a piece
of business that was sold during the three month period ended May 5, 2001.
19
We estimate that lower resin prices passed through to customers resulted in
approximately $11.0 million in reduced revenue for the three months ended May 4,
2002. The unit volume increase seen during the period was due largely to
increases in bottled water sales along with strong sales in our consumer
cleaning sector.
Revenue and unit sales increases and decreases by category are discussed
more specifically below:
- Carbonated and non-carbonated beverage revenue decreased 3.7% to $86.0
million while unit sales during the three-month period ended May 4,
2002 increased by 10% over the same period in 2001. Revenue generated
by Plastipak USA increased 1.6% while revenue generated by Plastipak
Brasil decreased 24.9%. For the three-month period ended May 4, 2002,
Plastipak USA unit sales increased 14.9% while Plastipak Brasil unit
sales decreased 3.6% versus the same period in 2001. The revenue
decrease was attributable to Brazil where colder weather and a general
slow down in the Brazilian economy resulted in reduced sales.
Additionally, continued economic problems in Argentina resulted in
reduced sales for Plastipak Brasil. Raw material cost reductions passed
through to the customers also accounted for the decrease in revenue.
Looking forward, we see consumer preference for plastic containers
continuing to drive the PET market share growth in the carbonated
beverage sector, coupled with rapid growth in water container demand.
- Consumer cleaning revenue increased 4.7% to $61.7 million. Unit sales
during the three-month period ended May 4, 2002 increased 5.3% over the
three-month period ended May 5, 2001. Raw material reductions passed
through to the customers and product mix accounted for the difference
in sales units and dollars increases. We anticipate that new product
awards, product launches and package redesigns will drive unit growth
in the consumer cleaning category during the second half of 2002 and
into 2003.
- Food and processed juices revenue decreased 12.0% to $30.5 million.
Unit sales during the three-month period ended May 4, 2002 decreased
14.1% over the three-month period ended May 5, 2001. This decrease in
sales units was primarily the result of the sale of production assets
in this category during the second quarter of fiscal year 2001. The
start up of several new products in our juice sector along with new
volume awards should increase sales in this sector over the next few
quarters.
- Industrial, agricultural and automotive revenue decreased 9.1% to $9.7
million. Unit sales for the three-month period ended May 4, 2002
decreased 8.8% to 28.5 million units from the three-month period ended
May 5, 2001. The decrease was primarily due to an extremely mild winter
in the Midwest that had a negative impact on the sales of anti-freeze
and windshield washer fluid containers. The decrease was also due to
package mix shift to smaller packages with lower selling prices.
- Health, personal care and distilled spirits revenue increased 19.7% to
$3.2 million. Unit sales for the three-month period ended May 4, 2002
were up 12.1% over the three-month period ended May 5, 2001. Strong
shipping volume in our personal care business coupled with continued
volume across our line of distilled products attributed to these gains.
20
- Other revenue increased 14.7% to $ 12.7 million. This increase is
attributable mainly to additional freight and recycling revenue.
GROSS PROFIT
Gross profit increased 9.4% to $34.8 million for the three-month period
ended May 4, 2002. Gross profit as a percent of revenue improved to 17.1% as
compared to 15.3% in the prior period. The improvement in gross profit as a
percent of revenue was partially due to lower resin costs which decreased
revenue without decreasing associated gross profit. Gross profit increases were
also the result of improved manufacturing reliability and throughput in the
three months ended May 4, 2002. In addition, current process redesign
initiatives helped generate increased gross profit.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. Industry practice and
contractual arrangements with our customers permit price changes to be passed
through to customers by means of generally corresponding changes in product
pricing. As a result, we have in the past experienced revenue changes without
corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of revenue, selling, general and administrative expenses
remained relatively flat at 7.8% for the three months ended May 4, 2002.
INTEREST EXPENSE
Interest expense increased by 20.9% to $8.7 million for the three-month
period ended May 4, 2002. The increase was due to the sale, on August 20, 2001,
of $275.0 million of the 10.75% Senior Notes. The average interest rate for the
three-month period ended May 4, 2002 was approximately 10.75% compared to an
average interest rate of approximately 8.10% for the three-month period ending
May 5, 2001. In addition, our debt level was approximately $50.8 million higher
as compared to the prior period ending May 5, 2001.
OTHER (INCOME) AND EXPENSE
Other expense increased by $1.4 million to $0.5 million. The increase was
principally due to $0.7 million in foreign currency exchange rate losses that
were primarily related to the devaluation of the Peso in Argentina. A decrease
in sundry income of approximately $0.4 million contributed to the increase.
NET EARNINGS (LOSS)
Net earnings remained mainly unchanged at $6.7 million for the three months
ended May 4, 2002.
