-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ez/1LRXVZUuhxL0HNxpqNqmLH+16PiVsIgZwQl32lciuKn/mvPr4O3Y65xnzw+Mp NPdnf8ZJJeZGo4m5Pf+jhg== 0000950123-00-004924.txt : 20000515 0000950123-00-004924.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950123-00-004924 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKNI PLEX INC CENTRAL INDEX KEY: 0001039542 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 223286312 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-28157 FILM NUMBER: 627949 BUSINESS ADDRESS: STREET 1: 201 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9087224800 MAIL ADDRESS: STREET 1: 201 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 10-Q 1 TEKNI-PLEX, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 / / 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) 201 Industrial Parkway (908) 722-4800 Somerville, New Jersey 08876 (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 / / 2 TEKNI-PLEX, INC.
Page # PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 2000 and July 2, 1999........................................................... 3 Consolidated Statements of Operations for the nine months and three months ended March 31, 2000 and April 2, 1999............................... 4 Consolidated Statements of Comprehensive Income for the nine months and three months ended March 31, 2000 and April 2, 1999..................... 4 Consolidated Statements of Cash Flows for the nine months ended March 31, 2000 and April 2, 1999.......................................... 5 Notes to Consolidated Financial Statements........................................ 6-13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF Operations.............................................. 14-16 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. Other information............................................... 17 Item 6. Exhibits and reports on Form 8-K................................ 17
3 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
MARCH 31, 2000 July 2, 1999 (UNAUDITED) -------------- ------------ ASSETS CURRENT: Cash $ 17,960 $ 22,117 Accounts receivable, net of an allowance of $1,691 and $1,662 for possible losses 90,740 96,835 Inventories 102,019 63,190 Deferred income taxes 5,700 5,900 Prepaid expenses and other current assets 8,866 3,664 --------- --------- TOTAL CURRENT ASSETS 225,285 191,706 PROPERTY, PLANT AND EQUIPMENT, NET 134,245 136,953 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $41,570 AND $29,581 197,044 206,140 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $6,192 AND $4,287 17,495 19,358 DEFERRED INCOME TAXES 1,139 1,346 OTHER ASSETS 3,945 3,933 --------- --------- $ 579,153 $ 559,436 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 6,549 $ 5,207 Line of credit 375 541 Accounts payable - trade 29,085 27,612 Accrued payroll and benefits 12,495 21,581 Accrued interest 6,557 7,965 Accrued liabilities - other 17,253 26,613 Income taxes payable 4,168 742 --------- --------- TOTAL CURRENT LIABILITIES 76,482 90,261 LONG-TERM DEBT 437,812 410,646 OTHER LIABILITIES 4,844 6,232 --------- --------- TOTAL LIABILITIES 519,138 507,139 --------- --------- STOCKHOLDER'S EQUITY: Common stock -- -- Additional paid-in capital 41,075 41,075 Cumulative currency translation adjustment (4,424) (1,368) Retained earnings 23,364 12,590 --------- --------- TOTAL STOCKHOLDER'S EQUITY 60,015 52,297 --------- --------- $ 579,153 $ 559,436 ========= =========
See accompanying notes to consolidated financial statements. 3 4 TEKNI-PLEX, INC. AND SUBSIDIARIES (Unaudited -- in thousands) CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended MARCH 31, April 2, MARCH 31, April 2, 2000 1999 2000 1999 --------- --------- --------- --------- NET SALES $ 138,872 $ 129,754 $ 351,179 $ 331,827 COST OF SALES 100,878 92,074 256,682 242,178 --------- --------- --------- --------- GROSS PROFIT 37,994 37,680 94,497 89,649 OPERATING EXPENSES: Selling, general and administrative 14,006 16,407 42,994 44,925 --------- --------- --------- --------- INCOME FROM OPERATIONS 23,988 21,273 51,503 44,724 OTHER EXPENSES: Interest, net (10,184) (9,860) (29,723) (28,866) Other (84) (164) (707) (661) --------- --------- --------- --------- INCOME BEFORE PROVISION FOR INCOME TAXES 13,720 11,249 21,073 15,197 PROVISION FOR INCOME TAXES 6,700 5,400 10,300 7,300 --------- --------- --------- --------- NET INCOME $ 7,020 $ 5,849 $ 10,773 $ 7,897 ========= ========= ========= ========= CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME NET INCOME $ 7,020 $ 5,849 $ 10,773 $ 7,897 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Foreign currency translation adjustment (1,051) (1,509) (3,056) (433) --------- --------- --------- --------- COMPREHENSIVE INCOME (LOSS) $ 5,969 $ 4,340 $ 7,717 $ 7,464 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 4 5 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited -- in thousands)
