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, 2005
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-88157
CONSOLIDATED CONTAINER COMPANY LLC
(Exact name of registrant as specified in its charter)
| Delaware | 75-2825338 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3101 Towercreek Parkway, Suite 300
Atlanta, Georgia 30339
(Address of principal executive offices)
Telephone number: (678) 742-4600
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 twelve 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Acts). Yes ¨ No x
As of May 1, 2005, there were 1,000 of the registrant’s member units outstanding.
CONSOLIDATED CONTAINER COMPANY LLC
2
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 4,976 | $ | 7,896 | ||||
| Investment securities |
86 | 87 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $1,326 in 2005 and $1,164 in 2004) |
107,303 | 88,230 | ||||||
| Inventories |
61,411 | 64,172 | ||||||
| Other current assets |
19,695 | 27,471 | ||||||
| Total current assets |
193,471 | 187,856 | ||||||
| PROPERTY AND EQUIPMENT, Net |
253,599 | 259,213 | ||||||
| GOODWILL |
214,031 | 209,859 | ||||||
| INTANGIBLES AND OTHER ASSETS, Net |
22,323 | 20,596 | ||||||
| $ | 683,424 | $ | 677,524 | |||||
| LIABILITIES AND MEMBER’S DEFICIT |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 99,325 | $ | 89,273 | ||||
| Accrued liabilities |
43,244 | 48,794 | ||||||
| Revolving credit facility |
4,900 | — | ||||||
| Current portion of long-term debt |
2,391 | 2,200 | ||||||
| Total current liabilities |
149,860 | 140,267 | ||||||
| LONG-TERM DEBT |
567,512 | 561,721 | ||||||
| OTHER LIABILITIES |
42,062 | 43,487 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 5) |
||||||||
| MEMBER’S DEFICIT: |
||||||||
| Member’s deficit |
(46,632 | ) | (38,585 | ) | ||||
| Foreign currency translation adjustment |
(75 | ) | (63 | ) | ||||
| Minimum pension liability adjustment |
(29,303 | ) | (29,303 | ) | ||||
| Total member’s deficit |
(76,010 | ) | (67,951 | ) | ||||
| $ | 683,424 | $ | 677,524 | |||||
See notes to condensed consolidated financial statements.
3
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Unaudited)
(Amounts in thousands)
| Three Months Ended |
||||||||
| March 31, 2005 |
March 31, 2004 |
|||||||
| Net sales |
$ | 205,020 | $ | 185,428 | ||||
| Cost of sales |
188,730 | 162,406 | ||||||
| Gross profit |
16,290 | 23,022 | ||||||
| Selling, general and administrative expense |
10,969 | 11,255 | ||||||
| Amortization expense |
83 | 9 | ||||||
| Stock based compensation expense |
165 | 110 | ||||||
| Loss on disposal of assets |
3,424 | 705 | ||||||
| Operating income |
1,649 | 10,943 | ||||||
| Interest expense, net |
12,998 | 13,997 | ||||||
| Loss before taxes |
(11,349 | ) | (3,054 | ) | ||||
| Income tax (benefit) expense |
(223 | ) | 42 | |||||
| Net loss |
(11,126 | ) | (3,096 | ) | ||||
| Other comprehensive loss: |
||||||||
| Foreign currency translation adjustment |
(12 | ) | (57 | ) | ||||
| COMPREHENSIVE LOSS |
$ | (11,138 | ) | $ | (3,153 | ) | ||
See notes to condensed consolidated financial statements.
