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 28, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 333-28157
TEKNI-PLEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3286312
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
260 North Denton Tap Road (972) 304-5077
Coppell, TX 75019 (Registrant's telephone number)
(Address of principal executive office)
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 / /
TEKNI-PLEX, INC.
Page #
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 28, 2001
and June 29, 2001................................................ 3
Consolidated Statements of Operations for the three months
ended September 28, 2001 and September 29, 2000.................. 4
Consolidated Statements of Comprehensive Income for the three
months ended September 28, 2001 and September 29, 2000........... 4
Consolidated Statements of Cash Flows for the three months ended
September 28, 2001 and September 29, 2000........................ 5
Notes to Consolidated Financial Statements......................... 6-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................... 15-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 16
PART II. OTHER INFORMATION
Item 1. Legal proceedings......................................... 17
Item 2. Changes in securities..................................... 17
Item 3. Defaults upon senior securities........................... 17
Item 4. Submission of matters to a vote of securities holders..... 17
Item 5. Subsequent events......................................... 17
Item 6. Exhibits and reports on Form 8-K.......................... 17
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 28, June 29,
2001 2001
(UNAUDITED) (Audited)
------------ ---------
ASSETS
CURRENT:
Cash $ 24,468 $ 44,645
Accounts receivable, net of an allowance for
doubtful accounts of $1,619 and $1,500 respectively 78,775 105,316
Inventories 113,273 106,258
Deferred taxes 5,153 5,153
Prepaid expenses and other current assets 7,312 5,595
--------- ---------
Total current assets 228,981 266,967
PROPERTY, PLANT AND EQUIPMENT, NET 137,165 137,008
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $66,300 AND $62,271 RESPECTIVELY 176,019 179,616
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $3,084 AND $2,549 RESPECTIVELY 16,095 16,607
DEFERRED INCOME TAXES 23,643 19,010
OTHER ASSETS 2,019 2,286
--------- ---------
$ 583,922 $ 621,494
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,155 $ 8,072
Accounts payable - trade 26,548 34,076
Accrued payroll and benefits 5,792 5,222
Accrued interest 14,788 1,673
Accrued liabilities - other 10,400 15,446
Income taxes payable 3,349 3,349
--------- ---------
TOTAL CURRENT LIABILITIES 69,032 67,838
LONG-TERM DEBT 632,483 670,078
OTHER LIABILITIES 25,916 18,275
--------- ---------
TOTAL LIABILITIES 727,431 756,191
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock -- --
Additional paid-in capital 120,176 120,176
Cumulative currency translation adjustment (6,338) (7,039)
Retained earnings (36,825) (27,372)
Less: Treasury stock (220,522) (220,462)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (143,509) (134,697)
--------- ---------
$ 583,922 $ 621,494
========= =========
See accompanying notes to consolidated financial statements.
3
TEKNI-PLEX, INC. AND SUBSIDIARIES
(in thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
September 28, 2001 September 29, 2000
------------------ ------------------
NET SALES $ 115,164 $ 111,907
COST OF GOODS SOLD 88,150 89,485
--------- ---------
GROSS PROFIT 27,014 22,422
OPERATING EXPENSES:
Selling, general and administrative 15,176 15,111
--------- ---------
Operating profit 11,838 7,311
Other expenses
Interest expense 17,785 18,220
Unrealized loss on derivative contracts 8,314 --
Other expense 292 530
--------- ---------
Earnings before income taxes (14,553) (11,439)
Income tax benefit (5,100) (5,700)
--------- ---------
NET EARNINGS $ (9,453) $ (5,739)
========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME $ (9,453) $ (5,739)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
Foreign currency translation adjustment 701 (1,403)
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (8,752) $ (7,142)
========= =========
See accompanying notes to consolidated financial statements.
