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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 28, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 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 of Incorporation) (I.R.S. Employer Identification No.)
260 NORTH DENTON TAP ROAD, COPPELL, TEXAS 75019
(Address of principal executive offices and zip code)
(972) 304-5077
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of stock as of the latest practicable date.
None
Documents Incorporated by Reference: See Index to Exhibits.
ITEM 1. BUSINESS
INTRODUCTION
We were founded as a Delaware corporation in 1967 to acquire the General
Felt Products division of Standard Packaging Corporation. At that time, we were
located in Brooklyn, NY, where we produced laminated closure (cap) liners
primarily for the pharmaceutical and food industries. Over the years, we have
built a reputation for solving difficult packaging problems and providing
customers with high quality, advanced packaging materials. In 1970, we built an
additional manufacturing facility in Somerville, New Jersey, diversifying into
the business of producing polystyrene foam trays for the poultry processing
industry.
In March 1994, Tekni-Plex was acquired by Dr. F. Patrick Smith and other
investors. Dr. Smith was elected Chief Executive Officer. In April 1994, Mr.
Kenneth W.R. Baker was appointed Chief Operating Officer. At that time, the
principal product lines consisted of clear, high-barrier laminations for
pharmaceutical blister packaging (which we refer to as clear blister packaging);
closure liners, primarily for pharmaceutical end-uses; and foam processor trays
primarily for the poultry industry.
In December 1995, Tekni-Plex acquired the Flemington, NJ, plant and
business of Hargro Flexible Packaging Corporation. The Flemington plant utilized
lamination and coating technology to produce packaging materials primarily for
pharmaceutical products such as transdermal patches, sutures, iodine and alcohol
swabs, aspirin and other physician samples. We relocated the Brooklyn equipment
and business into the Flemington facility during 1996. The synergistic result of
having complementary technologies in one location created a combined operation
with considerably higher efficiencies and lower costs than the sum of the
stand-alone operations.
In February 1996, we expanded our food packaging business by completing
our acquisition of Dolco Packaging Corp., a publicly-traded $81 million foam
products company that was nearly twice the size of Tekni-Plex. Dolco had been in
the business of producing foam packaging products since the 1960s and had
attained the leading share of foam egg carton sales in the United States. The
Dolco acquisition also solidified our position as a leading supplier of foam
processor trays. In August 1997, Dolco, which had been a wholly owned subsidiary
of Tekni-Plex, was merged into Tekni-Plex.
In July 1997, we acquired the business and operating facility of PurePlast
Inc. of Cambridge, Ontario, Canada. PurePlast produced calendered polyvinyl
chloride (vinyl) sheet primarily for food and electronics packaging
applications. Following the acquisition, we diversified the end markets served
by this location by developing proprietary formulations of vinyl sheet for
vertical integration into our clear blister packaging business and for sale
directly to our global pharmaceutical customers.
In March 1998, Tekni-Plex acquired PureTec Corporation, a publicly-traded
company with annual sales of $315 million. PureTec was a leading manufacturer of
plastic packaging, products, and materials primarily for the healthcare and
consumer markets. PureTec enjoyed leading market positions in its core products,
including garden and irrigation hose, precision tubing and gaskets primarily for
the aerosol packaging industry, vinyl medical tubing, and vinyl compounds for
the production of medical devices. PureTec is a wholly-owned subsidiary of
Tekni-Plex.
In January 1999, we acquired substantially all the assets of Tri-Seal
International, Inc., a leader in sophisticated extruded and co-extruded
capliners and seals. The Tri-Seal operations have been integrated with and into
our closure liner business.
In April 1999, we acquired substantially all the assets of Natvar, a
producer of disposable medical tubing and electric sheathing. As with Tri-Seal,
the Natvar acquisition was intended to strengthen our existing core business and
expand product offerings. The Natvar operation has been integrated into our
medical tubing and industrial extrusions businesses.
2
In June 2000, we completed a recapitalization of Tekni-Plex. As part of
the recapitalization, existing investors other than management sold most of
their interests, and a group of new investors contributed an aggregate of $167
million in new equity and agreed to contribute up to $103 million in additional
equity over the next five years. All members of management maintained 100% of
their interests in the Company. Also, Tekni-Plex entered into a new credit
agreement, issued $275 million in new senior subordinated notes, and repaid the
debt that existed prior to the recapitalization.
In October 2000, we acquired substantially all the assets of the Super
Plastics division of RCR International Inc. Super Plastics is primarily a
manufacturer of garden hose and has a manufacturing facility in Mississauga,
Ontario Canada. The Super Plastics operations have been integrated with and into
our garden hose business.
In October 2001, we acquired substantially all of the assets of the garden
hose business of Mark IV Industries, Inc. which operates under the name Swan
Hose. Swan, which has one manufacturing facility located in Bucyrus, Ohio,
enhanced Tekni-Plex's geographic coverage of the North American garden hose
market. The Swan operations have been integrated with and into our garden hose
business.
In July 2002 we acquired substantially all of the assets of Elm Packaging
Company. Elm produces polystyrene foam plates, bowls, and meat and bakery trays.
The Elm acquisition significantly increases our capacity to produce foamed
polystyrene products primarily for customers in the food packaging and
foodservice markets.
DESCRIPTION OF BUSINESS
We are a global, diversified manufacturer of packaging, products, and materials,
primarily for the food, healthcare and consumer markets. We have built
leadership positions in our core markets, and focus on vertically integrated
production of highly specialized products. Our operations are aligned under two
business segments: Industrial Packaging, Products, and Materials and Consumer
Packaging and Products. Both segments have operations in the United States,
Europe and Canada. We believe that our end market and product line diversity has
the effect of reducing overall risk related to any single product or customer.
Representative product lines in each of our business segments are listed below:
BUSINESS SEGMENT
- -------------------------------------------------------------------------------------
INDUSTRIAL CONSUMER
PACKAGING, PRODUCTS AND MATERIALS PACKAGING AND PRODUCTS
--------------------------------- ----------------------
- - Laminated, clear high barrier blister packaging - Garden and irrigation hose
- - Agricultural foam packaging - Precision tubing and gaskets
- - Foamed egg cartons - Air hose
- - Poultry and meat processor trays
- - Foamed plates
- - Closure liners
- - Medical tubing
- - Medical grade compounds
- - Specialty PVC resins
- - General purpose PVC compounds
3
COMPETITIVE STRENGTHS
We believe that our competitive strengths include:
- Strong customer relationships. We have long-standing relationships
with many of our customers. We attribute our long-term customer
relationships to our ability to consistently manufacture high
quality products and provide a superior level of customer service.
We routinely win customer awards for our superior products and
customer service and have recently been recognized for supplier
excellence by 3M Pharmaceuticals, Pfizer, Eli Lilly, Boston
Scientific, Kraft Foods and Perdue Farms, among others.
- Strong market positions in core businesses. We have a strong market
presence in our core product lines. The following table shows what
we believe to be our market position in the U.S. in our primary
product lines:
PRODUCT MARKET POSITION
-----------------------
Vinyl medical device materials................................................. 1
Vinyl medical tubing........................................................... 1
Laminated, clear, high barrier pharmaceutical blister packaging................ 1
Multi-layered co-extruded and laminated closure liners......................... 1
Garden and irrigation hose..................................................... 1
Precision tubing and gaskets for aerosol packaging............................. 1
Egg cartons.................................................................... 1
Foam processor trays........................................................... 2
- Experienced management team. Our management team has been successful
in selecting and integrating strategic acquisitions as well as
improving underlying business fundamentals. After significantly
improving the business of Tekni-Plex following our 1994 acquisition,
management successfully integrated both the Flemington and Dolco
operations during 1996, the latter being a public company then
nearly twice our size. During the same period, our Brooklyn
operation was successfully merged into our Flemington plant. In
1997, we acquired and integrated the PurePlast operations. In 1998,
we acquired PureTec, a public company then more than twice our size.
In 1999, we acquired and integrated the assets and business of
Tri-Seal and Natvar. In 2000 we acquired and integrated all of the
assets of the Super Plastics division of RCR International, Inc. In
2001, we acquired and integrated the Swan Hose business of Mark IV
Industries, Inc. Management has substantially improved the operating
margins of each of these acquisitions. Members of our management
team have integrated acquisitions, effected turnarounds, provided
strategic direction and leadership, increased sales and market
share, improved manufacturing efficiencies and productivity, and
developed new technologies to enhance the competitive strengths of
the companies they have managed.
- Cost efficient producer. We continually focus on improving
underlying operations and reducing costs. Since the 1994
acquisition, current management has improved our cost structure from
an EBITDA margin of 8.5% with EBITDA of $3.8 million on sales of
$44.9 million for the 12 months ended December 31, 1993 to an EBITDA
margin of 20.0% with EBITDA of $115.6 million on sales of $577.7
million for the fiscal year ended June 28, 2002. Our acquisitions
since 1995 have provided significant opportunities to realize cost
savings and synergies in the combined businesses through the sharing
of complementary technologies and manufacturing techniques, as well
as economies of scale, including the purchase of raw materials.
4
- Producer of high quality, technically sophisticated products. We
believe, based upon our knowledge and experience in the industry,
we have a long-standing reputation as a manufacturer of high
quality, high performance products, materials and primary packaging
(where the packaging material comes into direct contact with the end
product). Our emphasis on quality is evidenced by our product lines
which address the more technically sophisticated areas of their
respective markets.
- Strong equity sponsorship. We have obtained a strong equity
commitment from co-investors in conjunction with the
recapitalization in June 2000. New investors agreed to $269.6
million in aggregate equity commitments to Tekni-Plex Partners, of
which $167.0 million was contributed to consummate the
recapitalization in June 2000. Of the remaining $102.6 million, $5.0
million was contributed in conjunction with our acquisition of Super
Plastics in October 2000, and $30.0 million was contributed in June
2001 in anticipation of our announced acquisition of Mark IV's Swan
Division. In October 2001, an additional $50.0 million was
contributed to consummate the Swan Hose acquisition and in
anticipation of our Elm acquisition. The remaining $17.6 million is
available at least through June 2005 to be used for our general
corporate purposes, including acquisitions. We believe that these
equity commitments will provide us with significant flexibility to
take advantage of business opportunities as they arise. In
connection with the recapitalization, all members of our current
management maintained their entire equity investment, which had an
implied aggregate value, as of June 2000, of approximately $96.0
million.
