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 December 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 N. Denton Tap Road, Suite 150 (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 December 28, 2001
and June 29, 2001....................................................................3
Consolidated Statements of Operations for the six months and three months
ended December 28, 2001 and December 29, 2000.........................................4
Consolidated Statements of Comprehensive Income for the six months and
three months ended December 28, 2001 and December 29, 2000............................4
Consolidated Statements of Cash Flows for the six months
ended December 28, 2001 and December 29, 2000.........................................5
Notes to Consolidated Financial Statements...............................................6-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................16-18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................18
PART II. OTHER INFORMATION
Item 1. Legal proceedings.................................................................19
Item 2. Changes in securities.............................................................19
Item 3. Defaults upon senior securities...................................................19
Item 4. Submission of matters to a vote of securities holders.............................19
Item 5. Other information.................................................................19
Item 6. Exhibits and reports on Form 8-K..................................................19
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 28, 2001 JUNE 29, 2001
(UNAUDITED) (AUDITED)
----------------- ---------------
ASSETS
CURRENT:
Cash $ 15,822 $ 44,645
Accounts receivable, net of allowance for
Doubtful accounts of $5,156 and $1,500 respectfully 84,051 105,316
Inventories 139,570 106,258
Deferred taxes 6,553 5,153
Prepaid and other current assets 7,470 5,595
---------- ---------
TOTAL CURRENT ASSETS 253,566 266,967
PROPERTY, PLANT AND EQUIPMENT, NET 153,961 137,008
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $70,329 AND $62,271 RESPECTIVELY 216,879 179,616
DEFERRED CHARGES, NET OF ACCUMULATED
AMORTIZATION OF $3,790 AND $2,549 RESPECTIVELY 15,588 16,607
DEFERRED INCOME TAXES 22,101 19,010
OTHER ASSETS 1,392 2,286
---------- ---------
$ 663,487 $ 621,494
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 10,507 $ 8,072
Accounts payable - trade 28,070 34,076
Accrued payroll and benefits 4,969 5,222
Accrued interest 4,950 1,673
Accrued liabilities - other 28,771 15,446
Income taxes payable 980 3,349
---------- ---------
TOTAL CURRENT LIABILITIES 78,247 67,838
LONG-TERM DEBT 659,097 670,078
OTHER LIABILITIES 20,578 18,275
---------- ---------
TOTAL LIABILITIES 757,922 756,191
---------- ---------
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in capital 170,176 120,176
Cumulative currency translation adjustment (7,331) (7,039)
Retained earnings (36,758) (27,372)
Less: Treasury stock (220,522) (220,462)
---------- ---------
TOTAL STOCKHOLDER'S EQUITY (94,435) (134,697)
---------- ---------
$ 663,487 $ 621,494
========= =========
See accompanying notes to consolidated financial statements.
3
TEKNI-PLEX, INC. AND SUBSIDIARIES
(Unaudited -- in thousands)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2001 2000 2001 2000
------------ ----------- ----------- ------------
NET SALES $ 113,740 $ 105,873 $ 228,904 $ 217,780
COST OF SALES 86,056 81,750 174,206 171,235
--------- --------- --------- ---------
GROSS PROFIT 27,684 24,123 54,698 46,545
OPERATING EXPENSES:
Selling, general and administrative 16,609 14,368 31,785 29,479
--------- --------- --------- ---------
OPERATING PROFIT 11,075 9,755 22,913 17,066
OTHER (INCOME) EXPENSES:
Interest expense 16,590 19,642 34,375 37,862
Unrealized (gain) loss on derivative contracts (5,724) -- 2,590 --
Other expenses (income) 42 (80) 334 450
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 167 (9,807) (14,386) (21,246)
PROVISION FOR INCOME TAXES 100 (4,900) (5,000) (10,600)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 67 $ (4,907) $ (9,386) $ (10,646)
========= ========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME (LOSS) $ 67 $ (4,907) $ (9,386) $ (10,646)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAXES
Foreign currency translation adjustment (993) 843 (292) (560)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (926) $ (4,064) $ (9,678) $ (11,206)
========= ========= ========= =========
4
See accompanying notes to consolidated financial statements.
