-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SSMgdVdWh1gXrIRlAPip28mAyxoGty700WLHcvXOPhms/sm7ULP0eVpZ67Mk+nzs E5gM1+ujtL4cI6drEXep2g== 0000950123-01-502519.txt : 20010516 0000950123-01-502519.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950123-01-502519 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLIANT CORP CENTRAL INDEX KEY: 0001049442 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 870496065 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-40067 FILM NUMBER: 1636292 BUSINESS ADDRESS: STREET 1: 2755 E. COTTONWOOD PARKWAY CITY: SALT LAKE CITY STATE: UT ZIP: 84121 BUSINESS PHONE: 8019938200 MAIL ADDRESS: STREET 1: 2755 E. COTTONWOOD PARKWAY CITY: SALT LAKE CITY STATE: A1 ZIP: 84121 FORMER COMPANY: FORMER CONFORMED NAME: HUNTSMAN PACKAGING CORP DATE OF NAME CHANGE: 19971110 10-Q 1 y49324e10-q.txt PLIANT CORPORATION 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 March 31, 2001 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) 993-8221 (Address of principal executive offices and telephone number) 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 May 14, 2001, there were 563,921 outstanding shares of the registrant's Common Stock. ================================================================================ 2 PART I. FINANCIAL INFORMATION - ------------------------------- ITEM 1. FINANCIAL STATEMENTS PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
March 31, December 31, 2001 2000 --------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,329 $ 3,060 Receivables, net of allowances of $1,901 and $2,166, respectively 112,402 115,058 Inventories 82,590 79,151 Prepaid expenses and other 3,141 1,983 Income taxes receivable 3,039 2,758 Deferred income taxes 13,141 12,992 --------- --------- Total current assets 216,642 215,002 PLANT AND EQUIPMENT, net 328,923 333,083 INTANGIBLE ASSETS, net 203,412 205,870 OTHER ASSETS 29,957 31,079 --------- --------- TOTAL ASSETS $ 778,934 $ 785,034 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Current portion of long-term debt $ 6,985 $ 9,362 Trade accounts payable 106,173 109,018 Accrued liabilities 47,624 39,012 --------- --------- Total current liabilities 160,782 157,392 LONG-TERM DEBT, net of current portion 669,157 678,031 OTHER LIABILITIES 30,582 25,757 DEFERRED INCOME TAXES 31,160 33,060 --------- --------- Total liabilities 891,681 894,240 --------- --------- 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 80,519 80,349 --------- --------- REDEEMABLE COMMON STOCK - no par value; 60,000 shares authorized; 53,996 shares outstanding as of March 31, 2001 and 57,121 outstanding as of December 31, 2000, net of related stockholders' notes receivable of $12,857 at March 31, 2001 and $14,551 at December 31, 2000 16,641 16,456 --------- --------- STOCKHOLDERS' DEFICIT: Common stock - no par value; 10,000,000 shares authorized, 509,925 shares outstanding at March 31, 2001 and 510,674 at December 31, 2000 87,639 87,989 Warrants 26,500 26,500 Accumulated deficit (314,069) (312,414) Stockholders' notes receivable (584) (825) Accumulated other comprehensive income (9,393) (7,261) --------- --------- Total stockholders' deficit (209,907) (206,011) --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 778,934 $ 785,034 ========= =========
See notes to condensed consolidated financial statements. 2 3 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, -------------------------- 2001 2000 --------- --------- SALES Net $ 202,659 $ 220,506 COST OF SALES 160,696 177,493 --------- --------- Gross profit 41,963 43,013 --------- --------- OPERATING EXPENSES: Administration and other 12,965 14,041 Stock-based compensation related to administrative employees 7,033 1,223 Sales and marketing 8,780 6,639 Research and development 753 1,082 Compensation and transaction costs related to recapitalization - 5,200 --------- --------- Total operating expenses 29,531 28,185 --------- --------- OPERATING INCOME 12,432 14,828 INTEREST EXPENSE (20,360) (11,558) OTHER INCOME - Net 895 430 --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (7,033) 3,700 INCOME TAX PROVISION (BENEFIT) (2,309) 2,299 --------- --------- NET INCOME (LOSS) $ (4,724) $ 1,401 ========= =========
See notes to condensed consolidated financial statements. 3 4 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,724) $ 1,401 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,089 9,515 Deferred income taxes (2,015) 662 Reduction in provision for losses on accounts receivable - (217) Stock-based compensation related to administrative employees 7,033 1,223 Loss on disposal of assets 116 - Changes in assets and liabilities: Receivables 2,252 4,286 Inventories (3,662) (14,149) Prepaid expenses and other (1,151) 102 Income taxes receivable (311) 2,272 Other assets 1,104 754 Trade accounts payable (2,943) 9,141 Accrued liabilities 7,777 1,823 Due to affiliates - (91) Other liabilities 1,098 1,186 -------- -------- Net cash provided by operating activities 14,663 17,908 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 7,914 - Capital expenditures for plant and equipment (15,310) (10,093) -------- -------- Net cash used in investing activities (7,396) (10,093) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of stock and net change in related stockholders' notes receivables (99) (46) Principal payments on long-term debt (11,251) (3,469) Payment on revolving debt - (343) -------- -------- Net cash used in financing activities (11,350) (3,858) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 3,352 (826) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (731) 3,131 CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 3,060 9,097 -------- -------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 2,329 $ 12,228 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest $ 6,820 $ 8,411 Income taxes $ (1,663) $ (1,814) Other non-cash disclosure: Dividends accrued but not paid $ 3,793 $ -
