<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-40067
PLIANT CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0496065
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2755 E. Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
(801) 993-8200
(Address of principal executive offices and telephone number)
Huntsman Packaging Corporation
500 Huntsman Way
Salt Lake City, Utah 84108
(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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On November 13, 2000, there
were 574,006 outstanding shares of the registrant's Common Stock.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,192 $ 9,097
Receivables, net of allowances of $1,363 and $2,115, respectively 123,166 122,634
Inventories 78,686 78,199
Prepaid expenses and other 4,021 2,644
Income taxes receivable 10,089 2,691
Deferred income taxes 7,800 5,408
--------- ---------
Total current assets 236,954 220,673
PLANT AND EQUIPMENT, net 332,484 314,452
INTANGIBLE ASSETS, net 208,102 214,956
OTHER ASSETS 29,975 18,942
--------- ---------
TOTAL ASSETS $ 807,515 $ 769,023
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 6,488 17,120
Trade accounts payable $ 88,538 $ 60,056
Accrued liabilities 45,000 34,936
Due to affiliates 4,715
--------- ---------
Total current liabilities 140,026 116,827
LONG-TERM DEBT, net of current portion 678,158 493,262
OTHER LIABILITIES 23,130 13,983
DEFERRED INCOME TAXES 47,460 51,363
--------- ---------
Total liabilities 888,774 675,435
--------- ---------
REDEEMABLE COMMON STOCK - Class C nonvoting, no par value; 60,000 shares
authorized; 49,511 shares outstanding, net of related stockholders'
notes receivable of $2,795 in 1999 2,926
--------- ---------
REDEEMABLE PREFERRED STOCK - 200,000 shares authorized, 100,000 shares
outstanding and designated as Series A, no par value, with a
redemption and liquidation value of $1,000 per share in 2000 80,512
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - Class A voting, no par value; 1,200,000 shares authorized,
1,000,001 shares outstanding in 1999 63,161
Common stock - Class B voting, no par value; 10,000 shares authorized,
6,999 shares outstanding in 1999 515
Common stock - no par value; 10,000,000 shares authorized, 574,006
shares outstanding in 2000 108,656
Warrants 26,500
Retained earnings (deficit) (271,400) 32,042
Stockholders' notes receivable (19,440) (299)
Cumulative foreign currency translation adjustment (6,087) (4,757)
--------- ---------
Total stockholders' equity (deficit) (161,771) 90,662
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 807,515 $ 769,023
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES - Net $ 202,842 $ 200,529 $ 619,327 $ 561,765
COST OF SALES 168,586 161,335 505,812 445,506
--------- --------- --------- ---------
Gross profit 34,256 39,194 113,515 116,259
--------- --------- --------- ---------
OPERATING EXPENSES:
Administration and other 12,283 11,393 49,873 34,502
Sales and marketing 6,867 6,324 20,159 18,811
Research and development 1,212 1,367 3,419 4,228
Compensation and transaction costs
related to recapitalization 2,405 9,031
Plant closing costs 2,497 2,497
--------- --------- --------- ---------
Total operating expenses 22,767 21,581 82,482 60,038
--------- --------- --------- ---------
OPERATING INCOME 11,489 17,613 31,033 56,221
INTEREST EXPENSE (21,087) (11,216) (46,935) (32,273)
OTHER INCOME (EXPENSE) - Net (25) 514 (183) 323
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS (9,623) 6,911 (16,085) 24,271
INCOME TAX PROVISION (BENEFIT) (3,083) 2,790 (2,102) 10,721
--------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS (6,540) 4,121 (13,983) 13,550
EXTRAORDINARY LOSS
(net of income tax benefit of $7,500) (11,250)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (6,540) $ 4,121 $ (25,233) $ 13,550
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (25,233) $ 13,550
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 28,707 25,866
Deferred income taxes (4,209) 4,661
Reduction in provision for losses on accounts receivable (752) (960)
Noncash compensation expense 1,223 270
Provision for write-down of long-term assets 1,370
Loss on disposal of assets 474 102
Extraordinary loss 11,250
Changes in assets and liabilities:
Receivables 313 (25,884)
Inventories (487) (11,285)
Prepaid expenses and other (1,377) 643
Other assets 2,181 2,206
Trade accounts payable 28,482 9,435
Accrued liabilities 10,120 1,353
Due to affiliates (4,715) (2,270)
Income taxes receivable (1,909) 3,786
Other liabilities 4,479 2,449
--------- ---------
Net cash provided by operating activities 48,547 25,292
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 40
Capital expenditures for plant and equipment (40,080) (25,719)
--------- ---------
Net cash used in investing activities (40,080) (25,679)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized loan fees (21,928)
Payment of fees from tender offer (10,055)
Redemption of common stock (314,034)
Net proceeds from issuance of stock and net change in
related stockholders' notes receivables 161,255 1,032
Principal payments on borrowings (517,494) (8,395)
Proceeds from issuance of long-term debt 699,508 328
--------- ---------
Net cash used in financing activities (2,748) (7,035)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (1,624) 1,882
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,095 (5,540)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 9,097 19,217
--------- ---------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 13,192 $ 13,677
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 34,661 $ 24,263
========= =========
Income taxes $ 986 $ (2,906)
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
PLIANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without audit, in accordance with U.S. generally accepted
accounting principles and pursuant to the rules and regulations of the
Securities and Exchange Commission. The information reflects all normal
recurring adjustments that, in the opinion of management, are necessary
for a fair presentation of the financial position, results of operations
and cash flows of Pliant Corporation and its subsidiaries ("Pliant" or
the "Company") as of the dates and for the periods presented. Results of
operations for the interim periods are not necessarily indicative of
results of operations to be expected for the full fiscal year.
Certain information in footnote disclosures normally included in
financial statements presented in accordance with U.S. generally
accepted accounting principles has been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. These statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31,
1999.
2. RECAPITALIZATION
On March 31, 2000, we, together with our then existing stockholders,
entered into an agreement (the "Recapitalization Agreement") with Chase
Domestic Investments, L.L.C., a newly formed Delaware limited liability
company ("Investor L.L.C."), and an affiliate of Chase Capital Partners
("CCP"), whereby Investor L.L.C. agreed to acquire majority ownership in
the Company in a recapitalization transaction.
