10-Q 1 y45322e10-q.txt 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 December 29, 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 December 29, 2000 and June 30, 2000 ................................................................. 3 Consolidated Statements of Operations for the six months and three months ended December 29, 2000 and December 31, 1999 ..................................... 4 Consolidated Statements of Comprehensive Income for the six months and three months ended December 29, 2000 and December 31, 1999 ........................ 4 Consolidated Statements of Cash Flows for the six months ended December 29, 2000 and December 31, 1999 ..................................... 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
3 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
DECEMBER 29, 2000 June 30, 2000 (UNAUDITED) ----------------- ------------- ASSETS CURRENT: Cash $ 9,938 $ 12,525 Accounts receivable, net of an allowance of $1,528 and $1,642 for possible losses 67,126 96,039 Inventories 126,519 91,233 Refundable income taxes 10,845 14,883 Deferred income taxes 4,997 4,997 Prepaid expenses and other current assets 5,187 2,171 --------- --------- TOTAL CURRENT ASSETS 224,612 221,848 PROPERTY, PLANT AND EQUIPMENT, NET 138,742 135,926 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $53,359 AND $45,480 RESPECTIVELY 188,493 190,492 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $1,233 AND $0 RESPECTIVELY 17,795 18,897 DEFERRED INCOME TAXES 16,047 5,398 OTHER ASSETS 2,141 2,228 --------- --------- $ 587,830 $ 574,789 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 8,193 $ 8,401 Accounts payable - trade 26,563 30,026 Accrued payroll and benefits 5,006 11,662 Accrued interest 2,320 2,359 Accrued liabilities - other 16,303 23,521 --------- --------- TOTAL CURRENT LIABILITIES 58,385 75,969 LONG-TERM DEBT 679,198 643,192 OTHER LIABILITIES 4,603 4,778 --------- --------- TOTAL LIABILITIES 742,186 723,939 --------- --------- STOCKHOLDER'S EQUITY: Common stock -- -- Additional paid-in capital 90,176 84,176 Cumulative currency translation adjustment (5,046) (4,486) Retained earnings (19,024) (8,378) Less: Treasury stock (220,462) (220,462) --------- --------- TOTAL STOCKHOLDER'S EQUITY (154,356) (149,150) --------- --------- $ 587,830 $ 574,789 ========= =========
See accompanying notes to consolidated financial statements. 3 4 TEKNI-PLEX, INC. AND SUBSIDIARIES (Unaudited -- in thousands) CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended DECEMBER 29, December 31, DECEMBER 29, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES $ 105,873 $ 106,258 $ 217,780 $ 220,269 COST OF SALES 81,750 78,760 171,235 163,766 --------- --------- --------- --------- GROSS PROFIT 24,123 27,498 46,545 56,503 OPERATING EXPENSES: Selling, general and administrative 14,368 14,846 29,479 28,988 --------- --------- --------- --------- OPERATING PROFIT 9,755 12,652 17,066 27,515 OTHER EXPENSES: Interest expense 19,642 9,914 37,862 19,539 Other expenses (income) (80) 441 450 623 --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (9,807) 2,297 (21,246) 7,353 PROVISION FOR INCOME TAXES (4,900) 1,100 (10,600) 3,600 --------- --------- --------- --------- NET INCOME (LOSS) $ (4,907) $ 1,197 $ (10,646) $ 3,753 ========= ========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME NET INCOME (LOSS) $ (4,907) $ 1,197 $ (10,646) $ 3,753 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Foreign currency translation adjustment 843 (1,362) (560) (2,005) --------- --------- --------- --------- COMPREHENSIVE INCOME (LOSS) $ (4,064) $ (165) $ (11,206) $ 1,748 ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 4 5 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited -- in thousands)
Six months ended DECEMBER 29, 2000 December 31, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(10,646) $ 3,753 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 18,470 16,712 Deferred income taxes (10,650) 478 Changes in operating assets and liabilities: Accounts receivable 28,896 36,500 Inventories (31,405) (27,167) Prepaid expenses and other current assets 1,013 (5,959) Income taxes -- (486) Accounts payable (3,485) 913 Accrued interest (43) 1,102 Accrued expenses and other liabilities (18,313) (19,552) -------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (26,163) 6,294 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (8,679) (6,212) Acquisition costs (9,284) (144) Deposits and other assets 86 (145) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (17,877) (6,501) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of long-term debt 35,709 1,553 Net borrowings (repayments) under line of credit (140) (85) Receipt of Additional paid-in capital 6,000 -- Debt financing costs (131) (23) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 41,438 1,445 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 15 (10) -------- -------- NET INCREASE (DECREASE) IN CASH (2,587) 1,228 CASH, BEGINNING OF PERIOD 12,525 22,117 -------- -------- CASH, END OF PERIOD $ 9,938 $ 23,345 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 37,551 $ 19,978 Income taxes 932 5,139