See notes to condensed consolidated financial statements. 4 5 PLIANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
ACCUMULATED COMMON STOCK WARRANTS STOCKHOLDERS' OTHER ------------ TO PURCHASE ACCUMULATED NOTES COMPREHENSIVE SHARES AMOUNT COMMON STOCK DEFICIT RECEIVABLE INCOME TOTAL ----------------- ------------ ------------ ------------ ------------- ----- BALANCE, DECEMBER 31, 2000 511 $ 87,989 $ 26,500 $(312,414) $ (825) $ (7,261) $(206,011) Net loss - - - (4,724) - - (4,724) Stock-based compensation related to administrative employees - - - 7,033 - - 7,033 Fair value change in interest rate derivatives classified as cash flow hedges - - - - - (780) (780) Preferred stock dividend and accretion - - - (3,964) - - (3,964) Repurchase of common stock and cancellation of notes from management (1) (350) - - 251 - (99) Amortization of discount on stockholder's note receivable - - - - (10) - (10) Foreign currency transaction adjustment - - - - - (1,352) (1,352) --------- --------- --------- --------- --------- --------- --------- BALANCE, MARCH 31, 2001 510 $ 87,639 $ 26,500 $(314,069) $ (584) $ (9,393) $(209,907) ========= ========= ========= ========= ========= ========= =========
See notes to condensed consolidated financial statements. 5 6 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 period ended March 31, 2001 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, 2000. 2. INVENTORIES Inventories are valued at the lower of cost (using the first-in, first-out method) or market value. Inventories as of March 31, 2001 and December 31, 2000 consisted of the following (in thousands):
March 31, December 31, 2001 2000 --------- ------------ Finished goods $46,667 $46,760 Raw materials 26,858 24,158 Work-in-process 9,065 8,233 ------- ------- Total $82,590 $79,151 ======= =======
3. PLANT CLOSING COSTS During the fourth quarter 2000, we approved and announced our plans to cease operations at our Dallas, Texas; Birmingham, Alabama; and Harrington, Delaware facilities. Our Dallas facility was closed in December 2000. We expect to close our Birmingham and our Harrington facilities by the end of the third quarter 2001. Included in other accrued liabilities as of March 31, 2001 and December 31, 2000 are the remaining amounts for plant closing totaling $3.9 million and $5.0 million, respectively. 4. REDEEMABLE COMMON STOCK Under the May 2000 stock purchase agreements, we have repurchase rights, which allow us to repurchase certain shares from the employees, if the individuals cease to be employees for any reason. The repurchase rights lapse as follows: (1) one-sixth on January 1, 2001, so long as the 6 7 recipient is still our employee on such date and (2) the remainder in equal increments over a five-year period commencing on December 31, 2000 as follows: (a) 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, if more than 90% of the applicable target market value of equity is achieved or (c) if the target market value of equity is not achieved, in full on December 31, 2009. The repurchase rights terminate in the event of certain acceleration events as defined in the agreement. The repurchase price per share is the original price paid by the employee plus interest compounded annually at 7% commencing on the 181st day after the date of termination of the employee through the date on which the shares are actually repurchased. In addition, under employment agreements, additional repurchase rights and put options were established. The repurchase rights allow the Company to repurchase shares, not already subject to the May 2000 stock purchase agreement repurchase rights, from the employee in the event of termination for any reason. The put options allow for the employees to require the Company to purchase all of the shares in the event of resignation for good reason, death, disability or retirement, subject to the restrictive provisions of any credit or other agreements. However, the put option related to 32,750 shares, in no event can be exercised until January 1, 2006. The price under the repurchase rights and the put options is the fair market value of the common stock, as determined in good faith. On December 27, 2000, we entered into a severance agreement with an employee. Under the agreement, we cancelled approximately $133,000 of accrued interest on a note receivable. We repurchased 6,211 shares of restricted stock for $483.13 