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 29, 2002
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 (972) 304-5077
- --------------------------------------- ------------------------------------
Coppell, Texas 75022 (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 March 29, 2002
and June 29, 2001 (unaudited) 3
Consolidated Statements of Operations for the nine months and three
months ended March 29, 2002 and March 30, 2001 (unaudited) 4
Consolidated Statements of Comprehensive Income (loss) for the nine
months and three months ended March 29, 2002 and
March 30, 2001 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended March 29, 2002 and March 30, 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 18-20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II. OTHER INFORMATION
Item 1. Legal proceedings 21
Item 2. Changes in securities 21
Item 3. Defaults upon senior securities 21
Item 4. Submission of matters to a vote of securities holders 21
Item 5 Other information 21
Item 6 Exhibits and reports on Form 8-K 21
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
MARCH 29, 2002 June 29, 2001
(UNAUDITED) (Audited)
-------------- -------------
ASSETS
CURRENT:
Cash and cash equivalents $ 8,620 $ 44,645
Accounts receivable, net of allowance for
doubtful accounts $6,761 and $1,500 respectively 121,274 105,316
Inventories 143,823 106,258
Deferred income taxes 5,153 5,153
Prepaid expenses and other current assets 8,254 5,595
--------- ---------
TOTAL CURRENT ASSETS 287,124 266,967
PROPERTY, PLANT AND EQUIPMENT, NET 152,212 137,008
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $74,357 AND $62,271 RESPECTIVELY 211,690 179,616
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $4,410 AND $2,549 RESPECTIVELY 14,866 16,607
DEFERRED INCOME TAXES 22,436 19,010
OTHER ASSETS 1,274 2,286
--------- ---------
$ 689,602 $ 621,494
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 11,747 $ 8,072
Line of credit 33 --
Accounts payable - trade 32,976 34,076
Accrued payroll and benefits 6,508 5,222
Accrued interest 15,453 1,673
Accrued liabilities - other 23,518 15,446
Income taxes payable 1,152 3,349
--------- ---------
TOTAL CURRENT LIABILITIES 91,387 67,838
LONG-TERM DEBT 672,802 670,078
OTHER LIABILITIES 21,529 18,275
--------- ---------
TOTAL LIABILITIES 785,718 756,191
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in capital 170,176 120,176
Cumulative currency translation adjustment (11,316) (7,039)
Retained earnings (34,454) (27,372)
Less: treasury stock (220,522) (220,462)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY (96,116) (134,697)
--------- ---------
$ 689,602 $ 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 Nine months ended
MARCH 29, March 30, MARCH 29, March 30,
2002 2001 2002 2001
--------- --------- --------- ---------
NET SALES $ 153,393 $ 140,681 $ 382,297 $ 358,461
COST OF SALES 111,385 103,896 285,591 275,131
--------- --------- --------- ---------
GROSS PROFIT 42,008 36,785 96,706 83,330
OPERATING EXPENSES:
Selling, general and administrative 18,529 15,658 50,314 45,137
--------- --------- --------- ---------
INCOME FROM OPERATIONS 23,479 21,127 46,392 38,193
OTHER EXPENSES:
Interest expense 19,014 19,824 53,389 57,686
Unrealized loss on derivative contracts 1,085 2,998 3,675 14,293
Other expense (105) 457 229 907
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 3,485 (2,152) (10,901) (34,693)
PROVISION FOR INCOME TAXES 1,180 (679) (3,820) (15,345)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 2,305 $ (1,473) $ (7,081) $ (19,348)
========= ========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
NET INCOME (LOSS) $ 2,305 $ (1,473) $ (7,081) $ (19,348)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAXES
Foreign currency translation adjustment (3,985) (1,216) (4,277) (1,776)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (1,680) $ (2,689) $ (11,358) $ (21,124)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
4
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited -- in thousands)
Nine months ended
MARCH 29, 2002 March 30, 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income loss $ (7,081) $(19,348)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 29,011 27,855
Unrealized loss on derivative contracts 3,675 14,293
Deferred income taxes (3,465) (15,497)
Changes in operating assets and liabilities:
Accounts receivable (9,624) 641
Inventories (21,769) (34,217)
Prepaid expenses and other current assets (2,703) (973)
Income taxes (2,202) --
Accounts payable (5,003) 9,592