21
SIX MONTHS ENDED MAY 4, 2002 COMPARED TO SIX MONTHS ENDED MAY 5, 2001
REVENUE
Revenue decreased 3.3% to $391.6 million for the six months ended May 4,
2002 with unit sales essentially unchanged for the period at 3.2 billion units
compared to the six-month period ended May 5, 2001. The decreases over the prior
period are due to several factors. First, the six-month period ended May 4, 2002
contained only 26 weeks, while the six-month period ended May 5, 2001 contained
27 weeks. If 2002 revenue were restated for 27 weeks, 2002 revenue would have
increased by 0.2% over the prior period. Second, resin prices (which represent a
significant cost of the product) have decreased in the six months ended May 4,
2002 as compared to the six months ended May 5, 2001. Lower resin prices were
passed on to our customers in the form of lower sales prices for the products we
sell. We estimate that lower resin prices resulted in approximately a $17.0
million reduction in revenue for the six months ended May 4, 2002. Finally, we
exited a piece of business through an asset sale in the second quarter of fiscal
year 2001 which resulted in lower sales revenue for the first half of 2002
versus the same period in 2001.
Revenue and unit sales increases and decreases by category are discussed
more specifically below:
- Carbonated and non-carbonated beverage revenue decreased 4.4% to $171.7
million while unit sales during the six-month period ended May 4, 2002
increased by 2.4% over the six-month period ended May 5, 2001. The
decrease in revenue was attributable primarily to Brazil where colder
weather and a general slow down in the Brazilian economy contributed to
the reduced sales. Additionally, continued economic problems in
Argentina resulted in reduced sales for Plastipak Brasil. Raw material
cost reductions passed through to the customers also accounted for the
decrease in revenue. Strength in bottled water sales accounted for the
increase in unit sales. Looking forward, we see continued consumer
preference for plastic containers continuing to drive PET's market
share growth in the carbonated beverage sector, coupled with rapid
growth in water container demand.
- Consumer cleaning revenue increased 1.6% to $118.9 million. Unit sales
during the six-month period ended May 4, 2002 increased 1.3% over the
six-month period ended May 5, 2001. We anticipate that new product
awards, product launches and package redesigns will drive unit growth
in the consumer cleaning category during the second half of 2002 and
into 2003.
- Food and processed juices revenue decreased 8.3% to $55.2 million. Unit
sales during the six-month period ended May 4, 2002 decreased 13.1%
over the six-month period ended May 5, 2001. The decrease in sales
units was primarily the result of the sale of production assets in this
category during the second quarter of fiscal year 2001. We anticipate
that sales in this category will improve in the second half of this
year as a result of new business awards and product launches planned.
- Industrial, agricultural and automotive revenue decreased 9.7% to $19.7
million while unit sales for the six-month period ended May 4, 2002
increased 8.3% to 69.9 million units
22
over the same period in 2001. The decrease in revenue was due primarily
to an extremely mild winter in the Midwest that had a negative impact
on the sales of anti-freeze and windshield washer fluid containers.
Unit sales growth came from increases in a new line of motor oil quart
containers.
- Health, personal care and distilled spirits revenue increased 10.4% to
$5.9 million. Unit sales for the six-month period ended May 4, 2002
were up 12.3% over the six-month period ended May 5, 2001. Strong
shipping volume in our personal care business coupled with continued
volume across our line of distilled products attributed to these gains.
- Other revenue decreased 3.9% to $20.2 million. This decrease is
attributable mainly to a decrease in other miscellaneous revenue that
was offset by an increase in freight and recycling revenue.
GROSS PROFIT
Gross profit increased 17.7% to $60.9 million for the six-month period ended
May 4, 2002. Gross profit as a percent of revenue improved to 15.6% in the
six-month period ended May 4, 2002 as compared to 12.8% in the six-month period
ended May 5, 2001. The improvement in gross profit as a percent of revenue was
partially due to lower resin costs that decreased revenue without decreasing
associated gross profit. Gross profit increases were the result of improved
manufacturing reliability and throughput in the six months ended May 4, 2002. In
addition, current process redesign initiatives helped generate increased gross
profit.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. Industry practice and
contractual arrangements with our customers permit price changes to be passed
through to customers by means of generally corresponding changes in product
pricing. As a result, we have in the past experienced revenue changes without
corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 7.1% to $32.3 million
for the six-month period ended May 4, 2002. As a percentage of revenue, selling,
general and administrative expenses increased to 8.3% in the six months ended
May 4, 2002 from 7.5% in the six months ended May 5, 2001. The increase was
related to the reclassification of $0.9 million of site management wages from
manufacturing expenses and a $1.0 million increase related to the implementation
of SAP.