per share and offset the purchase price against $3.0 million of note principal. In addition, on January 2, 2001, we repurchased an additional 539 shares of restricted stock for $483.13 per share and offset the purchase price against $260,000 of note principal. The Company's repurchase rights were changed on the remaining 7,423 shares of common stock owned by this individual, whereby the Company agreed not to repurchase the shares until February 28, 2003 at a repurchase price of the greater of the fair market value and $111.53 per share. Interest ceased to accrue on the remaining $787,000 balance of the note related to the sale of stock in 1999. Further, the put option was cancelled. As a result of these modifications, a $323,000 discount on the note receivable balance was recorded as compensation expense in 2000. The discount will be amortized to interest income over the remaining term of the note. In the event we determine to repurchase the stock from this individual at an amount that is: (1) greater than the fair value of the stock (i.e. the note balance is greater than the fair value) or (2) greater than the note balance as a result of future increases in fair value of the stock, we will record additional expense. On January 22, 2001, we entered into a severance agreement with another employee. Under this agreement, we cancelled approximately $85,000 of accrued interest on a note receivable. We repurchased 3,125 shares of restricted stock for $483.13 and offset the purchase price against $1.5 million of note principal. We further agreed to cease interest on the remaining $302,000 principal balance of the note receivable related to 625 shares and to cease interest on the $262,000 principal balance related to the sale of stock in 1999. As a result of these interest modifications, a $208,000 discount on the note receivable balance was recorded as compensation expense in the first quarter of 2001. The discount will be amortized to interest income over the remaining term of the note. In addition, the Company's repurchase rights and the individual's put option were changed on the remaining 2,832 shares of common stock owned by this individual. We agreed not to repurchase and the individual agreed not to exercise the put option on the shares until February 28, 2003. The repurchase price and the put option price were changed to be the greater of the fair value of the stock or the balance on the note receivable. Because the fair value of these shares was $483.13 per share on January 22, 2001, compensation expense of approximately $1.0 million was recorded in the first quarter of 2001, which represents the difference between the carrying amount and the fair value of the 2,622 shares common stock that are subject to the note receivable. 7 8 On February 1, 2001, we amended the note agreements with another employee that were issued in connection with the sale of restricted stock in 1999 and 2000. Under the amended agreements, interest ceases to accrue, effective December 31, 2000, on one note with a principal balance of $1.6 million and another note with a principal balance of $7.0 million. Further, the notes were modified to remove the full recourse provisions and modify the pledge agreement. As a result of these modifications, the sale of stock for notes will now be accounted for as stock options and will be subject to variable accounting. Accordingly, changes in the fair value of the common stock in excess of the note balance will be recorded as compensation expense until the note is paid in full. In addition, interest income will not be recorded on these notes. In connection with this modification we recorded compensation expense of $6.0 million, in the first quarter of 2001. Because of the modifications of these employee notes, in the first quarter of 2001 another employee's 2000 stock purchase will be accounted for as stock options, subject to variable accounting. In addition, interest income will not be recorded on this note with a principal balance of $3.7 million. 5. STOCK OPTION PLANS During the three months ended March 31, 2001, options to purchase 1,780 shares at $483.13 per share were granted to employees. These options vest over five (5) years. During the same period options to purchase 4,114 shares were forfeited due to employee terminations. 6. OPERATING LEASES In March 2001 we completed a sale and leaseback of certain equipment and received proceeds of $7.9 million. There was no gain or loss in connection with the sale and the lease is accounted for as an operating lease. As part of the transaction we issued a $3.4 million letter of credit for which the lessor is the beneficiary should we default on any payments. The monthly lease payments are $139,967 for 72 months. 7. DERIVATIVE INSTRUMENTS Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. We recognize the fair value of derivatives as either assets or liabilities in the balance sheet. To the extent that the derivatives qualify as hedges, gains or losses associated with the effective portion are recorded as a component of other comprehensive income while the ineffective portion is recognized in income. At the adoption of this pronouncement, we had one interest rate cap agreement, which had been entered into during the fourth quarter of 2000. As a result, the initial adoption of this pronouncement did not result in a material effect to our financial statements. During the first quarter of 2001, we entered into three additional interest rate derivative agreements with separate financial institutions. We use our interest rate derivatives to manage interest rate risk associated with future interest payments on variable rate borrowings under our Credit Facilities. Our interest rate derivative agreements are considered cash flow hedges and consisted of the following as of March 31, 2001 (dollars in millions): 8 9