BUSINESS STRATEGY
We seek to maximize our profitability and growth and take advantage of our
competitive strengths by pursuing the following business strategy:
- Ongoing cost reduction through technical process improvement. We
have an ongoing program to improve manufacturing and other processes
in order to drive down costs. Examples of cost improvement programs
include:
- material and energy conservation through enhanced process
controls and advanced product design.
- reduction in machine set-up time through the use of
proprietary technology.
- continual product line rationalization; and
- development of backward and forward integration opportunities.
- Internal growth through product line extension and improvement. We
continually seek to improve and extend our product lines and
leverage our existing technological capabilities in order to
increase market share in existing markets, effectively penetrate new
markets and improve profitability. Our strategy is to emphasize our
expertise in providing packaging, products and materials with
specific high performance characteristics through the development of
various unique proprietary materials and proprietary manufacturing
process techniques.
- Growth through acquisitions. We will continue to pursue acquisitions
selectively when the opportunity arises. Our objective is to pursue
acquisitions that provide us with the opportunity to gain economies
of scale and reduce costs through, among other things, technology
sharing and synergistic cost reduction.
5
- Growth through international expansion. We believe that there is
significant opportunity to expand our international sales, which
currently represent approximately 10.5% of our total revenues. At
present, we have manufacturing operations with attached sales
offices in Belgium, Italy, The United Kingdom, Canada and Argentina.
We have a regional sales office in Singapore covering southeast
Asia, including the People's Republic of China. In addition, we have
manufacturing liaisons and strategic supplier agreements in Japan,
Germany and Italy and a manufacturing licensee in Japan. We have
recently added sales representatives for Jordan, Saudi Arabia and
the United Arab Emirate as well as in the Philippines and India to
our existing representatives in Australia/New Zealand, South Africa,
Central America, Brazil, Mexico, China (including Hong Kong) and
Taiwan. We believe that our growing international presence, which is
a combination of our own regional manufacturing and sales forces and
independent sales representatives, will continue to generate
opportunities to increase our sales.
RECENT DEVELOPMENTS
On July 10, 2002 Tekni-Plex acquired Elm Packaging Company for
approximately $16.4 million in cash. The acquisition was structured as an
acquisition of substantially all of the assets of Elm by a wholly-owned
subsidiary of Tekni-Plex. Elm produces polystyrene foam packaging products such
as plates, bowls, trays and hinged-lid containers for the food packaging and
foodservice industries. Elm will become part of Tekni-Plex's Industrial
Packaging, Products and Materials business segment.
INDUSTRIAL PACKAGING, PRODUCTS AND MATERIALS SEGEMENT
The Industrial Packaging, Products and Materials segment of our business
had revenues of $317.7 million (55.0% total revenues) for the year ended June
28, 2002. Further details of the major markets served by this segment are given
below:
PHARMACEUTICAL BLISTER PACKAGING
We believe that we are a market leader for clear, high-barrier laminations
for pharmaceutical blister packaging. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture.
Transparent, high-barrier blister packaging is primarily used to protect drugs
from moisture vapor infiltration or desiccation. Blister packaging is the
preferred packaging form when dispenser handling can affect shelf life or drug
efficacy, or when unit dose packaging is needed. Unit dose packaging is being
used to improve patient compliance with regard to dosage regimen, and has been
identified as the packaging form of choice in addressing child safety aspects of
drug packaging. The advantages of transparent blisters, as opposed to opaque
foil-based materials manufactured by various competitors, include the ability to
visually inspect the contents of the blister and to present the product with
maximum confidence.
We believe the flexible and semi-rigid packaging segment of the
pharmaceutical packaging industry is growing at a faster rate than the
non-plastics segments because of the generally lower package cost and broader
range of functional characteristics of plastic packaging. As a result, the
technologies used to manufacture plastic packaging materials continue to develop
at a faster pace than those used in the more mature paper, glass, and metal
products.
Our high-barrier blister packaging is sold to major pharmaceutical
companies (or their designated contract packagers). We market our full
pharmaceutical product line directly on a worldwide basis, and have assembled a
global network of sales and marketing personnel on six continents.
In the clear blister packaging market, we have two principal competitors
worldwide with resources equal to or greater than ours. However, we believe that
neither of these competitors has the breadth of product offering to match ours,
and that this differentiation is significant as viewed by the pharmaceutical
industry. Also, the high manufacturing and audit compliance standards imposed by
the pharmaceutical companies on their suppliers provide a significant barrier to
the entry of new competitors. Entry barriers also arise due to the lengthy and
stringent approval process required by pharmaceutical companies. Since approval
requires that the drug be tested while packaged in the same packaging
6
materials intended for commercial use, changing materials after approval risks
renewed scrutiny by the FDA. The packaging materials for pharmaceutical
applications also require special documentation of material sources and uses
within the manufacturing process as well as heightened quality assurance
measures.
FOAMED EGG CARTONS
We believe that we are the leading manufacturer of egg cartons in the
United States. Thermoformed foam polystyrene packaging has been the material of
choice for food packaging cartons for many years. In terms of economic and
functional characteristics, foamed polystyrene products offer a combination of
high strength, minimum material content and superior moisture barrier
performance. Foamed polystyrene products also offer greater dimensional
consistency that enhances the high speed mechanical feeding of cartons into
automated package filling operations. We sell these products through our direct
sales force.
In the egg packaging market, our primary competitor manufactures pulp-based egg
cartons. We believe that we compete effectively based on product quality,
performance and prompt delivery. Our customer base includes most of the domestic
egg packagers (including those owned by egg retailers).
POULTRY AND MEAT PROCESSOR TRAYS
Our processor tray operations produce thermoformed foam polystyrene
poultry and meat processor trays. We are a leading supplier of processor trays
to the poultry industry.
As with egg cartons, thermoformed foam polystyrene has been the material
of choice for processor trays for the same reasons noted above.
Within the polystyrene foam processor tray market, we compete principally
with one large competitor, which has significantly greater financial resources
than ours and who controls the largest share of this market.
CLOSURE LINERS
Tekni-Plex is also the leading producer of sophisticated extruded,
co-extruded and laminated cap-liners and seals, known as closure liners, for
glass and plastic bottles. Closure liners perfect the seal between a container
and its closure, for example, between a bottle and its cap. The liner material
has become an integral part of the container/closure package. Without the
gasketing effect of the liner, most container/closure packages would not be
secure enough to protect the contents from contamination or loss of product
efficacy.
We sell these products through our direct sales force primarily to
packagers of pharmaceutical, healthcare and food products. We have two principal
competitors in North America but also compete with several smaller companies
having substantially smaller market shares. However, as a result of the Tri-Seal
acquisition, we believe that we offer the widest range of liner materials in the
industry. We remain competitive by focusing on product quality, performance and
prompt delivery.
MEDICAL TUBING
We believe we are the leading non-captive supplier of vinyl medical tubing
in North America and Europe. We manufacture medical tubing using proprietary
plastic extrusion processes. The primary raw materials are proprietary
compounds, which we produce. We specialize in high-quality, close tolerance
tubing for various surgical procedures and related medical applications. These
applications include intravenous ("IV") therapy, hemodialysis therapy,
cardio-vascular procedures such as coronary bypass surgery, suction and
aspiration products, and urinary drainage and catheter products. New medical
tubing products we have developed include microbore tubing and silicone
substitute formulations. Microbore tubing can be used to regulate the delivery
of critical intravenous fluids without the need for more expensive drip control
devices. Medical professionals can precisely control the drug delivery speed
simply by selecting the proper (color-coded) diameter tube, thereby improving
accuracy and reducing cost. More importantly, as home healthcare trends
continue, the
7
use of microbore tubing will help eliminate critical dosage errors on the part
of the non-professional caregiver or the patient.
Medical tubing is sold primarily to manufacturers of medical devices that
are packaged specifically for such procedures and applications. These products
are sold through direct salespeople. We remain competitive by focusing on
product quality, performance and prompt delivery.
MEDICAL GRADE COMPOUNDS
We believe that we are the leading non-captive producer of high quality
vinyl compounds for use in the medical industry. Our chemists work closely with
customers to develop compounds that address their specific requirements. Through
this custom work, we have introduced a number of breakthroughs to the medical
device industry by developing formulations with unique physical characteristics.
For example, we recently developed a new family of flexible vinyl compounds
designed to replace silicone rubber in a variety of medical tubing and
commercial applications.
These medical-grade materials are sold to leading manufacturers of medical
devices and equipment. They are also sold to producers of tubing and, to some
extent, to producers of closures for the food and beverage industry. We sell
these compounds in worldwide markets directly through our salespeople.
The market for medical-grade vinyl compounds is highly specialized, and we
have one smaller, but significant competitor. For more than 30 years, we have
been supplying these specialized vinyl compounds for FDA-regulated applications.
We believe that we compete effectively based on product quality, performance and
prompt delivery.
SPECIALTY VINYL RESINS
Tekni-Plex manufactures specialty vinyl resins, with an annual production
capacity of 100 million pounds. We employ specialized technology to produce
dispersion, blending, and copolymer suspension resins for use by suppliers to a
variety of industries, including floor covering, automotive sealants and
adhesives, coil coatings, medical device materials, plastisol compounding and
vinyl packaging.
We sell these products through our direct sales force as well as through
independent sales representatives. We compete with a number of large chemical
companies offering greater breadth of products. However, we believe that we are
building a relatively unique position in the specialty resins market by offering
customized products for niche markets that the larger producers do not serve. We
provide individual customer service and the highest standards of quality.
CONSUMER PACKAGING AND PRODUCTS
The Consumer Packaging and Products segment of our business had revenues
of $260.1 million (45.0% of total revenues) for the year ended June 28, 2002.
Further details of the major markets served by this segment are given below:
GARDEN AND IRRIGATION HOSE PRODUCTS
We believe that we are the leading producer of garden hose in North
America. We have produced garden hose products for over fifty years, and produce
its primary components internally, including proprietary material formulations
and brass couplings. Innovations have included the patented Colorite(R)
Evenflow(R) design and ultra high quality product lines that utilize
medical-grade plastics. We also manufacture specialty hose products such as air
hose and irrigator "soaker hose".
8
We sell these products primarily through our direct salespeople and also
through independent representatives. Both private label and brand-name products
are sold to the retail market, primarily to home centers, hardware cooperatives,
food, automotive, drug and mass merchandising chains and catalog companies
throughout the United States and Canada. Our customers include some of the
fastest growing and the most widely respected retail chains in North America.
Our market strategy is to provide a complete line of innovative, high-quality
products along with superior customer service.
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.