4
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
| Three Months Ended |
||||||||
| March 31, 2005 |
March 31, 2004 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (11,126 | ) | $ | (3,096 | ) | ||
| Adjustment to reconcile net loss to net cash from operating activities: |
||||||||
| Depreciation and amortization |
11,676 | 9,629 | ||||||
| Amortization of debt issuance costs |
729 | 1,407 | ||||||
| Stock based compensation |
165 | 110 | ||||||
| Currency translation |
(12 | ) | (57 | ) | ||||
| Loss on disposal of assets |
3,424 | 705 | ||||||
| Accretion of senior secured discount notes |
4,244 | — | ||||||
| Changes in operating assets and liabilities, net of the acquisition |
||||||||
| Accounts receivable |
(17,262 | ) | (5,790 | ) | ||||
| Inventories |
4,266 | (28 | ) | |||||
| Other current assets |
7,860 | 16,699 | ||||||
| Other assets |
(916 | ) | (874 | ) | ||||
| Accounts payable |
9,082 | (6,573 | ) | |||||
| Accrued liabilities |
(5,654 | ) | (4,147 | ) | ||||
| Other liabilities |
(1,723 | ) | 2,429 | |||||
| Net cash flow from operating activities |
4,753 | 10,414 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(6,579 | ) | (5,446 | ) | ||||
| Net change in investments |
1 | 2 | ||||||
| Proceeds from disposal of property and equipment |
10 | 1,575 | ||||||
| Cash paid for acquisitions (net of cash acquired in 2005 of $350) |
(5,343 | ) | (108 | ) | ||||
| Net cash flow from investing activities |
(11,911 | ) | (3,977 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Net proceeds from (payments on) revolving lines of credit |
4,900 | (24,500 | ) | |||||
| Payments on notes payable to banks and capital leases |
(573 | ) | (2,077 | ) | ||||
| Payment of debt issuance costs |
(3 | ) | — | |||||
| Tax distribution to the benefit of the member |
(86 | ) | (24 | ) | ||||
| Net cash flow from financing activities |
4,238 | (26,601 | ) | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(2,920 | ) | (20,164 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
7,896 | 31,635 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 4,976 | $ | 11,471 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: |
||||||||
| Cash paid during the period for interest |
$ | 13,210 | $ | 15,132 | ||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: |
||||||||
| Assumption of promissory notes and capital leases in relation to acquisition of STC Plastics, Inc. |
$ | 2,311 | $ | — | ||||
| Issuance of stock options of Holdings related to acquisition of STC Plastics, Inc. |
$ | 3,000 | $ | — | ||||
See notes to condensed consolidated financial statements.
5
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Consolidated Container Company LLC (the “Company”) have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and accounting principles generally accepted in the United States of America applicable to interim financial statements. In the opinion of management, all adjustments are reflected in the accompanying unaudited condensed consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2004 is derived from audited financial statements. The condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Results of operations and cash flows for the three months ended March 31, 2005 and the corresponding balance sheet as of March 31, 2005 are not necessarily indicative of the results to be expected for the full year ending December 31, 2005.
The Company is wholly owned by Consolidated Container Holdings LLC (“Holdings”), a Delaware limited liability company. Holdings is a holding company with no assets, operations, or cash flow separate from its investment in the Company and its subsidiaries. The common units of Holdings are 24.7% owned by Reid Plastics Holdings Inc., 16.6% owned by Vestar Packaging LLC, 13.5% owned by Vestar CCH LLC, and 45.1% owned by Franklin Plastics, Inc., a subsidiary of Dean Foods Company. Each of Reid Plastics Holdings Inc., Vestar CCH LLC, and Vestar Packaging LLC are controlled by Vestar Capital Partners, III L.P. and its affiliates. Additionally, Holdings recently issued Series B Convertible Preferred Units, which are 73.4% owned by Vestar CCH Preferred LLC and 26.6% owned by Franklin Plastics Inc. Upon conversion of the Series B Convertible Preferred Units, the holders of such converted units would own in the aggregate in excess of approximately 95% (before management options) of the then outstanding units of Holdings.
On February 15, 2005, the Company announced the acquisition of STC Plastics, Inc. (“STC”), a blowmolder of polycarbonate (“PC”) and high-density polyethylene (“HDPE”) bottles in Chino, California. As consideration for all the issued and outstanding shares of STC, the stockholders of STC received: (1) a cash payment of $5.5 million at closing, (2) a promissory note in the approximate principal amount of $1.6 million payable on January 1, 2008 and (3) options to purchase 3.19 million member units of Holdings. The option grants, which are exercisable upon certain liquidity events of Holdings, include a commitment to repurchase the options for an aggregate price of no less than $3.0 million upon the same liquidity event.
