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 February 1, 2003
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 February 1, 2003 was 28,316.
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PLASTIPAK HOLDINGS, INC.
FORM 10-Q INDEX
PAGE
PART I - FINANCIAL INFORMATION..................................................................1
Item 1. Financial Statements...................................................................1
Condensed Consolidated Balance Sheets as of November 2, 2002
and February 1, 2003 (unaudited).......................................................1
Condensed Consolidated Statements of Operations (unaudited) for the
Three Month Periods Ended February 1, 2003 and February 2, 2002........................3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended February 1, 2003 and February 2, 2002...............................4
Notes to Condensed Consolidated Financial Statements...................................5
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................23
Item 4. Controls and Procedures...............................................................23
PART II-- OTHER INFORMATION....................................................................24
Item 6. Exhibits and Reports on Form 8-K......................................................24
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------
FEBRUARY 1, NOVEMBER 2,
ASSETS 2003 2002
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 52,002,313 $ 69,696,262
Accounts receivable
Trade (net of allowance of $2,482,414 and $2,166,430
at February 1, 2003 and November 2, 2002) 48,546,005 46,086,007
Related parties 6,699,743 6,228,360
------------ ------------
55,245,748 52,314,367
Inventories 83,244,238 78,730,293
Prepaid expenses 10,485,557 8,523,505
Prepaid federal income taxes 4,117,733 3,808,730
Deferred income taxes 3,394,000 2,732,000
Other current assets 3,809,267 4,427,893
------------ ------------
Total Current Assets 212,298,856 220,233,050
PROPERTY, PLANT AND EQUIPMENT-- NET 322,178,756 310,913,565
OTHER ASSETS
Cash surrender value of life insurance 1,788,374 1,788,374
Deposits 20,876,554 15,711,204
Capitalized loan costs (net of accumulated amortization
of $2,159,607 and $1,729,634 at February 1, 2003 and
November 2, 2002) 10,831,641 11,261,613
Intangible assets, (net of accumulated amortization of
$10,418,940 and $9,376,000 at February 1, 2003
and November 2, 2002) 7,725,362 8,768,184
Sundry 1,174,219 922,360
------------ ------------
Total Other Assets 42,396,150 38,451,735
------------ ------------
$576,873,762 $569,598,350
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
1
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FEBRUARY 1, NOVEMBER 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
------------ ------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable-- trade $ 90,417,245 $ 90,223,335
Current portion of long-term obligations 4,718,860 5,180,231
Accrued liabilities
Taxes other than income 6,674,756 4,943,876
Other accrued expenses 31,686,955 25,709,607
Income taxes 1,381,419 1,388,244
------------ ------------
Total Current Liabilities 134,879,235 127,445,293
SENIOR NOTES (NET OF UNAMORTIZED PREMIUM
OF ($2,431,086) AND ($2,501,893) AT FEBRUARY 1, 2003
AND NOVEMBER 2, 2002, RESPECTIVELY) 327,431,086 327,501,893
LONG-TERM OBLIGATIONS 56,861,278 55,132,393
DEFERRED INCOME TAXES 12,005,000 12,344,000
OTHER NON-CURRENT LIABILITIES 3,849,188 3,785,884
OBLIGATIONS UNDER STOCK BONUS PLAN 6,257,133 6,104,850
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares authorized;
28,316 shares issued and outstanding 28,316 28,316
Retained earnings 35,562,526 37,255,721
------------ ------------
Total Stockholders' Equity 35,590,842 37,284,037
------------ ------------
$576,873,762 $569,598,350
============ ============
2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------
THREE MONTHS ENDED
----------------------------------
FEBRUARY 1, FEBRUARY 2,
2003 2002
------------- -------------
(UNAUDITED) (UNAUDITED)
Revenues $ 199,544,801 $ 187,502,416
Costs and expenses 174,730,300 161,385,509
------------- -------------
Gross profit 24,814,501 26,116,907
Selling, general and administrative expenses 17,685,958 16,285,209
------------- -------------
Operating profit 7,128,543 9,831,698
Other expense (income)
Interest expense 10,287,831 9,132,757
Interest income (297,539) (405,686)
Royalty income (212,505) (51,573)
Loss on foreign currency translation 189,312 2,023,374
Sundry income (16,671) (69,674)
------------- -------------
9,950,428 10,629,198
------------- -------------
Loss before income taxes (2,821,885) (797,500)
Income tax expense (benefit)
Current - 646,000
Deferred (1,001,000) (951,000)
------------- -------------
(1,001,000) (305,000)
------------- -------------
Net loss $ (1,820,885) $ (492,500)
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------
FEBRUARY 1, FEBRUARY 2,
2003 2002
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,820,885) $ (492,500)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation and amortization 13,577,992 11,516,787
Interest (income) expense on senior notes (70,807) 103,136
Bad debt expense 259,118 166,312
Deferred salaries 96,900 126,250
Loss on sale of property, plant and equipment 28,875 13,088
Deferred taxes (1,001,000) (951,000)
Restricted stock options 279,973 -