PRECISION TUBING AND GASKETS
Our precision tubing products are manufactured at extremely high speeds
while holding to precise tolerances. The process enhancements that allow
simultaneous high speed and precision are proprietary to us. The precision
rubber gasket products, which we have manufactured for over fifty years, are
produced using proprietary formulations. These formulations are designed to
provide consistent functional performance throughout the entire shelf life of
the product by incorporating chemical resistance characteristics appropriate to
the fluid being packaged. For example, we have developed unique formulations
that virtually eliminate contamination of the products packaged in spray
dispensers. This has greatly expanded the use of these dispensers for personal
hygiene products, foods, and fragrances. The Company has also developed
proprietary methods for achieving extremely accurate thickness control, superior
surface finish, and the elimination of internal imperfections prevalent in other
processing methods.
Our precision tubing and gaskets product line is sold primarily to
manufacturers of aerosol valves, dispenser pumps, and writing instruments. Sales
to the aerosol valve and dispenser pump industries consist primarily of dip
tubes, which transmit the contents of the container to the nozzle, and
specialized molded or punched rubber-based valve gaskets that serve to control
the release of the product from the container. Writing instrument products
include pen barrels and ink tubing as well as ink reservoirs for felt-tip pens.
These products are sold throughout the United States and Europe, as well as
selected worldwide markets. Sales are made through our direct sales force. We
believe that we are the leading precision tubing extruder in North America, and
the leading supplier of aerosol valve and dispenser pump gaskets worldwide.
We are the single-source supplier to much of the industry. The principal
competitive pressure in this product line is the possibility of customers
switching to internal production, or vertical integration. To counteract this
possibility, the Company focuses on product quality, cost reduction, prompt
delivery, technical service and innovation.
PATENTS AND TRADEMARKS
The Company seeks to protect its proprietary know-how through the
application of patent and trademark laws. However, in the opinion of management,
none of its patents or trademarks are material to its operations.
RESEARCH AND DEVELOPMENT
The Company employs certain professionals who, along with other
responsibilities, are engaged in research relating to the development of new
products and to the improvement of existing products and processes. The Company
works closely with certain clients to develop and improve certain products and
product lines. Much of this product development is either funded by clients or
its cost is absorbed in the Company's manufacturing cost of sales, and therefore
is not reflected as research and development expense.
9
SALES, MARKETING AND CUSTOMERS
Excluding customer service representatives, as of June 28, 2002, we had a
total of 44 direct sales and marketing personnel covering both our domestic and
international businesses. There were also commissioned independent sales
representatives (not direct employees of Tekni-Plex) providing additional
coverage.
Overall customer concentration is low with no customer accounting for more
than 10% of total sales and the top ten customers generating less than 32.3% of
sales for the year ended June 28, 2002.
MANUFACTURING
As of June 28, 2002 we had strategically located manufacturing facilities
throughout North America and Europe, totaling over 5.1 million square feet of
floor space.
We utilize many proprietary material formulations throughout our
operations. These formulations provide superior processing and end-product
performance characteristics, giving us a competitive edge across many of our
businesses. Typically, these proprietary material formulations are protected by
trade secret, as opposed to patents which, we believe, would be a less effective
approach to maintaining our competitive edge.
We utilize many proprietary, highly efficient manufacturing processes,
developed by our own engineering staffs throughout our operations. We believe
these processes allow us to make products with superior dimensional tolerances
at higher speeds with lower waste factors than our competitors.
Our various business units routinely share technological information
regarding process and material formulation improvements, and actively seek new
synergistic applications for newly developed technologies throughout our
company.
RAW MATERIALS
We purchase raw materials from several sources that differ for each
product line. We use commodity petrochemicals, primarily polyvinyl chloride,
polystyrene, vinyl chloride monomer, polypropylene and polyethylene. All of
these materials are widely available from numerous sources and we currently
purchase them from multiple suppliers. This diversity of raw material suppliers,
as well as the availability of alternative suppliers, has the effect of reducing
our overall risk related to any one supplier.
In the past we have generally been able to pass on raw materials cost
increases to customers on a relatively timely basis. The exception has been
garden hose products, the prices for which are typically set annually in advance
of each season. To the extent that raw material costs increase more than
anticipated, these additional costs generally cannot be passed on during that
season. Conversely, we benefit from any decrease in raw material costs after
garden hose prices have been set for the upcoming selling season.
INTELLECTUAL PROPERTY
We primarily rely on confidentiality agreements contained in our
employment applications and the restriction of access to our plants and
confidential information to safeguard our proprietary technology. Although we
also file and register patents and trademarks, we do not believe that any of our
patents or trademarks is material to our operations.
EMPLOYEES
As of June 28, 2002, the Company employed approximately 3,090 full-time
employees. Approximately 33% of all employees are represented by various
collective bargaining agreements that expire between August 2003 and March
2006.
10
ITEM 2. FACILITIES
The Company believes that its facilities are suitable for their purposes
and have sufficient productive capacity for its current and foreseeable
operational and administrative needs. Set forth below is a list and brief
description of all of the Company's offices and facilities, all of which are
owned unless otherwise indicated.
APPROXIMATE
LOCATION PRIMARY FUNCTION SQUARE FEET
- -------- ---------------- -----------
Alliance, Ohio (5) Sales Offices 1,300
Auburn, Maine (4) Manufacturing 24,000
Belfast, Northern Ireland Manufacturing 47,580
Blauvelt, New York (8) Manufacturing 56,400
Burlington, New Jersey Manufacturing 124,000
Bucyrus, Ohio Manufacturing 587,649
Bucyrus, Ohio (3) Warehouse 150,000
Buenos Aires, Argentina (3) Manufacturing and warehouse 15,500
Cambridge, Ontario, Canada Manufacturing 25,000
City of Industry, California (4) Manufacturing 110,000
Clayton, North Carolina Manufacturing 76,000
Clinton, Illinois Manufacturing 69,000
Columbus, Ohio (5) Sales Offices 5,830
Coppell, Texas (6) Executive Offices 3,125
Dallas, Texas Manufacturing 139,000
Dalton, Georgia Manufacturing 40,000
Decatur, Indiana Manufacturing 187,000
East Farmingdale, New York (2) Manufacturing 56,556
Erembodegem (Aalst), Belgium Manufacturing 125,667
Flemington, New Jersey Manufacturing 145,000
Fullerton, California (3) Manufacturing and warehouse 109,750
Harrison, New Jersey (7) Warehouse 135,501
Lawrenceville, Georgia Manufacturing 150,000
Lawrenceville, Georgia (3) Warehouse 39,195
Livonia, Michigan (3) Manufacturing 60,000
McKenzie, Tennessee Manufacturing and warehouse 60,000
Memphis, Tennessee (8) Manufacturing and warehouse 149,800
Memphis, Tennessee (4) Warehouse 50,000
Milan (Gaggiano), Italy (6) Warehouse 12,920
Milan (Gaggiano), Italy (6) Manufacturing 14,900
Milan (Gaggiano), Italy Manufacturing 25,800
Milan (Rosate), Italy (2) Manufacturing 24,000
Mississauga, Ontario, Canada (10) Manufacturing 111,570
Mississauga, Ontario, Canada (4) Manufacturing 126,650
Piscataway, New Jersey (2) Manufacturing 155,000
Ridgefield, New Jersey Manufacturing 330,000
Rockaway, New Jersey Manufacturing 90,550
Schaumburg, Illinois (12) Manufacturing 59,100
Schiller Park, Illinois Manufacturing 15,232
Shelby, Ohio (3) Warehouse 350,000
Singapore (3) Sales Office 550
Somerville, New Jersey Manufacturing 172,000
Sparks, Nevada (9) Manufacturing 448,000
Tonawanda, New York (3) Manufacturing 32,000
11
APPROXIMATE
LOCATION PRIMARY FUNCTION SQUARE FEET
- -------- ---------------- -----------
Troy, Ohio (8) Manufacturing and warehouse 200,000
Waco, Texas Manufacturing 104,600
Wenatchee, Washington Manufacturing 97,000
Wenatchee, Washington (3) Warehouse 26,200
Wenatchee, Washington (1) Warehouse 8,000
- ----------
(Years relate to calendar years)
(1) Leased on a month-to-month basis.
(2) Lease expires in 2002.
(3) Lease expires in 2003.
(4) Lease expires in 2004.
(5) Lease expires in 2005.
(6) Lease expires in 2006.
(7) Lease expires in 2007.
(8) Lease expires in 2008.
(9) Lease expires in 2012.
(10) Lease expires in 2015.
(11) Lease expires in 2019.
(12) Lease expires in 2020.
ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
We are regularly involved in legal proceedings arising in the ordinary
course of business, none of which are currently expected to have a material
adverse effect on our businesses, financial condition or results of operation.
Like similar companies, our facilities, operations and properties are
subject to foreign, federal, state, provincial and local laws and regulations
relating to, among other things, emissions to air, discharges to water, the
generation, handling, storage, transportation and disposal of hazardous and
non-hazardous materials and wastes and the health and safety of employees. We
maintain a primary commitment to employee health and safety, and environmental
responsibility. Our intention and policy are to be at all times a responsible
corporate citizen.
Our management includes a Director of Environmental Affairs who is
responsible for compliance with all foreign, federal, state and local laws and
regulations relating to the environment, and health and safety. This director
performs internal auditing procedures and provides direction to all local
facility managers in the compliance areas. The Director of Environmental Affairs
and our President direct outside environmental counsel and outside environmental
consulting firms to ensure that regulations are properly interpreted and
reporting requirements are met.
We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. Currently, we are remediating
contamination resulting from past industrial activity at three of our New Jersey
facilities which we acquired from PureTec in 1998. This remediation is being
conducted pursuant to the requirements of New Jersey's Industrial Site Recovery
Act which were triggered by the 1998 PureTec transaction. We believe that any
costs ultimately borne by us in connection with this remediation would not be
material.
Although we believe that, based on historical experience, the costs of
achieving and maintaining compliance with environmental laws and regulations are
unlikely to have a material adverse effect on our business, financial condition
or results of operations, it is possible that we could incur significant fines,
penalties, capital costs or other liabilities associated with any confirmed
noncompliance or remediation of contamination or natural resource damage
liability at or related to any of our current or former facilities, the precise
nature of which we cannot now predict.
12
Furthermore, we cannot assure you that future environmental laws or regulations
will not require substantial expenditures by us or significant modifications of
our operations.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands)
The following table sets forth selected historical consolidated financial
information of the Company, and has been derived from and should be read in
conjunction with the Company's audited consolidated financial statements,
including the notes thereto, which appear elsewhere herein.