INTEREST EXPENSE
Interest expense increased by 24.2% to $17.7 million for the six months
ended May 4, 2002. The increase was due to the sale, on August 20, 2001, of
$275.0 million of the 10.75% Senior Notes. The average interest rate for the
six-month period ended May 4, 2002 was approximately 10.75% compared to an
average interest rate of approximately 8.69% for the six-month period
23
ending May 5, 2001. In addition, our debt level was approximately $50.8 million
higher as compared to the prior period ending May 5, 2001.
OTHER (INCOME) AND EXPENSE
Other expense increased by $3.6 million to $2.0 million principally due to
$3.0 million in foreign currency exchange rate losses that were primarily
related to the devaluation of the Peso in Argentina. In addition, we experienced
favorable foreign currency exchange rate gains on the purchase of equipment in
2001.
NET EARNINGS (LOSS)
Net earnings remained unchanged at $6.2 million for the six-month periods
ended May 4, 2002 and May 5, 2001.
FINANCIAL CONDITION
We intend to expand our business, both domestically and internationally. We
have a significant amount of financing capacity to fund the continued growth of
our business. Past expenditures have been used to maintain equipment and expand
capacity for revenue growth. These expenditures were funded with cash flow from
operations, bank debt and additional operating leases. Future capital
expenditures will be used in the same manner as past expenditures.
As part of our process redesign initiatives, we are investing heavily in
information systems, process management and training. We have successfully
completed the implementation of initial SAP enterprise software in all 9 of our
North American operating facilities. We expect to spend an additional $5 to $7
million in the aggregate on the remaining projects. During the six months ended
May 4, 2002, we spent approximately $31.4 million to cover the capital
requirements of our operations. We expect to incur capital expenditures of
approximately $85 million in fiscal 2002.
We are using technology that will allow us to pursue opportunities in the
beer, condiments, sauce and beverage markets. South America provides significant
opportunities with our current customer base. Our largest customer in Brazil,
AmBev, is also the largest brewer in South America.
Our overall financial condition improved during the six-month period ended
May 4, 2002. We had positive cash flow from operating activities of $10.6
million, which in part funded our capital expenditures of approximately $31.4
million. Cash and cash equivalents were used to cover the remaining balance of
capital expenditures.
SEASONALITY
The carbonated soft drink (CSD) and, to a lesser extent, the other beverage
portions of our business are highly seasonal, with peak demand during warmer
summer months, and reduced
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demand during the winter. We normally add temporary staff and build inventory of
products for our CSD and water customers in anticipation of seasonal demand in
the quarter preceding the summer.
INFLATION
We use large quantities of plastic resins in manufacturing our products.
These resins accounted for approximately one-third of our cost of goods sold in
the six-month period ended May 4, 2002, and are subject to substantial price
fluctuations resulting from shortages in supply and changes in the prices of
natural gas, crude oil and other petrochemical products from which these resins
are produced. We generally enter into three-year agreements with our resin
suppliers, and our purchases of raw materials are subject to market prices and
inflation.
EFFECT OF CHANGES IN EXCHANGE RATES
In general, our results of operations are partially affected by changes in
foreign exchange rates. We invoice our Brazilian and Argentina customers in the
Brazilian Real and Argentine Peso, respectively. A portion of those invoices is
pegged to the U.S. exchange rate. As a result, subject to market conditions, a
decline in the value of the U.S. dollar relative to the Brazilian Real and
Argentine Peso can have a favorable effect on our profitability. Conversely, an
increase in the value of the dollar relative to the Brazilian Real and Argentine
Peso can have a negative effect on our profitability. Exchange rate fluctuations
had a material effect on the results of operations for the six months ended May
4, 2002, resulting in a loss of approximately $2.8 million. We severely
curtailed shipping to Argentina given the economic crisis that country is
experiencing. As a result, our exposure to Argentina is insignificant as of
May 4, 2002.
INFORMATION SYSTEMS INITIATIVE
We completed an evaluation and assessment of our business systems and
processes in the calendar year 2000. The two major activities of this evaluation
included an internal effort to redesign our business practices through an
initiative called "Process Redesign," and a comprehensive project to evaluate
SAP enterprise resource planning software and functionality. As a result of
these evaluations, we decided to purchase and install this industry-leading
manufacturing and distribution software solution. As of mid-May 2002, we have
completed implementation of SAP in all 9 of our North American operations. We
have incurred costs of approximately $8.4 million to purchase, test and install
SAP hardware and software. We expect to incur $0.5 million of additional costs
in fiscal year 2002 to optimize SAP software.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased 1.83% to $10.6 million
from the six-months ended May 4, 2002 as compared to the six months ended May 5,
2001. The increase is primarily the result of a $1.3 million increase in
non-cash expenses that include depreciation and amortization, bad debt expense,
deferred income tax expense, and foreign currency translation. The increase was
offset by a $1.1 million change in net working capital and other assets and
liabilities that decreased cash over the prior period.