Foreign currency translation loss 116,795 (805)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,249,087) 762,622
Increase in inventories (4,513,945) (2,576,460)
Increase in prepaid expenses and other current assets (1,528,947) (1,996,391)
Increase in prepaid federal income taxes (309,003) (13,909)
Increase in other liabilities 7,671,014 12,582,215
Increase in deposits (5,165,350) (6,416,781)
Increase (decrease) in accounts payable 193,910 (9,942,943)
Decrease (increase) in sundry assets (210,338) 85,197
(Increase) decrease in income taxes (6,825) 322,000
------------ ------------
Net cash provided by operating activities 4,348,390 3,286,818
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (21,798,947) (9,480,413)
Acquisition of intangible assets - (1,500,000)
------------ ------------
Net cash used in investing activities (21,798,947) (10,980,413)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowing under line of credit 1,842,377 -
Principal payments on long-term obligations (2,085,769) (4,282,031)
Capitalized loan costs - (209,509)
Proceeds from long-term obligations - 1,292,380
------------ ------------
Net cash used in financing activities (243,392) (3,199,160)
------------ ------------
Net decrease in cash (17,693,949) (10,892,755)
Cash and cash equivalents at beginning of year 69,696,262 53,483,389
------------ ------------
Cash and cash equivalents at end of year $ 52,002,313 $ 42,590,634
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 1,394,000 $ 1,322,000
============ ============
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of property, plant and equipment through
assumption of long-term obligations $ 1,456,000 $ -
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE A-- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and estimated provisions
for bonus and profit-sharing arrangements) considered necessary for a fair
presentation have been included. Operating results for the three months ended
February 1, 2003, are not necessarily indicative of the results that may be
expected for the year ended November 1, 2003.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Form 10-K filed by Plastipak Holdings, Inc. (Plastipak) with
the Securities and Exchange Commission on January 31, 2003.
RECLASSIFICATIONS
Certain reclassifications have been made in order for them to conform
to the classifications at February 1, 2003.
EMPLOYEE COMPENSATION PLANS
The Company has two stock-based employee compensation plans. The
Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. The plans are considered to be variable plans and
therefore, stock-based employee compensation cost is reflected in net income as
a component of general and administrative expenses, as all options granted under
those plans had an exercise price less than the market value of the underlying
common stock on the date of grant.
Amounts expensed approximate that which would have been expensed had
the value of the options granted been computed under provisions of FAS 123.
NOTE B - FISCAL PERIOD
Plastipak has elected a 52/53 week fiscal period for tax and financial
reporting purposes. Plastipak's fiscal period ends on the Saturday closest to
October 31. The periods ending February 1, 2003 and February 2, 2002 contained
13 weeks.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
On November 3, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), Accounting for Goodwill and Other
Intangibles, which requires that goodwill and certain other intangible assets no
longer be amortized to earnings but instead be reviewed periodically for
potential impairment; Statement 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
long-lived assets; Statement of Financial Accounting Standards No. 148 ("SFAS
148"), Accounting for Stock Based Compensation-Transition and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
The adoption of these standards did not have a material impact on its
financial position or results from operations.
NOTE D - INVENTORIES
Inventories consisted of the following at: FEBRUARY 1, NOVEMBER 2,
2003 2002
----------- -----------
Raw materials $31,246,578 $29,585,642
Finished goods 39,508,361 37,753,695
Parts and supplies 12,489,299 11,390,956
----------- -----------
$83,244,238 $78,730,293
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5
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- --------------------------------------------------------------------------------
NOTE E -- LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the
ordinary course of business. The ultimate legal and financial liability of this
litigation cannot be estimated with certainty, but management believes, based on
their examination of these matters, experience to date and discussions with
counsel, that the ultimate liability will not be material to the Company's
business, financial condition or results of operations.
NOTE F -- SUBSEQUENT EVENTS
On March 11, 2003, the Company entered into two interest rate swap
agreements. In connection with the Senior Notes, the Company exchanged fixed
rate interest of 10.75% for variable rate interest. The interest rate swap
agreements have notional amounts of $50.0 million each. The variable rates are
equal to six month LIBOR plus 6.46% and 6.66%, respectively.
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 February 1, 2003 and
November 2, 2002 and the three months ending February 1, 2003 and
February 2, 2002 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.