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited -- in thousands)
SIX MONTHS ENDED
DECEMBER 28, 2001 DECEMBER 29, 2000
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,386) $(10,646)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,054 18,470
Unrealized loss on derivative contracts 2,590 --
Deferred income taxes (4,591) (10,650)
Changes in operating assets and liabilities:
Accounts receivable 28,449 28,896
Inventories 16,021) (31,405)
Prepaid expenses and other current assets (1,749) 1,013
Income taxes (2,369) --
Accounts payable (9,552) (3,485)
Accrued interest 3,277 (43)
Accrued expenses and other liabilities (5,386) (18,313)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,316 (26,163)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,142) (8,679)
Acquisition costs (65,757) (9,189)
Additions to intangibles (222) (95)
Deposits and other assets 894 86
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (74,227) (17,877)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of long-term debt (8,813) 35,709
Net borrowings (repayments) under line of credit -- (140)
Payment for treasury stock (60) --
Receipt of Additional paid-in capital 50,000 6,000
Debt financing costs -- (131)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 41,127 41,438
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (39) 15
-------- --------
NET DECREASE IN CASH (28,823) (2,587)
CASH, BEGINNING OF PERIOD 44,645 12,525
-------- --------
CASH, END OF PERIOD $ 15,822 $ 9,938
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 31,207 $ 37,551
Income taxes 1,543 932
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 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 the 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 purchasing method. As of December 28, 2001, the net
carrying amount of goodwill is $216,404 and other intangible
assets are $475. Amortization expense during the six month period
ended December 28, 2001 was $8,058. 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.
6
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 December 28, 2001 and June 29, 2001 are summarized as follows:
DECEMBER 28, 2001 JUNE 29, 2001
---------------- --------------
Raw materials $ 38,388 $ 33,971
Work-in-process 8,123 7,812
Finished goods 93,059 64,475
---------------- --------------
$ 139,570 $ 106,258
---------------- --------------
7
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 28, 2001 JUNE 29, 2001
----------------- --------------
Senior Subordinated Notes issued June 21, 2000 at
12-3/4% due June 15, 2010. (Less unamortized
discount of $3,202 and $3,391) $ 271,798 $ 271,609
Senior Debt:
Revolving line of credit, expiring June, 2006.
At December 28, 2001, the interest rate ranged
from 4.94 % to 6.75%. 60,000 65,000
Term notes due June, 2006 and June, 2008, with
interest rates at December 28, 2001 of 4.81% and
5.31%. 332,840 336,560
Other, primarily foreign term loans, with interest
rates ranging from 4.44% to 5.44% and maturities
ranging from 2002 to 2010 4,966 4,981
----------------- --------------
669,604 678,150
Less: Current maturities 10,507 8,072
----------------- --------------
$ 659,097 $ 670,078
================= ==============
8
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 5 - SEGMENT INFORMATION
Tekni-plex has organized 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
------------- ------------ ----------
Three months ended December 28, 2001
Revenues from external Customers $ 77,283 $ 36,457 $113,740
Interest expense 11,321 5,269 16,590
Depreciation and Amortization 6,142 3,353 9,495
Income from operations 11,372 3,550 14,922
Expenditures for segment Assets 2,942 1,049 3,991
-------------- ------------- ----------
Three months ended December 29, 2000
Revenues from external Customers $ 81,008 $ 24,865 $105,873
Interest expense 13,430 6,212 19,642
Depreciation and Amortization 6,054 3,018 9,072
Income from operations 10,050 3,276 13,326
Expenditures for segment Assets 1,158 2,705 3,863
9
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
-------------- ------------- ----------
Six months ended
December 28, 2001
Revenues from external
Customers $153,733 $ 75,171 $228,904
Interest expense 23,441 10,934 34,375
Depreciation and
Amortization 12,068 6,474 18,542
Income from operations 19,923 10,566 30,489
Expenditures for segment
Assets 4,528 4,323 8,851
-------------- ------------- ----------
Six months ended
December 29, 2000
Revenues from external
Customers $160,051 $ 57,729 $217,780