Notional Variable Fixed Maturity Type Amount Rate* Rate ** Dates - ---------------------- ----------- ------------ ----------------- -------------- Interest rate cap $128.0 LIBOR 10.00% 12/31/2003 Interest rate cap 30.0 LIBOR 7.25% 02/09/2004 Interest rate collar 40.0 LIBOR 4.15% - 7.25% 02/13/2004 Interest rate swap 60.0 LIBOR 5.40% 02/13/2004 - -------------- * Three-month LIBOR, as defined; 4.88% as of March 31, 2001 ** Strike for caps; floor and strike for collar
The fair value of our interest rate derivative agreements is reported on our consolidated balance sheet at March 31, 2001 in other liabilities of approximately $802,000, and in other assets of approximately $70,000. For the three months ended March 31, 2001, the ineffective portion of our interest rate derivatives was a loss of approximately $111,000 which is included in interest expense. 8. 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. 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. During the first quarter of 2001, two plant operations were reclassified from our Specialty segment to our Industrial segment in accordance with a change in business focus. Accordingly, the 2000 amounts have been reclassified to reflect this change. In addition, certain operating expenses were reclassified from our segments to the corporate category as a result of expenses which are no longer attributable and allocated to the segment. 9 10 Segment profit or loss and segment assets as of and for the three months ended March 31, 2001 and 2000 are presented in the following table (in thousands):
DESIGN INDUSTRIAL SPECIALTY CORPORATE/ PRODUCTS FILMS FILMS OTHER TOTAL MARCH 31, 2001 Net sales to customers $ 53,369 $ 61,597 $ 87,693 $ - $ 202,659 Intersegment sales 2,004 1,539 2,269 (5,812) - --------- --------- --------- --------- --------- Total net sales 55,373 63,136 89,962 (5,812) 202,659 Depreciation and amortization 2,509 1,976 2,793 2,811 10,089 Interest expense 887 (29) 6 19,496 20,360 Segment profit (loss) 9,220 11,019 18,766 (46,038) (7,033) Segment total assets 178,254 125,531 398,816 76,333 778,934 Capital expenditures 4,225 2,638 7,402 1,045 15,310 MARCH 31, 2000 Net sales to customers 53,402 60,760 106,344 - 220,506 Intersegment sales 1,468 1,611 1,682 (4,761) - --------- --------- --------- --------- --------- Total net sales 54,870 61,427 108,970 (4,761) 220,506 Depreciation and amortization 2,214 1,903 3,194 2,204 9,515 Interest expense 888 87 6 10,577 11,558 Segment profit (loss) 6,497 9,191 19,987 (26,775) 8,900 Compensation and transaction costs related to recapitalization - - - 5,200 5,200 Segment total assets 178,353 130,166 416,540 55,039 780,098 Capital expenditures 1,361 3,697 3,852 1,183 10,093
10 11 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):
Three months ended March 31, --------- 2001 2000 ---- ---- PROFIT OR LOSS Total profit for reportable segments $ 39,005 $ 35,675 Compensation and transaction costs related to recapitalization - (5,200) Unallocated amounts: Corporate expenses (26,542) (16,198) Interest expense (19,496) (10,577) -------- -------- Income (loss) before taxes $ (7,033) $ 3,700 ======== ========
March 31, March 31, ASSETS 2001 2000 ---- ---- Total assets for reportable segments $702,601 $725,059 Intangible assets not allocated to segments 14,528 15,839 Other unallocated assets 61,805 39,200 -------- -------- Total consolidated assets $778,934 $780,098 ======== ========
11 12 9. 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 eleminations 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 March 31, 2001 and December 31, 2000 and for the three months ended March 31, 2001 and 2000. 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. The condensed consolidating financial statements are presented herein, rather than separate financial statements for each of the guarantor subsidiaries because management believes that separate financial statements relating to the guarantor subsidiaries are not material to investors. During the second quarter of 2000, one of our non-guarantor subsidiary companies, Pliant Packaging of Canada, LLC, became a guarantor. In addition, during the first quarter of 2001, our Blessings subsidiary was merged with and into Pliant. Accordingly, the former Blessings subsidiary is reflected as part of "Pliant Corporation Only" column for all periods presented. 