6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
ASSETS
AS OF FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------ ------------- ------------
CURRENT ASSETS
Cash $ 40,689,555 $ 9,267,830 $ 2,044,928 $ - $ 52,002,313
Accounts receivable 12,535,021 39,534,137 9,950,513 (6,773,923) 55,245,748
Inventories - 69,198,563 14,045,675 - 83,244,238
Prepaid expenses - 7,765,526 2,720,031 - 10,485,557
Prepaid federal income taxes 796,000 3,321,733 - - 4,117,733
Deferred income taxes (1,357,000) 2,226,000 2,525,000 - 3,394,000
Other current assets - 3,636,359 172,908 - 3,809,267
------------- ------------- ------------ ------------- ------------
Total current assets 52,663,576 134,950,148 31,459,055 (6,773,923) 212,298,856
PROPERTY, PLANT AND EQUIPMENT-- NET - 268,420,339 54,158,417 (400,000) 322,178,756
OTHER ASSETS
Cash surrender value of life insurance - 1,788,374 - - 1,788,374
Deposits - 20,876,554 - - 20,876,554
Investments in and advances to affiliates 319,170,264 (256,804,571) - (62,365,693) -
Capitalized loan costs 1,123,047 9,708,594 - - 10,831,641
Intangible assets - 3,813,038 3,912,324 - 7,725,362
Deferred tax asset-- long term (86,000) 86,000 - - -
Sundry - 5,961,332 212,887 (5,000,000) 1,174,219
------------- ------------- ------------ ------------- ------------
Total other assets 320,207,311 (214,570,679) 4,125,211 (67,365,693) 42,396,150
------------- ------------- ------------ ------------- ------------
$ 372,870,887 $ 188,799,808 $ 89,742,683 $ (74,539,616) $576,873,762
============= ============= ============ ============= ============
7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
AS OF FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------ ------------- ------------
CURRENT LIABILITIES
Accounts payable $ - $ 67,197,820 $ 29,993,346 $ (6,773,921) $ 90,417,245
Current portion of long-term liabilities - 3,600,398 1,118,462 - 4,718,860
Taxes other than income - 5,966,363 708,393 - 6,674,756
Income taxes (168,440) 1,549,859 - - 1,381,419
Other accrued expenses 14,221,072 16,701,440 764,443 - 31,686,955
------------- ------------- ------------ ------------- ------------
Total current liabilities 14,052,632 95,015,880 32,584,644 (6,773,921) 134,879,235
SENIOR NOTES 330,972,093 (3,541,007) - - 327,431,086
LONG-TERM OBLIGATIONS - 3,263,996 58,597,282 (5,000,000) 56,861,278
DEFERRED INCOME TAXES (12,137,000) 22,705,000 1,437,000 - 12,005,000
OTHER LONG-TERM LIABILITIES - 3,230,799 618,389 - 3,849,188
------------- ------------- ------------ ------------- ------------
Total liabilities 332,887,725 120,674,668 93,237,315 (11,773,921) 535,025,787
OBLIGATIONS UNDER STOCK BONUS PLAN 4,392,320 1,864,813 - - 6,257,133
STOCKHOLDERS' EQUITY (DEFICIT) 35,590,842 66,260,327 (3,494,632) (62,765,695) 35,590,842
------------- ------------- ------------ ------------- ------------
$ 372,870,887 $ 188,799,808 $ 89,742,683 $ (74,539,616) $576,873,762
============= ============= ============ ============= ============
8
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
- -------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------ ------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 44,619,480 $ 22,888,938 $ 2,187,844 $ - $ 69,696,262
Accounts receivable 5,086,992 44,941,401 8,757,490 (6,471,516) 52,314,367
Inventories - 62,985,057 15,745,236 - 78,730,293
Prepaid expenses - 6,273,988 2,249,517 - 8,523,505
Prepaid federal income taxes 796,000 3,012,730 - - 3,808,730
Deferred income taxes (2,019,000) 2,226,000 2,525,000 - 2,732,000
Other current assets - 4,057,036 370,857 - 4,427,893
------------- ------------- ------------ ------------- ------------
Total current assets 48,483,472 146,385,150 31,835,944 (6,471,516) 220,233,050
PROPERTY, PLANT AND EQUIPMENT-- NET - 255,598,323 55,715,242 (400,000) 310,913,565
OTHER ASSETS
Cash surrender value of life insurance - 1,788,374 - - 1,788,374
Deposits - 15,711,204 - - 15,711,204
Investments in and advances to affiliates 316,666,208 (254,504,681) - (62,161,527) -
Capitalized loan costs 1,155,757 10,105,856 - - 11,261,613
Intangible assets - 4,504,210 4,263,974 - 8,768,184
Deferred tax asset (86,000) 86,000 - - -
Prepaids - 910,466 - - 910,466
Note receivable - 5,011,894 - (5,000,000) 11,894
------------- ------------- ------------ ------------- ------------
Total other assets 317,735,965 (216,386,677) 4,263,974 (67,161,527) 38,451,735
------------- ------------- ------------ ------------- ------------
$ 366,219,437 $ 185,596,796 $ 91,815,160 $ (74,033,043) $569,598,350
============= ============= ============ ============= ============
9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
AS OF NOVEMBER 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------ ------------- ------------
CURRENT LIABILITIES
Accounts payable $ - $ 65,472,597 $ 31,222,254 $ (6,471,516) $ 90,223,335
Current portion of long-term liabilities - 3,459,728 1,720,503 - 5,180,231
Taxes other than income - 4,392,901 550,975 - 4,943,876
Deferred income tax liability (118,000) 118,000 - - -
Income taxes (168,440) 1,556,684 - - 1,388,244
Other accrued expenses 5,481,483 16,638,057 3,590,067 - 25,709,607