Pursuant to the Recapitalization Agreement, we redeemed all of the
shares of our common stock held by Jon M. Huntsman, our founder, then
majority stockholder and then Chairman of the Board (the "Equity
Redemption") for approximately $314.0 million. Investor L.L.C. purchased
approximately one-half of the shares of our common stock held
collectively by The Christena Karen H. Durham Trust (the "Trust") and by
members of our senior management (the "Management Investors") for
approximately $101.8 million. Investor L.L.C. and certain other
institutional investors also purchased (the "Investor Common Equity
Contribution") shares of common stock directly from us for approximately
$63.5 million. The Trust and the Management Investors retained
approximately one-half of the shares of our common stock collectively
owned by them prior to the recapitalization. In addition, we issued to
Investor L.L.C. and certain other institutional investors a new series
of senior cumulative exchangeable redeemable preferred stock (the "New
Preferred Stock") and detachable warrants for our common stock (the "New
Preferred Stock Warrants") for net consideration of approximately $98.5
million, of which approximately $80.0 was allocated to the New Preferred
Stock and $18.5 million was allocated to the New Preferred Stock
Warrants, based on the relative fair market values of the instruments.
The foregoing transactions are collectively referred to as the
"Recapitalization." The Recapitalization was consummated on May 31,
2000. The total consideration paid in the Recapitalization was
approximately $1.1 billion, including transaction costs.
At September 30, 2000, Investor L.L.C. owned approximately 55.3% of our
outstanding common stock, certain other institutional investors owned
approximately 4.3% of our outstanding common
5
<PAGE> 6
stock, and the Trust, the Management Investors and certain of our
officers owned approximately 40.4% of our outstanding common stock.
We incurred $2.4 million and $9.0 million of fees and expenses in
connection with the Recapitalization in the three and nine month periods
ended September 30, 2000, respectively, and these fees and expenses are
included in "compensation and transaction costs related to
recapitalization" in the accompanying condensed consolidated statement
of income. The accounting for the Recapitalization did not result in
changes to the historical cost presentation of our assets and
liabilities.
In connection with the Recapitalization, we purchased all of our
outstanding $125.0 million principal amount of 9-1/8% Senior
Subordinated Notes due 2007 (the "9-1/8% Notes") pursuant to a tender
offer (the "Tender Offer") and discharged our obligations under the
related indenture.
Upon closing of the Recapitalization, we issued 220,000 Units (the
"Units") consisting of $220.0 million principal amount of 13% Senior
Subordinated Notes due 2010 (the "Notes") and Warrants (the "Note
Warrants") to purchase 18,532 shares of common stock. The Senior
Subordinated Notes were issued at a discount of approximately $5.9
million and we allocated approximately $8.0 million to Note Warrants and
approximately $206.1 million to Notes based on the relative fair market
values of each instrument. The discount and the amount allocated to the
Note Warrants are being amortized over the life of the Notes. The Units
were issued in a transaction exempt from the registration requirements
under the Securities Act of 1933. The Notes are unsecured. The Notes are
subordinated to all of our existing and future senior debt, rank equally
with any future senior subordinated debt and rank senior to any future
subordinated debt. The Notes are guaranteed by some of our subsidiaries.
The Note Warrants became exercisable on August 29, 2000, and mature on
June 1, 2010.
Upon closing of the offering of the Units and the Recapitalization, we
refinanced all amounts outstanding under our prior credit facility (the
"Prior Credit Facility") and replaced the Prior Credit Facility with
amended and restated senior secured credit facilities (the "New Credit
Facilities") with The Chase Manhattan Bank, Bankers Trust Company, The
Bank of Nova Scotia and a syndicate of banking institutions. The New
Credit Facilities consist of a $200.0 million senior secured tranche A
facility, $40.0 million of which was made available to our principal
Mexican subsidiary (the "Tranche A Facility"), a $280.0 million senior
secured tranche B facility (the "Tranche B Facility") and a $100.0
million revolving credit facility (the "Revolving Credit Facility").
Included in extraordinary loss is a $5.25 million charge (net of tax)
for the write off of capitalized loan fees associated with the 9-1/8%
Notes and the Prior Credit Facility and a $6.0 million charge (net of
tax) for the Tender Offer payment to the holders of the 9-1/8% Notes.
Long-term debt outstanding as of September 30, 2000 consists of the
following (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
New Credit Facilities:
Tranche A Facility $ 196,000
Tranche B Facility 280,000
Notes (net of original issue discount and
Note Warrants being amortized of $13,671) 206,329
Obligations under capital leases 405
Insurance obligations 1,912
---------
Total 684,646
Less current portion (6,488)
---------
Long-term portion $ 678,158
=========
</TABLE>
6
<PAGE> 7
On October 9, 2000, we changed our name to Pliant Corporation, as required by
the Recapitalization Agreement.
3. INVENTORIES
Inventories are valued at the lower of cost (using the first-in,
first-out method) or market value. Inventories as of September 30, 2000
and December 31, 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Finished goods $46,489 $41,408
Raw materials 24,366 28,910
Work-in-process 7,831 7,881
------- -------
Total $78,686 $78,199
======= =======
</TABLE>
4. PLANT CLOSING COSTS
During the nine months ended September 30, 1999, we announced our plan
to cease operations at one of our facilities located in Mexico City,
Mexico. Included in 1999 operating expenses is a $2.3 million charge,
comprised of a $1.3 million write-off of impaired goodwill and fixed
assets, and a $1.0 million charge for reduction of work force costs
associated with the elimination of 110 full-time equivalent employees.
In addition, we announced our plan to cease the production of one of our
product lines at our Kent, Washington facility. Included in 1999
operating expenses is a $0.2 million charge for the write-off of
impaired fixed assets and for reduction of work force costs associated
with the elimination of 36 full-time equivalent employees.
5. COMPREHENSIVE INCOME (LOSS)
The following table reports comprehensive income (loss) for the three
and nine months ended September 30, 2000 and 1999 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (6,540) $ 4,121 $(25,233) $ 13,550
Foreign currency translation adjustments 730 1,364 (1,330) 1,824
-------- -------- -------- --------
Comprehensive income (loss) $ (5,810) $ 5,485 $(26,563) $ 15,374
======== ======== ======== ========
</TABLE>
6. OPERATING SEGMENTS
Operating segments are components of the Company for which separate
financial information is available that is evaluated regularly by our
chief operating decision maker in deciding how to allocate resources and
in assessing performance. This information is reported on the same basis
that is used internally for evaluating segment performance.