12 13 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2001 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated Corporation Guarantor Non-Guarantor Pliant (Parent Only) Subsidiaries Subsidiaries Eliminations Corporation ------------- ------------ ------------ ------------ ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 39 $ 2,290 $ - $ 2,329 Receivables - net 89,712 4,880 17,810 - 112,402 Inventories 67,212 7,858 7,520 - 82,590 Prepaid expenses and other 2,158 135 848 - 3,141 Income taxes receivable 2,059 (25) 1,005 - 3,039 Deferred income taxes 14,430 38 (1,327) - 13,141 --------- --------- --------- --------- --------- Total current assets 175,571 12,925 28,146 - 216,642 PLANT AND EQUIPMENT - Net 274,092 11,814 43,017 - 328,923 INTANGIBLE ASSETS - Net 183,675 2,392 17,345 - 203,412 INVESTMENT IN SUBSIDIARIES 51,884 - - (51,884) - OTHER ASSETS 27,329 - 2,628 - 29,957 --------- --------- --------- --------- --------- TOTAL ASSETS $ 712,551 $ 27,131 $ 91,136 $ (51,884) $ 778,934 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt $ 6,985 $ - $ - $ - $ 6,985 Trade accounts payable 86,486 5,387 14,300 - 106,173 Accrued liabilities 42,535 1,096 3,993 - 47,624 Due to (from) affiliates (2,418) 8,253 (5,835) - - --------- --------- --------- --------- --------- Total current liabilities 133,588 14,736 12,458 - 160,782 LONG-TERM DEBT - Net of current portion 634,157 - 35,000 - 669,157 OTHER LIABILITIES 29,148 - 1,434 - 30,582 DEFERRED INCOME TAXES 28,405 497 2,258 - 31,160 --------- --------- --------- --------- --------- Total liabilities 825,298 15,233 51,150 - 891,681 --------- --------- --------- --------- --------- REDEEMABLE STOCK 97,160 - - - 97,160 --------- --------- --------- --------- --------- STOCKHOLDERS' EQUITY (DEFICIT): Common stock 87,639 14,020 29,241 (43,261) 87,639 Warrants 26,500 - - - 26,500 Retained earnings accumulated (deficit) (314,069) (2,111) 18,093 (15,982) (314,069) Stockholders' note receivable (584) - - - (584) Accumulated other comprehensive loss (9,393) (11) (7,348) 7,359 (9,393) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) (209,907) 11,898 39,986 (51,884) (209,907) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 712,551 $ 27,131 $ 91,136 $ (51,884) $ 778,934 ========= ========= ========= ========= =========
13 14 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
PLIANT COMBINED COMBINED CONSOLIDATED CORPORATION GUARANTOR NON-GUARANTOR PLIANT (PARENT ONLY) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION ------------- ------------ ------------ ------------ ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 459 $ 10 $ 2,591 $ - $ 3,060 Receivables, net 90,670 4,966 19,422 - 115,058 Inventories 64,884 6,983 7,284 - 79,151 Prepaid expenses and other 1,527 30 426 - 1,983 Income taxes receivable 1,885 (24) 897 - 2,758 Deferred income taxes 14,431 37 (1,476) - 12,992 --------- --------- --------- --------- Total current assets 173,856 12,002 29,144 - 215,002 PLANT AND EQUIPMENT, net 268,739 16,538 47,806 - 333,083 INTANGIBLE ASSETS, net 185,727 2,482 17,661 - 205,870 INVESTMENT IN SUBSIDIARIES 49,611 - - (49,611) - OTHER ASSETS 28,593 - 2,486 - 31,079 --------- --------- --------- --------- --------- TOTAL ASSETS $ 706,526 $ 31,022 $ 97,097 $ (49,611) $ 785,034 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt $ 8,312 $ - $ 1,050 $ - $ 9,362 Trade accounts payable 87,970 5,730 15,318 - 109,018 Accrued liabilities 32,068 1,201 5,743 - 39,012 Due to (from) affiliates (10,000) 13,442 (3,442) - - --------- --------- --------- --------- Total current liabilities 118,350 20,373 18,669 - 157,392 LONG-TERM DEBT, net of current portion 642,976 - 35,055 - 678,031 OTHER LIABILITIES 24,200 - 1,557 - 25,757 DEFERRED INCOME TAXES 30,206 497 2,357 - 33,060 --------- --------- --------- --------- Total liabilities 815,732 20,870 57,638 - 894,240 --------- --------- --------- --------- REDEEMABLE COMMON STOCK 96,805 - - - 96,805 --------- --------- --------- --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Common stock 87,989 14,020 29,241 (43,261) 87,989 Warrants to purchase common stock 26,500 - - - 26,500 Retained earnings (accumulated deficit) (312,414) (3,857) 15,966 (12,109) (312,414) Shareholder note receivable (825) - - - (825) Accumulated other comprehensive income (loss) (7,261) (11) (5,748) 5,759 (7,261) --------- --------- --------- --------- --------- Total stockholders' equity (deficit) (206,011) 10,152 39,459 (49,611) (206,011) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 706,526 $ 31,022 $ 97,097 $ (49,611) $ 785,034 ========= ========= ========= ========= =========
14 15 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated Corporation Guarantor Non-Guarantor Pliant (Parent Only) Subsidiaries Subsidiaries Eliminations Corporation ------------- ------------ ------------ ------------ ----------- SALES , Net $ 170,938 $ 9,559 $ 27,974 $ (5,812) $ 202,659 COST OF SALES 137,226 7,888 21,394 (5,812) 160,696 --------- --------- --------- --------- --------- GROSS PROFIT 33,712 1,671 6,580 - 41,963 OPERATING EXPENSES 26,859 90 2,582 - 29,531 --------- --------- --------- --------- --------- OPERATING INCOME 6,853 1,581 3,998 - 12,432 INTEREST EXPENSE (19,470) - (890) - (20,360) EQUITY IN EARNINGS OF SUBSIDIARIES 3,873 - - (3,873) - OTHER INCOME (EXPENSE), Net 418 165 312 - 895 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (8,326) 1,746 3,420 (3,873) (7,033) INCOME TAX PROVISION (BENEFIT) (3,602) - 1,293 - (2,309) --------- --------- --------- --------- --------- NET INCOME (LOSS) $ (4,724) $ 1,746 $ 2,127 $ (3,873) $ (4,724) ========= ========= ========= ========= =========