------------- ------------- ------------ ------------- ------------
Total current liabilities 5,195,043 91,637,967 37,083,799 (6,471,516) 127,445,293
SENIOR NOTES 331,146,037 (3,644,144) - - 327,501,893
LONG-TERM OBLIGATIONS - 2,981,314 57,151,079 (5,000,000) 55,132,393
DEFERRED INCOME TAXES (11,798,000) 22,705,000 1,437,000 - 12,344,000
OTHER LONG-TERM LIABILITIES - 3,147,418 638,466 - 3,785,884
OBLIGATIONS UNDER STOCK BONUS PLANS 4,392,320 1,712,530 - - 6,104,850
STOCKHOLDERS' EQUITY (DEFICIT) 37,284,037 67,056,711 (4,495,184) (62,561,527) 37,284,037
------------- ------------- ------------ ------------- ------------
$ 366,219,437 $ 185,596,796 $ 91,815,160 $ (74,033,043) $569,598,350
============= ============= ============ ============= ============
10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------- ------------ ----------- -------------
Revenues $ - $ 180,044,685 $ 21,843,435 $(2,343,319) $ 199,544,801
Cost and expenses - 156,603,760 20,199,859 (2,073,319) 174,730,300
----------- ------------- ------------ ----------- -------------
Gross profit (loss) - 23,440,925 1,643,576 (270,000) 24,814,501
Selling, general and administrative expenses 94,911 16,409,230 1,451,817 (270,000) 17,685,958
----------- ------------- ------------ ----------- -------------
Operating (loss) profit (94,911) 7,031,695 191,759 - 7,128,543
Other expense (income)
Equity in loss (earnings) of affiliates 1,723,634 199,889 - (1,923,523) -
Interest expense 8,657,478 746,671 1,085,787 (202,105) 10,287,831
Interest income (7,519,138) 7,099,334 (79,840) 202,105 (297,539)
Royalty income - (212,505) - - (212,505)
Loss on foreign currency translation - - 189,312 - 189,312
Sundry (income) loss (135,000) 122,381 (4,052) - (16,671)
----------- ------------- ------------ ----------- -------------
2,726,974 7,955,770 1,191,207 (1,923,523) 9,950,428
----------- ------------- ------------ ----------- -------------
(Loss) earnings before income taxes (2,821,885) (924,075) (999,448) 1,923,523 (2,821,885)
Income taxes
Current - - - - -
Deferred (1,001,000) - - - (1,001,000)
----------- ------------- ------------ ----------- -------------
Net (loss) earnings $(1,820,885) $ (924,075) $ (999,448) $ 1,923,523 $ (1,820,885)
=========== ============= ============ =========== =============
11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - CONTINUED
FOR THE THREE MONTHS ENDED FEBRUARY 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ------------ -------------
Revenues $ - $167,601,302 $ 19,901,114 $ - $ 187,502,416
Cost and expenses - 141,320,519 20,064,990 - 161,385,509
----------- ------------ ------------ ------------ -------------
Gross profit (loss) - 26,280,783 (163,876) - 26,116,907
Selling, general and administrative expenses - 14,571,575 1,713,634 - 16,285,209
----------- ------------ ------------ ------------ -------------
Operating profit (loss) - 11,709,208 (1,877,510) - 9,831,698
Other expense (income)
Equity in loss (earnings) of affiliates 823,778 981,986 - (1,805,764) -
Interest expense 7,472,743 519,254 1,195,261 (54,501) 9,132,757
Interest income (7,364,021) 7,082,126 (178,292) 54,501 (405,686)
Gain on foreign currency translation - - 2,023,374 - 2,023,374
Sundry income (135,000) 21,677 (7,924) - (121,247)
----------- ------------ ------------ ------------ -------------
797,500 8,605,043 3,032,419 (1,805,764) 10,629,198
----------- ------------ ------------ ------------ -------------
(Loss) earnings before income taxes (797,500) 3,104,165 (4,909,929) 1,805,764 (797,500)
Income taxes (benefit) expense (305,000) - - - (305,000)
----------- ------------ ------------ ------------ -------------
Net (loss) earnings $ (492,500) $ 3,104,165 $ (4,909,929) $ 1,805,764 $ (492,500)
=========== ============ ============ ============ =============
12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2003
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 170,075 $ 6,613,233 $(2,434,918) $ - $ 4,348,390
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (21,301,376) (497,571) - (21,798,947)
Investment in and advances to affiliates (4,100,000) (400,000) - 4,500,000 -
------------ ------------ ----------- ----------- ------------
Net cash (used in) provided by
investing activities (4,100,000) (21,701,376) (497,571) 4,500,000 (21,798,947)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net borrowings under line of credit - - 1,842,377 - 1,842,377
Principal payments on long-term
obligations - (1,032,965) (1,052,804) - (2,085,769)
Proceeds from long-term obligations - 2,500,000 - (2,500,000) -
Preferred stock - - 2,000,000 (2,000,000) -
------------ ------------ ----------- ----------- ------------
Net cash provided by (used in)
financing activities - 1,467,035 2,789,573 (4,500,000) (243,392)
------------ ------------ ----------- ----------- ------------
Net decrease in cash (3,929,925) (13,621,108) (142,916) - (17,693,949)
Cash and cash equivalents at beginning
of year 44,619,480 22,888,938 2,187,844 - 69,696,262
------------ ------------ ----------- ----------- ------------
Cash and cash equivalent at end of year $ 40,689,555 $ 9,267,830 $ 2,044,928 $ - $ 52,002,313