Nine months ended MARCH 31, 2000 April 2, 1999 -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,773 $ 7,897 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 24,735 24,966 Deferred income taxes 386 177 Changes in operating assets and liabilities: Accounts receivable 5,742 5,948 Inventories (39,403) (23,208) Prepaid expenses and other current assets (5,278) 2,013 Income taxes 3,426 (1,729) Accounts payable 1,019 (9,379) Accrued interest (1,410) (6,400) Accrued expenses and other liabilities (20,546) (11,429) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (20,556) (11,144) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (11,176) (9,976) Acquisition costs (193) (17,571) Deposits and other assets (336) 1,746 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (11,705) (25,801) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of long-term debt 28,312 19,754 Net borrowings (repayments) under line of credit (166) 53 Debt financing costs (42) -- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 28,104 19,807 -------- -------- NET DECREASE IN CASH (4,157) (17,138) CASH, BEGINNING OF PERIOD 22,117 29,363 -------- -------- CASH, END OF PERIOD $ 17,960 $ 12,225 -------- -------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 32,859 $ 28,191 -------- -------- Income taxes 6,624 7,119 -------- --------
See accompanying notes to consolidated financial statements. 5 6 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 for the healthcare, consumer, and food packaging 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 four primary business groups: Healthcare Packaging, Products, and Materials; Consumer Packaging and Products; Food Packaging; and Specialty Resins and Compounds. 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 July 2, 1999. NOTE 2 - INVENTORIES Inventories as of March 31, 2000 and July 2, 1999 are summarized as follows:
MARCH 31, 2000 July 2, 1999 --------------- ------------- Raw materials $ 33,963 $ 26,663 Work-in-process 7,404 5,282 Finished goods 60,652 31,245 --------- -------- $ 102,019 $ 63,190 --------- --------
6 7 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 3 - LONG-TERM DEBT Long-term debt consists of the following:
MARCH 31, 2000 July 2, 1999 -------------- ------------ Senior Subordinated Notes issued March 3, 1998 at 9-1/4% due March 1, 2008 $200,000 $200,000 Senior Subordinated Notes issued April 4, 1997 at 11-1/4% due April 1, 2007 75,000 75,000 Senior Debt: Revolving line of credit, expiring March 31, 2004. At March 31, 2000, the interest rate was 54,000 22,000 7.75% and 9.75% Term notes due March 31, 2004 and March 31, 2006, with interest rates at December 31, 1999 108,700 111,063 of 7.75% and 8.25% Other, primarily foreign term loans, with interest rates ranging from 4 -1/4% to 8.4% and maturities 7,036 8,331 from 2000 to 2004 -------- -------- 444,736 416,394 Less: Current maturities 6,924 5,748 -------- -------- $437,812 $410,646 -------- --------
7 8 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 4 - CONTINGENCIES (a) In January 1993 and 1994, the Company's Belgian subsidiary received income tax assessments aggregating approximately $1,782 (75,247 Belgian Francs) for the disallowance of certain foreign tax credits and investment losses claimed for the years ended July 31, 1990 and 1991. Additionally, in January 1995, the subsidiary received an income tax assessment of approximately $760 (32,083 Belgian Francs) for the year ended July 31, 1992. By Belgian law, these assessments are capped at the values above and do not continue to accrue additional penalties or interest. Although the future outcome of these matters is uncertain, the Company believes that its tax position was appropriate and that the assessments are without merit. Therefore, the Company has appealed the assessments. Based on advice of legal counsel in Belgium, the Company believes that the assessment appeals will be accepted by the tax authorities in Belgium, although there can be no assurance whether or when such appeals will be accepted. (b) The Company is a party to various other 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. 