Interest expense 25,711 12,151 37,862
Depreciation and
Amortization 12,060 5,898 17,958
Income from operations 17,009 7,113 24,122
Expenditures for segment
Assets 4,441 3,834 8,275
-------------- ------------- ----------
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2001 2000 2001 2000
------------ ----------- ------------ -----------
PROFIT OR LOSS
Total operating profit for reportable
segments before income taxes $ 14,922 $ 13,326 $ 30,489 $ 24,122
Corporate and eliminations (3,847) (3,571) (7,576) (7,056)
------------ ----------- ------------ -----------
$ 11,075 $ 9,755 $ 22,913 $ 17,066
============ =========== ============ ===========
DEPRECIATION AND AMORTIZATION
Segment totals $ 9,495 $ 9,072 $ 18,542 $ 17,958
Corporate 256 257 512 512
------------ ----------- ------------ -----------
Consolidated total $ 9,751 $ 9,329 $ 19,054 $ 18,470
============ =========== ============ ===========
EXPENDITURES FOR SEGMENT ASSETS
Total reportable-segment expenditures $ 3,991 $ 3,863 $ 8,851 $ 8,275
Other unallocated expenditures 121 382 291 404
------------ ----------- ------------ -----------
Consolidated total $ 4,112 $ 4,245 $ 9,142 $ 8,679
============ =========== ============ ===========
10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
SEGMENT ASSETS
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
--------------- ------------- ----------
December 28, 2001 288,344 347,807 636,151
June 29, 2001 333,570 270,731 604,301
-------------- ------------- ----------
DECEMBER 28, 2001 JUNE 29, 2001
----------------- -------------
TOTAL ASSETS
Total assets from reportable segments $636,151 $604,301
Other unallocated amounts 27,336 17,193
-------- --------
Consolidated total $663,487 $621,494
======== ========
GEOGRAPHIC INFORMATION
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2001 2000 2001 2000
----------- ------------ ------------ ------------
REVENUES
United States $101,649 $ 93,906 $203,681 $194,750
International 12,091 11,967 25,223 23,030
----------- ------------ ------------ ------------
Total $113,740 $105,873 $228,904 $217,780
=========== ============ ============ ============
DECEMBER 28, 2001 JUNE 29, 2001
----------------- --------------
LONG-LIVED ASSETS
United States $367,513 $310,866
International 43,908 43,661
-------- --------
Total $411,421 $354,527
======== ========
11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Earnings
(Unaudited)
For the three months ended December 28,2001
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- --------- ---------- ----------
Net sales $ 113,740 $ 41,876 $ 59,773 $ 12,091
Cost of sales 86,056 30,186 46,854 9,016
--------- --------- --------- ---------
Gross profit 27,684 11,690 12,919 3,075
Operating expenses:
Selling, General and administrative 16,609 8,816 6,220 1,573
--------- --------- --------- ---------
Income from operations 11,075 2,874 6,699 1,502
Other expense (income) 42 (543) (125) 710
Unrealized gain on derivative contracts (5,724) (5,724) -- --
Interest expense 16,590 16,559 (30) 61
--------- --------- --------- ---------
Earnings before income taxes 167 (7,418) 6,854 731
Provision for income taxes 100 (3,266) 3,450 (84)
--------- --------- --------- ---------
Net income $ 67 $ (4,152) $ 3,404 $ 815
========= ========= ========= =========
For the six months ended December 28, 2001
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- ----------- ----------- -----------
Net sales $ 228,904 $ 81,306 $ 122,375 $ 25,223
Cost of sales 174,206 60,087 94,997 19,122
--------- --------- --------- ---------
Gross profit 54,698 21,219 27,378 6,101
Operating expenses:
Selling, General and administrative 31,785 18,883 9,877 3,025
--------- --------- --------- ---------
Income from operations 22,913 2,336 17,501 3,076
Unrealized loss on derivative contracts 2,590 2,590 -- --
Other expense (income) 334 (490) (264) 1,088
Interest expense 34,375 34,354 (76) 97
--------- --------- --------- ---------
Earnings before income taxes (14,386) (34,118) 17,841 1,891
Provision for income taxes (5,000) (11,910) 6,250 660
--------- --------- --------- ---------
Net income (loss) $ (9,386) $ (22,208) $ 11,591 $ 1,231
========= ========= ========= =========
12
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Earnings
(Unaudited)
For the three months ended December 29,2000
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- ----------- ----------- -----------
Net sales $ 105,873 $ 40,567 $ 53,339 $ 11,967
Cost of sales 81,750 30,947 42,469 8,334