4
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended
September 28, 2001 September 29, 2000
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,453) $ (5,739)
Adjustment to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 9,303 9,141
Unrealized loss on derivative contracts 8,314 --
Deferred income taxes (4,623) (5,876)
Changes in operating assets and liabilities:
Accounts receivable 26,900 30,101
Inventories (6,968) (8,590)
Prepaid expenses and other current assets (1,738) 2,051
Accounts payable (7,389) (3,656)
Accrued interest 13,122 7,492
Accrued expenses and other liabilities (5,115) (16,446)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,353 8,478
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,723) (4,434)
Additions to intangibles (501) (111)
Deposits and other assets 315 72
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,909) (4,473)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments/borrowings of long-term debt (37,585) (4,088)
Repayments/borrowings of line of credit -- (135)
Payment for treasury stock (60) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (37,645) (4,223)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 24 (11)
-------- --------
Net decrease in Cash (20,177) (229)
Cash, beginning of period 44,645 12,525
-------- --------
Cash, end of period $ 24,468 $ 12,296
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 4,785 $ 10,143
-------- --------
Income taxes -- 39
-------- --------
See accompanying notes to consolidated financial statements.
5
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 - GENERAL
Tekni-Plex is a global, diversified manufacturer of packaging, products, and
materials primarily for the healthcare, food and consumer industries. The
Company has built a leadership position in its core markets, and focuses on
vertically integrated production of highly specialized products. The Company's
operations are aligned under two business groups: Industrial Packaging,
Products, and Materials and Consumer Packaging and Products.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information please refer to the
audited financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 29, 2001.
NOTE 2 New Accounting Pronouncements
a) In June 2001, the Financial Accounting Standards Board
finalized FASB Statements No. 141, Business Combinations (SFAS
141), and No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-interests
method of accounting for business combinations initiated after
June 30, 2001. SFAS 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if
the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30,
2001 and for purchase business combinations completed on or
after July 1, 2001. It also requires, upon adoption of SFAS
142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS
141.
SFAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for
impairment at least annually. In addition, SFAS 142 requires
that the Company identify reporting units for the purposes of
assessing potential future impairments of goodwill, reassess
the useful lives of other existing recognized intangible
assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite
useful life should be tested for impairment in accordance with
the guidance in SFAS 142. SFAS 142 is required to be applied
in fiscal years beginning after December 15, 2001 to all
goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized.
SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption.
The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after
adoption of SFAS 142.
The Company's previous business combinations were accounted
for using the purchase method. As of September 28, 2001, the
net carrying amount of goodwill is $175,462 and other
intangible assets are $557. Amortization expense during the
period ended September 28, 2001 was $4,029. Currently, the
Company is assessing but has not yet determined how the
adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operations.
b) In August 2001, the FASB issued FASB Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
("SFAS 144"). The new guidance resolves significant
implementation issues related to FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS 144
supersedes SFAS 121, but it retains its fundamental
provisions. It also amends Accounting Research Bulletin No.
51, Consolidated Financial Statements, to eliminate the
exception to consolidate a subsidiary for which control is
likely to be temporary. SFAS 144 retains the requirement of
SFAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of SFAS 144 is
not recoverable from its undiscounted cash flows and exceeds
its fair value.
SFAS 144 is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The provisions of
SFAS 144 generally are to be applied prospectively. The
Company believes that the adoption of SFAS 144 will not have a
material impact on the Company's financial position or results
of operations.
NOTE 3 - INVENTORIES
Inventories as of September 28, 2001 and June 29, 2001 are summarized as
follows:
SEPTEMBER 28,2001 June 29, 2001
----------------- -------------
Raw materials $ 34,969 $ 33,971
Work-in-process 8,002 7,812
Finished goods 70,302 64,475
--------- ---------
$ 113,273 $ 106,258
--------- ---------
6
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 28, 2001 June 29, 2001
------------------ -------------
Senior Subordinated Notes issued June 21,2000 at 12
- -3/4% due June 15, 2010. (less unamortized discount $271,703 $271,609
of $ 3,297 and $3,391)
Senior Debt:
Revolving line of credit, expiring June, 2006
At September 28, 2001, the interest rate ranged 29,000 65,000
from 5.6875% to 6.625%
Term notes due June, 2006 and June, 2008, with
interest rates at September 28, 2001 of 6.75% 334,700 336,560
and 7.25%
Other, primarily foreign term loans, with interest
rates ranging from 4.25% to 8.38% and maturities 5,235 4,981
from 2001 to 2004
-------- --------
640,638 678,150
Less: Current maturities 8,155 8,072
-------- --------
$632,483 $670,078
======== ========
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 5 - CONTINGENCIES
(a) The Company is a party to various legal proceedings arising in the
normal conduct of business. Management believes that the final outcome of
these proceedings will not have a material adverse effect on the
Company's financial position.