8 9 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 5 - SEGMENT INFORMATION The Company operates in four industry segments: healthcare packaging, products, and materials; consumer packaging and products; food packaging; and specialty resins and compounds. The healthcare packaging, products, and materials segment principally produces pharmaceutical packaging, medical tubing and medical device materials. The consumer packaging and products segment principally produces precision tubing and gaskets, and garden and irrigation hose products. The food packaging segment produces foamed polystyrene packaging products for the poultry, meat and egg industries. The specialty resins and compounds segment produces specialty PVC resins. The healthcare packaging, products, and materials and consumer packaging and products segments have operations in the United States, Europe and Canada. Prior to 1998, the Company operated principally in the food packaging segment. Financial information concerning the Company's business segments and the geographic areas in which it operates are as follows:
Healthcare Packaging, Consumer Specialty Products, Packaging Resins and and Materials and Products Food Packaging Compounds TOTAL ------------- ------------ -------------- ---------- -------- Three months ended March 31, 2000 Revenues from external customers $ 41,805 $ 54,964 $ 27,582 $ 14,521 $138,872 Interest expense 2,864 3,608 2,160 1,552 10,184 Depreciation and amortization 2,578 2,597 1,560 1,173 7,908 Income from operations 8,631 11,175 6,217 187 26,210 Expenditures for segment assets 1,907 852 1,263 642 4,664 -------- -------- -------- -------- -------- Three months ended April 2, 1999 Revenues from external customers $ 36,083 $ 51,424 $ 26,784 $ 15,463 $129,754 Interest expense 2,958 3,303 2,110 1,489 9,860 Depreciation and amortization 2,198 3,014 2,313 1,337 8,862 Income from operations 7,586 10,495 7,295 1,376 26,752 Expenditures for segment assets 2,146 1,495 925 293 4,859 -------- -------- -------- -------- --------
9 10 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands)
Healthcare Packaging, Consumer Specialty Products, Packaging Resins and and Materials and Products Food Packaging Compounds TOTAL ------------- ------------ -------------- ---------- -------- Nine months ended March 31, 2000 Revenues from external customers $ 113,694 $ 115,766 $ 78,649 $ 43,070 $351,179 Interest expense 8,695 10,139 6,383 4,506 29,723 Depreciation and amortization 7,840 7,750 5,377 3,436 24,403 Income from operations 21,129 20,160 17,790 1,286 60,365 Expenditures for segment assets 2,988 2,515 4,027 1,196 10,726 -------- -------- -------- -------- -------- Nine months ended April 2, 1999 Revenues from external customers $ 97,015 $ 108,265 $ 74,938 $ 51,609 $331,827 Interest expense 8,453 10,055 5,867 4,491 28,866 Depreciation and amortization 5,398 9,486 5,960 3,933 24,777 Income from operations 17,967 18,950 14,235 5,653 56,805 Expenditures for segment assets 3,247 2,906 2,980 675 9,808 -------- -------- -------- -------- --------
Three months ended Nine months ended MARCH 31, April 2, MARCH 31, April 2, 2000 1999 2000 1999 -------- -------- -------- -------- PROFIT OR LOSS Total operating profit for reportable segments before income taxes $ 26,210 $ 26,752 $ 60,365 $ 56,805 Corporate and eliminations (2,222) (5,479) (8,862) (12,081) -------- -------- -------- -------- $ 23,988 $ 21,273 $ 51,503 $ 44,724 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION Segment totals $ 7,908 $ 8,862 $ 24,403 $ 24,777 Corporate 115 43 332 189 ======== ======== ======== ======== Consolidated total $ 8,023 $ 8,905 $ 24,735 $ 24,966 ======== ======== ======== ======== EXPENDITURES FOR SEGMENT ASSETS Total reportable-segment expenditures $ 4,664 $ 4,859 $ 10,726 $ 9,808 Other unallocated expenditures 300 94 450 168 -------- -------- -------- -------- Consolidated total $ 4,964 $ 4,953 $ 11,176 $ 9,976 ======== ======== ======== ========