--------- --------- --------- ---------
Gross profit 24,123 9,620 10,870 3,633
Operating expenses:
Selling, General and administrative 14,368 9,022 4,112 1,234
--------- --------- --------- ---------
Income from operations 9,755 598 6,758 2,399
Interest expense (income), net 19,642 19,695 (103) 50
Other expense (income) (80) 50 (302) 172
--------- --------- --------- ---------
Income (loss) before provision for income
taxes (9,807) (19,147) 7,163 2,177
Provision for income taxes (4,900) (9,775) 4,083 792
--------- --------- --------- ---------
Net income (loss) $ (4,907) $ (9,372) $ 3,080 $ 1,385
======== ======== ======== ========
For the six months ended December 29, 2000
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- ----------- ----------- -----------
Net sales $ 217,780 $ 78,988 $ 115,762 $ 23,030
Cost of sales 171,235 59,912 95,087 16,236
--------- --------- --------- ---------
Gross profit 46,545 19,076 20,675 6,794
Operating expenses:
Selling, General and administrative 29,479 18,483 8,656 2,340
--------- --------- --------- ---------
Income from operations 17,066 593 12,019 4,454
Interest expense (income), net 37,862 38,243 (210) (171)
Other expense (income) 450 124 (365) 691
--------- --------- --------- ---------
Income (loss) before income taxes (21,246) (37,774) 12,594 3,934
Provision for income taxes (10,600) (18,900) 6,783 1,517
--------- --------- --------- ---------
Net income (loss) $ (10,646) $ (18,874) $ 5,811 $ 2,417
========= ========= ========= =========
13
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet - at December 28, 2001
(Unaudited)
NON-
TOTAL ELIMINATIONS ISSUER GUARANTORS GUARANTORS
--------- -------------- ---------- ----------- ------------
Current assets $ 253,566 $ -- $ 43,044 $ 171,922 $ 38,600
Property, plant and equipment, net 153,961 -- 38,258 96,118 19,585
Intangible assets, net 216,879 -- 80,644 124,111 12,124
Investment in subsidiaries -- (470,463) 470,463 -- --
Deferred financing costs, net 15,588 -- 15,363 99 126
Other long-term assets 23,493 (302,705) 45,934 268,191 12,073
--------- --------- -------- --------- ---------
Total assets $ 663,487 $(773,168) $693,706 $ 660,441 $ 82,508
========= ========= ======== ========= =========
Current liabilities $ 78,247 $ -- $ 25,783 $ 36,101 $ 16,363
Long-term debt 659,097 -- 654,698 -- 4,399
Other long-term liabilities 20,578 (302,705) 99,082 188,280 35,921
--------- --------- -------- --------- ---------
Total liabilities 757,922 (302,705) 779,563 224,381 56,683
========= ========= ======== ========= =========
Additional paid-in capital 170,176 (312,420) 170,156 296,784 15,656
Retained earnings (deficit) (36,758) (158,043) (35,491) 139,276 17,500
Cumulative currency translation adjustment (7,331) -- -- -- (7,331)
Less: Treasury stock (220,522) -- (220,522) -- --
--------- --------- -------- --------- ---------
Total equity (94,435) (470,463) (85,857) 436,060 25,825
--------- --------- -------- --------- ---------
Total liabilities and equity $ 663,487 $(773,168) $693,706 $ 660,441 $ 82,508
========= ========= ======== ========= =========
14
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
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 long-term 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)
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
========= ========= ======== ========= =========
15
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the six months ended December 28, 2001
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- ---------- ----------- ------------
Net cash provided by (used in) operating
activities $ 4,316 $ (105,959) $ 106,824 $ 3,451
------- ----------- ---------- --------
Cash flows from investing activities:
Capital expenditures (9,142) (3,103) (3,941) (2,098)
Acquisition costs (65,757) -- (65,757) --
Additions to intangibles (222) (140) -- (82)
Deposits and other assets 894 (1,909) 3,331 (528)
------- ----------- ---------- --------
Net cash used in investing activities (74,227) (5,152) (66,367) (2,708)
------- ----------- ---------- --------
Cash flows from financing activities
Repayment of long term debt (8,813) (8,863) -- 50
Receipt of additional paid-in capital 50,000 50,000 -- --
Payment for treasury stock (60) (60) -- --
Change in intercompany accounts -- 48,322 (48,586) 264
------- ----------- ---------- --------
Net cash flows provided by (used in)
financing activities 41,127 89,399 (48,586) 314
------- ----------- ---------- --------