Accrued interest 13,763 16,478
Accrued expenses and other liabilities (10,033) (15,684)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (15,431) (16,860)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,317) (12,390)
Acquisition costs (65,757) (8,869)
Additions to intangibles 797 (95)
Deposits and other assets 846 75
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (76,431) (21,279)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of long-term debt 6,000 38,419
Net borrowings (repayments) under line of credit 12 (123)
Payment for treasury stock (60) --
Receipt of additional paid-in capital 50,000 6,000
Debt financing costs (120) (131)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 55,832 44,165
-------- --------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 5 (42)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (36,025) 5,984
CASH, AND CASH EQUIVALENTS BEGINNING OF PERIOD 44,645 12,525
-------- --------
CASH, AND CASH EQUIVALENTS END OF PERIOD $ 8,620 $ 18,509
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 38,290 $ 40,942
-------- --------
Income taxes 1,912 1,048
-------- --------
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 March 29, 2002, the net
carrying amount of goodwill is $211,166 and other intangible
assets are $524. Amortization expense during the nine month
period ended March 29, 2002 was $12,086. 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
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
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 March 29, 2002 and June 29, 2001 are summarized as follows:
MARCH 29, 2002 June 29, 2001
-------------- -------------
Raw materials $ 38,372 $ 33,971
Work-in-process 7,950 7,812
Finished goods 97,501 64,475
----------- -----------
$143,823 $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:
MARCH 29, 2002 June 29, 2001
-------------- -------------
Senior Subordinated Notes issued June 21, 2000 at 12.75% due June 15,
2010. (Less unamortized discount of $3,108 and $3,391) $271,892 $271,609
Senior Secured Debt:
Revolving line of credit, expiring June, 2006. At March 29, 2002,
the interest rate ranged from 4.94% to 5.00% 77,000 65,000
Term notes due June, 2006 and June, 2008, with interest rates at
March 29, 2002 of 4.81% and 5.31% 330,980 336,560
Other, primarily foreign term loans, with interest rates ranging from
4.44% to 5.44% and maturities from 2002 to 2010 4,677 4,981
-------- --------
684,549 678,150
Less: Current maturities 11,747 8,072
-------- --------
$672,802 $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 and 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 it operates are as follows:
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
------------- ------------ -----
Three months ended
March 29, 2002
Revenues from external
Customers $ 79,817 $ 73,576 $153,393
Interest expense 12,972 6,042 19,014
Depreciation and
amortization 6,919 2,776 9,695
Income from operations 14,271 14,576 28,847
Expenditures for segment
Assets 2,498 422 2,920
-------- -------- --------
Three months ended
March 30, 2001
Revenues from external
Customers $ 82,440 $ 58,241 $140,681
Interest expense 13,755 6,069 19,824
Depreciation and
Amortization 5,943 3,186 9,129
Income from operations 13,818 10,293 24,111
Expenditures for segment
Assets 1,930 1,691 3,621
-------- -------- --------
9
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 5 - SEGMENT INFORMATION
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
------------- ------------ -----
Nine months ended
March 29, 2002
Revenues from external
Customers $235,598 $146,699 $382,297
Interest expense 36,413 16,976 53,389
Depreciation and
Amortization 18,802 9,435 28,237
Income from operations 34,138 25,198 59,336
Expenditures for segment
Assets 7,026 4,745 11,771
-------- -------- --------
Nine months ended
March 30, 2001
Revenues from external
customers $242,491 $115,970 $358,461
Interest expense 39,466 18,220 57,686
Depreciation and
amortization 18,003 9,084 27,087
Income from operations 30,827 17,406 48,233
Expenditures for segment
Assets 6,371 5,525 11,896
-------- -------- --------
Three months ended Nine months ended
MARCH 29, March 30, MARCH 29, March 30,
2002 2001 2002 2001
--------- --------- --------- ---------
INCOME FROM OPERATIONS
Total income from operations for
reportable segments before
income taxes $ 28,847 $ 24,111 $ 59,336 $ 48,233
Corporate and eliminations (5,368) (2,984) (12,944) (10,040)
-------- -------- -------- --------
$ 23,479 $ 21,127 $ 46,392 $ 38,193