10 11 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) SEGMENT ASSETS
Healthcare Packaging, Consumer Specialty Products, Packaging Resins and and Materials and Products Food Packaging Compounds TOTAL ------------- ------------ -------------- ----------- -------- March 31, 2000 170,340 237,618 74,627 88,450 571,035 July 2, 1999 173,704 216,067 73,351 83,601 546,723 ------- ------- ------ ------ -------
MARCH 31, 2000 July 2, 1999 -------------- ------------ TOTAL ASSETS Total assets from reportable segments $ 571,035 $ 546,723 Other unallocated amounts 8,118 12,713 --------- --------- Consolidated total $ 579,153 $ 559,436 ========= =========
GEOGRAPHIC INFORMATION
Three months ended Nine months ended MARCH 31, April 2, MARCH 31, April 2, 2000 1999 2000 1999 -------- -------- -------- -------- REVENUES United States $124,912 $117,590 $316,855 $299,664 International 13,960 12,164 34,324 32,163 -------- -------- -------- -------- Total $138,872 $129,754 $351,179 $331,827 ======== ======== ======== ========
MARCH 31, 2000 July 2, 1999 -------------- ------------ LONG-LIVED ASSETS United States $ 326,465 $ 339,409 International 27,403 28,321 ========= ========= Total $ 353,868 $ 367,730 ========= =========
11 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 31, 2000
Non- TOTAL Issuer Guarantors Guarantors --------- -------- ---------- ---------- Net sales $ 138,872 $ 38,233 $ 86,679 $ 13,960 Cost of sales 100,878 27,180 64,490 9,208 --------- -------- -------- -------- Gross profit 37,994 11,053 22,189 4,752 Operating expenses: Selling, general and administrative 14,006 7,589 5,294 1,123 --------- -------- -------- -------- Income from operations 23,988 3,464 16,895 3,629 Interest income (expense), net (10,184) (10,269) (8) 93 Other income (expense) (84) (232) 288 (140) --------- -------- -------- -------- Income (loss) before provision for income taxes 13,720 (7,037) 17,175 3,582 Provision for income taxes 6,700 (3,400) 8,300 1,800 --------- -------- -------- -------- Net income (loss) $ 7,020 $ (3,637) $ 8,875 $ 1,782 ========= ======== ======== ========
For the nine months ended March 31, 2000
Non- TOTAL Issuer Guarantors Guarantors --------- --------- ----------- ---------- Net sales $ 351,179 $ 110,892 $ 205,963 $ 34,324 Cost of sales 256,682 78,582 154,775 23,325 --------- --------- --------- -------- Gross profit 94,497 32,310 51,188 10,999 Operating expenses: Selling, general and administrative 42,994 28,347 11,076 3,571 --------- --------- --------- -------- Income from operations 51,503 3,963 40,112 7,428 Interest income (expense), net (29,723) (29,924) (44) 245 Other income (expense) (707) (346) 868 (1,229) --------- --------- --------- -------- Income (loss) before provision for income taxes 21,073 (26,307) 40,936 6,444 Provision for income taxes 10,300 (12,900) 20,000 3,200 --------- --------- --------- -------- Net income (loss) $ 10,773 $ (13,407) $ 20,936 $ 3,244 ========= ========= ========= ========
12 13 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Condensed Consolidated Balance Sheet - at March 31, 2000 (Unaudited)
Non- TOTAL Eliminations Issuer Guarantors Guarantors --------- ------------ -------- ---------- ----------- Current assets $ 225,285 $ -- $ 48,813 $141,358 $ 35,114 Property, plant and equipment, net 134,245 -- 41,395 78,364 14,486 Intangible assets 197,044 -- 41,499 154,142 1,403 Investment in subsidiaries -- (391,347) 391,347 -- -- Deferred financing costs, net 17,495 -- 17,096 212 187 Other long-term assets 5,084 (112,819) 81,748 24,828 11,327 --------- --------- -------- -------- -------- Total assets $ 579,153 $(504,166) $621,898 $398,904 $ 62,517 ========= ========= ======== ======== ======== Current liabilities $ 76,482 $ -- $ 28,960 $ 31,753 $ 15,769 Long-term debt 437,812 -- 432,050 -- 5,762 Other long-term liabilities 4,844 (112,819) 92,422 4,456 20,785 --------- --------- -------- -------- -------- Total liabilities 519,138 (112,819) 553,432 36,209 42,316 --------- --------- -------- -------- -------- Additional paid-in capital 41,075 (312,408) 41,076 296,766 15,641 Retained earnings 23,364 (78,939) 27,390 65,929 8,984 Cumulative currency translation adjustment (4,424) -- -- -- (4,424) --------- --------- -------- -------- -------- Total equity 60,015 (391,347) 68,466 362,695 20,201 --------- --------- -------- -------- -------- Total liabilities and equity $ 579,153 $(504,166) $621,898 $398,904 $ 62,517 ========= ========= ======== ======== ========