Effect of exchange rate changes on cash (39) -- -- (39)
------- ----------- ---------- --------
Net increase (decrease) in cash (28,823) (21,712) (8,129) 1,018
Cash, beginning of period 44,645 32,890 5,321 6,434
------- ----------- ---------- --------
Cash, end of period $ 15,822 $ 11,178 $ (2,808) $ 7,452
========= ======== ========= ========
For the six months ended December 29, 2000
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- ---------- ----------- ------------
Net cash provided by (used in) operating
activities $ (26,163) $ (35,331) $ 6,323 $ 2,845
--------- ---------- ------- --------
Cash flows from Investing activities:
Capital expenditures (8,679) (1,587) (4,887) (2,205)
Acquisition costs (9,189) -- -- (9,189)
Additions to intangibles (95) (95) -- --
Deposits and other assets 86 1,264 (1,319) 141
--------- ---------- ------- --------
Net cash used in investing activities (17,877) (418) (6,206) (11,253)
--------- ---------- ------- --------
Cash flows from financing activities
Repayment of long term debt 35,709 36,272 -- (563)
Repayment of line of credit (140) -- -- (140)
Receipt of additional paid in capital 6,000 6,000 -- --
Debt financing costs (131) (131) -- --
Change in intercompany accounts -- (8,846) (2,977) 11,823
--------- ---------- ------- --------
Net cash flows provided by (used in)
financing activities 41,438 33,295 (2,977) 11,120
--------- ---------- ------- --------
Effect of exchange rate changes on cash 15 -- -- 15
--------- ---------- ------- --------
Net increase (decrease) in cash (2,587) (2,454) (2,860) 2,727
Cash, beginning of period 12,525 5,522 3,766 3,237
--------- ---------- ------- --------
Cash, end of period $ 9,938 $ 3,068 $ 906 $ 5,964
========= ========== ======= ========
16
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 7 - ACQUISITION
The Company purchased certain assets and assumed certain liabilities of the Swan
garden hose division of Mark IV Industries, Inc. on October 16, 2001, for
approximately $65,757 in cash. The Company utilized preliminary estimates and
assumptions in determining the allocation of purchase price to assets acquired
and liabilities assumed of Swan. While management believes such estimates and
assumptions are reasonable, the final allocation of the purchase price may
differ from that reflected in the unaudited December 28, 2001 consolidated
balance sheet after a more extensive review of fair values of the assets and
liabilities is completed. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired $ 42,269
Goodwill 45,070
Cash paid (65,757)
-------------
Liabilities assumed $ 21,582
=============
17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SECOND QUARTER OF FISCAL 2002 COMPARED WITH THE SECOND QUARTER OF FISCAL 2001
Net Sales increased to $113.7 million for the three months ended December 28,
2001 from $105.9 million for the three months ended December 29, 2000,
representing a $7.9 million or 7.4% increase. Increases in the Consumer Segment
more than offset declines in our Industrial Segment. Our Consumer Segment net
sales increased $11.6 million or 46.6% primarily due to our Swan acquisition as
well as strong demand for garden hose from our traditional customer base. The
Swan acquisition added approximately $7.2 million of net sales in the current
quarter. Our Industrial Segment reported a $3.7 million or 4.6% decline in
sales. 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 increased to $86.1 million for the three months ended December 28,
2001 from $81.8 million for the three months ended December 29, 2000, an
increase of $4.3 million. Expressed as a percentage of net sales, cost of sales
decreased to 75.7% for the three months ended December 28, 2001 from 77.2% for
the three months ended December 29, 2000. Lower resin costs and improved
operating efficiencies accounted for the improvement in this ratio.
Gross Profit, as a result, increased to $27.7 million or 24.3% of net sales for
the three months ended December 28, 2001 from $24.1 million or 22.8% of net
sales for the three months ended December 29, 2000.
Selling, general and administrative expense increased to $16.6 million in the
three months ended December 28, 2001 compared to $14.4 million in the three
months ended December 29, 2000 primarily due to our Swan acquisition. The ratio
of selling, general and administrative expense to net sales increased to 14.6%
for the three months ending December 28, 2001 from 13.6% in the comparable
period of last year.