============ ============ =========== =========== ============
13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE G-- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE SEGMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
FOR THE THREE MONTHS ENDED FEBRUARY 2, 2002
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ - $ (697,926) $ 3,984,744 $ - $ 3,286,818
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - (7,800,615) (1,679,798) - (9,480,413)
Investment in and advances to affiliates - - - - -
Acquisition of intangible assets - (1,500,000) - - (1,500,00)
----------- ------------ ------------ ----------- -------------
Net cash (used in) provided by
investing activities - (9,300,615) (1,679,798) - (10,980,413)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Payments on long-term obligations - (1,317,213) (2,964,818) - (4,282,031)
Proceeds from long-term obligations - - 1,292,380 - 1,292,380
Capitalized loan costs - (209,509) - - (209,509)
----------- ------------ ------------ ----------- -------------
Net cash provided by (used in)
financing activities - (1,526,722) (1,672,438) - (3,199,160)
----------- ------------ ------------ ----------- -------------
Net (decrease) increase in cash - (11,525,263) 632,508 - (10,892,755)
Cash and cash equivalents at beginning
of year 1,000 51,476,877 2,005,512 - 53,483,389
----------- ------------ ------------ ----------- -------------
Cash and cash equivalent at end of year $ 1,000 $ 39,951,614 $ 2,638,020 $ - $ 42,590,634
=========== ============ ============ =========== =============
GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------ -----------
DEPRECIATION AND AMORTIZATION EXPENSE
PERIOD ENDED
02/01/03 $11,719,946 $2,406,046 $13,577,992
=========== ========== ==========
02/02/02 $ 9,504,136 $2,012,651 $11,516,787
=========== ========== ==========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. Please refer to
the "Risk Related to Our Business" section, in our Form 10-K for the year ended
November 2, 2002, for a summary of factors that could cause actual results to
differ materially from those projected in a forward-looking statement. As you
read the material below, we urge you to carefully consider our financial
statements and related information provided herein.
All statements other than statements of historical fact included in
this Form 10-Q, including statements regarding our future financial position,
economic performance and results of operations, as well as our business
strategy, budgets and projected costs and plans and objectives of management for
future operations are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe",
or "continue" or the negative thereof or variations thereon or similar
terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include, without
limitation, risks associated with our Brazilian operations, competition in our
product categories, including the impact of possible new technologies, 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,
15
and was incorporated in Michigan in 1989. TABB owns real estate and leases it to
Packaging, Whiteline, and Clean Tech. Plastipak Brasil produces injection-molded
plastic preforms and blow molds rigid plastic packaging in Paulinia and produces
injection-molded plastic preforms in Manaus. Plastipak Brasil also maintains a
sales office in Buenos Aires, Argentina. Other than Plastipak 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 three-month
periods ended February 1, 2003 and February 2, 2002 were 13 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the three months ended February 1, 2003 and February 2, 2002 in each
of our product categories.
Three Months Ended Three Months Ended
February 1, 2003 February 2, 2002
(dollar amounts in thousands)
----------------------------------------------------
2003 % 2002 %
----------------------------------------------------
Carbonated and non-carbonated beverage revenue $ 86,826 43.5% $ 85,392 45.6%
Consumer cleaning revenue 64,125 32.1 57,197 30.5
Food and processed juice revenue 26,255 13.2 24,715 13.2
Industrial, agricultural and automotive revenue 12,037 6.0 9,985 5.3
Health, personal care and distilled spirits revenue 1,593 0.8 2,676 1.4
Other revenue (a) 8,709 4.4 7,537 4.0
----------------------------------------------------
Total revenue $199,545 100.0% $187,502 100.0%
(a) Other revenue includes Clean Tech (recycling), Whiteline
(transportation and logistics) and other miscellaneous sources of
revenue.
Three Months Ended February 1, 2003 Compared to Three Months Ended February 2,
2002
REVENUE
Revenue increased 6.4% to $199.5 million for the three months ended February
1, 2003 while unit sales increased for the period by 7.2%. These results were
driven by consistent performance in our core business combined with the start up
of several new initiatives. Resin prices (which represent a significant cost of
the product) have increased in the three-month period ended February 1, 2003 as
compared to the three-month period ended February 2, 2002. We estimate that
higher resin prices resulted in approximately a $2.2 million increase in
revenues for the three months ended February 1, 2003.