Condensed Consolidated Balance Sheet - at July 2, 1999
Non- Total Eliminations Issuer Guarantors Guarantors --------- ------------ -------- ---------- ----------- Current assets $ 191,706 $ -- $ 45,967 $ 117,689 $ 28,050 Property, plant and equipment, net 136,953 -- 44,507 77,132 15,314 Intangible assets 206,140 -- 68,073 136,639 1,428 Investment in subsidiaries -- (367,167) 367,167 -- -- Deferred financing costs, net 19,358 -- 19,257 (128) 229 Deferred taxes 1,346 -- 1,346 -- -- Other long-term assets 3,933 (132,685) 89,222 36,046 11,350 --------- --------- -------- --------- -------- Total assets $ 559,436 $(499,852) $635,539 $ 367,378 $ 56,371 ========= ========= ======== ========= ======== Current liabilities $ 90,261 $ -- $ 52,551 $ 26,868 $ 10,842 Long-term debt 410,646 -- 404,288 -- 6,358 Other long-term liabilities 6,232 (132,685) 119,759 -- 19,158 --------- --------- -------- --------- -------- Total liabilities 507,139 (132,685) 576,598 26,868 36,358 --------- --------- -------- --------- -------- Additional paid-in capital 41,075 (312,408) 41,095 296,747 15,641 Retained earnings 12,590 (54,759) 17,846 43,763 5,740 Cumulative currency translation adjustment (1,368) -- -- -- (1,368) --------- --------- -------- --------- -------- Total equity 52,297 (367,167) 58,941 340,510 20,013 --------- --------- -------- --------- -------- Total liabilities and equity $ 559,436 $(499,852) $635,539 $ 367,378 $ 56,371 ========= ========= ======== ========= ========
13 14 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER OF FISCAL 2000 COMPARED WITH THE THIRD QUARTER OF FISCAL 1999 Net Sales increased to $138.9 million for the three months ended March 31, 2000 from $129.8 million for the three months ended April 2, 1999. This represents an increase of $9.1 million or 7.0%. The increase was due primarily to the acquisition of Tri-Seal International in January 1999 and Natvar in April 1999, and growth in the Consumer Packaging and Products business segment. The increase from these factors was partially offset by actions related to the restructuring of acquired operations such as the elimination in fiscal 2000 of low-margin sales in certain acquired businesses. Cost of Sales increased to $100.9 million for the three months ended March 31, 2000 from $92.1 million for the three months ended April 2, 1999. Expressed as a percentage of net sales, cost of sales increased to 72.6% for the three months ended March 31, 2000 from 71.0% for the three months ended April 2, 1999. The primary cause of the increase was higher raw material costs. While the Company passes on most of these cost increases to its customers, there is usually a time lag between receiving a material cost increase and passing this cost through in the form of higher selling prices. The time lag problem is aggravated in the Consumer Packaging and Products segment where prices to customers in garden hose, which is the largest business unit in that segment, are set in the fall of the year for the following twelve months. Gross Profit, as a result, increased to $38.0 million for the three months ended March 31, 2000 from $37.7 million for the three months ended April 2, 1999. Expressed as a ratio to net sales, gross profit declined from 29.0% in the three months ended April 2, 1999 to 27.4% in the three months ended March 31, 2000. Selling, general, and administrative expense declined to $14.0 million or 10.1% of net sales for the three months ended March 31, 2000 from $16.4 million or 12.6% of net sales for the three months ended April 2, 1999 due to efficiencies realized from integration of the Tri-Seal and Natvar operations, and to adjustments to certain benefits accruals. Operating profit increased to $24.0 million or 17.3% of net sales for the three months ended March 31, 2000 from $21.3 million or 16.4% of net sales for the three months ended April 2, 1999, for the reasons discussed above. Interest expense increased moderately to $10.2 