15 16 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated Corporation Guarantor Non-Guarantor Pliant (Parent Only) Subsidiaries Subsidiaries Eliminations Corporation ------------- ------------ ------------ ------------ ----------- SALES, Net $ 186,259 $ 11,793 $ 27,215 $ (4,761) $ 220,506 COST OF SALES 150,213 10,999 21,042 (4,761) 177,493 --------- --------- --------- --------- --------- GROSS PROFIT 36,046 794 6,173 - 43,013 OPERATING EXPENSES 25,208 91 2,886 - 28,185 --------- --------- --------- --------- --------- OPERATING INCOME 10,838 703 3,287 - 14,828 INTEREST EXPENSE (10,582) 2 (978) - (11,558) EQUITY IN EARNINGS OF SUBSIDIARIES 1,914 - - (1,914) - OTHER INCOME (EXPENSE), Net 55 (12) 387 - 430 --------- --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 2,225 693 2,696 (1,914) 3,700 INCOME TAX EXPENSE 824 380 1,095 - 2,299 --------- --------- --------- --------- --------- NET INCOME $ 1,401 $ 313 $ 1,601 $ (1,914) $ 1,401 ========= ========= ========= ========= =========
16 17 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated Corporation Guarantor Non-Guarantor Pliant (Parent Only) Subsidiaries Subsidiaries Eliminations Corporation ------------- ------------ ------------ ------------ ----------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 21,192 $ (4,574) $ (1,955) - $ 14,663 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 2,966 4,948 - - 7,914 Capital expenditures for plant and equipment (12,378) (1,802) (1,130) - (15,310) -------- -------- -------- -------- -------- Net cash provided by investing activities (9,412) 3,146 (1,130) - (7,396) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock and net change in related stockholders' notes receivables (99) (99) Principal payments on long-term debt (10,146) - (1,105) - (11,251) -------- -------- -------- -------- -------- Net cash used in financing activities (10,245) - (1,105) - (11,350) -------- -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1,994) 1,457 3,889 - 3,352 -------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (459) 29 (301) - (731) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 459 10 2,591 - 3,060 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ - $ 39 $ 2,290 $ - $ 2,329 ======== ======== ======== ======== ========
17 18 PLIANT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Pliant Combined Combined Consolidated Corporation Guarantor Non-Guarantor Pliant Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------ ----------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 13,489 $ 592 $ 3,827 $ - $ 17,908 -------- -------- -------- ------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for plant and equipment (9,262) (199) (632) - (10,093) -------- -------- -------- ------ -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in stockholder notes receivable (46) - - - (46) Principal payments on long-term debt (2,969) - (843) - (3,812) -------- -------- -------- ------ -------- Net cash used in financing activities (3,015) - (843) - (3,858) -------- -------- -------- ------ -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (713) 661 (774) - (826) -------- -------- -------- ------ -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 499 1,054 1,578 - 3,131 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 1,231 517 7,349 - 9,097 -------- -------- -------- ------ -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 1,730 $ 1,571 $ 8,927 $ - $ 12,228 ======== ======== ======== ====== ========
18 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, 2000 (the "2000 10-K"). This section contains certain forward-looking statements within the meanings of federal securities laws that 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 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 23 facilities located in North America, Central 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, return on capital expenditures and the overall growth in the markets for film and flexible packaging products. On May 31, 2000, we consummated a recapitalization pursuant to an agreement dated March 31, 2000 (the "Recapitalization Agreement") among us, our then existing stockholders and an affiliate of J.P. Morgan Partners, LLC, whereby an affiliate of J.P. Morgan Partners, LLC acquired majority control of our common stock. 