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 June 30, 2000. NOTE 2 - INVENTORIES Inventories as of December 29, 2000 and June 30, 2000 are summarized as follows:
DECEMBER 29, 2000 June 30, 2000 ----------------- ------------- Raw materials $38,139 $44,002 Work-in-process 7,886 7,024 Finished goods 80,494 40,207 -------- ------- $126,519 $91,233 -------- -------
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:
DECEMBER 29, 2000 June 30, 2000 ----------------- ------------- Senior Subordinated Notes issued June 21, 2000 at 12-3/4% due June 15, 2010. (Less unamortized discount of $3,579 and $3,768) $271,421 $271,232 Senior Debt: Revolving line of credit, expiring June, 2006. At December 29, 2000, the interest rate ranged from 9.6875% to 11.5%. 70,000 30,000 Term notes due June, 2006 and June, 2008, with interest rates at December 29, 2000 of 9.6875% and 10.1875%. 340,280 344,000 Other, primarily foreign term loans, with interest rates ranging from 4-1/4% to 8.4% and maturities ranging from 2000 to 2004 5,690 6,361 -------- -------- 687,391 651,593 Less: Current maturities 8,193 8,401 -------- -------- $679,198 $643,192 -------- --------
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 $1,757 (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 $749 (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 and results of operations. 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. 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 December 29, 2000 Revenues from external Customers $ 36,712 $ 24,865 $ 31,199 $ 13,097 $105,873 Interest expense 6,194 6,212 4,468 2,768 19,642 Depreciation and Amortization 2,729 3,018 2,176 1,149 9,072 Income (loss) from operations 4,708 3,276 5,833 (491) 13,326 Expenditures for segment Assets 256 2,705 100 802 3,863 -------- -------- -------- -------- -------- Three months ended December 31, 1999 Revenues from external Customers $ 35,223 $ 29,473 $ 27,693 $ 13,869 $106,258 Interest expense 2,974 3,319 2,122 1,499 9,914 Depreciation and Amortization 2,679 2,427 1,928 1,136 8,170 Income (loss) from operations 5,396 4,472 6,900 (370) 16,398 Expenditures for segment Assets 202 759 1,586 374 2,921 -------- -------- -------- -------- --------
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 ------------- ------------ -------------- --------- ----- Six months ended December 29, 2000 Revenues from external Customers $ 73,465 $ 57,729 $ 60,716 $ 25,870 $217,780 Interest expense 11,695 12,151 8,590 5,426 37,862 Depreciation and Amortization 5,475 5,898 4,316 2,269 17,958 Income (loss) from operations 7,671 7,113 11,583 (2,245) 24,122 Expenditures for segment Assets 1,537 3,834 1,464 1,440 8,275 -------- -------- -------- -------- -------- Six months ended December 31, 1999 Revenues from external Customers $ 73,256 $ 63,192 $ 54,341 $ 29,480 $220,269 Interest expense 5,831 6,531 4,223 2,954 19,539 Depreciation and Amortization 5,262 5,153 3,817 2,263 16,495 Income from operations 12,498 8,985 11,573 1,099 34,155 Expenditures for segment Assets 1,081 1,663 2,764 554 6,062 -------- -------- -------- -------- --------
Three months ended Six months ended DECEMBER 29, December 31, DECEMBER 29, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- PROFIT OR LOSS Total operating profit for reportable segments before income taxes $ 13,326 $ 16,398 $ 24,122 $ 34,155 Corporate and eliminations (3,571) (3,746) (7,056) (6,640) -------- -------- -------- -------- $ 9,755 $ 12,652 $ 17,066 $ 27,515 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION Segment totals $ 9,072 $ 8,170 $ 17,958 $ 16,495 Corporate 257 110 512 217 -------- -------- -------- -------- Consolidated total $ 9,329 $ 8,280 $ 18,470 $ 16,712 ======== ======== ======== ======== EXPENDITURES FOR SEGMENT ASSETS Total reportable-segment expenditures $ 3,863 $ 2,921 $ 8,275 $ 6,062 Other unallocated expenditures 382 101 404 150 -------- -------- -------- -------- Consolidated total $ 4,245 $ 3,022 $ 8,679 $ 6,212 ======== ======== ======== ========