million or 7.3% of net sales for the three months ended March 31, 2000 from $9.9 million or 7.6% of net sales for the same period in the prior year. This was due primarily to an increase in the revolving line of credit incurred to acquire Tri-Seal International and Natvar, higher interest rates, and an increase in inventories in Consumer Packaging and Products to support the higher sales in that business segment. Provision for income taxes increased to $6.7 million or 4.8% of net sales for the three months ended March 31, 2000 from $5.4 million or 4.2% of net sales for the same period in the prior year. The Company's effective tax rate was 48.8% for the three months ended March 31, 2000 compared to 48.0% for the same period in the prior year. Net income increased to $7.0 million or 5.1% of net sales for the three months ended March 31, 2000 from $5.8 million or 4.5% of net sales for the same period in the prior year, for the reasons discussed above. 14 15 FIRST NINE MONTHS OF FISCAL 2000 COMPARED WITH THE FIRST NINE MONTHS OF FISCAL 1999 Net Sales increased to $351.2 million for the nine months ended March 31, 2000 from $331.8 million for the nine months ended April 2, 1999. This represented an increase of $19.4 million or 5.8%. The increase was due primarily to the acquisition of Tri-Seal International in January 1999 and Natvar in April 1999, and growth in the Consumer, Healthcare, and Food business segments. The increase from these factors was partially offset by actions related to the restructuring of acquired operations such as the elimination in fiscal 2000 of low-margin sales in certain acquired businesses. Cost of Sales increased to $256.7 million for the nine months ended March 31, 2000 from $242.2 million for the nine months ended April 2, 1999. Expressed as a percentage of net sales, cost of sales was stable at 73.1% for the nine months ended March 31, 2000 versus 73.0% for the first nine months ended April 2, 1999. The primary cause of the increase was higher raw materials costs in the nine months ended March 31, 2000 from the nine months ended April 2, 1999. Gross Profit, as a result, increased to $94.5 million for the nine months ended March 31, 2000 from $89.6 million for the nine months ended April 2, 1999, and the ratio of gross profit to net sales remained stable at 26.9% of net sales for the nine months ended March 31, 2000 compared with 27.0% for the nine months ended April 2, 1999. Selling, general, and administrative expense declined to $43.0 million for the nine months ended March 31, 2000 from $44.9 million for the nine months ended April 2,1999. As a ratio to net sales, selling, general, and administrative expense declined to 12.2% for the nine months ended March 31, 2000 from 13.5% for the nine months ended April 2, 1999 due to higher sales for the current period and efficiencies realized from integration of the Tri-Seal and Natvar operations. Operating profit increased to $51.5 million or 14.7% of net sales for the nine months ended March 31, 2000 from $44.7 million or 13.5% for the nine months ended April 2, 1999 for the reasons discussed above. Interest expense increased to $29.7 million or 8.5% of net sales for the nine months ended March 31, 2000 from $28.9 million or 8.7% of net sales for the same period in the prior year due primarily to an increase in the revolving line of credit incurred to acquire Tri-Seal International and Natvar and to higher interest rates. Provision for income taxes increased to $10.3 million or 2.9% of net sales for the nine months ended March 31, 2000 from $7.3 million or 2.2% of net sales for the same period in the prior year. The Company's effective tax rate was 48.9% for the nine months ended March 31, 2000 compared to 48.0% for the same period in the prior year. Net income increased to $10.8 million or 3.1% of net sales for the nine months ended March 31, 2000 from $7.9 million or 2.4% of net sales for the same period in the prior year, for the reasons discussed above. 