7
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SEGMENT INFORMATION
Anticipating the closing of our previously announced acquisition of the garden
hose business of Mark IV Industries, Inc., Tekni-plex has reorganized its
business into two industry segments: Industrial Packaging, Products, and
Materials and Consumer Packaging and Products. The Industrial Packaging,
Products, and Materials Segment principally produces pharmaceutical packaging,
medical tubing, medical device materials, foamed polystyrene packaging products
for the poultry, meat and egg industries and vinyl resins and compounds. The
Consumer Packaging and Products Segment principally produces precision tubing
and gaskets, and garden and irrigation hose products. Both segments have
operations in the United States, Europe and Canada.
Financial information concerning the Company's business segments and the
geographic areas in which they operate are as follows:
Industrial
Packaging, CONSUMER
Products, PACKAGING
and Materials AND PRODUCTS TOTAL
------------- ------------- --------
September 28, 2001
Revenues from external
customers $ 76,450 $ 38,714 $115,164
Interest expense 12,074 5,711 17,785
Depreciation and
amortization 5,926 3,121 9,047
Segment income (loss) from
operations 8,551 7,016 15,567
Expenditures for segment
assets 1,586 2,967 4,553
Segment assets 305,473 249,613 555,086
-------- -------- --------
September 29, 2000
Revenues from external
customers $ 78,718 $ 33,189 $111,907
Interest expense 12,281 5,939 18,220
Depreciation and
amortization 6,006 2,880 8,886
Segment income from
operations 6,959 3,837 10,796
Expenditures for segment
assets 3,283 1,129 4,412
-------- -------- --------
June 29, 2001
Segment assets 333,570 270,731 604,301
-------- -------- --------
8
TEKNI-PLEX, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
SEPTEMBER 28, 2001 September 29, 2000
------------------ ------------------
PROFIT OR LOSS
Total operating profit for reportable segments before
income taxes $ 15,567 $ 10,796
Corporate and eliminations (3,729) (3,485)
--------- ---------
$ 11,838 $ 7,311
========= =========
DEPRECIATION AND AMORTIZATION
Segment totals $ 9,047 $ 8,886
Corporate 256 255
--------- ---------
Consolidated total $ 9,303 $ 9,141
========= =========
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures from reportable segments $ 4,553 $ 4,412
Other unallocated expenditures 170 22
--------- ---------
Consolidated total $ 4,723 $ 4,434
========= =========
SEPTEMBER 28, 2001 June 29, 2001
------------------ ---------------
ASSETS
Total assets from reportable segments $ 555,086 $ 604,301
Other unallocated amounts 28,836 17,193
--------- ---------
Consolidated total $ 583,922 $ 621,494
========= =========
GEOGRAPHIC INFORMATION
SEPTEMBER 28, 2001 September 29, 2000
------------------ ------------------
REVENUES
United States $ 102,032 $ 100,844
International 13,132 11,063
--------- ---------
Total $ 115,164 $ 111,907
========= =========
SEPTEMBER 28, 2001 June 29, 2001
------------------ ---------------
LONG-LIVED ASSETS
United States $ 311,027 $ 310,866
International 43,914 43,661
--------- ---------
Total $ 354,941 $ 354,527
========= =========
9
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Earnings
(in thousands)
(Unaudited)
For the three months ended September 28, 2001
Non-
TOTAL Issuer Guarantors Guarantors
--------- --------- ---------- ----------
Net sales $ 115,164 $ 39,430 $ 62,602 $ 13,132
Cost of goods sold 88,150 29,901 48,143 10,106
--------- --------- ---------- ----------
Gross profit 27,014 9,529 14,459 3,026
Operating expenses:
Selling, General and administrative 15,176 10,067 3,657 1,452
--------- --------- ---------- ----------
Operating profit (loss) 11,838 (538) 10,802 1,574
Interest expense, net 17,785 17,795 (46) 36
Unrealized loss on derivative contracts 8,314 8,314 -- --
Other expense (income) 292 53 (139) 378
--------- --------- ---------- ----------
Income (loss) before provision for income
taxes (14,553) (26,700) 10,987 1,160
Provision (benefit) for income taxes (5,100) (8,644) 2,800 744
--------- --------- ---------- ----------