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 ------------- ------------ -------------- --------- ----- December 29, 2000 164,441 244,536 72,555 80,993 562,525 June 30, 2000 171,764 220,576 77,642 83,900 553,882 ------- ------- ------ ------ -------
DECEMBER 29, 2000 June 30, 2000 ----------------- ------------- TOTAL ASSETS Total assets from reportable segments $562,525 $553,882 Other unallocated amounts 25,305 20,907 -------- -------- Consolidated total $587,830 $574,789 ======== ========
GEOGRAPHIC INFORMATION
Three months ended Six months ended DECEMBER 29, December 31, DECEMBER 29, December 31, 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES United States $ 93,906 $ 95,597 $194,750 $199,559 International 11,967 10,661 23,030 20,710 -------- -------- -------- -------- Total $105,873 $106,258 $217,780 $220,269 ======== ======== ======== ========
DECEMBER 29, 2000 June 30, 2000 ----------------- ------------- LONG-LIVED ASSETS United States $317,251 $323,691 International 45,967 29,250 -------- -------- Total $363,218 $352,941 ======== ========
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 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 ========= ========= ========= =========
12 13 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 31, 1999
Non- TOTAL Issuer Guarantors Guarantors ----- ------ ---------- ---------- Net sales $106,258 $ 33,906 $ 61,691 $ 10,661 Cost of sales 78,760 25,384 45,783 7,593 -------- -------- -------- -------- Gross profit 27,498 8,522 15,908 3,068 Operating expenses: Selling, General and administrative 14,846 11,693 1,828 1,325 -------- -------- -------- -------- Income (loss) from operations 12,652 (3,171) 14,080 1,743 Interest expense (income), net 9,914 9,951 120 (157) Other expense (income) 441 20 (294) 715 -------- -------- -------- -------- Income (loss) before provision for income taxes 2,297 (13,142) 14,254 1,185 Provision for income taxes 1,100 (6,465) 6,995 570 -------- -------- -------- -------- Net income (loss) $ 1,197 $ (6,677) $ 7,259 $ 615 ======== ======== ======== ========
For the six months ended December 31, 1999
Non- TOTAL Issuer Guarantors Guarantors ----- ------ ---------- ---------- Net sales $ 220,269 $ 76,163 $ 123,396 $ 20,710 Cost of sales 163,766 54,906 94,397 14,463 --------- --------- --------- --------- Gross profit 56,503 21,257 28,999 6,247 Operating expenses: Selling, General and administrative 28,988 20,758 5,782 2,448 --------- --------- --------- --------- Income from operations 27,515 499 23,217 3,799 Interest expense (income), net 19,539 19,655 36 (152) Other expense (income) 623 114 (580) 1,089 --------- --------- --------- --------- Income (loss) before provision for income taxes 7,353 (19,270) 23,761 2,862 Provision for income taxes 3,600 (9,500) 11,700 1,400 --------- --------- --------- --------- Net income (loss) $ 3,753 $ (9,770) $ 12,061 $ 1,462 ========= ========= ========= =========
13 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 December 29, 2000 (Unaudited)
Non- TOTAL Eliminations Issuer Guarantors Guarantors ----- ------------ ------ ---------- ---------- Current assets $ 224,612 $ -- $ 55,613 $ 134,607 $ 34,392 Property, plant and equipment, net 138,742 -- 39,778 79,312 19,652 Intangible assets, net 188,493 -- 20,599 154,074 13,820 Investment in subsidiaries -- (407,250) 407,250 -- -- Deferred financing costs, net 17,795 -- 17,807 (12) -- Other long-term assets 18,188 (332,140) 77,767 260,066 12,495 --------- --------- --------- --------- --------- Total assets $ 587,830 $(739,390) $ 618,814 $ 628,047 $ 80,359 ========= ========= ========= ========= ========= Current liabilities $ 58,385 $ -- $ 21,715 $ 17,756 $ 18,914 Long-term debt 679,198 -- 674,261 -- 4,937 Other long-term liabilities 4,603 (332,140) 68,141 236,097 32,505 --------- --------- --------- --------- --------- Total liabilities 742,186 (332,140) 764,117 253,853 56,356 --------- --------- --------- --------- --------- Additional paid-in capital 90,176 (312,551) 90,156 296,787 15,784 Retained earnings (deficit) (19,024) (94,699) (14,997) 77,407 13,265 Cumulative currency translation adjustment (5,046) -- -- -- (5,046) Less: Treasury stock (220,462) -- (220,462) -- -- --------- --------- --------- --------- --------- Total equity (154,356) (407,250) (145,303) 374,194 24,003 --------- --------- --------- --------- --------- Total liabilities and equity $ 587,830 $(739,390) $ 618,814 $ 628,047 $ 80,359 ========= ========= ========= ========= =========