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<PAGE> 8
We have three reportable operating segments: specialty films, design
products and industrial films. The specialty films segment produces
converter films that are sold to other flexible packaging manufacturers
for additional fabrication, barrier films used to package and protect
food and other products, and other films used in the personal care,
medical and agriculture industries. The design products segment produces
printed rollstock, bags and sheets used to package products in the food
and other industries. The industrial films segment produces stretch
films, used for industrial unitizing and containerization, and PVC
films, used to wrap meat, cheese and produce.
Sales and transfers between our segments are eliminated in
consolidation. We evaluate performance of the operating segments based
on profit or loss before income taxes, not including nonrecurring gains
or losses. Our reportable segments are managed separately with separate
management teams, because each segment has different products, customer
requirements, technology and marketing strategies.
Segment profit or loss and segment assets as of and for the three months
ended September 30, 2000 and 1999 are presented in the following table
(in thousands):
<TABLE>
<CAPTION>
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000
Net sales to customers $ 53,626 $ 41,319 $ 107,897 $ $ 202,842
Intersegment sales 878 1,329 1,927 (4,134)
--------- --------- --------- --------- ---------
Total net sales 54,504 42,648 109,824 (4,134) 202,842
Depreciation and amortization
2,262 1,238 5,212 947 9,659
Interest expense 902 89 4,327 15,769 21,087
Segment profit (loss) 4,334 3,719 5,338 (20,609) (7,218)
Transaction costs 2,405 2,405
Segment total assets 177,510 91,042 447,991 90,972 807,515
Capital expenditures 4,782 1,262 4,482 4,369 14,895
1999
Net sales to customers 43,534 38,765 118,230 200,529
Intersegment sales 2,881 1,425 1,360 (5,666)
--------- --------- --------- --------- ---------
Total net sales 46,415 40,190 119,590 (5,666) 200,529
Depreciation and amortization
2,078 1,148 4,764 983 8,973
Interest expense 895 88 3,486 6,747 11,216
Segment profit 1,739 2,893 14,919 (10,143) 9,408
Plant closing costs 2,497 2,497
Segment total assets 160,586 96,343 445,019 60,346 762,294
Capital expenditures 973 1,330 5,416 884 8,603
</TABLE>
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<PAGE> 9
Segment profit or loss for the nine months ended September 30, 2000 and
1999 are presented in the following table (in thousands):
<TABLE>
<CAPTION>
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000
Net sales to customers $ 155,945 $ 122,119 $ 341,263 $ $ 619,327
Intersegment sales 3,655 4,051 6,100 (13,806)
--------- --------- --------- --------- ---------
Total net sales 159,600 126,170 347,363 (13,806) 619,327
Depreciation and amortization
6,699 3,747 15,539 2,722 28,707
Interest expense 2,681 263 12,204 31,787 46,935
Segment profit (loss) 10,849 12,845 27,230 (57,978) (7,054)
Transaction costs 9,031 9,031
Capital expenditures 8,986 6,794 15,977 8,323 40,080
1999
Net sales to customers 122,017 110,046 329,702 561,765
Intersegment sales 5,356 2,265 3,918 (11,539)
--------- --------- --------- --------- ---------
Total net sales 127,373 112,311 333,620 (11,539) 561,765
Depreciation and amortization
5,929 3,417 14,029 2,491 25,866
Interest expense 2,473 262 10,265 19,273 32,273
Segment profit 5,740 11,600 43,093 (33,665) 26,768
Plant closing costs 2,497 2,497
Capital expenditures 4,958 4,724 13,307 2,730 25,719
</TABLE>
A reconciliation of the totals reported for the operating segments to our totals
reported in the consolidated condensed financial statements is as follows (in
thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
3 months 9 months 3 months 9 months
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PROFIT OR LOSS
Total profit for reportable segments $ 13,391 $ 50,924 $ 19,551 $ 60,433
Transaction costs (2,405) (9,031)
Plant closing costs (2,497) (2,497)
Unallocated amounts:
Corporate expenses (4,840) (26,191) (3,396) (14,392)
Interest expense (15,769) (31,787) (6,747) (19,273)
--------- --------- --------- ---------
Income before taxes and
extraordinary loss $ (9,623) $ (16,085) $ 6,911 $ 24,271
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Total assets for reportable segments $ 716,543 $ 701,948
Intangible assets not allocated to segments 15,183 16,494
Other unallocated assets 75,789 43,852
--------- ---------
Total consolidated assets $ 807,515 $ 762,294
========= =========
</TABLE>
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<PAGE> 10
7. STOCK OPTIONS AND RESTRICTED STOCK
During 1998, our board of directors adopted the 1998 Pliant Corporation
Stock Option Plan. The 1998 plan authorized grants of nonqualified stock
options covering up to 41,956 shares of our nonvoting Class C common
stock. During 1998, we granted options covering a total of 41,956 shares
under the 1998 plan. Options covering 5,244 shares were subsequently
canceled. In addition, outstanding options covering 26,223 shares under
the 1998 plan were canceled on February 22, 1999 in connection with the
sale of 26,223 shares of Class C common stock to certain members of our
senior management. Options covering a total of 8,902 shares issued under
the 1998 Plan were "rolled-over" in the Recapitalization.
Pursuant to the Recapitalization, we adopted a 2000 stock-based
incentive compensation plan. The 2000 plan became effective as of the
consummation of the Recapitalization and authorizes grants to our
management employees as designated by the compensation committee of our
board of directors of nonqualified stock options or restricted stock
covering 51,010 shares of our common stock. As of September 30, 2000, we
had granted restricted stock covering 32,750 shares of common stock and
options to acquire 15,435 shares of common stock. The options or
restricted common stock will vest as follows: (1) one-sixth are
"time-vested" options or shares, which will vest on January 1, 2001, so
long as the recipient is still our employee on such date, and (2) the
remainder are "performance vested" options or shares, which will vest in
equal increments over a five-year period commencing on December 31, 2000
as follows: (a) vesting in full, if 100% or more of the applicable
target market value of equity is achieved as of the end of the
applicable calendar year and (b) partial vesting if more than 90% of the
applicable target market value of equity is achieved as of the end of
the applicable calendar year. Moreover, all performance vested options
or shares not previously vested in accordance with the preceding
sentence will vest automatically in full on December 31, 2009 so long as
the recipient is still our employee on such date.