YEARS ENDED
-----------
JULY 3, JULY 2, JUNE 30, JUNE 29, JUNE 28,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net sales $ 316,332 $ 507,314 $ 524,817 $ 525,837 $ 577,749
Cost of goods sold 239,234 376,370 394,480 399,836 430,457
Gross profit 77,098 130,944 130,337 126,001 147,292
Selling, general and administrative expenses 39,220 62,534 58,343 60,999 69,444
Income from operations 37,878 68,410 71,994 65,002 77,848
Interest expense, net 19,682 38,977 38,447 76,569 70,934
Unrealized loss on derivative contracts -- -- -- 13,891 7,830
Other expense (income) 415 286 4,705 605 (6)
Pre-tax income (loss) before extraordinary item 17,781 29,147 28,842 (26,063) (910)
Income tax provision (benefit) 9,112 14,150 14,436 (7,069) 5,677
Income before extraordinary item 8,669 14,997 14,406 (18,994) (6,587)
Extraordinary item (loss)(b) -- -- (35,374) -- --
Net income (loss) $ 8,669 $ 14,997 $ (20,968) $ (18,994) $ (6,587)
BALANCE SHEET DATA (at period end):
Working capital $ 84,897 $ 101,445 $ 145,879 $ 199,129 $ 216,919
Total Assets 539,279 559,436 574,789 621,494 700,153
Total debt (including current portion) 401,905 416,394 651,593 678,150 692,821
Stockholders' equity (deficit) 38,673 52,297 (149,150) (134,697) (91,111)
OTHER FINANCIAL DATA:
Depreciation and amortization $ 17,249 $ 35,343 $ 34,748 $ 37,670 $ 39,863
Capital expenditures 7,283 12,950 16,258 17,116 24,653
Cash flows:
From operations 29,009 38,794 9,485 (3,266) 7,922
From investing (310,672) (58,089) (16,905) (26,777) (88,446)
From financing 299,926 12,057 (1,687) 62,180 64,092
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(a) $ 54,479 $ 101,681 $ 100,527 $ 100,064 $ 115,556
Adjusted EBITDA margin(a) 17.2% 20.0% 19.2% 19.0% 20.0%
14
(a) Adjusted EBITDA is defined as earnings before interest, unrealized
loss on derivative contracts, income taxes, depreciation and
amortization. Adjusted EBITDA is presented because it is a widely
accepted financial indicator of the Company's ability to incur and
service debt. However, Adjusted EBITDA should not be considered in
isolation as a substitute for net income or cash flow data prepared
in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. In addition, this
measure of Adjusted EBITDA may not be comparable to similar measures
reported by other companies. Adjusted EBITDA margin is calculated as
the ratio of Adjusted EBITDA to net sales for the period.
(b) Net loss for the year ended June 30, 2000 includes an extraordinary
loss of approximately $35,374. The extraordinary loss is comprised
of prepayment penalties and other interest costs of $39,303, the
write-off of deferred financing costs of $16,696 and other fees of
$1,325, net of a tax benefit of $21,950.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Historical Financial Information" and the Financial Statements
included elsewhere in this Annual Report. The table below sets forth, for the
periods indicated, selected operating data as a percentage of net sales.
SELECTED FINANCIAL INFORMATION
(PERCENTAGE OF NET SALES)
YEAR ENDED
JUNE 30, 2000 JUNE 29, 2001 JUNE 28, 2002
------------- ------------- -------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 75.2 76.0 74.5
Gross profit 24.8 24.0 25.5
Selling, general and administrative expenses 11.1 11.6 12.0
Income from operations 13.7 12.4 13.5
Interest expense 7.3 14.6 12.3
Provision (Benefit) for income taxes 2.8 (1.3) 1.0
Income (loss) before extraordinary item 2.7 (3.6) (1.1)
Extraordinary item (loss) (6.7) -- --
Net income (loss) (4.0) (3.6) (1.1)
Depreciation and amortization 6.6 7.2 6.9
YEAR ENDED JUNE 28, 2002 COMPARED TO THE YEAR ENDED JUNE 29, 2001
Net Sales, increased to $577.7 million for the year ended June 28, 2002
from $525.8 million for the year ended June 29, 2001, representing an increase
of $51.9 million or 9.9% due to the inclusion of sales generated by our Swan
acquisition which closed in October 2001. Our increased sales were tempered
somewhat by disappointing revenue in our garden hose business due to unusually
adverse weather conditions in the June quarter, particularly along the East
Coast, as well as continued softness in demand for our pharmaceutical blister
packaging products due to a slowdown in new drug introductions in the United
States.
Our Industrial Segment reported a 1.9% decline in Net Sales to $317.7
million in the fiscal year ended June 28, 2002 compared to $323.8 million in the
fiscal year ended June 29, 2001. The decline was the result of continued
softness in sales to healthcare customers due to the general slowdown in new
drug introductions by our pharmaceutical customers compared to recent historical
norms. Our Consumer Segment's Net Sales increased by $58.1 million or 28.7%, to
$260.1 million from $202.0 million last year, primarily due to our Swan
acquisition.
Cost of Goods Sold, increased to $430.5 million for the year ended June
28, 2002 from $399.8 million for the year ended June 29, 2001. Expressed as a
percentage of Net Sales, Cost of Goods Sold decreased to 74.5% for the year
ended June 28, 2002 compared to 76.0% for the year ended June 29, 2001. The
decrease in Cost of Goods Sold as a percentage of Net Sales was due primarily to
lower raw material costs.
Gross Profit, as a result, increased to $147.3 million for the year ended
June 28, 2002 from $126.0 million for the year ended June 29, 2001. The ratio of
Gross Profit to Net Sales increased to 25.5% for the year ended June 28, 2002
from 24.0% for the year ended June 29, 2001.
Our Industrial Segment Gross Profit increased by $3.8 million to $74.3
million from $70.6 million in the fiscal year ending June 28, 2002 primarily due
to lower raw material costs and improved operating efficiencies. Measured as a
percentage of Net Sales our Industrial Segment Gross Profit increased to 23.4%
for the year ended June 28, 2002 from 21.8% for the year ended June 29, 2001.
Our Consumer Segment Gross Profit increased by $17.5 million to $73.0 million
from $55.4 million in the fiscal year ending June 28, 2002 primarily due to our
Swan acquisition. Measured as a percentage of Net Sales our Consumer Segment
Gross Profit increased to 28.1% for the year ended June 28, 2002 from 27.5% for
the year ended June 29, 2001.
16
Selling, General and Administrative Expenses increased to $69.4 million
for the year ended June 28, 2002 from $61.0 million for the year ended June 29,
2001 primarily due to the inclusion of expenses associated with our Swan
acquisition. The resultant ratio to Net Sales increased to 12.0% for the year
ended June 28, 2002 from 11.6% for the year ended June 29, 2001.
Operating Profit, as a result of the above, increased to $77.8 million or
13.5% of Net Sales for the year ended June 28, 2002 from $65.0 million or 12.4%
of Net Sales for the year ended June 29, 2001.
Our Industrial Segment Operating Profit increased by $4.9 million or 12.0%
to $45.6 million from $40.7 million last year, primarily due to lower raw
material costs and improved operating efficiencies. Measured as a percentage of
Net Sales, Industrial Segment Operating Profit improved to 14.4% in the year
ended June 28, 2002 compared to 12.6% in the previous year. Our Consumer Segment
Operating Profit increased by $12.2 million or 33.0% to $49.1 million from $36.9
million in the year ended June 28, 2002, primarily due to our Swan acquisition.
Measured as a percentage of Net Sales, Consumer Segment Operating Profit
improved to 18.9% from 18.3% last year.
Interest Expense, decreased to $70.9 million for the fiscal year ending
June 28, 2002 from $76.6 million for the fiscal year ending June 29, 2001
primarily due to lower average interest rates on our floating rate debt. The
unrealized loss on derivative obligations decreased to $7.8 million in the
current fiscal year compared to a loss of $13.9 million in the previous fiscal
year.
The provision (benefit) for income taxes increased to $5.7 million from a
benefit of ($7.1) due to improved earnings. The provision for the year ended
June 28, 2002 differs from the amount computed by applying the Federal statutory
rate, primarily due to non-deductible goodwill, $3.6 million and the effect of
state income taxes $1.4 million.
Net Income (loss), as a result, was a loss of ($6.6) million or (1.1%) of
net sales for the fiscal year ending June 28, 2002 compared to a loss of ($19.0)
million or (3.6%) of net sales for the year ending June 29, 2001.
Depreciation and Amortization Expense, increased to 39.9 million or 6.9% of net
sales for the fiscal year ending June 28, 2002 from $37.7 million or 7.2% of net
sales for the fiscal year ending June 29, 2001 due to our Swan acquisition.
YEAR ENDED JUNE 29, 2001 COMPARED TO YEAR ENDED JUNE 30 2000
Net Sales, increased to $525.8 million for the year ended June 29, 2001
from $524.8 million for the year ended June 30, 2000, representing an increase
of $1.0 million or 0.2%. Sales increases in our Food and Consumer businesses
were generally offset by weaker sales in our Healthcare and Specialty Resins
businesses. Healthcare sales were down because of generally soft economic
conditions and inventory de-stocking by some of our customers. Sales of our
Specialty Resins segment were down as we continue to reposition this business in
both markets and products.
Cost of Goods Sold, increased to $399.8 million for the year ended June
29, 2001 from $394.5 million for the year ended June 30, 2000. Expressed as a
percentage of Net Sales, Cost of Goods Sold increased to 76.0% for the year
ended June 29, 2001 compared to 75.2% for the year ended June 30, 2000. The
increase in Cost of Goods Sold as a percentage of Net Sales was due primarily to
raw material costs, which rose rapidly in the early part of the year before
trending down over the remainder of the year.
Gross Profit, as a result, fell to $126.0 million for the year ended June
29, 2001 from $130.3 million for the year ended June 30, 2000. The ratio of
Gross Profit to Net Sales decreased to 24.0% for the year ended June 29, 2001
from 24.8% for the year ended June 30, 2000.
Selling, General and Administrative Expenses, increased to $61.0 million
for the year ended June 29, 2001 from $58.3 million for the year ended June 30,
2000, an increase of $2.7 million or 4.6%. This increase reflects general cost
of living increases for our salaried personnel as well as the Selling, General
and Administrative expenses associated with our Super Plastics acquisition. The
resultant ratio to Net Sales increased to 11.6% for the year ended June 29, 2001
from 11.1% for the year ended June 30, 2000.