14 15 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 30, 2000
Non- Total Eliminations Issuer Guarantors Guarantors Current assets $ 221,848 $ -- $ 61,275 $ 134,456 $ 26,117 Property, plant and equipment, net 135,926 -- 41,852 78,957 15,117 Intangible assets, net 190,492 -- 31,519 150,476 8,497 Investment in subsidiaries -- (398,879) 398,879 -- -- Deferred financing costs, net 18,897 -- 18,897 -- -- Deferred taxes 5,398 -- 5,398 -- -- Other long-term assets 2,228 (301,702) 50,471 240,823 12,636 --------- --------- --------- --------- --------- Total assets $ 574,789 $(700,581) $ 608,291 $ 604,712 $ 62,367 ========= ========= ========= ========= ========= Current liabilities $ 75,969 $ -- $ 37,296 $ 24,390 $ 14,283 Long-term debt 643,192 -- 637,793 -- 5,399 Other long-term liabilities 4,778 (300,410) 72,660 211,846 20,682 --------- --------- --------- --------- --------- Total liabilities 723,939 (300,410) 747,749 236,236 40,364 --------- --------- --------- --------- --------- Additional paid-in capital 84,176 (313,700) 85,355 296,880 15,641 Retained earnings (deficit) (8,378) (86,471) (4,351) 71,596 10,849 Cumulative currency translation adjustment (4,486) -- -- -- (4,486) Treasury stock (220,462) -- (220,462) -- -- --------- --------- --------- --------- --------- Total equity (149,150) (400,171) (139,458) 368,476 22,003 --------- --------- --------- --------- --------- Total liabilities and equity $ 574,789 $(700,581) $ 608,291 $ 604,712 $ 62,367 ========= ========= ========= ========= =========
NOTE 7 -- ACQUISITION The Company purchased certain assets and assumed certain liabilities of a division of RCR International on October 25, 2000, for approximately $9,284 in cash. In conjunction with the acquisiiton, liabilities were assumed as follows: Fair value of assets assumed $ 7,314 Goodwill 5,544 Cash paid (9,284) ------- Liabilities assumed $ 3,574 ======= 15 16 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER OF FISCAL 2001 COMPARED WITH THE SECOND QUARTER OF FISCAL 2000 Net Sales declined slightly to $105.9 million for the three months ended December 29, 2000 from $106.3 million for the three months ended December 31, 1999. This represents an decrease of $0.4 million or 0.4%. The decrease resulted from a shift in the seasonal ordering pattern of garden hose by one of the Company's major customers in an effort to minimize customer held inventories during the off season. The result is a shift in sales from the first to the second half of the fiscal year. Cost of Sales increased to $81.8 million for the three months ended December 29, 2000 from $78.8 million for the three months ended December 31, 1999. Expressed as a percentage of net sales, cost of sales increased to 77.2% for the three months ended December 29, 2000 from 74.1% for the three months ended December 31, 1999. The increase in cost of sales ratio was due primarily to increased depreciation expense and under absorption of overhead related to the recent capacity expansion in our Healthcare unit. Gross Profit, as a result, decreased to $24.1 million or 22.8% of net sales for the three months ended December 29, 2000, from $27.5 million or 25.9% of net sales for the three months ended December 31, 1999. Selling, general and administrative expense declined slightly to $14.4 million or 13.6% of net sales for the three months ended December 29, 2000, from $14.8 million or 13.9% of net sales for the three months ended December 31, 1999. The decline was due to changes in employee benefits. Operating profit, as a result, declined to $9.8 million or 9.3% of net sales for the three months ended December 29, 2000, from $12.7 million or 11.9% of net sales for the three months ended December 31, 1999. Interest expense increased to $19.6 million for the three months ended December 29, 2000, from $9.9 million for the three months ended December 31, 1999 as the result of the Company's recapitalization program completed in June of 2000. The ratio of the provision for income taxes to income (loss) before income taxes was 50.0% for the three months ended December 29, 2000 versus 47.9% for the three months ended December 31, 1999. Net income (loss), as a result, was a loss of ($4.9) million for the three months ended December 29, 2000 versus an income of $1.2 million for the three months ended December 31, 1999. 