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Pliant (on a parent only
basis), with its investment in its subsidiaries recorded under the
equity method, (ii) guarantor subsidiaries (as specified in the
Indenture, dated May 31, 2000 (the "Indenture") relating to Pliant's
$220 million senior subordinated notes due 2010 (the "Notes")) on a
combined basis, with any investments in non-guarantor subsidiaries
specified in the Indenture recorded under the equity method, (iii)
direct and indirect non-guarantor subsidiaries on a combined basis, (iv)
the eliminations necessary to arrive at the information for Pliant and
its subsidiaries on a consolidated basis, and (v) Pliant on a
consolidated basis, in each case as of September 30, 2000 and December
31, 1999 and for the three and nine months ended September 30, 2000 and
1999. The Notes are fully and unconditionally guaranteed on a joint and
several basis by each guarantor subsidiary and each guarantor subsidiary
is wholly owned, directly or indirectly, by Pliant. There are no
contractual restrictions limiting transfers of cash from guarantor and
non-guarantor subsidiaries to Pliant.
10
<PAGE> 11
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2000 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLIANT COMBINED COMBINED CONSOLIDATED
CORPORATION GUARANTOR NON-GUARANTOR PLIANT
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,090 $ 20 $ 6,082 $ 13,192
Receivables - net 79,548 25,966 17,652 123,166
Inventories 56,367 14,290 8,029 78,686
Income taxes receivable 10,436 136 (483) 10,089
Deferred income taxes 9,116 426 (1,742) 7,800
Prepaid expenses and other 2,513 505 1,003 4,021
--------- --------- --------- ---------
Total current assets 165,070 41,343 30,541 236,954
PLANT AND EQUIPMENT - Net 201,693 84,988 45,803 332,484
INTANGIBLE ASSETS - Net 50,862 139,489 17,751 208,102
INVESTMENT IN SUBSIDIARIES 67,320 $ (67,320)
OTHER ASSETS 27,562 144 2,269 29,975
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 512,507 $ 265,964 $ 96,364 $ (67,320) $ 807,515
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt 6,038 450 6,488
Trade accounts payable $ 61,573 $ 14,489 $ 12,476 $ 88,538
Accrued liabilities 36,669 2,679 5,652 45,000
Due to (from) affiliates (12,590) 18,804 (6,214)
--------- --------- --------- ---------
Total current liabilities 91,690 35,972 12,364 140,026
LONG-TERM DEBT - Net of current portion 454,704 184,000 39,454 678,158
OTHER LIABILITIES 20,309 1,431 1,390 23,130
DEFERRED INCOME TAXES 27,063 18,465 1,932 47,460
--------- --------- --------- ---------
Total liabilities 593,766 239,868 55,140 888,774
--------- --------- --------- ---------
REDEEMABLE PREFERRED STOCK 80,512 80,512
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 108,656 20,377 29,241 $ (49,618) 108,656
Warrants 26,500 26,500
Retained earnings (deficit) (271,400) 5,730 16,554 (22,284) (271,400)
Stockholders' note receivable (19,440) (19,440)
Foreign currency translation adjustment (6,087) (11) (4,571) 4,582 (6,087)
--------- --------- --------- --------- ---------
Total stockholders' equity (deficit) (161,771) 26,096 41,224 (67,320) (161,771)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 512,507 $ 265,964 $ 96,364 $ (67,320) $ 807,515
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION> COMBINED
PLIANT COMBINED NON- CONSOLIDATED
CORPORATION GUARANTOR GUARANTOR PLIANT
(PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,212 $ 536 $ 7,349 $ 9,097
Receivables, net 75,053 27,238 20,343 122,634
Inventories 56,646 13,560 7,993 78,199
Income taxes receivable 3,486 212 (1,007) 2,691
Deferred income taxes 6,715 426 (1,733) 5,408
Prepaid expenses and other 2,127 101 416 2,644
--------- --------- -------- ---------
Total current assets 145,239 42,073 33,361 220,673
PLANT AND EQUIPMENT, net 184,444 83,742 46,266 314,452
INTANGIBLE ASSETS, net 52,676 143,836 18,444 214,956
INVESTMENT IN SUBSIDIARIES 61,533 $(61,533)
OTHER ASSETS 16,593 144 2,205 18,942
--------- --------- --------- -------- ---------
TOTAL ASSETS $ 460,485 $ 269,795 $ 100,276 $(61,533) $ 769,023
========= ========= ========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 13,464 3,656 17,120
Trade accounts payable $ 39,293 $ 10,780 $ 9,983 $ 60,056
Accrued liabilities 25,238 3,468 6,230 34,936
Due to (from) affiliates (19,737) 27,781 (3,329) 4,715
--------- --------- --------- ---------
Total current liabilities 58,258 42,029 16,540 116,827
LONG-TERM DEBT, net of current portion 267,107 184,000 42,155 493,262
OTHER LIABILITIES 10,741 1,733 1,509 13,983
DEFERRED INCOME TAXES 30,791 18,465 2,107 51,363
--------- --------- --------- ---------
Total liabilities 366,897 246,227 62,311 675,435
--------- --------- --------- ---------
REDEEMABLE COMMON STOCK 2,926 2,926
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 63,676 20,377 29,241 $(49,618) 63,676
Retained earnings 32,042 3,184 11,949 (15,133) 32,042
Shareholder note receivable (299) (299)
Cumulative foreign currency
translation adjustments (4,757) 7 (3,225) 3,218 (4,757)
--------- --------- --------- -------- ---------
Total stockholders' equity 90,662 23,568 37,965 (61,533) 90,662
--------- --------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 460,485 $ 269,795 $ 100,276 $(61,533) $ 769,023
========= ========= ========= ======== =========
</TABLE>
12
<PAGE> 13
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 135,946 $ 43,083 $ 27,947 $ (4,134) $ 202,842
COST OF SALES 116,341 35,085 21,294 (4,134) 168,586
--------- --------- --------- --------- ---------
Gross profit 19,605 7,998 6,653 34,256
OPERATING EXPENSES 16,209 3,836 2,722 22,767
--------- --------- --------- ---------
OPERATING INCOME 3,396 4,162 3,931 11,489
INTEREST EXPENSE (15,775) (4,322) (990) (21,087)
EQUITY IN EARNINGS OF SUBSIDIARIES 1,177 (1,177)
OTHER INCOME (453) 16 412 (25)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (11,655) (144) 3,353 (1,177) (9,623)