16
Revenue and unit sales increases and decreases by product category are
discussed more specifically below:
- Carbonated and non-carbonated beverage revenue increased 1.7% to $86.8
million while unit sales during the three-month period ended February 1,
2003 increased by 8.4% over the same period in 2002. Revenue generated
by the U.S. market remained flat while revenue generated by Brazil
increased 7.3%. Unit sales growth was attributable to the Brazilian
market where unit sales increased 25% over the prior period. The growth
in revenue was the result of strong preform sales in Brazil combined
with increased demand for water containers in the U.S. market. The
increase in preform sales, and their lower selling prices compared to
blown bottles, is the reason unit volume grew at a higher level than
dollar volume.
- Consumer cleaning revenue increased 12.1% to $64.1 million. Unit sales
during the three-month period ended February 1, 2003 remained flat over
the three-month period ended February 2, 2002. The growth in revenue
during the quarter was primarily attributable to two factors. First,
higher HDPE material prices were passed through in the form of higher
selling prices. Second, the mix shifted towards larger and heavier
containers sold primarily through discount retailers. Several new
projects began shipping during the first quarter of 2003, including
containers in the automatic dish wash and hard surface cleaner area.
- Our Food and processed juice category posted increases in both revenue
and unit volume for the first quarter of 2003. Food and processed juices
revenue increased 6.2% to $26.3 million. Unit sales during the
three-month period ended February 1, 2003 increased 12.0% over the
three-month period ended February 2, 2002. This performance was the
result of broad based activity across all customers combined with the
start up of several key initiatives including a new multi-layer barrier
edible oil package that began shipping during the first quarter of 2003.
- Industrial, agricultural and automotive revenue increased 20.5% to $12.0
million. Unit sales for the three-month period ended February 1, 2003
decreased 0.3% from the three-month period ended February 2, 2002. The
increase in revenue was driven primarily from increased large bottle
sales used in the multi-quart oil market and anti-freeze market along
with higher HDPE material prices that resulted in higher selling prices.
Extreme winter weather in the Midwest and Northeast are also helping
drive sales in this sector.
- The health, personal care and distilled spirits category, a business
that currently accounts for less than 1% of our revenue, saw a decline
in both revenue and sales units during the quarter. Health, personal
care and distilled spirits revenue decreased 40.5% to $1.6 million. Unit
sales for the three-month period ended February 1, 2003 decreased 62.4%
over the three-month period ended February 2, 2002. This decrease was
the result of our exit from a piece of business in this sector that was
performing below expectations. Due to the continued reduction in sales
volume in this product category, we will not report on this category
separately in the future.
17
- Other revenue increased 15.5% to $8.7 million. This increase is
attributable mainly to increases in other materials sales, freight,
recycling and other miscellaneous revenue.
GROSS PROFIT
Gross profit decreased 5.0% to $24.8 million for the three-month period
ended February 1, 2003. Gross profit as a percent of revenue decreased to 12.4%
as compared to 13.9% in the prior period. The decrease in gross profit is
primarily attributable to increased operating costs associated with the start-up
of several new product lines and the addition of two new facilities and the
expansion of two existing facilities. Increases in labor costs and parts
maintenance costs contributed to the decrease in gross profit as well. In
addition, the erosion of gross profit as a percentage of revenue was also due to
higher resin costs that increased revenue without increasing associated gross
profit.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. In general, industry
practice and contractual arrangements with our customers permit price changes to
be passed through to customers. As a result, we have in the past experienced
revenue changes without corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
February 1, 2003 increased 8.6% to $17.7 million. As a percentage of revenue,
selling, general and administrative expenses increased to 8.9% for the three
months ended February 1, 2003 from 8.7% in the three months ended February 2,
2002. Increases in insurance, depreciation and IT expenses contributed
approximately $1.0 million to the increase. Compensation expense recorded for
restricted stock options of approximately $280,000 contributed to the increase
as well.
INTEREST EXPENSE
Interest expense increased by 12.6% to $10.3 million for the three-month
period ended February 1, 2003. The increase was due to the sale, on September
25, 2002, of $50.0 million of the 10.75% Senior Notes, which contributed to the
approximately $58.4 million increase in our debt level over the prior period
ending February 2, 2002.
OTHER (INCOME) AND EXPENSE
Other income increased by $1.8 million to $(0.3) million for the three month
period ended February 1, 2003. The increase was primarily attributable to a
decrease in foreign currency exchange rate losses over the prior period. Foreign
currency exchange rate losses decreased to $0.1 million for the period ended
February 1, 2003 as compared to $2.0 million for the period ended February 2,
2002.
18
NET (LOSS)
Net loss increased by $1.3 million from a net loss of $0.5 million for the
three-month period ended February 2, 2002 to a net loss of $1.8 million for the
three-month period ended February 1, 2003. As previously discussed, the decrease
in gross profit along with an increase in interest expense, partially offset by
a reduction in loss on foreign currency, were factors which resulted in a higher
loss for the period.