16 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED FIRST SIX MONTHS OF FISCAL 2001 COMPARED WITH THE FIRST SIX MONTHS OF FISCAL 2000 Net Sales declined slightly to $217.8 million for the six months ended December 29, 2000 from $220.3 million for the six months ended December 31, 1999. This represents a decrease of $2.5 million or 1.1%. The major reason for the decrease was a shift in the seasonal ordering pattern of garden hose by one of the Company's major customers as discussed above in the Management's Discussion and Analysis of the current quarter. Cost of Sales increased to $171.2 million for the six months ended December 29, 2000 from $163.8 million for the six months ended December 31, 1999. Expressed as a percentage of net sales, cost of sales increased to 78.6% for the six months ended December 29, 2000 from 74.3% for the six months ended December 31, 1999. The increase in cost of sales ratio was due to the same factors as discussed above in the Management's Discussion and Analysis of the current quarter. Gross Profit, as a result, declined to $46.5 million or 21.4% of net sales for the six months ended December 29, 2000, from $56.5 million or 25.7% of net sales for the six months ended December 31, 1999. Selling, general and administrative expense was virtually unchanged at $29.5 million or 13.5% of net sales for the six months ended December 29, 2000, from $29.0 million or 13.2% of net sales for the six months ended December 31, 1999. Operating profit, as a result, declined to $17.1 million or 7.9% of net sales for the six months ended December 29, 2000, from $27.5 million or 12.5% of net sales for the six months ended December 31, 1999. Interest expense increased to $37.9 million for the six months ended December 29, 2000, from $19.5 million for the six months ended December 31, 1999 as the result of the Company's recapitalization program completed in June of 2000. The ratio of the provision for income taxes to income (loss) before income taxes was 49.9% for the six months ended December 29, 2000 versus 49.0% for the six months ended December 31, 1999. Net income (loss), as a result, was a loss of ($10.6) million for the six months ended December 29, 2000 versus an income of $3.8 million for the six months ended December 31, 1999. 17 18 LIQUIDITY AND CAPITAL RESOURCES For the six months ended December 29, 2000, net cash used in operating activities was $26.2 million. For the first six months ended December 31, 1999, net cash provided by operating activities was $6.3 million. The principal reasons for the increase in usage were higher seasonal inventories and increased interest expense and a decrease accrued expenses. The inventory increase occurred primarily in our garden hose unit because a major customer shifted its seasonal ordering pattern. The increased interest expense was due to the increased borrowings as the result of the Company's recapitalization program completed in June of 2000. Working capital at December 29, 2000 was $166.2 million compared to $145.9 million at June 30, 2000. The increase in working capital was due primarily to the increase in inventories and to the decrease in accrued expenses as mentioned in the previous paragraph. These increases were partially offset by seasonal reductions in accounts receivable primarily in garden hose. As of December 29, 2000 the Company had an outstanding balance of $70.0 million under the $100 million revolving credit line of the existing credit facility. This is an increase of $40.0 million from the outstanding balance as of June 30, 2000. Half the increase was due to the increase in working capital as discussed in the previous paragraph. The other half was due to capital expenditures and acquisition costs. Capital expenditures for the six months ended December 29, 2000 and December 31, 1999 were $8.7 million and $6.2 million respectively. The increase was the result of making improvements in recently acquired operations. Apart from acquisitions, the Company's principal uses of cash for the next several years 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. As of December 29, 2000, the principal amount of the Company's aggregate outstanding variable rate indebtedness was $410.3 million. A hypothetical 10% adverse change in interest rates would have an annualized unfavorable impact of approximately $2.1 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 amount. 18 19 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 None Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K None 19 20 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 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 20