17
Operating Profit, as a result of the above, decreased to $65.0 million or
12.4% for the year ended June 29, 2001 from $72.0 million or 13.7% for the year
ended June 30, 2000.
Other Expenses, decreased to $0.6 million for the year ended June 29, 2001
from $4.7 million for the year ended June 29, 2000 primarily due to
non-recurring expenses associated with the recapitalization. The year ended June
30, 2000 included approximately $4.0 million of non-recurring expenses
associated with the recapitalization.
Interest Expense, increased to $76.6 million for the fiscal year ending
June 29, 2001 from $38.4 million for the fiscal year ending June 30, 2000
primarily due to increased debt associated with the recapitalization. The
Company has also incurred an unrealized loss of $13.9 million from derivative
contracts for the year ended June 29, 2001. The Company had no similar gains or
losses for the year ended June 30, 2000.
The ratio of the provision (benefit) for income taxes to income (loss)
before income taxes was 27.1% for the year ended June 29, 2001 compared to 50.1%
for the year ending June 30, 2000. The decrease in the effective rate for the
year ended June 29, 2001 is due to non-deductible goodwill and other permanent
differences in foreign subsidiaries.
Net Income (loss), as a result, was a loss of ($19) million or (3.6%) of
net sales for the fiscal year ending June 29, 2001 compared to a loss of ($21.0)
million or (4.0%) of net sales after an extraordinary charge of ($35.4) million
for the year ending June 30, 2000.
Depreciation and Amortization Expense, increased to 37.7 million or 7.2%
of net sales for the fiscal year ending June 29, 2001 from $34.7 million or 6.6%
of net sales for the fiscal year ending June 30, 2000 due to increased
depreciation and amortization expense primarily associated with our Super
Plastics acquisition.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 28, 2002, net cash provided by operating
activities was $7.9 million compared to ($3.3) million of cash used by operating
activities in the prior year. The $11.2 million increase was due primarily to
improved profitability as well as lower inventories before accounting for the
impact of our Swan acquisition. These improvements more than offset an increase
in accounts receivable in our Consumer Segment that accompanied a shift in the
buying patterns of this segment's customers. Various year-over-year changes in
operating assets, accrued expenses, and liabilities are generally due to
offsetting timing differences.
Working capital at June 28, 2002 was $216.9 million compared to $199.1
million at June 29, 2001 primarily due to our Swan acquisition.
As of June 28, 2002, we had an outstanding balance of $46.0 million under
our $100.0 million revolving credit line of our existing credit facility. This
was a decrease of $19.0 million from the $65.0 million outstanding balance as of
June 29, 2001. The decrease in revolver borrowings was primarily due to the
application of the proceeds from our $40 million senior subordinated notes
offering to pay down revolver borrowings. As of June 28, 2002 we had $28.2
million of cash compared to $44.6 million of cash as of June 29, 2001. Our cash
balance at the end of our 2002 fiscal year was positively impacted by the senior
subordinated notes offering we completed in May. The large cash balance at the
end of our 2001 fiscal year was primarily due to the $30 million equity capital
contribution that was made in June of 2001 to partially finance our Swan
acquisition.
As of June 28, 2002, we had $54.0 million undrawn and available under our
revolving credit facility to fund ongoing general corporate and working capital
requirements. In addition, as part of the recapitalization, our new equity
investors agreed to contribute to Tekni-Plex Partners $269.6 million in the
aggregate, of which $167.0 million was used to purchase interests of certain
previous Tekni-Plex investors. An additional $85.0 million was used to finance
18
acquisitions, including the acquisition of Elm Packaging which closed in July
2002. Tekni-Plex Management, the managing member of Tekni-Plex Partners, may for
at least five years from the recapitalization, call upon the remainder of the
commitment, $17.6 million, for our future use for general corporate purposes,
including acquisitions.
Apart from acquisitions, our principal uses of cash will be debt service,
capital expenditures and working capital requirements. Our capital expenditures
for the year ended June 28, 2002 and June 29, 2001 were $24.7 million and $17.1
million, respectively. We expect that annual capital expenditures will increase
somewhat from historical levels during the next few years as we make
improvements in our recently acquired operations.
Management believes that cash generated from operations plus funds from
our existing credit facility will be sufficient to meet our expected debt
service requirements, planned capital expenditures and operating needs. However,
we cannot assure you that sufficient funds will be available from operations or
borrowings under our credit facility to meet our anticipated cash needs. To the
extent we pursue future acquisitions, we may be required to obtain additional
financing. We cannot assure you that we will be able to obtain such financing in
amounts and on terms acceptable to us. The terms of the notes and the credit
facility each include various covenants that limit our ability to incur
additional debt.
At June 28, 2002, the Company's contractual obligations for borrowings are as
follows:
Long-term Total
Payments Due by Period Debt Leases (in millions)
- ----------------------------------------------------------------------------------------
Less than 1 year $ 13.4 $ 7.9 $ 21.3
Year 2 12.9 5.7 18.6
Year 3 37.9 4.3 42.2
Year 4 83.9 4.1 88.0
Year 5 115.0 4.0 119.0
After 5 years 432.1 14.7 446.8
Critical Accounting Policies
The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States. Preparing
financial statements in accordance with generally accepted accounting principles
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The following paragraphs
include a discussion of some critical areas where estimates are required. You
should also review Note 1 to the financial statements for further discussion of
significant accounting policies.
The Company records revenue when products are shipped. Legal title and
risk of loss with respect to the products pass to customers at the point of
shipment. The Company provides an allowance for returned product and volume
sales rebates on an estimated basis.
The Company evaluates its long-lived assets for impairment based on the
undiscounted future cash flows of such assets. If a long-lived asset is
identified as impaired, the value of the asset will be reduced to its fair
value.
19
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of June 28, 2002, the net carrying amount of goodwill for
acquisitions prior to July 1, 2001 is $164,100 and other intangible assets is
$600. Amortization expense during the period ended June 28, 2002 was $15,500
related to those acquisitions. The acquisition of the Swan garden hose division
of Mark IV Industries, Inc. was accounted for as a purchase. The acquisition
resulted in customer lists and goodwill of $3,900 and $38,200 respectively. In
accordance with SFAS 142, the Swan goodwill is not being amortized. Amortization
of customer lists was approximately $600 for the year ended June 28, 2002.
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.
20
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment of 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 is currently assessing the impact SFAS 144 will have
on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring
Costs. SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require a company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company cannot restate its previously issued financial statements and the
new Statement grandfathers the accounting for liabilities that a company had
previously recorded under Emerging Issues Task Force Issue 94-3.
INFLATION
During the closing months of fiscal year 2002, we contended with rising
raw material prices. We believe we have generally been able to offset the
effects thereof through continuing improvements in operating efficiencies and by
increasing prices to our customers to the extent permitted by competitive
factors. However, we cannot assure you that such cost increases can be passed
through to our customers in the future or that the effects can be offset by
further improvements in operating efficiencies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes
in interest rates. At June 28, 2002 and June 29, 2001 the principal
amount of the Company's aggregate outstanding variable rate
indebtedness was $375,120 and $401,560 respectively. A hypothetical 1%
adverse change in interest rates would have had an annualized
unfavorable impact of approximately $1,304 and $4,000, respectively,
on the Company's earnings and cash flows based upon these year-end
debt levels. To ameliorate these risks, in June 2000, the Company
entered into interest rate Swap and Cap Agreements for a notional
amount of $344,000.
ITEM 8. FINANCIAL STATEMENTS
The financial statements commence on Page F-1.
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our current directors and executive officers are listed below. Each
director is elected at the annual meeting of the stockholders of Tekni-Plex to
serve a one year term until the next annual meeting or until a successor is
elected and qualified, or until his earlier resignation. Each executive officer
holds his office until a successor is chosen and qualified or until his earlier
resignation or removal. Pursuant to our by-laws, we indemnify our officers and
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware and our certificate of incorporation.
The board of directors is composed of six directors. A nominating committee
composed of Dr. Smith and Mr. Cronin designate two directors, Dr. Smith
designates three directors, and Mr. Cronin designates one director. Directors
may only be removed for cause or at the request of the person entitled to
designate that director.
NAME AGE POSITION
Dr. F. Patrick Smith........ 54 Chairman of the Board and Chief Executive Officer
Kenneth W.R. Baker.......... 58 President, Chief Operating Officer and Director
Arthur P. Witt.............. 72 Corporate Secretary and Director
John S. Geer................ 56 Director
J. Andrew McWethy........... 61 Director
Michael F. Cronin........... 48 Director
Dr. F. Patrick Smith has been Chairman of the Board and Chief Executive
Officer of Tekni-Plex since March 1994. He received his doctorate degree in
chemical engineering from Texas A&M University in 1975. He served as Senior
Chemical Engineer to Texas Eastman Company, a wholly owned chemical and plastics
subsidiary of Eastman Kodak, where he developed new grades of polyolefin resins
and hot melt and pressure sensitive adhesives. In 1979, he became Technical
Manager of the Petrochemicals and Plastics Division of Cities Service Company,
and a Member of the Business Steering Committee of that division. From 1982 to
1984, Dr. Smith was Vice President of R&D and Marketing for Guardian Packaging
Corporation, a diversified flexible packaging company. Thereafter, he joined
Lily-Tulip, Inc. and managed their research and marketing functions before
becoming Senior Vice President of Manufacturing and Technology. Following the
acquisition of Lily-Tulip by Fort Howard Corporation in 1986, he became the
Corporate Vice President of Fort Howard, responsible for the manufacturing and
technical functions of the combined Sweetheart Products and Lily-Tulip
operations. From 1987 to 1990, Dr. Smith was Chairman and Chief Executive
Officer of WFP Corporation. Since 1990, Dr. Smith has been a principal of Brazos
Financial Group, a business consulting firm. Since 2000, Dr. Smith has been a
general partner of Eastport Operating Partners L.P.
Kenneth W.R. Baker has served as Tekni-Plex Chief Operating Officer since
April 1994 and as President since July 1995. Mr. Baker served in various
management roles including systems development, finance, industrial engineering,
research and development, and manufacturing operations at Owens-Illinois, Inc.
and Lily-Tulip, Inc. from 1965 to 1985. From 1986 to 1987, he served as Vice
President, Operations at Fort Howard Cup Corporation. In 1987, Mr. Baker joined
WFP Corporation, Inc. as Senior Vice President, Operations and eventually became
the company's President and CEO before leaving the company in 1992. Thereafter,
Mr. Baker became Vice President, Research and Development at the Molded Products
Division of Carlisle Plastics, Inc. until joining Tekni-Plex in 1994.