Operating profit, as a result of the foregoing, increased to $11.1 million or
9.7% of net sales for the three months ended December 28, 2001 from $9.8 million
or 9.2% of net sales for the three months ended December 29, 2000.
Interest expense decreased to $16.6 million or 14.6% of net sales in the three
months ended December 28, 2001 from $19.6 million or 18.6% of net sales in the
three months ended December 29, 2000. The decrease was due to lower debt levels
and lower interest rates.
Income (loss) before income taxes, as a result, was a $0.2 million for the three
months ended December 28, 2001 compared to a loss of ($9.8) million for the
three months ended December 29, 2000.
Income tax (benefit) was $0.1 million for the three months ended December 28,
2001, compared to a credit of ($4.9) million for the three months ended December
29, 2000. The Company's effective tax rate was 59.9% for the three months ended
December 28, 2001 compared to 50.0% for the three months ending December 29,
2000.
Net income (loss), as a result, was a $0.1 million for the three months ended
December 28, 2001 compared with a loss of ($4.9) million for the three months
ended December 29, 2000.
18
FIRST SIX MONTHS OF FISCAL 2002 COMPARED WITH THE FIRST SIX MONTHS OF
FISCAL 2001
Net Sales increased to $228.9 million for the six months ended December 28, 2001
from $217.8 million for the six months ended December 29, 2000, representing a
$11.1 million or 5.1% increase. The Swan acquisition combined with strong garden
hose sales were the primary factors contributing to this gain.
Cost of Sales increased to $174.2 million for the six months ended December 28,
2001 from $171.2 million for the six months ended December 29, 2000, an
increase of $3.0 million. Expressed as a percentage of net sales, cost of sales
decreased to 76.1% for the six months ended December 28, 2001 from 78.6% for
the six months ended December 29, 2000. Lower resin costs and improved
operating efficiencies accounted for the improvement in this ratio.
Gross Profit, as a result, increased to $54.7 million or 23.9% of net sales for
the six months ended December 28, 2001 from $46.5 million or 21.4% of net sales
for the six months ended December 29, 2000.
Selling, General and Administrative Expense increased to $31.8 million in the
six months ended December 28, 2001 compared to $29.5 million in the six months
ended December 29, 2000 primarily due to our Swan acquisition. The ratio of
selling, general and administrative expense to net sales increased slightly to
13.9% for the six months ending December 28, 2001 from 13.5% in the comparable
period of last year.
Operating Profit, as a result of the foregoing, increased to $22.9 million or
10.0% of net sales for the six months ended December 28, 2001 from $17.1
million or 7.8% of net sales for the six months ended December 29, 2000.
Interest Expense decreased to $34.4 million or 15.0% of net sales in the six
months ended December 28, 2001 from $37.9 million or 17.4% of net sales in the
six months ended December 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 ($14.4) million
for the six months ended December 28, 2001 compared to a loss of ($21.2)
million for the six months ended December 29, 2000.
Income Tax (Benefit) was a credit of ($5.0) million for the six months ended
December 28, 2001, compared to a credit of ($10.6) million for the six months
ended December 29, 2000. The Company's effective tax rate was 34.8% for the six
months ended December 28, 2001 compared to 49.9% for the six months ending
December 29, 2000.
Net Income (Loss), as a result, was a loss of ($9.4) million for the six months
ended December 28, 2001 compared with a loss of ($10.6) million for the six
months ended December 29, 2000.
19
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operations for the six months ended December 28,
2001 was $4.3 million compared with ($26.2) million in the same period of the
prior year. The increase of $30.5 million was primarily due to a lower seasonal
inventory build-up at our garden hose unit compared to last year. In addition,
we reported a $2.6 million improvement in our unrealized loss on interest rate
hedges in the current period. Working capital on December 28, 2001 was $173.8
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 December 28, 2001, the Company had an outstanding balance of $60.0 million
under the $100.0 million revolving credit line. This represents a reduction of
$5.0 million from the outstanding balance as of June 29, 2000.
The Company's capital expenditures for the six months ended December 28, 2001
and December 29, 2000 were $9.1 million and $8.7 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 may 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.
20
\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
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
21
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.
February 11, 2002
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
22