======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
Segment totals $ 9,695 $ 9,129 $ 28,237 $ 27,087
Corporate 262 256 774 768
-------- -------- -------- --------
Consolidated total $ 9,957 $ 9,385 $ 29,011 $ 27,855
======== ======== ======== ========
EXPENDITURES FOR SEGMENT ASSETS
Total reportable-segment expenditures $ 2,920 $ 3,621 $ 11,771 $ 11,896
Other unallocated expenditures 255 90 546 494
-------- -------- -------- --------
Consolidated total $ 3,175 $ 3,711 $ 12,317 $ 12,390
======== ======== ======== ========
10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 5 - SEGMENT INFORMATION
SEGMENT ASSETS
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
------------- ------------ -----
MARCH 29, 2002 $293,860 $369,538 $663,398
June 30, 2001 333,570 270,731 604,301
-------- -------- --------
MARCH 29, 2002 June 29, 2001
-------------- -------------
TOTAL ASSETS
Total assets from reportable segments $663,398 $604,301
Other unallocated amounts 26,204 17,193
-------- --------
Consolidated total $689,602 $621,494
======== ========
GEOGRAPHIC INFORMATION
Three months ended Nine months ended
MARCH 29, March 30, MARCH 29, March 30,
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUES
United States $137,685 $123,569 $341,366 $318,319
International 15,708 17,112 40,931 40,142
-------- -------- -------- --------
Total $153,393 $140,681 $382,297 $358,461
======== ======== ======== ========
MARCH 29, 2002 June 29, 2001
-------------- -------------
LONG-LIVED ASSETS
United States $359,206 $310,866
International 43,272 43,661
-------- --------
Total $402,478 $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 March 29, 2002
Non-
TOTAL Issuer Guarantors Guarantors
---------- ---------- ---------- ----------
Net sales $ 153,393 $ 40,360 $ 97,325 $ 15,708
Cost of sales 111,385 27,869 72,885 10,631
--------- --------- --------- ---------
Gross profit 42,008 12,491 24,440 5,077
Operating expenses:
Selling, general and administrative 18,529 10,854 6,123 1,552
--------- --------- --------- ---------
Income from operations 23,479 1,637 18,317 3,525
Interest expense (income), net 19,014 19,002 (10) 22
Unrealized loss on derivative contracts 1,085 1,085 -- --
Other expense (income) (105) (222) (366) 483
--------- --------- --------- ---------
Income (loss) before provision for income taxes 3,485 (18,228) 18,693 3,020
Provision benefit for income taxes 1,180 (6,450) 6,700 930
--------- --------- --------- ---------
Net income (loss) $ 2,305 $ (11,778) $ 11,993 $ 2,090
========= ========= ========= =========
For the nine months ended March 29, 2002
Non-
TOTAL Issuer Guarantors Guarantors
---------- ---------- ---------- ----------
Net sales $ 382,297 $ 121,666 $ 219,700 $ 40,931
Cost of sales 285,591 87,956 167,882 29,753
--------- --------- --------- ---------
Gross profit 96,706 33,710 51,818 11,178
Operating expenses:
Selling, general and administrative 50,314 29,737 16,000 4,577
--------- --------- --------- ---------
Income from operations 46,392 3,973 35,818 6,601
Interest expense (income), net 53,389 53,356 (86) 119
Unrealized loss on derivative contracts 3,675 3,675 -- --
Other expense (income) 229 (712) (630) 1,571
--------- --------- --------- ---------
Income (loss) before provision for income taxes (10,901) (52,346) 36,534 4,911
Provision benefit for income taxes (3,820) (18,360) 12,950 1,590
--------- --------- --------- ---------
Net income (loss) $ (7,081) $ (33,986) $ 23,584 $ 3,321
========= ========= ========= =========
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 March 30, 2001
Non-
TOTAL Issuer Guarantors Guarantors
---------- ---------- ---------- ----------
Net sales $ 140,681 $ 42,021 $ 81,548 $ 17,112
Cost of sales 103,896 30,801 61,764 11,331
--------- --------- --------- ---------
Gross profit 36,785 11,220 19,784 5,781
Operating expenses:
Selling, general and administrative 15,658 9,428 4,720 1,510
--------- --------- --------- ---------
Income from operations 21,127 1,792 15,064 4,271
Interest expense (income), net 19,824 19,835 (56) 45
Unrealized loss on derivative contracts 2,998 2,998 -- --
Other expense (income) 457 (624) (301) 1,382
--------- --------- --------- ---------
Income (loss) before provision for income taxes (2,152) (20,417) 15,421 2,844
Provision benefit for income taxes (679) (9,779) 7,217 1,883
--------- --------- --------- ---------
Net income (loss) $ (1,473) $ (10,638) $ 8,204 $ 961
========= ========= ========= =========
For the nine months ended March 30, 2001
Non-
TOTAL Issuer Guarantors Guarantors
