SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: October 3, 2004
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 numbers: 333-82084-01
333-82084
| PAPERWEIGHT DEVELOPMENT CORP. | APPLETON PAPERS INC. | |
| (Exact Name of Registrant as Specified in Its Charter) | (Exact Name of Registrant as Specified in Its Charter) | |
| Wisconsin | Delaware | |
| (State or Other Jurisdiction of Incorporation or Organization) | (State or Other Jurisdiction of Incorporation or Organization) | |
| 39-2014992 | 36-2556469 | |
| (I.R.S. Employer Identification No.) | (I.R.S. Employer Identification No.) | |
| 825 East Wisconsin Avenue, P.O. Box 359, Appleton, Wisconsin |
54912-0359 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (920) 734-9841
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 ¨ No x*
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
*The Registrant became subject to the filing requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, as of September 22, 2004 upon the effectiveness of the Registrant’s Registration Statement on Form S-4.
As of November 12, 2004, 11,721,843 shares of Paperweight Development Corp. common stock, $.01 par value, were outstanding. There is no trading market for the common stock of Paperweight Development Corp. As of November 12, 2004, 100 shares of Appleton Papers Inc.’s common stock, $100.00 par value, were outstanding. There is no trading market for the common stock of Appleton Papers Inc. No shares of Paperweight Development Corp. or Appleton Papers Inc. were held by non-affiliates.
Appleton Papers Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) and is therefore filing this form with the reduced disclosure format.
| Page Number | ||||
| PART I |
FINANCIAL INFORMATION |
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| Item 1 |
1 | |||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
35 | ||
| Item 3 |
44 | |||
| Item 4 |
44 | |||
| PART II |
OTHER INFORMATION AND SIGNATURES |
|||
| Item 2 |
45 | |||
| Item 6 |
45 | |||
| 46 | ||||
PART I—FINANCIAL INFORMATION
PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
| October 3, 2004 |
January 3, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 59,906 | $ | 29,682 | ||||
| Accounts receivable, less allowance for doubtful accounts of $3,608 and $3,245, respectively |
115,698 | 115,975 | ||||||
| Inventories |
145,289 | 130,493 | ||||||
| Other current assets |
19,077 | 18,450 | ||||||
| Total current assets |
339,970 | 294,600 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $171,771 and $123,544, respectively |
489,615 | 522,519 | ||||||
| Goodwill |
50,734 | 48,161 | ||||||
| Intangible assets, net |
100,829 | 117,491 | ||||||
| Environmental indemnification receivable |
69,961 | 77,030 | ||||||
| Other assets |
17,013 | 9,970 | ||||||
| Total assets |
$ | 1,068,122 | $ | 1,069,771 | ||||
| LIABILITIES, REDEEMABLE COMMON STOCK, ACCUMULATED DEFICIT AND ACCUMULATED OTHER COMPREHENSIVE LOSS | ||||||||
| Current liabilities |
||||||||
| Current portion of long-term debt |
$ | 2,500 | $ | 31,350 | ||||
| Accounts payable |
57,358 | 56,870 | ||||||
| Accrued interest expense |
10,620 | 1,839 | ||||||
| Restructuring reserve |
4,319 | 5,757 | ||||||
| Other accrued liabilities |
75,655 | 77,182 | ||||||
| Total current liabilities |
150,452 | 172,998 | ||||||
| Senior secured notes payable |
246,875 | 135,402 | ||||||
| Revolving line of credit |
— | 10,000 | ||||||
| Variable rate industrial development bonds |
8,650 | 8,650 | ||||||
| Capital lease obligation |
3,193 | 3,504 | ||||||
| Postretirement benefits other than pension |
60,442 | 59,469 | ||||||
| Accrued pension |
36,374 | 39,696 | ||||||
| Accrued income taxes |
4,762 | 15,350 | ||||||
| Environmental liability |
93,255 | 99,329 | ||||||
| Other long-term liabilities |
9,475 | 8,419 | ||||||
| Senior notes payable |
185,000 | — | ||||||
| Senior subordinated notes payable |
157,000 | 199,958 | ||||||
| Deferred payment obligation |
— | 172,742 | ||||||
| Commitments and contingencies (Note 12) |
— | — | ||||||
| Redeemable common stock, $0.01 par value, shares authorized: 30,000,000, shares issued and outstanding: 11,723,385 and 12,124,778, respectively |
163,753 | 158,279 | ||||||
| Accumulated deficit |
(42,448 | ) | (3,587 | ) | ||||
| Accumulated other comprehensive loss |
(8,661 | ) | (10,438 | ) | ||||
| Total liabilities, redeemable common stock, accumulated deficit and accumulated other comprehensive loss |
$ | 1,068,122 | $ | 1,069,771 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands)
| Three Months Ended October 3, 2004 |
Three Months Ended September 28, 2003 |