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. An affiliate of J.P. Morgan Partners, LLC 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 current and former senior management (the "Management Investors") for approximately $101.8 million. An affiliate of J.P. Morgan Partners, LLC and certain other institutional investors also purchased (the "Investor Common Equity Contribution") shares of common stock directly from us for approximately $63.5 million ($62.6 million net of offering costs). The Trust and the Management Investors retained or "rolled over" approximately one-half of the shares of our common stock collectively owned by them prior to the recapitalization. In addition, we issued to another affiliate of J.P. Morgan Partners, LLC and to certain other institutional investors a new series of senior cumulative exchangeable redeemable preferred stock (the "Preferred Stock") and detachable warrants for our common stock (the "Preferred Stock Warrants") for net consideration of approximately $98.5 million. The foregoing transactions are collectively referred to as the "Recapitalization." The total consideration paid in the Recapitalization was approximately $1.1 billion, including transaction costs. On May 14, 2001, approximately 55.4% of our total common stock was owned by an affiliate of J.P. Morgan Partners, LLC, approximately 4.3% of our total common stock was owned by certain other institutional investors and approximately 40.3% of our total common stock was owned collectively by the Trust and the Management Investors. J.P. Morgan Partners, LLC owns our common stock through its Flexible Film, LLC subsidiary and owns our preferred stock through its Southwest Industrial Films, LLC subsidiary. 19 20 The Recapitalization constituted a "change of control" under the provisions of our long-term incentive plans ("LTIP"). Upon a change of control, all participants in the LTIP fully vest and all amounts due to the participants are payable within 90 days. As a result, we accrued $5.0 million of compensation expense in the three months ended March 31, 2000 relating to the vesting under the LTIP. In addition, we incurred $0.2 million of fees and expenses in connection with the Recapitalization in the three months ended March 31, 2000. Both the LTIP compensation expense and these fees and expenses are included in "compensation and transaction costs related to recapitalization" in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2000. RESULTS OF OPERATIONS The following table sets forth net sales, expenses, and operating income and such amounts as a percentage of net sales, for the three months ended March 31, 2001 and 2000 (dollars in millions).
Three Months Ended March 31 --------------------------- 2001 2000 ------------------ ------------------ % of % of $ Sales $ Sales ------ ------ ------ ------ Sales-net $202.7 100.0% $220.5 100.0% Cost of sales 160.7 79.3 177.5 80.5 ------ ------ ------ ------ Gross profit 42.0 20.7 43.0 19.5 Total operating expenses 29.5 14.6 28.2 12.8 ------ ------ ------ ------ Operating income $ 12.5 6.1% $ 14.8 6.7% ====== ====== ====== ======
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Net Sales Net sales decreased by $17.8 million, or 8.1%, from $220.5 million for the first quarter of 2000, to $202.7 million for the three months ended March 31, 2001. The decrease was primarily due to a 3.5% decrease in sales volume and a 4.6% decrease in our average selling price. In the markets we serve, the average selling price of our products generally increases or decreases as the price of resins, our primary raw material, increases or decreases. Average resin prices were significantly lower during the first quarter of 2001 compared to the first quarter of 2000 resulting in a significant decrease in our average selling prices. Gross Profit Gross profit decreased by $1.0 million, or 2.3%, from $43.0 million for the first quarter of 2000, to $42.0 million for the three months ended March 31, 2001. The decrease was primarily due to a decrease in sales volumes and prices which were offset partially by decreasing resin costs and lower manufacturing costs. Total Operating Expenses Total operating expenses increased by $1.3 million, or 4.6%, from $28.2 million for the first quarter of 2000 to $29.5 million for the three months ended March 31, 2001. The significant items contributing to most of this increase relate to two unusual items: $7.0 million of non-cash stock-based compensation expense related to administrative employees for the three month period ended March 31, 2001, and $5.2 million of 20 21 compensation expense and transaction costs related to the Recapitalization for the three month period ended March 31, 2000. Operating Income Operating income decreased by $2.3 million, or 15.5%, from $14.8 million for the first quarter of 2000 to $12.5 million for the three months ended March 31, 2001, due to the factors discussed above. Excluding the unusual items described above from both periods, operating income would have been $19.5 million for the first quarter of 2001 and $20.0 million in the first quarter of 2000 which represents a decrease of $0.5 million or 2.5%. Interest Expense Interest expense increased by $8.8 million, or 75%, from $11.6 million for the first quarter of 2000, to $20.4 million for the three months ended March 31, 2001. As a result of the financing for the May 31, 2000 Recapitalization, interest expense increased significantly compared to the prior year. Other Income (Expense) Other income (expense) changed from income of $0.4 million for the three months ended March 31, 2000, to income of $0.9 million for the three months ended March 31, 2001, an increase in income of $0.5 million. The increase was primarily due to an insurance claim and other less significant items. 