---------- ---------- ---------- ----------
Net sales $ 358,461 $ 121,009 $ 197,310 $ 40,142
Cost of sales 275,131 90,713 156,851 27,567
--------- --------- --------- ---------
Gross profit 83,330 30,296 40,459 12,575
Operating expenses:
Selling, general and administrative 45,137 27,911 13,376 3,850
--------- --------- --------- ---------
Income from operations 38,193 2,385 27,083 8,725
Interest expense (income), net 57,686 58,078 (266) (126)
Unrealized loss on derivative contracts 14,293 14,293 -- --
Other expense (income) 907 (500) (666) 2,073
--------- --------- --------- ---------
Income (loss) before provision for income taxes (34,693) (69,486) 28,015 6,778
Provision benefit for income taxes (15,345) (32,745) 14,000 3,400
--------- --------- --------- ---------
Net income (loss) $ (19,348) $ (36,741) $ 14,015 $ 3,378
========= ========= ========= =========
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 March 29, 2002
(Unaudited)
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
----- ------------ ------ ---------- ----------
Current assets $ 287,124 $ -- $ 37,006 $ 207,740 $ 42,378
Property, plant and equipment, net 152,212 -- 38,463 94,495 19,254
Intangible assets 211,690 -- 11,704 188,151 11,835
Investment in subsidiaries -- (484,546) 484,546 -- --
Deferred financing costs, net 14,866 -- 14,664 99 103
Other long-term assets 23,710 (308,635) 132,152 188,113 12,080
--------- --------- --------- --------- ---------
Total assets $ 689,602 $(793,181) $ 718,535 $ 678,598 $ 85,650
========= ========= ========= ========= =========
Current liabilities $ 91,387 $ -- $ 39,706 $ 33,852 $ 17,829
Long-term debt 672,802 -- 668,682 -- 4,120
Other long-term liabilities 21,529 (308,635) 93,699 196,669 39,796
--------- --------- --------- --------- ---------
Total liabilities 785,718 (308,635) 802,087 230,521 61,745
--------- --------- --------- --------- ---------
Additional paid-in capital 170,176 (312,420) 170,156 296,784 15,656
Accumulated currency translation adjustment (11,316) -- -- 25 (11,341)
Retained earnings (deficit) (34,454) (172,126) (33,186) 151,268 19,590
Less: Treasury stock (220,522) -- (220,522) -- --
--------- --------- --------- --------- ---------
Total equity (96,116) (484,546) (83,552) 448,077 23,905
--------- --------- --------- --------- ---------
Total liabilities and equity $ 689,602 $(793,181) $ 718,535 $ 678,598 $ 85,650
========= ========= ========= ========= =========
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
Cumulative currency translation adjustment (7,039) -- -- 33 (7,072)
Retained earnings (deficit) (27,372) (145,221) (26,105) 127,685 16,269
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
========= ========= ========= ========= =========
14
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the nine months ended March 29,2002
Non-
TOTAL Issuer Guarantors Guarantors
----- ------ ---------- ----------
Net cash provided by (used in) operating activities $(15,431) $(13,346) $ (154) $ (1,931)
-------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (12,317) (5,209) (4,779) (2,329)
Acquisition costs (65,757) -- (65,757) --
Additions to intangibles 797 (191) 1,206 (218)
Deposits and other assets 846 117 299 430
-------- -------- -------- --------
Net cash used in investing activities (76,431) (5,283) (69,031) (2,117)
-------- -------- -------- --------
Cash flows from financing activities
Repayment of long term debt 6,000 6,298 -- (298)
Repayment/borrowings of line of credit 12 -- -- 12
Receipt of additional paid-in capital 50,000 50,000 -- --
Payment for treasury stock (60) (60) -- --
Debt financing (120) (120) -- --
Change in intercompany accounts -- (68,272) 64,148 4,124
-------- -------- -------- --------
Net cash flows provided by (used in)
financing activities 55,832 (12,154) 64,148 3,838
-------- -------- -------- --------
Effect of exchange rate changes on cash 5 -- -- 5
-------- -------- -------- --------
Net decrease in cash (36,025) (30,783) (5,037) (205)
Cash, beginning of period 44,645 32,890 5,321 6,434
-------- -------- -------- --------
Cash, end of period $ 8,620 $ 2,107 $ 284 $ 6,229
======== ======== ======== ========
15
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the nine months ended March 30, 2001
Non-
TOTAL Issuer Guarantors Guarantors
----- ------ ---------- ----------
Net cash provided by (used in) operating
activities $(16,860) $(26,261) $ 8,950 $ 451
-------- -------- -------- --------
Cash flows from Investing activities:
Capital expenditures (12,390) (2,870) (7,107) (2,413)