Nine Months Ended October 3, 2004 |
Nine Months Ended September 28, 2003 |
|||||||||||||
| Net sales |
$ | 244,476 | $ | 217,783 | $ | 728,648 | $ | 632,670 | ||||||||
| Cost of sales |
178,629 | 157,722 | 537,054 | 459,771 | ||||||||||||
| Gross profit |
65,847 | 60,061 | 191,594 | 172,899 | ||||||||||||
| Selling, general and administrative expenses |
48,047 | 37,775 | 147,674 | 115,548 | ||||||||||||
| Restructuring and other charges |
189 | — | 1,018 | — | ||||||||||||
| Operating income |
17,611 | 22,286 | 42,902 | 57,351 | ||||||||||||
| Other expense (income) |
||||||||||||||||
| Interest expense |
11,310 | 13,317 | 37,848 | 40,157 | ||||||||||||
| Debt extinguishment expenses |
— | — | 30,779 | — | ||||||||||||
| Interest income |
(217 | ) | (66 | ) | (1,664 | ) | (253 | ) | ||||||||
| Foreign exchange loss (gain) |
426 | 5 | 1,368 | (790 | ) | |||||||||||
| Income (loss) before income taxes |
6,092 | 9,030 | (25,429 | ) | 18,237 | |||||||||||
| (Benefit) provision for income taxes |
(269 | ) | (36 | ) | (1,428 | ) | 515 | |||||||||
| Net income (loss) |
$ | 6,361 | $ | 9,066 | $ | (24,001 | ) | $ | 17,722 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(unaudited)
(dollars in thousands)
| October 3, 2004 |
September 28, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss) income |
$ | (24,001 | ) | $ | 17,722 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
| Depreciation |
51,374 | 45,378 | ||||||
| Amortization of intangible assets |
7,365 | 7,078 | ||||||
| Amortization of financing fees |
1,855 | 2,613 | ||||||
| Employer 401(k) noncash matching contributions |
5,986 | 6,042 | ||||||
| Foreign exchange loss (gain) |
1,368 | (790 | ) | |||||
| Loss on disposals of equipment |
392 | 631 | ||||||
| Accretion of deferred payment and capital lease obligations |
7,717 | 12,124 | ||||||
| Accretion of environmental liability |
994 | 940 | ||||||
| Debt extinguishment expenses |
4,596 | — | ||||||
| Discount on repayment of deferred payment obligation |
(13,200 | ) | — | |||||
| (Increase)/decrease in assets and increase/(decrease) in liabilities: |
||||||||
| Accounts receivable |
(687 | ) | (13,433 | ) | ||||
| Inventories |
(14,729 | ) | (2,847 | ) | ||||
| Other current assets |
(611 | ) | (1,106 | ) | ||||
| Accounts payable and other accrued liabilities |
4,513 | 1,784 | ||||||
| Restructuring reserve |
(1,438 | ) | (215 | ) | ||||
| Accrued income taxes |
(3,233 | ) | 43 | |||||
| Accrued pension |
(3,576 | ) | 1,390 | |||||
| Other, net |
6,549 | 16 | ||||||
| Net cash provided by operating activities |
31,234 | 77,370 | ||||||
| Cash flows from investing activities: |
||||||||
| Proceeds from sale of equipment |
214 | 2 | ||||||
| Acquisition of businesses |
(993 | ) | (50,591 | ) | ||||
| Additions to property, plant and equipment |
(22,859 | ) | (20,796 | ) | ||||
| Net cash used by investing activities |
(23,638 | ) | (71,385 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments of senior secured notes payable |
(167,377 | ) | (33,243 | ) | ||||
| Proceeds from senior secured notes payable |
250,000 | — | ||||||
| Payments of senior subordinated notes payable |
(192,958 | ) | — | |||||
| Proceeds from senior notes payable |
185,000 | — | ||||||
| Proceeds from senior subordinated notes payable |
150,000 | — | ||||||
| Payment of deferred payment obligation |
(167,067 | ) | — | |||||
| Debt acquisition costs |
(12,932 | ) | — | |||||
| Payments relating to capital lease obligation |
(503 | ) | (503 | ) | ||||
| Proceeds from revolving line of credit |
— | 60,000 | ||||||
| Payments of revolving line of credit |
(10,000 | ) | (38,000 | ) | ||||
| Proceeds from issuance of redeemable common stock |
4,237 | 9,297 | ||||||
| Payments to redeem common stock |
(17,443 | ) | (5,203 | ) | ||||
| Increase (decrease) in cash overdraft |
1,075 | (2,306 | ) | |||||
| Net cash provided by (used by) financing activities |
22,032 | (9,958 | ) | |||||
| Effect of foreign exchange rate changes on cash and cash equivalents |
596 | — | ||||||
| Change in cash and cash equivalents |
30,224 | (3,973 | ) | |||||
| Cash and cash equivalents at beginning of period |
29,682 | 24,390 | ||||||
| Cash and cash equivalents at end of period |
$ | 59,906 | $ | 20,417 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PAPERWEIGHT DEVELOPMENT CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK, (ACCUMULATED DEFICIT)
RETAINED EARNINGS, ACCUMULATED OTHER COMPREHENSIVE LOSS AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED
(unaudited)
(dollars in thousands, except share data)
| Redeemable Common Stock |
(Accumulated Deficit) Retained Earnings | ||||||||||||||||||