Net income (loss) $ (9,453) $ (18,056) $ 8,187 $ 416
========= ========= ========== ==========
10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
For the three months ended September 29, 2000
Non-
TOTAL Issuer Guarantors Guarantors
--------- -------- ---------- ----------
Net sales $ 111,907 $ 38,482 $ 62,362 $ 11,063
Cost of sales 89,485 29,026 52,557 7,902
--------- -------- -------- --------
Gross profit 22,422 9,456 9,805 3,161
Operating expenses:
Selling, General and administrative 15,111 9,461 4,544 1,106
--------- -------- -------- --------
Operating profit (loss) 7,311 (5) 5,261 2,055
Interest expense, net 18,220 18,548 (107) (221)
Other expense (income) 530 74 (63) 519
--------- -------- -------- --------
Income (loss) before provision for income
taxes (11,439) (18,627) 5,431 1,757
Provision (benefit) for income taxes (5,700) (9,125) 2,700 725
--------- -------- -------- --------
Net income(loss) $ (5,739) $ (9,502) $ 2,731 $ 1,032
========= ======== ======== ========
11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at September 28, 2001
(Unaudited)
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
--------- ------------ --------- ---------- ----------
Current assets $ 228,981 $ -- $ 51,611 $ 138,496 $ 38,874
Property, plant and equipment, net 137,165 -- 38,700 79,295 19,170
Intangible assets 176,019 -- 18,975 144,446 12,598
Investment in subsidiaries -- (466,244) 466,244 -- --
Deferred charges 16,095 -- 16,024 -- 71
Other assets 25,662 (302,113) 42,039 273,661 12,075
--------- --------- --------- --------- --------
Total assets $ 583,922 $(768,357) $ 633,593 $ 635,898 $ 82,788
========= ========= ========= ========= ========
Current liabilities $ 69,032 $ -- $ 33,881 $ 16,556 $ 18,595
Long-term debt 632,483 -- 627,963 -- 4,520
Other long-term liabilities 25,916 (302,113) 107,673 186,686 33,670
--------- --------- --------- --------- --------
Total liabilities 727,431 (302,113) 769,517 203,242 56,785
--------- --------- --------- --------- --------
Additional paid-in capital 120,176 (312,420) 120,156 296,784 15,656
Retained earnings (deficit) (36,825) (153,824) (35,558) 135,872 16,685
Cumulative currency translation adjustment
(6,338) -- -- -- (6,338)
Less: Treasury stock (220,522) -- (220,522) -- --
--------- --------- --------- --------- --------
Total equity (143,509) (466,244) (135,924) 432,656 26,003
--------- --------- --------- --------- --------
Total liabilities and equity $ 583,922 $(768,357) $ 633,593 $ 635,898 $ 82,788
========= ========= ========= ========= ========
12
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at June 29, 2001
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
--------- ------------ --------- ---------- ----------
Current assets $ 266,967 $ -- $ 80,305 $ 146,839 $ 39,823
Property, plant and equipment, net 137,008 -- 38,788 79,517 18,703
Intangible assets 179,616 -- 13,208 153,960 12,448
Investment in subsidiaries -- (457,641) 457,641 -- --
Deferred financing costs, net 16,607 -- 16,607 -- --
Deferred taxes 19,010 -- 19,022 (12) --
Other assets 2,286 (300,321) 28,577 261,520 12,510
--------- --------- --------- --------- --------
Total assets $ 621,494 $(757,962) $ 654,148 $ 641,824 $ 83,484
========= ========= ========= ========= ========
Current liabilities $ 67,838 $ -- $ 22,370 $ 26,923 $ 18,545
Long-term debt 670,078 -- 665,729 -- 4,349
Other long-term liabilities 18,275 (300,321) 92,460 190,399 35,737
--------- --------- --------- --------- --------
Total liabilities 756,191 (300,321) 780,559 217,322 58,631
--------- --------- --------- --------- --------
Additional paid-in capital 120,176 (312,420) 120,156 296,784 15,656
Retained earnings (deficit) (27,372) (145,221) (26,105) 127,685 16,269
Cumulative currency translation adjustment
(7,039) -- -- 33 (7,072)
Less: Treasury stock (220,462) -- (220,462) -- --
--------- --------- --------- --------- --------
Total equity (134,697) (457,641) (126,411) 424,502 24,853
--------- --------- --------- --------- --------
Total liabilities and equity $ 621,494 $(757,962) $ 654,148 $ 641,824 $ 83,484