FINANCIAL CONDITION
We intend to expand our business, both domestically and internationally. We
have a significant amount of financing capacity to fund the continued growth of
our business. Past expenditures have been used to maintain equipment and expand
capacity for revenue growth. These expenditures were funded with cash flow from
operations, bank debt and additional operating leases. Future capital
expenditures will be used in the same manner as past expenditures.
During the period ended February 1, 2003, we spent approximately $21.8
million to cover the capital requirements of our operations. We expect to incur
capital expenditures of approximately $103 million in fiscal 2003.
We are using technology that will allow us to pursue opportunities in the
beer, condiment, 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. Additionally, we are
currently exploring opportunities in Eastern Europe.
We had positive cash flow from operating activities of $4.3 million,
which in part funded our capital expenditures of approximately $21.8 million.
The remaining balance of capital expenditures was covered by cash and cash
equivalents and by financing activities.
SEASONALITY
The carbonated soft drink (CSD) and, to a lesser extent, the other beverage
portions of our business are highly seasonal, with peak demand during warmer
summer months, and reduced demand during the winter. We normally add temporary
staff and build inventory of products for our CSD and water customers in
anticipation of seasonal demand in the quarter preceding the summer.
INFLATION
We use large quantities of plastic resins in manufacturing our products.
These resins accounted for approximately one-third of our cost of goods sold in
the three-month period ended February 1, 2003, 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.
19
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 to a
lesser extent the Argentine Peso can have a favorable effect on our
profitability. Conversely, an increase in the value of the dollar relative to
the Brazilian Real and to a lesser extent the Argentine Peso can have a negative
effect on our profitability. Exchange rate fluctuations resulted in a loss of
approximately $0.2 million for the period ended February 1, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased 32.3% to $4.3 million
for the three months ended February 1, 2003 as compared to the three months
ended February 2, 2002. The increase in cash was primarily the result of a $2.3
million increase in non-cash expenses that include items such as depreciation
and amortization, bad debt expense, deferred income tax expense, and foreign
currency translation. The increase in non-cash expenses was offset by a decrease
in operating performance of $1.3 million.
Net cash used in investing activities was $21.8 million and $11.0 million
for the three-month periods ending February 1, 2003 and February 2, 2002,
respectively. Investing activities were primarily attributable to the
acquisition of property and equipment. For the three months ended February 1,
2003 and February 2, 2002, property and equipment acquisitions were $21.8
million and $9.5 million, respectively.
Net cash used in financing activities was $0.2 million and $3.2 million for
the three-month periods ended February 1, 2003 and February 2, 2002,
respectively. In the three months ended February 1, 2003, net cash of $2.1
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 $1.8
million. In the three months ended February 2, 2002, cash was provided from
long-term obligations of $1.3 million. The cash provided was partially used to
make $4.3 million of principal payments on long-term obligations.
On August 20, 2001 and September 25, 2002, we sold an aggregate total
principal amount of $275 million and $50 million, respectively, of 10.75% Senior
Notes to qualified institutional buyers. The notes have a maturity date of
September 2011, and we have the option to redeem all or a portion of the notes
at any time on or after September 1, 2006. Interest under the notes is payable
on September 1 and March 1 of each year. The indenture under which the notes
were issued places restrictions on our ability to declare or pay dividends,
purchase or acquire equity interests of Plastipak, and retire indebtedness that
is subordinate to the notes. The notes also have covenants that place
restrictions on the incurrence of debt, the issuance of stock, and granting of
liens.
20
The proceeds from the Senior Notes sold on August 20, 2001 were used to pay
off existing debt. We continue to use the net proceeds from the September 25,
2002 sale of Senior Notes for general corporate purposes, including working
capital, capital expenditures and technology development.
On August 20, 2001, in conjunction with our first sale of 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 February 1,
2003, $56.4 million in letters of credit were outstanding under the Amended
Credit Agreement and we had $93.6 million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. Our overall capital expenditure budget in fiscal 2003 is approximately
$103 million and $90 million in 2004, a majority of which is expected to be
discretionary capital expenditures. Our new site in Florida began production in
December 2002. Additionally, we expect our new site in Alabama will start up in
the second quarter of 2003. We expect to finance all of our capital expenditures
with operating cash flows and the net proceeds of the offering of $50.0 million
principal amount of 10.75% Senior Notes due 2011 that closed in September 2002,
and to cover any shortfalls with borrowings under the Amended Credit Agreement.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of February 1, 2003, we had approximately $52.0 million in cash and
cash equivalents. It is possible, however, that our business will not generate
sufficient cash flow from operations, that anticipated revenue growth and
operating improvements will not be realized or that future borrowings will not
be available under the Amended Credit Agreement in an amount sufficient to
enable us to service our indebtedness, or to fund our other liquidity needs. In
addition, we may not be able to refinance any of our indebtedness, including the
Amended Credit Agreement or the 10.75% Senior Notes due 2011, on commercially
reasonable terms or at all.