22
Arthur P. Witt has been a director of Tekni-Plex since March 1994 and was
appointed Secretary in January 1997. Since July 1989, he has been president of
PAJ Investments which is involved in financial consulting and property
management. Over the same period, Mr. Witt also served as a temporary chief
financial officer for WFP Corporation and Flexible Technology. Prior to 1989,
Mr. Witt served in a number of senior management positions for companies such as
Lily-Tulip, Inc., BMC Industries and Fort Howard Paper Co.
John S. Geer has served as a director of Tekni-Plex since June 2000. He is
a partner of Mellon Ventures, Inc., having joined Mellon in 1997. Previously,
Mr. Geer was senior vice president of Security Pacific Capital Corp. He has
served on 20 boards of directors of emerging growth and middle market companies.
J. Andrew McWethy has served as a director of Tekni-Plex since March 1994.
He co-founded and managed MST Partners L.P., a private equity investment fund,
from 1989 to 2000. In 2000, Mr. McWethy co-founded Eastport Operating Partners,
L.P., a private equity investment fund that he continues to manage. Prior to
1989, Mr. McWethy was employed by Irving Trust Company for 12 years.
Michael F. Cronin has served as a director of Tekni-Plex since March 1994.
He has invested in emerging growth companies and various industrial and service
businesses since 1978. Since June 1991, Mr. Cronin has been a general partner of
Weston Presidio Capital.
COMPENSATION OF DIRECTORS
Tekni-Plex reimburses directors for any reasonable out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, each director is paid an annual fee of $50,000.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the remuneration paid by Tekni-Plex to the
Chief Executive Officer and the two next most highly compensated executive
officers of Tekni-Plex
SUMMARY COMPENSATION TABLE
FISCAL STOCK OTHER ANNUAL
NAME & PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(A)
- ------------------------- ---- ------ ----- ------- ---------------
Dr. F. Patrick Smith,.................. 2002 $ 5,500,000 $ -- -- $ 16,000
Chairman and Chief Executive Officer 2001 5,000,000 -- -- 16,000
2000 1,200,000 4,622,100 -- 16,000
Mr. Kenneth W.R. Baker,................ 2001 $ 2,750,000 $ -- -- $ 9,000
President and Chief Operating Officer 2000 2,500,000 -- -- 9,000
1999 600,000 2,311,050 -- 9,000
Mr. James E. Condon...................... 2002 $ 341,030 $ -- $ -- $ 7,200
Vice President and Chief Financial Officer 2001 122,308 -- 254,000 7,200
2000 -- -- -- --
(a) Includes amounts reimbursed during the fiscal year for payment of taxes,
auto expense, membership fees, etc.
23
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL POTENTIAL
REALIZABLE REALIZABLE
PERCENT OF VALUE AT VALUE AT
TOTAL ASSUMED ANNUAL ASSUMED ANNUAL
NUMBER OF OPTIONS/ EXERCISE RATES OF RATES OF
SECURITIES SARS GRANTED OR BASE STOCK PRICE STOCK PRICE
UNDERLYING TO EMPLOYEES PRICE APPRECIATION APPRECIATION FOR
OPTIONS/ IN FISCAL PER EXPIRATION FOR OPTION TERM FOR OPTION TERM
NAME SARS GRANTED YEAR SHARE DATE 5% 10%
- ---- ------------ ---- ----- ---- -- ---
($000) ($000) ($000)
Dr. F. Patrick Smith..... -- --% -- -- -- --
Kenneth W.R. Baker....... -- --% -- -- -- --
James E. Condon.......... -- --% -- -- -- --
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE ($000) OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END FY-END
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------------- ------------- -------------
Dr. F. Patrick Smith............................... -- -- -- --/--
Kenneth W.R. Baker ................................ -- -- -- --/--
James E. Condon......................................... -- -- -- --/--
EMPLOYMENT AGREEMENTS
As part of the recapitalization, Dr. Smith and Mr. Baker entered into
amended and restated employment agreements that currently expire July 1, 2005
and contain renewal provisions.
Each employment agreement provides that the executive may be terminated by
us for cause or upon death or disability of the executive. Each of Dr. Smith and
Mr. Baker is entitled to severance benefits if he is terminated due to death or
disability. The employment agreements also contain certain non-compete
provisions.
The annual salaries of Dr. Smith and Mr. Baker are $5 million and $2.5
million, respectively, and each of these salaries will be increased by 10%
annually. Neither Dr. Smith's nor Mr. Baker's amended and restated employment
agreement provides for any mandatory bonus compensation. No other provisions of
Dr. Smith's and Mr. Baker's employment agreements changed materially.
24
COMPENSATION COMMITTEE
The board of directors maintains a three-member compensation committee
comprised of Dr. Smith, Mr. Witt and Mr. Cronin. The compensation committee's
duties include the annual review and approval of the compensation for each of
our Chief Executive Officer and President, as well as the administration of our
stock incentive plan. No member of the compensation committee is allowed to vote
on issues pertaining to that member's compensation (including option grants).
The board may also delegate additional duties to the compensation committee in
the future.
Compensation levels and bonus awards for all other employees are controlled by
Dr. Smith and Mr. Baker.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As Chief Executive Officer of Tekni-Plex, Dr. Smith participated in
deliberations concerning the compensation of the Chief Operating Officer of
Tekni-Plex (but not the compensation for himself).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Tekni-Plex Partners LLC holds approximately 96.2% (approximately 93.6% on a
fully diluted basis) and MST/TP Partners LLC holds approximately 3.8%
(approximately 3.7% on a fully diluted basis) of Tekni-Plex's outstanding common
stock.
Tekni-Plex Management LLC, controlled by Dr. Smith, is the sole managing
member of both Tekni-Plex Partners LLC and MST/TP Partners LLC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING ARRANGEMENTS
In fiscal years 2001 and 2000 we had an arrangement with Arthur P. Witt,
one of our directors and our corporate secretary, under which Mr. Witt provided
us with customary management consulting services. Mr. Witt's compensation for
consulting services rendered on our behalf was approximately $50,400 and $66,500
for fiscal years 2001 and 2000, respectively.
Our policy is not to enter into any significant transaction with one of our
affiliates unless a majority of the disinterested directors of the board of
directors determines that the terms of the transaction are at least as favorable
as those we could obtain in a comparable transaction made on an arm's-length
basis with unaffiliated parties. This determination is made in the board's sole
discretion.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements and Schedules
The financial statements listed in the Index to Financial
Statements under Part II, Item 8 and the financial statement
schedules listed under Exhibit 27 are filed as part of this
annual report.
(a)(2) Financial Statement Schedule - Schedule II - Valuation and
Qualifying Accounts
(a)(3) Exhibits
The exhibits listed on the Index to Exhibits following the
Signature Page herein are filed as part of this annual report
or by incorporation by reference from the documents there
listed.
(b) Reports on Form 8-K
None
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TEKNI-PLEX, INC.
By: /s/ F. PATRICK SMITH
-----------------------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
Dated: October 8, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ James E. Condon
-----------------------------------
James E. Condon
Chief Financial Officer
Date October 8, 2002
-------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated, on October 1, 2001.
SIGNATURE TITLE
--------- -----
/s/ F. PATRICK SMITH Chairman of the Board and Chief Executive
- --------------------------------- Officer
F. Patrick Smith
/s/ KENNETH W.R. BAKER President and Chief Operating Officer
- --------------------------------- and Director
Kenneth W.R. Baker
/s/ ARTHUR P. WITT Corporate Secretary and Director
- ---------------------------------
Arthur P. Witt
/s/ JOHN S. GEER Director
- ---------------------------------
John S. Geer
/s/ J. ANDREW MCWETHY Director
- ---------------------------------
J. Andrew McWethy
/s/ MICHAEL F. CRONIN Director
- ---------------------------------
Michael F. Cronin
CERTIFICATIONS *
I, Dr. F. Patrick Smith, certify that:
1. I have reviewed this annual report on Form 10-K of Tekni-Plex;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
Date: October 8, 2002
/s/ Dr. F. Patrick Smith
------------------------
Dr. F. Patrick Smith
Chief Executive Officer
CERTIFICATIONS*
I, James E. Condon, certify that:
1. I have reviewed this annual report on Form 10-K of Tekni-Plex;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
Date: October 8, 2002
/s/ James E. Condon
---------------------------------------
James E. Condon
Chief Financial Officer
TEKNI-PLEX, INC.
CONTENTS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of stockholders' deficit F-5
Statements of cash flows F-6
Notes to financial statements F-7-F-48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE F-49
SUPPLEMENTAL SCHEDULE:
Valuation and qualifying accounts and reserves F-50
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
We have audited the accompanying consolidated balance sheets of Tekni-Plex, Inc.
and its subsidiaries (the "Company") as of June 28, 2002 and June 29, 2001, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended June 28, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tekni-Plex, Inc. and
its subsidiaries as of June 28, 2002 and June 29, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 28, 2002, in conformity with accounting principles generally accepted in
the United States of America.
BDO Seidman, LLP
September 13, 2002
Woodbridge, New Jersey
F-2
TEKNI-PLEX, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
JUNE 28, 2002 June 29, 2001
------------- -------------
ASSETS (NOTE 7)
CURRENT:
Cash and cash equivalents $ 28,199 $ 44,645
Accounts receivable, net of an allowance of $1,671 and $1,500
for possible losses 147,198 105,316
Inventories (Note 4) 117,632 106,258
Deferred income taxes (Note 8) 7,472 5,153
Prepaid expenses and other current assets 5,583 5,595
--------- ---------
TOTAL CURRENT ASSETS 306,084 266,967
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 5) 158,118 137,008
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION (NOTE 6) 204,252 179,616
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF
$5,030 AND $2,549 14,343 16,607
DEFERRED INCOME TAXES (NOTE 8) 16,278 19,010
OTHER ASSETS 1,078 2,286
--------- ---------
$ 700,153 $ 621,494
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt (Note 7) $ 13,407 $ 8,072
Accounts payable 32,643 34,076
Accrued payroll and benefits 8,965 5,222
Accrued interest 4,789 1,673
Accrued integration reserve (Note 3) 6,755 --
Accrued customer allowances 8,214 4,904
Accrued liabilities - other 13,877 10,542
Income taxes payable 515 3,349
--------- ---------
TOTAL CURRENT LIABILITIES 89,165 67,838
LONG-TERM DEBT (NOTE 7) 679,414 670,078
OTHER LIABILITIES (NOTE 1) 22,685 18,275
--------- ---------
TOTAL LIABILITIES 791,264 756,191
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 9 AND 12)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value, authorized 20,000 shares, issued
1088 at June 28, 2002 and 1011 at June 29, 2001 -- --
Additional paid-in capital 170,176 120,176
Accumulated other comprehensive loss (6,805) (7,039)
Accumulated deficit (33,959) (27,372)
Less: Treasury stock at cost, 431 shares (Note 2) (220,523) (220,462)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (91,111) (134,697)
--------- ---------
$ 700,153 $ 621,494
========= =========
See accompanying notes to consolidated financial statements.