INCOME TAX PROVISION (BENEFIT) (5,115) 525 1,507 (3,083)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (6,540) $ (669) $ 1,846 $ (1,177) $ (6,540)
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 136,714 $ 42,068 $ 27,413 $ (5,666) $ 200,529
COST OF SALES 115,376 30,860 20,765 (5,666) 161,335
--------- --------- --------- -------- ---------
Gross profit 21,338 11,208 6,648 39,194
OPERATING EXPENSES 13,193 3,265 5,123 21,581
--------- --------- --------- -------- ---------
OPERATING INCOME 8,145 7,943 1,525 17,613
INTEREST EXPENSE (6,780) (3,480) (956) (11,216)
EQUITY IN EARNINGS OF SUBSIDIARIES 2,724 (2,724)
OTHER INCOME 122 (24) 416 514
--------- --------- --------- -------- ---------
INCOME BEFORE INCOME TAXES 4,211 4,439 985 (2,724) 6,911
INCOME TAX PROVISION 90 2,345 355 2,790
--------- --------- --------- -------- ---------
NET INCOME $ 4,121 $ 2,094 $ 630 $ (2,724) $ 4,121
========= ========= ========= ======== =========
</TABLE>
14
<PAGE> 15
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 406,857 $ 145,029 $ 81,247 $ (13,806) $ 619,327
COST OF SALES 343,252 114,188 62,178 (13,806) 505,812
--------- --------- --------- ---------- ---------
Gross profit 63,605 30,841 19,069 113,515
OPERATING EXPENSES 62,923 11,115 8,444 82,482
--------- --------- --------- ---------
OPERATING INCOME 682 19,726 10,625 31,033
INTEREST EXPENSE (31,804) (12,185) (2,946) (46,935)
EQUITY IN EARNINGS OF SUBSIDIARIES 7,401 (7,401)
OTHER INCOME (EXPENSE) (796) (395) 1,008 (183)
--------- --------- --------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS
(24,517) 7,146 8,687 (7,401) (16,085)
INCOME TAX PROVISION (BENEFIT) (10,534) 4,600 3,832 (2,102)
--------- --------- --------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
(13,983) 2,546 4,855 (7,401) (13,983)
EXTRAORDINARY LOSS (11,250) (11,250)
--------- --------- --------- ---------- ---------
NET INCOME (LOSS) $ (25,233) $ 2,546 $ 4,855 $ (7,401) $ (25,233)
========= ========= ========= ========== =========
</TABLE>
15
<PAGE> 16
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
(Parent Only) Subsidiaries Subsidiaries Eliminations Corporation
------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 382,863 $ 114,921 $ 75,520 $ (11,539) $ 561,765
COST OF SALES 316,822 83,418 56,805 (11,539) 445,506
--------- --------- --------- --------- ---------
Gross profit 66,041 31,503 18,715 116,259
OPERATING EXPENSES 41,533 8,634 9,871 60,038
--------- --------- --------- ---------
OPERATING INCOME 24,508 22,869 8,844 56,221
INTEREST EXPENSE (19,319) (10,241) (2,713) (32,273)
EQUITY IN EARNINGS OF SUBSIDIARIES 10,356 (10,356)
OTHER INCOME (EXPENSE) (308) (36) 667 323
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 15,237 12,592 6,798 (10,356) 24,271
INCOME TAX PROVISION 1,687 6,460 2,574 10,721
--------- --------- --------- --------- ---------
NET INCOME $ 13,550 $ 6,132 $ 4,224 $ (10,356) $ 13,550
========= ========= ========= ========= =========
</TABLE>
16
<PAGE> 17
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES $ 32,163 $ 7,019 $ 9,365 $ 48,547
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (30,262) (7,517) (2,301) (40,080)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized loan fees (21,928) (21,928)
Payment of fees from tender offer (10,055) (10,055)
Redemption of common stock (314,034) (314,034)
Proceeds from issuance of common stock and net
change in related stockholders' notes
receivables 161,255 161,255
Proceeds from issuance of (payments on)
long-term debt 187,921 (5,907) 182,014
--------- --------- ---------
Net cash provided by (used in) financing
activities 3,159 (5,907) (2,748)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 818 (18) (2,424) (1,624)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,878 (516) (1,267) 4,095
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 1,212 536 7,349 9,097
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 7,090 $ 20 $ 6,082 $ 13,192
========= ========= ========= =========
</TABLE>
17
<PAGE> 18
PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (IN THOUSANDS) (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pliant Combined Combined Consolidated
Corporation Guarantor Non-Guarantor Pliant
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES $ 6,718 $ 15,147 $ 3,427 $ 25,292
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 32 8 40
Capital expenditures for plant and equipment (17,955) (5,428) (2,336) (25,719)
-------- -------- -------- --------
Net cash used in investing activities (17,923) (5,420) (2,336) (25,679)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,032 1,032
Proceeds from issuance of (payments on)
long-term debt 3,820 (10,200) (1,687) (8,067)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities 4,852 (10,200) (1,687) (7,035)
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (216) 2,098 1,882
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,569) (473) 1,502 (5,540)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 7,381 525 11,311 19,217
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 812 $ 52 $ 12,813 $ 13,677
======== ======== ======== ========
</TABLE>
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999
10-K") and our Registration Statement on Form S-4 (file no. 333-42008), which
was declared effective by the Securities and Exchange Commission on August 29,
2000. This section contains certain "forward-looking statements" within the
meaning of federal securities laws. These forward-looking statements involve
risks and uncertainties, including statements regarding our plans, objectives,
goals, strategies and financial performance. Our actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of factors set forth under "Cautionary Statement for Forward-Looking
Information" below and elsewhere in this report.