Acquisition costs (8,869) -- -- (8,869)
Additions to intangibles (95) (95) -- --
Deposits and other assets 75 1,276 (1,336) 135
-------- -------- -------- --------
Net cash used in investing activities (21,279) (1,689) (8,443) (11,147)
-------- -------- -------- --------
Cash flows from financing activities
Repayment of long term debt 38,419 39,371 -- (952)
Repayment of line of credit (123) -- -- (123)
Receipt of additional paid in capital 6,000 6,000 -- --
Debt financing costs (131) (131) -- --
Change in intercompany accounts -- (12,663) 67 12,596
-------- -------- -------- --------
Net cash flows provided by (used in)
financing activities 44,165 32,577 67 11,521
-------- -------- -------- --------
Effect of exchange rate changes on cash (42) -- -- (42)
-------- -------- -------- --------
Net increase in cash 5,984 4,627 574 783
Cash, beginning of period 12,525 5,522 3,766 3,237
-------- -------- -------- --------
Cash, end of period $ 18,509 $ 10,149 $ 4,340 $ 4,020
======== ======== ======== ========
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. "Swan" 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 March 29, 2002 consolidated balance
sheet after a more extensive review of fair values of the assets and liabilities
is completed.
In connection with the acquisition, a reserve of $11,000 has been established
for the costs to integrate Swan's operations with the company. The reserve is
comprised of the costs to close duplicate facilities, terminate employees and
other related costs. The plans to close the facilities have been put in place,
however, certain related lease costs will extend beyond one year. The reserve is
included in accrued expenses.
The following table represents the unaudited pro forma results of operations as
though the acquisition of Swan occurred on July 01, 2000. Since Swan was
purchased subsequent to July 01, 2001, no amortization of goodwill has been
reflected for the periods ended June 29, 2001 or March 29, 2002 in accordance
with SFAS 142.
Year Ended Nine Months Ended
June 29, 2001 March 29, 2002
------------- -----------------
Net Sales $602,593 $393,593
Income from Operations 73,305 44,407
Earnings (loss) before income taxes (17,760) (12,886)
-------- --------
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
THIRD QUARTER OF FISCAL 2002 COMPARED WITH THE THIRD QUARTER OF FISCAL 2001
Net Sales increased to $153.4 million for the three months ended March 29, 2002
from $140.7 million for the three months ended March 30, 2001, representing a
$12.7 million or 9.0% increase. Increases in the Consumer Segment more than
offset declines in our Industrial Segment. Our Consumer Segment net sales
increased $15.3 million or 26.3% primarily due to our Swan acquisition. Our
Industrial Segment reported a $2.6 million or 3.1% decline in sales.
Cost of Sales increased to $111.4 million for the three months ended March 29,
2002 from $103.9 million for the three months ended March 30, 2001, an increase
of $7.5 million. Expressed as a percentage of net sales, cost of sales decreased
to 72.6% for the three months ended March 29, 2002 from 73.9% for the three
months ended March 30, 2001. Lower resin costs and improved operating
efficiencies accounted for the improvement in this ratio.
Gross Profit, as a result, increased to $42.0 million or 27.4% of net sales for
the three months ended March 29, 2002 from $36.8 million or 26.1% of net sales
for the three months ended March 30, 2001.
Selling, general and administrative expense increased to $18.5 million in the
three months ended March 29, 2002 compared to $15.7 million in the three months
ended March 30, 2001, primarily due to our Swan acquisition. The ratio of
selling, general and administrative expense to net sales increased to 12.1% for
the three months ending March 29, 2002 from 11.1% in the comparable period of
last year.
Operating profit, as a result of the foregoing, increased to $23.5 million or
15.3% of net sales for the three months ended March 29, 2002 from $21.1 million
or 15.0% of net sales for the three months ended March 30, 2001.
Interest expense decreased to $19.0 million or 12.4% of net sales in the three
months ended March 29, 2002 from $19.8 million or 14.1% of net sales in the
three months ended March 30, 2001. The decrease was due to lower debt levels and
lower interest rates.
Income (loss) before income taxes, as a result, was $3.5 million for the three
months ended March 29, 2002 compared to a loss of ($2.2) million for the three
months ended March 30, 2001.