F-3
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
Years ended JUNE 28, 2002 June 29, 2001 June 30, 2000
- ----------- ------------- ------------- -------------
NET SALES $ 577,749 $ 525,837 $ 524,817
COST OF SALES 430,457 399,836 394,480
--------- --------- ---------
GROSS PROFIT 147,292 126,001 130,337
OPERATING EXPENSES:
Selling, general and administrative 69,444 60,999 58,343
--------- --------- ---------
INCOME FROM OPERATIONS 77,848 65,002 71,994
OTHER EXPENSES:
Interest, net 70,934 76,569 38,447
Unrealized loss on derivative contracts (Note 1) 7,830 13,891 --
Other (Note 10) (6) 605 4,705
--------- --------- ---------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES AND
EXTRAORDINARY ITEM (910) (26,063) 28,842
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 8):
Current 4,443 4,098 12,333
Deferred 1,234 (11,167) 2,103
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (6,587) (18,994) 14,406
EXTRAORDINARY ITEM, NET OF INCOME TAXES (NOTE 2) -- -- (35,374)
--------- --------- ---------
NET LOSS $ (6,587) $ (18,994) $ (20,968)
========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
Accumulated
Additional Other
Common Paid-In Comprehensive Accumulated Treasury
stock Capital Loss Deficit Stock TOTAL
----------- --------- ------------- ----------- --------- ---------
BALANCE, JULY 2, 1999 $ -- $ 41,075 $ (1,368) $ 12,590 $ -- $ 52,297
Net loss -- -- -- (20,968) -- (20,968)
Foreign currency translation -- -- (3,118) -- -- (3,118)
---------
Comprehensive loss -- -- -- -- -- (24,086)
Purchase of treasury stock -- -- -- -- (220,462) (220,462)
Capital contribution -- 43,101 -- -- -- 43,101
----------- --------- --------- --------- --------- ---------
BALANCE, JUNE 30, 2000 -- 84,176 (4,486) (8,378) (220,462) (149,150)
Net loss -- -- -- (18,994) -- (18,994)
Foreign currency translation -- -- (2,553) -- -- (2,553)
---------
Comprehensive loss -- -- -- -- -- (21,547)
Capital contributions -- 36,000 -- -- -- 36,000
----------- --------- --------- --------- --------- ---------
BALANCE, JUNE 29, 2001 -- 120,176 (7,039) (27,372) (220,462) (134,697)
Net loss -- -- -- (6,587) -- (6,587)
Foreign currency translation -- -- 3,319 -- -- 3,319
Unrealized loss of pension plan,
net of tax -- -- (3,085) -- -- (3,085)
---------
Comprehensive loss -- -- -- -- -- (6,353)
Acquisition of shares -- -- -- -- (61) (61)
Capital contributions -- 50,000 -- -- -- 50,000
----------- --------- --------- --------- --------- ---------
BALANCE, JUNE 28, 2002 $ -- $ 170,176 $ (6,805) $ (33,959) $(220,523) $ (91,111)
=========== ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-5
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 14)
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
Years ended JUNE 28, 2002 June 29, 2001 June 30, 2000
- -------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,587) $ (18,994) $ (20,968)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 20,981 18,741 16,026
Amortization 18,882 18,929 18,722
Unrealized loss on derivative contracts 7,830 13,891
Provision for bad debts 484 250 310
Deferred income taxes 1,234 (11,167) 2,103
Loss on sale of assets -- -- 62
Extraordinary loss on extinguishment of debt, net of tax -- -- 35,374
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (35,632) (9,527) 186
Inventories 4,226 (11,019) (29,243)
Prepaid expenses and other current assets 866 8,859 4,898
Other assets (50) (58) 205
Accounts payable and other current liabilities (6,136) 2,713 (15,994)
Income taxes payable 5,419 3,349 (742)
Other liabilities (3,595) (19,233) (1,454)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,922 (3,266) 9,485
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of net assets including acquisition costs (63,624) (9,233) --
Capital expenditures (24,653) (17,116) (16,258)
Additions to intangibles (169) (428) (805)
Cash proceeds from sale of assets -- -- 158
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (88,446) (26,777) (16,905)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (19,000) 35,000 (2,030)
Proceeds from long-term debt 40,747 -- 645,232
Repayments of long-term debt (7,440) (8,820) (448,631)
Proceeds from capital contributions 50,000 36,000 43,101
Debt financing costs (154) -- (18,897)
Purchase of treasury stock (61) -- (220,462)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 64,092 62,180 (1,687)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (14) (17) (485)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,446) 32,120 (9,592)
CASH, BEGINNING OF PERIOD AND CASH EQUIVALENTS 44,645 12,525 22,117
--------- --------- ---------
CASH, END OF PERIOD AND CASH EQUIVALENTS $ 28,199 $ 44,645 $ 12,525
========= ========= =========
See accompanying notes to consolidated financial statements.
F-6
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
1. SUMMARY OF Nature of Business
ACCOUNTING
POLICIES Tekni-Plex, Inc. and its subsidiaries
("Tekni-Plex" or the "Company") 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
two primary business groups: Industrial
Packaging, Products, and Materials and
Consumer Packaging and Products.
Consolidation Policy
The consolidated financial statements
include the financial statements of
Tekni-Plex, Inc. and its subsidiaries. All
intercompany transactions and balances
have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of
cost (weighted average) or market.
Property, Plant and Equipment
Property, plant and equipment are stated
at cost. Depreciation and amortization are
computed over the estimated useful lives
of the assets primarily on the
straight-line method for financial
reporting purposes and by accelerated
methods for income tax purposes. Repairs
and maintenance are charged to expense as
incurred.
Intangible Assets
The Company amortizes the excess of cost
over the fair value of net assets acquired
on a straight-line basis over 15 years,
and the cost of acquiring certain patents,
trademarks, and customer lists over
seventeen, five and ten years,
respectively. Recoverability is evaluated
periodically based on the expected
undiscounted net cash flows of the related
businesses.
F-7
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
Deferred Financing Costs
The Company amortizes the deferred
financing costs incurred in connection
with the Company's borrowings over the
life of the related indebtedness (5-10
years).
Income Taxes
The Company accounts for income taxes
under the provisions of Statement of
Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income
Taxes." Deferred income tax assets and
liabilities are recognized for differences
between the financial statement and income
tax basis of assets and liabilities based
upon statutory rates enacted for future
periods. Valuation allowances are
established when necessary to reduce
deferred tax assets to the amount expected
to be realized.
Revenue Recognition
The Company recognizes revenue when goods
are shipped to customers. The Company
provides for returned goods and volume
rebates on an estimated basis.
Shipping and Handling Costs
Shipping and handling costs are recorded
to cost of sales.
Research and Development
Research and development expenditures for
the Company's projects are expensed as
incurred.
Treasury Stock
Treasury Stock is recorded at cost. Gains
and losses on disposition are recorded as
increases or decreases to additional
paid-in capital with losses in excess of
previously recorded gains charged directly
to retained earnings.
Cash Equivalents
The Company considers all highly liquid
debt instruments with an original maturity
of three months or less to be cash
equivalents.
F-8
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
Fiscal Year-End
The Company utilizes a 52/53 week fiscal
year ending on the Friday closest to June
30. The years ended June 28, 2002, June
29, 2001, and June 30, 2000 contained 52
weeks each.
Reclassifications
Certain items in the prior year financial
statements have been reclassified to
conform to the current year presentation.
Foreign Currency Translation
Assets and liabilities of international
subsidiaries are translated at year end
exchange rates and related translation
adjustments are reported as a component of
stockholders' deficit. The statement of
operations accounts are translated at the
average rates during the period.
Long-Lived Assets
Long-lived assets, such as goodwill,
customer lists and property and equipment,
are evaluated for impairment when events
or changes in circumstances indicate that
the carrying amount of the assets may not
be recoverable through the estimated
undiscounted future cash flows from the
use of these assets. When such impairments
exist, the related assets will be written
down to fair value. No impairment losses
have been recorded through June 28, 2002.
Use of estimates
The preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during
the reporting period. Actual results could
differ from those estimates.
F-9
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
Stock Based Compensation
The Company applies the provisions of SFAS
No. 123, "Accounting for Stock-Based
Compensation," which allows the Company to
apply APB Opinion 25 and related
interpretations in accounting for its
stock options and present pro forma
effects of the fair value of such options.
Derivative Instruments
Effective July 1, 2000, Tekni-Plex adopted
Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and
Hedging Activities," as amended and
interpreted. FAS 133 requires that all
derivative instruments, such as interest
rate swaps, be recognized in the financial
statements and measured at their fair
market value. Changes in the fair market
value of derivative instruments are
recognized each period in current
operations or stockholders' equity (as a
component of accumulated other
comprehensive loss), depending on whether
a derivative instrument qualifies as a
hedge transaction.
In the normal course of business,
Tekni-Plex is exposed to changes in
interest rates. The objective in managing
its exposure to interest rates is to
decrease the volatility that changes in
interest rates might have on operations
and cash flows. To achieve this objective,
Tekni-Plex uses interest rate swaps and
caps to hedge a portion of total long-term
debt that is subject to variable interest
rates. These derivative contracts are
considered to be a hedge against changes
in the amount of future cash flows
associated with the interest payments on
variable-rate debt obligations, however,
they do not qualify for hedge accounting
under FASB 133. Accordingly, the interest
rate swaps are reflected at fair value in
the Consolidated Balance Sheet and the
related gains or losses on these contracts
are recorded as an unrealized loss from
derivative instruments in the Consolidated
Statements of Operations. Currently these
are the only derivative instruments held
by Tekni-Plex as of June 28, 2002. The
fair value of derivative contracts are
determined based on quoted market values
obtained from a third party.