GENERAL
On May 31, 2000, we consummated a recapitalization (the
"Recapitalization") pursuant to an agreement dated March 31, 2000 among us, our
then existing shareholders and Chase Domestic Investments, L.L.C., an affiliate
of Chase Capital Partners. The Recapitalization was valued at approximately $1.1
billion, including transaction costs. See Note 2 to the consolidated financial
statements included elsewhere in this report for a discussion of the
transactions that occurred in connection with the Recapitalization and the
related financing thereof.
We generate our revenues, earnings and cash flows from the sale of film
and flexible packaging products throughout the world. We manufacture these
products at 24 facilities located in North America, Europe and Australia. Our
sales have grown primarily as a result of strategic acquisitions made over the
past several years, increased levels of production at acquired facilities and
the overall growth in the markets for our film and flexible packaging products.
We intend to implement certain cost saving initiatives during the fourth
quarter of 2000. These include closure of our Dallas, Texas facility, a
reduction in production and workforce at our Harrington, Delaware and
Birmingham, Alabama facilities, and a company-wide reduction in workforce of
approximately 50 salaried positions. We estimate a restructure charge in the
fourth quarter of 2000, of which we estimate approximately $5 million will
consist of a cash charge. We estimate annual savings of approximately $12
million from these actions.
RESULTS OF OPERATIONS
The following table sets forth net sales and expenses, and such amounts
as a percentage of net sales, for the three and nine months ended September 30,
2000 and 1999 (dollars in millions).
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
% of % of % of % of
$ Sales $ Sales $ Sales $ Sales
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales-net $202.8 100.0% $200.5 100.0% $619.3 100.0% $561.8 100.0%
Cost of sales 168.5 83.1 161.3 80.4 505.8 81.7 445.5 79.3
------ ------ ------ ------ ------ ------ ------ ------
Gross profit 34.3 16.9 39.2 19.6 113.5 18.3 116.3 20.7
Total operating expenses 22.8 11.2 21.6 10.8 82.5 13.3 60.1 10.7
------ ------ ------ ------ ------ ------ ------ ------
Operating income $ 11.5 5.7% $ 17.6 8.8% $ 31.0 5.0% $ 56.2 10.0%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
19
<PAGE> 20
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net Sales
Net sales increased by $2.3 million, or 1.1%, from $200.5 million, for
the third quarter of 1999, to $202.8 million, for the three months ended
September 30, 2000. The increase was the result of a 6.2% increase in our
average selling prices, partially offset by a 4.8% decrease in sales volume. The
average selling price increase was primarily due to the general pass-through to
customers of increased resin costs, the primary raw material used to produce our
films. For the three months ended September 30, 2000, we had total net trade
sales volume of 192.7 million pounds, compared with 202.4 million pounds in the
third quarter of 1999. This decrease in sales volume was primarily due to
inventory de-stocking, product line rationalizations by our customers and
insourcing by one of our most significant customers of a specific film product.
Gross Profit
Gross profit decreased by $4.9 million, or 12.5%, from $39.2 million,
for the third quarter of 1999, to $34.3 million, for the three months ended
September 30, 2000. This decrease was primarily due to reduced gross profit
margins, which more than offset the increase in net sales for the period. The
decrease in gross profit margins was due, in part, to our inability to
immediately pass-through and recover rising resin prices in 2000. Although resin
prices began to decline during the third quarter, the third quarter results
still reflect lower margins. Resin cost, as a percentage of sales, was 80 basis
points higher for the third quarter of 2000, compared to the third quarter of
1999, as a result of both higher prices from suppliers and increased resin
consumption by the Company. In addition, we experienced the secondary impact of
lower volumes with less favorable product mix and associated line start up and
changeover inefficiencies. Cash conversion cost was higher for the third quarter
of 2000 than the third quarter of 1999, due to increases in direct labor,
packaging, energy and indirect plant costs.
Total Operating Expenses
Total operating expenses increased by approximately $1.2 million, or
5.6%, from $21.6 million, for the third quarter of 1999, to $22.8 million, for
the three months ended September 30, 2000. In 2000, we incurred $2.4 million of
costs related to the Recapitalization, of which $1.9 million of these costs was
incentive compensation accrued in accordance with the terms of a "stay" bonus
plan. We had $2.5 million of costs due to plant closing costs during the third
quarter of 1999. In addition, in 2000 we incurred $0.6 million of legal and
administrative expenses associated with negotiating an amendment to our New
Credit Facilities (see Liquidity and Capital Resources) and $0.4 million of fees
and expenses associated with a company-wide supply chain improvement initiative.
We began our supply chain initiative in the fourth quarter of 1999 with the
assistance of A.T. Kearney, a management consulting firm. The project is focused
on improving the efficiency of our operations. In March 2000, we began
implementing specific improvement projects and currently expect that identified
projects should be fully implemented by the end of 2001.
Operating Income
Operating income decreased by $6.1 million, or 34.7%, from $17.6
million, for the third quarter of 1999, to $11.5 million, for the three months
ended September 30, 2000, as a result of the factors discussed above.
20
<PAGE> 21
Interest Expense
Interest expense increased by $9.9 million, or 88.4%, from $11.2
million, for the three months ended September 30, 1999, to $21.1 million, for
the three months ended September 30, 2000. As a result of our May 31, 2000
Recapitalization, interest expense increased significantly compared to the prior
year. Included in interest expense in the third quarter of 2000 is $1.4 million
for an amendment fee representing 25 basis points on our outstanding New Credit
Facilities at September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net Sales
Net sales increased by $57.5 million, or 10.2%, from $561.8 million, for
the first nine months of 1999, to $619.3 million, for the nine months ended
September 30, 2000. The increase was the result of a 10.2% increase in our
average selling prices. The average selling price increase was primarily due to
the general pass-through to customers of increased resin costs. For the nine
months ended September 30, 2000, we had total net trade sales volume of 585.3
million pounds, compared with 584.9 million pounds in the comparable period in
1999.
Gross Profit
Gross profit decreased by $2.8 million, or 2.4%, from $116.3 million,
for the first nine months of 1999, to $113.5 million for the nine months ended
September 30, 2000. This decrease was primarily due to reduced gross profit
margins, which more than offset the increase in net sales for the period. The
decrease in gross profit margins was due, in part, to our inability to
immediately pass through and recover rising resin prices in 2000. Although resin
prices began to decline during the third quarter of 2000, third quarter results
still reflect lower margins. As a percentage of sales, raw material costs were
260 basis points higher in this period, as compared to the prior year.