Income tax (benefit) was $1.2 million for the three months ended March 29, 2002,
compared to a credit of ($0.7) million for the three months ended March 30,
2001. The Company's effective tax rate was 33.9% for the three months ended
March 29, 2002 compared to 31.6% for the three months ending March 30, 2001.
Net income (loss), as a result, was $2.3 million for the three months ended
March 29, 2002 compared with a loss of ($1.5) million for the three months ended
March 30, 2001.
18
NINE MONTHS OF FISCAL 2002 COMPARED WITH THE NINE MONTHS OF FISCAL 2001
Net Sales increased to $382.3 million for the nine months ended March 29, 2002
from $358.5 million for the nine months ended March 30, 2001, representing a
$23.8 million or 6.6% increase. The Swan acquisition was the primary factor
contributing to this gain.
Cost of Sales increased to $285.6 million for the nine months ended March 29,
2002 from $275.1 million for the nine months ended March 30, 2001, an increase
of $10.5 million. Expressed as a percentage of net sales, cost of sales
decreased to 74.7% for the nine months ended March 29, 2002 from 76.8% for the
nine months ended March 30, 2001. Lower resin costs and improved operating
efficiencies accounted for the improvement in this ratio.
Gross Profit, as a result, increased to $96.7 million or 25.3% of net sales for
the nine months ended March 29, 2002 from $83.3 million or 23.2% of net sales
for the nine months ended March 30, 2001.
Selling, general and administrative expense increased to $50.3 million in the
nine months ended March 29, 2002 compared to $45.1 million in the nine months
ended March 30, 2001 primarily due to our Swan acquisition. The ratio of
selling, general and administrative expense to net sales increased to 13.2% for
the nine months ending March 29, 2002 from 12.6% in the comparable period of
last year.
Operating profit, as a result of the foregoing, increased to $46.4 million or
12.1% of net sales for the nine months ended March 29, 2002 from $38.2 million
or 10.7% of net sales for the nine months ended March 30, 2001.
Interest expense decreased to $53.4 million or 14.0% of net sales in the nine
months ended March 29, 2002 from $57.7 million or 16.1% of net sales in the nine
months ended March 30, 2001. The decrease was due to lower debt levels and lower
interest rates.
Income (loss) before income taxes, as a result, was a loss of ($10.9) million
for the nine months ended March 29, 2002 compared to a loss of ($34.7) million
for the nine months ended March 30, 2001.
Income tax (benefit) was a credit of ($3.8) million for the nine months ended
March 29, 2002, compared to a credit of ($15.3) million for the nine months
ended March 30, 2001. The Company's effective tax rate was 35.0% for the nine
months ended March 29, 2002 compared to 44.2% for the nine months ending March
30, 2001.
Net income (loss), as a result, was a loss of ($7.1) million for the nine months
ended March 29, 2002 compared with a loss of ($19.3) million for the nine months
ended March 30, 2001.
19
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations for the nine months ended March 29, 2002 was $15.4
million compared with $16.9 million in the same period of the prior year. The
increase of $1.5 million was primarily due to a normal seasonal inventory
build-up at our Swan unit, partially offset by a lower seasonal inventory
build-up at the rest of our garden hose unit compared to last year. Working
capital on March 29, 2002 was $195.7 million compared to $199.1 million on June
29, 2001.
As of March 29, 2002, the Company had an outstanding balance of $77.0 million
under the $100.0 million revolving credit line. This represents an increase of
$12.0 million from the outstanding balance as of June 29, 2001. On May 01, 2002,
the company issued $40,000,000 12-3/4% Senior Subordinated Notes due 2010.
The Company's capital expenditures for the nine months ended March 29, 2002 and
March 30, 2001 were $12.3 million and $12.4 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 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.
SEASONALITY
The garden hose business is highly seasonal with approximately 75% of sales
occurring in the spring and early summer months. This seasonality tends to have
an impact on the company's financial results from quarter to quarter.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in the Company's financial
instruments and positions represents the potential loss arising from adverse
changes in interest rates. At March 29, 2002 and June 29, 2001 the principal
amount of the Company's aggregate outstanding variable rate indebtedness was
$407,980 and $401,560 respectively. A hypothetical 1% adverse change in interest
rates would have an annualized unfavorable impact of approximately $4,100 and
$4,000 respectively on the Company's earnings and cash flows based upon these
debt levels. To ameliorate these risks, in June 2000, the Company entered into
interest rate Swap and Cap Agreements with a notional amount of $344,000
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.
May 13, 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