========= ========= ========= ========= ========
13
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the three months ended September 28,2001
Non-
TOTAL Issuer Guarantors Guarantors
-------- -------- ---------- ----------
Net cash provided by (used in) operating activities $ 22,353 $ (213) $ 19,541 $ 3,025
-------- -------- -------- --------
Cash flows from Investing activities:
Capital expenditures (4,723) (1,647) (1,658) (1,418)
Additions to intangibles (501) (140) -- (361)
Deposits and other assets 315 (1,909) 2,751 (527)
-------- -------- -------- --------
Net cash provided by (used in) provided
by investing activities (4,909) (3,696) 1,093 (2,306)
-------- -------- -------- --------
Cash flows from financing activities
Repayment of long term debt (37,585) (37,860) -- 275
Payment for treasury stock (60) (60) -- --
Change in intercompany accounts -- 20,117 (20,117) --
-------- -------- -------- --------
Net cash flows provided by (used in)
financing activities (37,645) (17,803) (20,117) 275
-------- -------- -------- --------
Effect of exchange rate changes on cash 24 -- -- 24
-------- -------- -------- --------
Net increase (decrease) in cash (20,177) (21,712) 517 1,018
Cash, beginning of period 44,645 32,890 5,321 6,434
-------- -------- -------- --------
Cash, end of period $ 24,468 $ 11,178 $ 5,838 $ 7,452
======== ======== ======== ========
For the three months ended September 29, 2000
Non-
TOTAL Issuer Guarantors Guarantors
-------- -------- ---------- ----------
Net cash provided by (used in) operating activities $ 8,478 $(14,869) $ 19,982 $ 3,365
Cash flows from Investing activities: -------- -------- -------- ---------
Capital expenditures (4,434) (1,237) (2,632) (565)
Additions to intangibles (111) (111) -- --
Deposits and other assets 72 1,264 (1,201) 9
-------- -------- -------- --------
Net cash used in investing activities (4,473) (84) (3,833) (556)
-------- -------- -------- --------
Cash flows from financing activities
Repayment of long term debt (4,088) (3,705) -- (383)
Repayment of line of credit (135) -- -- (135)
Change in intercompany accounts -- 15,140 (15,140) --
-------- -------- -------- --------
Net cash flows provided by (used in) financing activities (4,223) 11,435 (15,140) (518)
-------- -------- -------- --------
Effect of exchange rate changes on cash (11) -- -- (11)
-------- -------- -------- --------
Net increase (decrease) in cash (229) (3,518) 1,009 2,280
Cash, beginning of period 12,525 5,638 3,766 3,121
-------- -------- -------- --------
Cash, end of period $ 12,296 $ 2,120 $ 4,775 $ 5,401
======== ======== ======== ========
14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER OF FISCAL 2002 COMPARED WITH THE FIRST QUARTER OF FISCAL 2001
Net Sales increased to $115.2 million for the three months ended September 28,
2001 from $111.9 million for the three months ended September 29, 2000. This
represents an increase of $3.3 million or 2.9%. Increases in the Consumer
Segment more than offset declines in our Industrial Segment. Our Consumer
Segment sales increased $5.5 million or 16.6% primarily due to the extension of
our garden hose selling season resulting from a change in the buying pattern of
one of this segment's major customers. Favorable weather conditions,
particularly on the West Coast, also contributed to strong garden hose sales in
the quarter. Our Industrial Segment reported a $2.3 million decline in sales or
2.9%. Within the segment, sales increases to our food packaging customers were
offset by declining sales of specialty resins and somewhat softer sales to our
healthcare customers.
Cost of Sales declined to $88.2 million for the three months ended September 28,
2001 from $89.5 million for the three months ended September 29, 2000, a
decrease of $1.3 million. Expressed as a percentage of net sales, cost of sales
decreased to 76.5% for the three months ended September 28, 2001 from 80.0% for
the three months ended September 29, 2000. Lower resin costs, improved operating
efficiencies and higher selling prices for many of our products accounted for
the improvement in this ratio.