CRITICAL ACCOUNTING POLICIES
Discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles accepted in the United States. The preparation of
these financial statements requires that we make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
21
and expenses. The significant accounting policies are discussed in Note A of our
annual financial statements. These critical accounting policies are subject to
judgments and uncertainties, which affect the application of these policies. We
base our estimates on historical experience and on various other assumptions
believed to be reasonable under the circumstances. On an on-going basis, we
evaluate estimates. In the event estimates or assumptions prove to be different
from actual results, adjustments are made in subsequent periods to reflect more
current information. The material accounting policies that we believe are most
critical to the understanding of our financial position and results of
operations that require significant management estimates and judgments are
discussed below.
Losses on accounts receivable are based upon their current status,
historical experience and management's evaluation of existing economic
conditions. Significant changes in customer profitability or general economic
conditions may have a significant effect on our allowance for doubtful accounts.
Property, plant and equipment are recorded at cost. Depreciation is computed
principally using the straight-line method based upon estimated useful lives
ranging from 3 to 10 years for machinery and equipment and up to 39 years for
buildings. Amortization of leasehold improvements is provided over the terms of
the various leases. These estimates require assumptions that are believed to be
reasonable. Long-lived assets are tested for impairment annually and when an
event occurs that indicates impairment may exist.
IMPACT OF NEW ACCOUNTING POLICIES
On November 3, 2002, we adopted Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), Accounting for Goodwill and Other Intangibles, which
requires that goodwill and certain other intangible assets no longer be
amortized to earnings but instead be reviewed periodically for potential
impairment; Statement 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 long-lived
assets; Statement of Financial Accounting Standards No. 148 ("SFAS 148"),
Accounting for Stock Based Compensation-Transition and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
The adoption of these standards did not have a material impact on our
financial position or results from operations.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At February 01, 2003 we had no material foreign exchange contracts. We do
not enter into foreign exchange contracts for trading or speculative purposes.
SHORT-TERM AND LONG-TERM DEBT
We are exposed to interest rate risk primarily through our borrowing
activities. Our policy has been to utilize United States dollar denominated
borrowings to fund our working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements, while long-term debt is
generally used to finance long-term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and our future financing requirements.
On March 11, 2003, we entered into two interest rate swap agreements for an
8-year period ending September 1, 2011. In connection with the Senior Notes, we
exchanged fixed rate interest of 10.75% for variable rate interest. The interest
rate swap agreements have notional amounts of $50.0 million each. The variable
rates are equal to six month LIBOR plus 6.46% and 6.66%, respectively; except
for the initial period from March 11, 2003 to September 1, 2003, which will be
determined via linear interpolation.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after evaluating
the effectiveness of our controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) of the Securities and Exchange Act of 1934, as amended) within 90
days prior to filing this report, have concluded that as of such date the
disclosure controls and procedures were adequate and effective in ensuring that
material information relating to Plastipak would be made known to them by others
in the company.
There were no significant changes in internal controls or other factors that
could significantly affect Plastipak's disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any significant
deficiencies or material weaknesses in Plastipak's internal controls. As a
result, no corrective actions were required or undertaken.
23
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Chief Executive Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K. None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLASTIPAK HOLDINGS, INC.
Dated: March 18, 2003 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
25
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, William C. Young, the principal executive officer of Plastipak Holdings,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
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. Plastipak'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 Plastipak and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to Plastipak, 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 Plastipak'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. Plastipak's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Plastipak'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 Plastipak's ability to record,
process, summarize and report financial data and have identified for
Plastipak'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 Plastipak's internal controls;
and
6. Plastipak's other certifying officers and I have indicated in this quarterly
report whether or not 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: March 18, 2003
/s/ William C. Young
------------------------
William C. Young
Chief Executive Officer
Plastipak Holdings, Inc.
26
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
AND SECURITIES AND EXCHANGE COMMISSION RELEASE 34-46427
I, Michael J. Plotzke, the principal financial officer of Plastipak Holdings,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Plastipak Holdings,
Inc.;
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. Plastipak'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 Plastipak and we have:
(d) designed such disclosure controls and procedures to ensure that material
information relating to Plastipak, 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;
(e) evaluated the effectiveness of Plastipak'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
(f)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. Plastipak's other certifying officers and I have disclosed, based on our most
recent evaluation, to our auditors and the audit committee of Plastipak's board
of directors (or persons performing the equivalent functions):
(c) all significant deficiencies in the design or operation of internal
controls which could adversely affect Plastipak's ability to record,
process, summarize and report financial data and have identified for
Plastipak's auditors any material weaknesses in internal controls; and
(d) any fraud, whether or not material, that involves management or other
employees who have a significant role in Plastipak's internal controls;
and
6. Plastipak's other certifying officers and I have indicated in this quarterly
report whether or not 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: March 18, 2003 /s/ Michael J. Plotzke
------------------------------
Michael J. Plotzke
Chief Financial Officer
Plastipak Holdings, Inc.
27
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-oxley Act of 2002