On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease-related accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). In light of this letter, the Company’s management initiated a review of its lease accounting and determined that its then current method of accounting for the depreciation of leasehold improvements was not in accordance with GAAP. Historically, the Company depreciated its leasehold improvements over the estimated useful life of the assets involved, which generally corresponded with the expected lease term. Management determined that Statement of Financial Accounting Standards (“SFAS”) No.13, “Accounting for Leases” requires that these assets be depreciated over a life that is the lesser of the economic life of the asset or the lease term of the underlying facility lease. As a result, the Company recorded a cumulative adjustment to depreciation expense of approximately $0.9 million in the first quarter of 2005, which adjusted the accumulated depreciation to the level it would have been had the shorter useful lives been used from the date of acquisition forward. Had this cumulative adjustment been recorded as of December 31, 2004, the impact on the consolidated statement of operations and comprehensive loss would have been an approximate $0.2 million decrease in operating income and corresponding increase in net loss for the year ending December
6
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
31, 2004 and an approximate $0.9 million increase in Member’s Deficit as of December 31, 2004 (of which $0.7 million related to the cumulative impact on fiscal year 2003 and prior years).
In addition, as discussed in note 12 to these condensed consolidated financial statements, the Company recorded a deferred tax asset recognizing recoverable net operating losses from its Canadian operations in the first quarter of 2005. Management has determined that the events triggering the recognition these items occurred in 2004 and, as such, should have been recognized in the financial statements as of and for the year ended December 31, 2004. Had this adjustment been recorded as of December 31, 2004, the impact on the consolidated statement of operations and comprehensive loss would have been an approximate $0.4 million decrease in net loss and a corresponding increase in other assets on the consolidated balance sheet.
Management does not believe that the combined impact of the corrections for the two adjustments discussed above is material to the financial statements as of and for the year ended December 31, 2004 or previous years, nor is the cumulative adjustment recorded in the first quarter of 2005 expected to be material, in aggregate, to the financial statements as of and for the year ended December 31, 2005. The adjustments had no impact on cash flows.
Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation.
2. INVENTORIES
Inventories consisted of the following at March 31, 2005, and December 31, 2004:
| March 31, 2005 |
December 31, 2004 | |||||
| (Amounts in thousands) | ||||||
| Raw materials |
$ | 34,821 | $ | 38,032 | ||
| Finished goods |
26,590 | 26,140 | ||||
| $ | 61,411 | $ | 64,172 | |||
3. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 2005, and December 31, 2004:
| March 31, 2005 |
December 31, 2004 |
|||||||
| (Amounts in thousands) | ||||||||
| Senior credit facility—term loans—6.0% |
$ | 218,350 | $ | 218,900 | ||||
| Senior secured discount notes—10.75% |
164,265 | 160,021 | ||||||
| Senior subordinated notes—10.125% |
185,000 | 185,000 | ||||||
| Promissory notes—2.92% |
1,562 | — | ||||||
| Capital lease obligations |
726 | — | ||||||
| 569,903 | 563,921 | |||||||
| Less current portion |
(2,391 | ) | (2,200 | ) | ||||
| $ | 567,512 | $ | 561,721 | |||||
7
CONSOLIDATED CONTAINER COMPANY LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Senior Credit Facility—The senior credit facility consists of a term loan with a total original principal amount of $220.0 million and a $45.0 million revolving credit facility (“the Revolver”). The term loan and Revolver are summarized below:
Term Loan
The term loan was originally $220.0 million in principal, of which $218.4 million was outstanding at March 31, 2005. The Company is required to repay the term loan in quarterly installments of $550,000 that commenced on September 30, 2004 and continue through September 2008, with the remaining balance due December 15, 2008. As of March 31, 2005, the term loan bore interest at a rate of 6.0%.
Revolver
The commitment amount under the Revolver was $45.0 million as of March 31, 2005, of which $4.9 million was outstanding. Additionally, as of March 31, 2005 the Company had approximately $12.2 million of outstanding letters of credit under the Revolver. The Revolver will terminate on December 15, 2008 and all outstanding revolving loans will be due and payable on that date. As of March 31, 2005, the Revolver bore interest at a rate of 8.5%.
The senior credit facility also provides for mandatory repayments from the net proceed