Gross Profit, as a result, increased to $27.0 million or 23.5% of net sales for
the three months ended September 28, 2001 from $22.4 million or 20.0% of net
sales for the three months ended September 29, 2000.
Selling, general and administrative expense was virtually unchanged at $15.2
million in the three months ended September 28, 2001 compared to $15.1 million
in the three months ended September 29, 2000. The ratio of selling, general and
administrative expense to net sales decreased to 13.2% for the three months
ending September 28, 2001 from 13.5% in the comparable period of last year.
Operating profit, as a result of the foregoing, increased to $11.8 million or
10.3% of net sales for the three months ended September 28, 2001 from $7.3
million or 6.5% of net sales for the three months ended September 29, 2000.
Interest expense decreased to $17.8 million or 15.4% of net sales in the three
months ended September 28, 2001 from $18.2 million or 16.3% of net sales in the
three months ended September 29, 2000. The decrease was due to lower debt levels
and lower interest rates.
Income (loss) before income taxes, as a result, was a loss of ($14.6) million
for the three months ended September 28, 2001 compared to a loss of ($11.4)
million for the three months ended September 29, 2000.
Benefit for income taxes was a credit of $5.1 million for the three months ended
September 28, 2001, compared to a credit of $5.7 million for the three months
ended September 29, 2000. The Company's effective tax rate was 35.0% for the
three months ended September 28, 2001 compared to 49.8% for the three months
ending September 29, 2000.
Net income (loss), as a result, was a loss of ($9.5) million for the three
months ended September 28, 2001 compared with a loss of ($5.7) million for the
three months ended September 29, 2000.
15
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended September 28, 2001
was $22.4 million compared with $8.5 million in the same period of the prior
year. The increase of $13.9 million was due primarily to non-cash interest
expense associated with our interest rate hedges in the current period as well
as improvements in accrued expenses and other liabilities and prepaid expenses
and other current assets.
Working capital on September 28, 2001 was $159.9 million compared to $199.1
million on June 29, 2001. The decrease was due primarily to a seasonal reduction
in accounts receivable offset by a normal seasonal increase in inventories.
As of September 28, 2001, the Company had an outstanding balance of $29.0
million under the $100.0 million revolving credit line. This represents a
reduction of $36.0 million from the outstanding balance as of June 29, 2001.
The Company's capital expenditures for the three months ended September 28, 2001
and September 29, 2000 were $4.7 million and $4.4 million respectively.
The Company continues to expect that its principal uses of cash for the next
several years will be acquisitions, debt service, capital expenditures and
working capital requirements. Management believes that cash generated from
operations plus funds available in the Company's credit facility will be
sufficient to meet its needs and to provide it with the flexibility to make
capital expenditures and acquisitions which management believes will provide an
attractive return on investment. However, the probability exists that the
Company may need additional financing to take advantage of all the acquisition
opportunities that might arise in the next several quarters. There can be no
assurance that such financing will be available in the amounts and terms
acceptable to the Company.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in certain debt instruments. At
September 28, 2001, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $363.7 million. A hypothetical 10% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$1.7 million on the Company's after-tax earnings and cash flows, assuming the
Company's current effective tax rate and assuming no change in the principal
amount. Conversely, a reduction in interest rates would favorably impact the
Company's after-tax earnings and cash flows in a similar proportion.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to certain litigation in the ordinary course of
business, none of which the Company believes is likely to have a
material adverse effect on its consolidated financial position or
results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities holders
Not applicable
Item 5. Subsequent Events
On October 16, 2001, the Company acquired the garden hose business of
Mark IV Industries, Inc. for $64.2 million. The transaction was
structured as an acquisition of substantially all of the assets of Mark
IV's Swan Hose Division by a wholly-owned subsidiary of Tekni-Plex.
Swan Hose manufactures garden hose and air hose primarily for the U.S.
and Canadian markets from its Bucyrus Ohio facility. Swan will become
part of the Company's Consumer Packaging and Products business segment.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
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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.
TEKNI-PLEX, INC.
November 13, 2001
By: /s/ F. Patrick Smith
-------------------------------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth W.R. Baker
-------------------------------------------
Kenneth W. R. Baker
President and Chief Operating Officer
By: /s/ James E.Condon
-------------------------------------------
James E.Condon
Vice President and Chief Financial Officer
18