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 and mature on June 1, 2010. The Units were issued in a private placement 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. Interest on the Notes is payable semi-annually on each June 1 and December 1, commencing on December 1, 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"). 21 22 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 March 31, 2001. 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 $14.7 million for the three months ended March 31, 2001, a decrease of $3.2 million, or 18%, from the same period in 2000. The decrease resulted primarily from decreases in net income and a decrease in the change in accounts payable. The decrease was offset partially by a smaller increase in inventory and accounts receivable compared to the prior year, and an increase in the change of non-cash income statement items. Net Cash Used in Investing Activities Net cash used in investing activities was $7.4 million for the three months ended March 31, 2001, compared to $10.1 million for the same period in 2000. Capital expenditures were $15.3 million and $10.1 million for the periods ended March 31, 2001 and 2000 respectively. Capital expenditures in both periods were primarily for major expansion projects in all of our product lines, for upgrading our information systems, and for several new and carryover maintenance projects throughout our company. We expect capital expenditures to decline over the next few quarters. In 2001, we received $7.9 million as part of a sale-leaseback transaction of newly-acquired machinery and equipment. Net Cash Provided by Financing Activities Net cash used in financing activities was $11.4 million for the three months ended March 31, 2001, compared to $3.9 million for the same period in 2000. The activity for both periods primarily represented principal payments on the New and Prior Credit Facilities. In 2001, we prepaid $8.0 million of principal on our term loans under the New Credit Facilities. 22 23 Liquidity As of March 31, 2001, we had approximately $55.9 million of working capital and approximately $95.5 million available under our $100.0 million Revolving Credit Facility. We had $4.5 million of letters of credit issued, which reduces the amount available for borrowings under our Revolving Credit Facility. As of March 31, 2001, the debt under the New Credit Facilities bore interest at a weighted average rate of 10.04%. As of March 31, 2001, we had $2.3 million in cash and cash equivalents, of which the majority was held by our foreign subsidiaries. The effective tax rate of repatriating this money all 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 three months ended March 31, 2001, our foreign operations generated net income from continuing operations of approximately $2.1 million. Interest expense and scheduled principal payments on our borrowings under the New Credit Facilities and the Notes have significantly increased our future 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. The following risks and uncertainties, together with those discussed in our Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 (file no. 333-42008), as amended, which was filed with the Securities and Exchange Commission on May 4, 2001, are among the factors that could cause our actual results to differ materially from the forward-looking statements. There may 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. 23 24 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. 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. An increase of 1% in interest rates payable on our variable rate indebtedness would increase our annual interest expense by approximately $4.1 million. During the three months ended March 31, 2001, we entered into certain interest rate collars, caps and swaps. We adopted SFAS No. 133 to account for these instruments as of January 1, 2001. Under the conditions of our credit facilities, we are required to obtain interest rate protection on 50% of our entire debt. See Note 7 to the condensed consolidated financial statement contained elsewhere in this report. 24 25 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On April 20, 2001, we were informed by a potential new customer that they would not be going forward with their project with us. We are currently in negotiations with this customer to resolve the amounts due to us as a result of their cancellation of their contract with us. We can not currently predict the outcome of these negotiations, or the effect on our financial position and results. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are filed with this report. (b) No report on Form 8-K was filed during the quarter for which this report is filed. 25 26 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/BRIAN E. JOHNSON -------------------------------------------- BRIAN E. JOHNSON Executive Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer) Date: May 14, 2001 26 -----END PRIVACY-ENHANCED MESSAGE-----