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Net cash used in investing activities was $34.4 million and $31.1 million
for the six-month periods ending May 4, 2002 and May 5, 2001, respectively.
Investing activities were primarily attributed to the acquisition of property
and equipment. For the six months ended May 4, 2002 and May 5, 2001, property
and equipment acquisitions were $31.4 and $28.6 million, respectively.
Net cash (used in) provided from financing activities was $(3.4) and $21.4
million for the six-month periods ended May 4, 2002 and May 5, 2001,
respectively. In the six months ended May 4, 2002, net cash of $4.5 million was
used to make principal payments on long-term obligations. The use of cash was
partially offset by net proceeds from long-term obligations of $1.5 million. In
the six months ended May 5, 2001, cash was provided from net borrowings of $26.4
million under a revolving credit facility. The cash provided was partially used
to make $5.0 million of principal payments on long-term obligations.
On August 20, 2001, we sold an aggregate total principal amount of $275
million of 10.75% Senior Notes to qualified institutional buyers. The notes have
a maturity date of 2011, and we have the option to redeem all or a portion of
the notes at any time on or after September 1, 2006. The proceeds from these
notes were used to pay off existing debt. Interest under the notes is payable on
September 1 and March 1 of each year. The indenture under which the notes were
issued places restrictions on our ability to declare or pay dividends, purchase
or acquire equity interests of Plastipak, and retire indebtedness that is
subordinate to the notes. The notes also have covenants that place restrictions
on the incurrence of debt, the issuance of stock, and granting of liens.
On August 20, 2001, in conjunction with the Senior Notes, we entered into an
Amended Credit Agreement which allows us to borrow up to $150 million, subject
to a borrowing base consisting of 85% of eligible domestic accounts receivable,
65% of the value of eligible domestic inventory and 50% of the value of domestic
property, plant and equipment. The Amended Credit Agreement has a five-year
term. Interest under the Amended Credit Agreement is payable at 200 to 350 basis
points per annum over Eurodollar or at prime rates, as we select. The Amended
Credit Agreement is secured by substantially all of our assets, including
pledges of the stock of Plastipak and all of its material foreign subsidiaries.
Packaging, Whiteline, Clean Tech, and TABB are the borrowers and guarantors
under the Amended Credit Agreement and Plastipak guarantees obligations under
the Amended Credit Agreement. As of May 4, 2002, $53.4 million in letters of
credit were outstanding under the Amended Credit Agreement and we had $96.6
million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. We will need between $4.0 and $5.0 million of additional capital to add
machinery and equipment in our new facility in Manaus, Brazil. We estimate that
our existing operations in Brazil will require between $5.0 to $7.0 million in
working capital to cover seasonal increases in inventory that will be required
during the Brazilian winter months. Our overall capital expenditure budget in
fiscal 2002 is approximately $85 million and $70 million in 2003, a majority of
which is expected to be discretionary capital expenditures. We anticipate start
up of a new site in central Florida around December, 2002. We expect to finance
all of our capital expenditures with operating cash flows and to cover any
shortfalls with borrowings under the Amended Credit Agreement.
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Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of May 4, 2002, we had approximately $26 million in cash and cash
equivalents. It is possible, however, that our business will not generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will not be realized or that future borrowings will not
be available under the Amended Credit Agreement in an amount sufficient to
enable us to service our indebtedness, or to fund our other liquidity needs. In
addition, we may not be able to refinance any of our indebtedness, including the
Amended Credit Agreement or the 10.75% Senior Notes due 2011, on commercially
reasonable terms or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At May 4, 2002 we had no material foreign exchange contracts. We do not
enter into foreign exchange contracts for trading or speculative purposes.
SHORT-TERM AND LONG-TERM DEBT
We are exposed to interest rate risk primarily through our borrowing
activities. Our policy has been to utilize United States dollar denominated
borrowings to fund our working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements, while long-term debt is
generally used to finance long-term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and our future financing requirements.
We do not enter into financial instrument transactions for trading or other
speculative purposes or to manage interest rate exposure.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASTIPAK HOLDINGS, INC.
Dated: June 18, 2002 By: /s/ William C. Young
-------------------------------------
William C. Young
President and Chief Executive Officer
By: /s/ Michael J. Plotzke
-------------------------------------
Michael J. Plotzke,
Treasurer and Chief Financial Officer
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