Total Operating Expenses
Total operating expenses increased by $22.4 million, or 37.3%, from
$60.1 million, for the first nine months of 1999, to $82.5 million, for the nine
months ended September 30, 2000. Most of the increase resulted from three
significant items, which accounted for $20.3 million of the $22.4 million
increase. Excluding these three significant items, operating expenses as a
percentage of net sales were 10.0%, for the first nine months of 2000, compared
with 10.7%, for the first nine months of 1999.
Costs relating to the Recapitalization constituted the first significant
item affecting total operating expenses. We incurred $9.0 million of costs
related to the Recapitalization. These costs consisted of long-term incentive
compensation expense of $5.0 million, $2.5 million of incentive compensation
under a "stay bonus" plan accrued to date, and transaction fees and expenses of
$1.5 million. Under the provisions of our long-term incentive plans, certain
incentive payments were due upon a "change of control" in our ownership. Because
the Recapitalization was probable to occur and constituted a" change of control"
under our long-term incentive plans, we accrued a liability for the long-term
compensation due during the first quarter of 2000. These amounts were paid in
the second quarter.
The second significant item affecting total operating expenses was
noncash stock-based compensation expense. We incurred noncash stock-based
compensation expense of $1.2 million related to outstanding options to purchase
our Class C common stock. As a result of the Recapitalization, the stock options
fully vested and became exercisable upon the consummation of the
Recapitalization. The $1.2 million noncash stock-based compensation expense
recognizes the accelerated vesting of all performance-based stock options based
on the estimated per share purchase price implied in the
21
<PAGE> 22
Recapitalization. We incurred $0.3 million of noncash stock-based compensation
expense in the first nine months of 1999.
The third significant item affecting total operating expenses was our
company-wide supply chain initiative discussed above. We incurred fees and
expenses during the first nine months of 2000 totaling $10.1 million in
connection with this initiative.
Operating Income
Operating income decreased by $25.2 million, or 44.8%, from $56.2
million, for the first nine months of 1999, to $31.0 million, for the nine
months ended September 30, 2000, as a result of the factors discussed above.
Excluding the three significant items described above, operating income
decreased $4.9 million, or 8.7%, from $56.2 million for the first nine months of
1999, to $51.3 million for the first nine months of 2000.
Interest Expense
Interest expense increased by $14.6 million, or 45.2%, from $32.3
million, for the nine months ended September 30, 1999, to $46.9 million, for the
nine months ended September 30, 2000. As a result of our May 31, 2000
Recapitalization, interest expense increased significantly compared to the prior
year. Included in interest expense in 2000 is a $1.4 million amendment fee
(representing 25 basis points) on our outstanding New Credit Facilities at
September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Upon closing of the Recapitalization, we issued 220,000 Units (the
"Units") consisting of $220.0 million principal amount of 13% Senior
Subordinated Notes due 2010 (the "Notes") and Warrants (the "Note Warrants") to
purchase 18,532 shares of common stock. The Notes were issued at a discount of
approximately $5.9 million. The Units were issued in a transaction exempt from
the registration requirements under the Securities Act of 1933. On August 29,
2000, our registration statement relating to the exchange of the private Notes
for Notes registered under the Securities Act of 1933 was declared effective by
the Securities and Exchange Commission, and, as a result, the Notes and the Note
Warrants became separated. We consummated the exchange offer and issued $220.0
million of registered Notes for all of the private Notes on October 12, 2000.
The Notes are unsecured. The Notes are subordinated to all of our existing and
future senior debt, rank equally with any future senior subordinated debt and
rank senior to any future subordinated debt. The Notes are guaranteed by some of
our subsidiaries. The Note Warrants became exercisable on August 29, 2000, and
mature on June 1, 2010.
Upon closing of the offering of the Units and the Recapitalization, we
purchased all of our outstanding $125.0 million principal amount of 9-1/8%
Senior Subordinated Notes due 2007, refinanced all amounts outstanding under our
prior credit facility (the "Prior Credit Facility") and replaced the Prior
Credit Facility with amended and restated senior secured credit facilities (the
"New Credit Facilities") with The Chase Manhattan Bank, Bankers Trust Company,
The Bank of Nova Scotia and a syndicate of banking institutions. The New Credit
Facilities consist of a $200.0 million senior secured tranche A facility, $40.0
million of which was made available to our principal Mexican subsidiary (the
"Tranche A Facility"), a $280.0 million senior secured tranche B facility (the
"Tranche B Facility") and a $100.0 million revolving credit facility (the
"Revolving Credit Facility").
Effective September 30, 2000, we entered into an amendment of our New
Credit Facilities. The amendment modified certain financial covenants contained
in the New Credit Facilities, including the leverage and interest coverage
ratios and the permitted amount of capital expenditures. We were in compliance
with the amended covenants of our New Credit Facilities as of September 30,
2000. In connection with the amendment, we incurred an amendment fee of $1.4
million, which has been included in interest expense. We also incurred $0.6
million of legal and administrative expenses in connection with negotiating the
amendment.
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Loans under the Revolving Credit Facility and the Tranche A Facility
bear interest, at our option, at either Adjusted LIBOR plus 3.25% or ABR (as
defined below) plus 2.25%, in each case subject to certain adjustments. Loans
under the Tranche B Facility bear interest, at our option, at either Adjusted
LIBOR plus 3.75% or ABR plus 2.75%. We may elect interest periods of one, two,
three or six months for Adjusted LIBOR borrowings. Interest is calculated on the
basis of actual days elapsed in a year of 360 days (or 365 or 366 days, as the
case may be, in the case of ABR loans based on the Prime Rate) and interest is
payable at the end of each interest period and, in any event, at least every
three months. ABR is the Alternate Base Rate, which is the higher of Bankers
Trust Company's Prime Rate or the Federal Funds Effective Rate plus 1/2 of 1%.
Adjusted LIBOR will at all times include statutory reserves.