15 16 LIQUIDITY AND CAPITAL RESOURCES For the nine months ended March 31, 2000, net cash used by operating activities was $20.6 million compared to $11.1 million for the same period in the prior year for an increased usage of $9.4 million. The increase was due to higher inventories in Consumer Packaging and Products to accommodate a higher sales level in that business segment, and a reduction in accrued expenses and liabilities. Various year-over-year changes in operating assets, accrued expenses, and liabilities are generally due to offsetting timing differences. Working capital at March 31, 2000 was $148.8 million compared to $101.4 million at July 2, 1999. The increase was due primarily to higher inventories in Consumer Packaging and Products to support the increased level of sales and the highly seasonal nature of that business segment. Approximately 75% of the annual sales in garden hose, which is the largest business unit in that segment, occur in the spring and early summer months. As of March 31, 2000, the Company had an outstanding balance of $54.0 million under the $90 million revolving credit line of the existing credit facility. This was an increase of $32.0 million from the outstanding balance as of July 2, 1999, and was due primarily to normal seasonal requirements of the Consumer Packaging and Products business segment. The Company's capital expenditures for the nine months ended March 31, 2000 and April 2, 1999 were $11.2 million, and $10.0 million, respectively. Management expects that annual capital expenditures will increase somewhat from historical levels during the next few years as the Company makes improvements in the recently acquired operations. Apart from acquisitions, the Company's principal uses of cash will be debt service, capital expenditures and working capital requirements. Management believes that cash generated from operations plus funds from the credit facility will be sufficient to meet the Company's expected debt service requirements, planned capital expenditures, and operating needs. However, there can be no assurance that sufficient funds will be available from operations or borrowings under the credit facility to meet the Company's cash needs to the extent management anticipates. The credit facility will provide the Company with the increased flexibility to make capital expenditures and acquisitions that management believes will provide an attractive return on investment. To the extent the Company pursues future acquisitions, the Company may be required to obtain additional financing. There can be no assurance that it will be able to obtain such financing in amounts and on terms acceptable to it. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk inherent in certain debt instruments. At March 31, 2000, the principal amount of the Company's aggregate outstanding variable rate indebtedness was $162.7 million. A hypothetical 10% adverse change in interest rates would have an annualized unfavorable impact of approximately $0.9 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. 16 17 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. Other Information In order to provide liquidity to certain investors in the Company's sole stockholder, the Company has agreed to pursue a recapitalization of the Company. The Company currently anticipates completing the recapitalization before the end of fiscal year 2000. The recapitalization is subject to various contingencies, including the availability of sufficient debt and equity financing on terms acceptable to the Company and certain of its principal investors, and approval by various investors in the Company. Although there can be no assurance that the proposed recapitalization will be consummated at all or without delay, the Company currently contemplates that substantially all of the Company's current outstanding indebtedness will be refinanced as part of the proposed recapitalization of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 17 18 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 12, 2000 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 and Principal Accounting and Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX, INC. STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND BALANCE SHEET AS AT MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-2000 JUL-03-1999 MAR-31-2000 17,960 0 92,431 1,691 102,019 225,285 177,918 43,673 579,153 76,482 275,000 0 0 0 0 579,153 351,179 351,179 256,682 256,682 42,994 0 29,723 21,073 10,300 10,773 0 0 0 10,773 0 0
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