Our obligations under the New Credit Facilities are guaranteed by
substantially all of our domestic subsidiaries and secured by substantially all
of our domestic assets. The New Credit Facilities are also secured by a pledge
of 65% of the capital stock of each of our foreign subsidiaries.
The New Credit Facilities and the indenture relating to the Notes impose
certain restrictions on us, including restrictions on our ability to incur
indebtedness, pay dividends, make investments, grant liens, sell our assets and
engage in certain other activities. In addition, the New Credit Facilities
require us to maintain certain financial ratios. Indebtedness under the New
Credit Facilities is secured by substantially all of our assets, including our
real and personal property, inventory, accounts receivable, intellectual
property, and other intangibles.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $48.5 million for the nine
months ended September 30, 2000, an increase of $23.3 million from the same
period in 1999. The increase resulted primarily from decreases in trade accounts
receivable, lower inventories in 2000 compared to 1999, higher accounts payable,
and non-cash income statement items. The increase was offset by a decrease in
net income during the first half of 2000 and an increase in income tax
receivable.
Net Cash Used in Investing Activities
Net cash used in investing activities was $40.1 million for the nine
months ended September 30, 2000, compared to $25.7 million for the same period
in 1999. In both periods, the expenditures were almost entirely for capital
expenditures. Capital expenditures during the first nine months of 2000 were
primarily for major expansion projects in our industrial films and specialty
films product lines, for upgrading and installing equipment relocated from
closed manufacturing facilities to other facilities, for upgrading our
information systems, and for several new and carryover maintenance projects
throughout our company. We expect capital expenditures to remain at
approximately current levels for the next few quarters and then decline.
Net Cash Provided by Financing Activities
Net cash used in financing activities was $2.7 million for the nine
months ended September 30, 2000, compared to $7.0 million for the same period in
1999. The activity in 2000 was higher as a result of the financial change caused
by the Recapitalization.
Liquidity
As of September 30, 2000, we had approximately $96.9 million of net
working capital and approximately $98.7 million available under our $100.0
million Revolving Credit Facility. As of September 30, 2000, the debt under the
New Credit Facilities bore interest at a weighted average rate of 10.23%.
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As of September 30, 2000, we had $13.2 million in cash and cash
equivalents, including $6.1 million held by our foreign subsidiaries. The
effective tax rate of repatriating this money and future foreign earnings to the
United States varies from approximately 40% to 65%, depending on various U.S.
and foreign tax factors, including each foreign subsidiary's country of
incorporation. High effective repatriation tax rates may limit our ability to
access cash and cash equivalents generated by our foreign operations for use in
our United States operations, including to pay principal, premium, if any, and
interest on the Notes and the New Credit Facilities. For the nine months ended
September 30, 2000, our foreign operations generated net income from continuing
operations of approximately $4.9 million.
Interest expense on the New Credit Facilities and the Notes will
significantly increase our liquidity requirements. We expect that cash flows
from operating activities and available borrowings under the New Credit
Facilities will provide sufficient working capital to operate our business, to
make expected capital expenditures and to meet foreseeable liquidity
requirements. If we were to engage in a significant acquisition transaction,
however, it may be necessary for us to restructure our existing credit
arrangements.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital expenditures,
financing needs, plans or intentions relating to acquisitions, business trends,
and other information that is not historical information. When used in this
report, the words "estimates," "expects," "anticipates," "forecasts," "plans,"
"intends," "believes" and variations of such words or similar expressions are
intended to identify forward-looking statements. We may also make additional
forward-looking statements from time to time. All such subsequent
forward-looking statements, whether written or oral, by us or on our behalf, are
also expressly qualified by these cautionary statements.
All forward-looking statements, including, without limitation,
management's examination of historical operating trends, are based upon our
current expectations and various assumptions. Our expectations, beliefs and
projections are expressed in good faith and we believe there is a reasonable
basis for them. But, there can be no assurance that management's expectations,
beliefs and projections will result or be achieved. All forward-looking
statements apply only as of the date made. We undertake no obligation to
publicly update or revise forward-looking statements which may be made to
reflect events or circumstances after the date made or to reflect the occurrence
of unanticipated events.
There are a number of risks and uncertainties that could cause our
actual results to differ materially from the forward-looking statements
contained in or contemplated by this report. These risks include, but are not
limited to, our high degree of leverage and our ability to service indebtedness,
restrictions under our New Credit Facilities and the indenture related to the
Notes, fluctuations in the price of resins (our primary raw material), the
availability of resin supplies, our ability to pass resin price increases
through to our customers and to retain resin price decreases, competition,
customer relationships, changes in demand for our products, risks associated
with acquisitions and risks associated with international operations. These
risks and certain other uncertainties are discussed in more detail in the 1999
10-K and in our Registration Statement on Form S-4 (file no. 333-42008), which
was declared effective by the Securities and Exchange Commission on August 29,
2000. There may also be other factors, including those discussed elsewhere in
this report, that may cause our actual results to differ materially from the
forward-looking statements. Any forward-looking statements should be considered
in light of these factors.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various interest rate and resin price risks that arise
in the normal course of business. We finance our operations with borrowings
comprised primarily of variable rate indebtedness. We enter into interest rate
collar and swap agreements to manage interest rate market risks and commodity
collar agreements to manage resin market risks. As of September 30,
2000, we had no such agreements. However, under the provisions of our New Credit
Facilities, we are required to obtain interest rate protection on 50% of our
entire debt prior to December 31, 2000. We intend to have such interest rate
protection in place by the end of the year. Our raw material costs are
comprised primarily of resins. Significant increases in interest rates or the
price of resins could adversely affect our operating margins, results of
operations and ability to service our indebtedness.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
10.1 Amendment No. 1, dated as of September 30, 2000, to Credit
Agreement dated as of September 30, 1997, as amended and restated
as of May 31, 2000.
27 Financial Data Schedule.
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
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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.
PLIANT CORPORATION
/s/ Scott K. Sorensen
--------------------------------------------------
SCOTT K. SORENSEN
Executive Vice President and
Chief Financial Officer, Treasurer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: November 14, 2000
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INDEX TO EXHIBITS
Exhibits
10.1 Amendment No. 1, dated as of September 30, 2000, to Credit Agreement
dated as of September 30, 1997, as amended and restated as of May
31, 2000.
27 Financial Data Schedule.
28