F-10
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
As of July 1, 2000, Tekni-Plex had
interest swap contracts to pay variable
rates of interest based on a basket of
LIBOR benchmarks and receive variable
rates of interest based on a 3 month
dollar LIBOR on an aggregate of $29,000
amount of indebtedness with maturity dates
ranging from June 2006 through June 2008.
In conjunction with these swap contracts,
Tekni-Plex also purchased an interest rate
cap. The aggregate fair market value of
these interest rate swap and cap contracts
was $(21,721) and $(13,891) on June 28,
2002 and June 29, 2001, respectively, and
is included in other liabilities on the
Consolidated Balance Sheet. For the years
ended June 28, 2002 and June 29, 2001,
Tekni-Plex incurred realized losses of
$7,939 and $1,806, respectively, which
have been reflected in interest expense.
New Accounting Pronouncements
In June 2001, the Financial Accounting
Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141),
and No. 142, Goodwill and Other Intangible
Assets (SFAS 142). SFAS 141 requires the
use of the purchase method of accounting
and prohibits the use of the
pooling-of-interests method of accounting
for business combinations initiated after
June 30, 2001. SFAS 141 also requires that
the Company recognize acquired intangible
assets apart from goodwill if the acquired
intangible assets meet certain criteria.
SFAS 141 applies to all business
combinations initiated after June 30, 2001
and for purchase business combinations
completed on or after July 1, 2001. It
also requires, upon adoption of SFAS 142,
that the Company reclassify the carrying
amounts of intangible assets and goodwill
based on the criteria in SFAS 141.
F-11
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
SFAS 142 requires, among other things,
that companies no longer amortize
goodwill, but instead test goodwill for
impairment at least annually. In addition,
SFAS 142 requires that the Company
identify reporting units for the purposes
of assessing potential future impairments
of goodwill, reassess the useful lives of
other existing recognized intangible
assets, and cease amortization of
intangible assets with an indefinite
useful life. An intangible asset with an
indefinite useful life should be tested
for impairment in accordance with the
guidance in SFAS 142. SFAS 142 is required
to be applied in fiscal years beginning
after December 15, 2001 to all goodwill
and other intangible assets recognized at
that date, regardless of when those assets
were initially recognized. SFAS 142
requires the Company to complete a
transitional goodwill impairment test six
months from the date of adoption. The
Company is also required to reassess the
useful lives of other intangible assets
within the first interim quarter after
adoption of SFAS 142.
The Company's previous business
combinations were accounted for using the
purchase method. As of June 28, 2002, the
net carrying amount of goodwill for
acquisitions prior to July 1, 2001 is
$164,100 and other intangible assets are
$600. Amortization expense during the year
ended June 28, 2002 was $15,500 related to
those acquisitions. The acquisition of the
Swan garden hose division of Mark IV
Industries, Inc. was accounted for as a
purchase. The acquisition resulted in
customer lists and goodwill of $3,900 and
$36,200, respectively. In accordance with
SFAS 142, the Swan goodwill is not being
amortized. Amortization of customer lists
was approximately $600 for the year ended
June 28, 2002. 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.
F-12
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
In August 2001, the FASB issued FASB
Statement No. 144, Accounting for the
Impairment of 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 supercedes 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 is
currently assessing the impact SFAS 144
will have on its financial position and
results of operations.
In July 2002, the FASB issued SFAS No.
146, Accounting for Restructuring Costs.
SFAS 146 applies to costs associated with
an exit activity (including restructuring)
or with a disposal of long-lived assets.
Those activities can include eliminating
or reducing product lines, terminating
employees and contracts and relocating
plant facilities or personnel. Under SFAS
146, a company will record a liability for
a cost associated with an exit or disposal
activity when that liability is incurred
and can be measured at fair value.
F-13
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
SFAS 146 will require a company to
disclose information about its exit and
disposal activities, the related costs,
and changes in those costs in the notes to
the interim and annual financial
statements that include the period in
which an exit activity is initiated and in
any subsequent period until the activity
is completed. SFAS 146 is effective
prospectively for exit or disposal
activities initiated after December 31,
2002, with earlier adoption encouraged.
Under SFAS 146, a company cannot restate
its previously issued financial statements
and the new Statement grandfathers the
accounting for liabilities that a company
had previously recorded under Emerging
Issues Task Force Issue 94-3.
2. RECAPITALIZATION In June 2000, the Company entered into a
Recapitalization (the "Recapitalization")
with certain of its stockholders, whereby
the Company purchased approximately 51% of
the outstanding stock for approximately
$220,500 including related transaction
fees. This stock has been reflected as
treasury stock in the accompanying balance
sheet.
As a result of provisions in the Company's
Senior Debt and Subordinated Note
Agreements, the Company redeemed it's
$200,000 9-1/4% Senior Subordinated Notes,
its $75,000 11-1/4% Senior Subordinated
Notes and repaid its Senior Debt in the
amount of approximately $153,000. These
transactions resulted in an extraordinary
loss on the extinguishment of debt of
approximately $35,374. The extraordinary
loss is comprised of prepayment penalties
and other interest costs of $39,303, the
write-off of deferred financing costs of
$16,696 and other fees of $1,325, net of a
tax benefit of $21,950.
These transactions were funded by $43,101
of new equity, $275,000 12-3/4% Senior
Subordinated Notes (see Note 7(b)) and
initial borrowings of $374,000 on a
$444,000 Senior Credit Facility (see Note
7(a)).
F-14
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
3. ACQUISITIONS In October 2001, the Company purchased
certain assets and assumed certain
liabilities of Swan for approximately
$63,600. The acquisition was recorded
under the purchase method, whereby Swan's
net assets were recorded at estimated fair
value and its operations have been
reflected in the statement of operations
since that date. The allocation of the
purchase price was follows:
Assets:
Accounts receivable $ 7,184
Inventory 15,600
Deferred taxes 4,350
Fixed Assets 17,568
Customer lists 3,900
Goodwill 36,228
------
Total Assets 84,830
Liabilities:
Accounts payable and accrued expenses 11,230
Integration reserve 10,000
------
Net Investment $63,600
=======
The components of the Integration reserve
and activity through June 28, 2002 is as
follows:
Cost charged to Balance
October 2001 reserve June 28, 2002
------------ ------- -------------
Cost to close duplicate facilities $ 3,500 $1,340 $2,160
Reduction in personnel and related costs 2,100 718 1,382
Legal and environmental 1,275 40 1,245
Manufacturing reconfiguration 1,455 175 1,275
Other 1,670 972 698
----- --- ---
$10,000 $3,245 $6,755
======= ====== ======
F-15
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
The remaining personnel related costs will
be paid over the next four-six months,
lease payments on duplicate warehouse
facilities will extend over the next two
years and the manufacturing
reconfiguration is expected to be
completed during the next year.
The following table represents the
unaudited proforma results of operations
as though the acquisition of Swan occurred
on July 1, 2000. Since Swan was purchased
subsequent to July 1, 2001, no
amortization of goodwill has been
reflected for the years ended June 28,
2002 or June 29, 2001 in accordance with
SFAS 142.
Year ended June Year ended June
28, 2002 29, 2001
-------- --------
Net sales $589,045 $602,593
Income from operations 75,863 73,305
Loss before income taxes (2,895) (17,760)
====== =======
In November 2000, the Company purchased
certain assets of Super Plastics Division
("Super Plastics") of RCR International,
Inc., for approximately $10,200. The
acquisition was recorded under the
purchase method, whereby Super Plastics'
net assets were recorded at estimated fair
value and its operations have been
reflected in the statement of operations
since that date. As a result of the
acquisition, goodwill of approximately
$5,500 has been recorded, which is being
amortized over 15 years. In connection
with the acquisition, the Company
established a reserve of $2,600. The
reserve was comprised of the costs to
close a duplicate facility and terminate
employees. There was no balance remaining
in this reserve at June 29, 2001.
4. INVENTORIES Inventories are summarized as follows:
JUNE 28, 2002 June 29, 2001
------------- -------------
Raw materials $ 37,727 $ 33,971
Work-in-process 8,621 7,812
Finished goods 71,284 64,475
------ ------
$117,632 $106,258
======== ========
F-16
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
5. PROPERTY, PLANT AND Property, plant and equipment consists of
EQUIPMENT the following:
Estimated
JUNE 28, 2002 June 29, 2001 useful lives
------------- ------------- ------------
Land $ 21,256 $ 15,390
Building and improvements 47,383 34,886 30-40 years
Machinery and equipment 163,909 139,591 5 - 10 years
Furniture and fixtures 7,125 6,176 5 - 10 years
Construction in progress 8,663 10,115
-------- --------
248,336 206,158
Less: Accumulated depreciation 90,218 69,150
-------- --------
$158,118 $137,008
======== ========
F-17
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
6. INTANGIBLE ASSETS Intangible assets consist of the following:
JUNE 28, 2002 June 29, 2001
------------- -------------
Goodwill $ 278,006 $ 241,311
Customer lists 3,900 -
Patents 745 576
--------- ---------
282,651 241,887
Less: Accumulated amortization 78,399 62,271
--------- ---------
$204,252 $179,616
======== ========
7. LONG-TERM DEBT Long-term debt consists of the following:
JUNE 28, 2002 June 29, 2001
------------- -------------
Senior Debt (a):
Revolving line of credit $ 46,000 $ 65,000
Term notes 329,120 336,560
Senior Subordinated Notes issued June 21,
2000 at 12-3/4%, due June 15, 2010 (less
unamortized discount of
$3,015 and $3,391) (b). 271,985 271,609
Senior Subordinated Notes issued May 2002
at 12-3/4%, due June 15, 2010 (less
unamortized premium of $588)
(b). 40,588 -
Other, primarily foreign term loans,
with interest rates ranging from
4.44% to 5.44% and maturities from
2003 to 2010. 5,128 4,981
--------- ---------
692,821 678,150
Less: Current maturities 13,407 8,072
--------- ---------
$ 679,414 $ 670,078
========= =========
F-18
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
a) Senior Debt
The Company has a Senior Debt agreement,
which includes a $100,000 revolving credit
agreement, and two term loans in the
original aggregate amount of $344,000. The
proceeds of the credit agreement were used
as part of the Recapitalization (Note 2).
These loans are senior to all other
indebtedness and are collateralized by
substantially all the assets of the Company.
The debt agreement includes various
covenants including compliance with
customary financial ratios. The Company is
in compliance with all such financial
covenants.
Revolving Credit Agreement
Borrowings under the agreement may be used
for general corporate purposes with $54,000
of additional borrowings available at June
28, 2002. Interest, at the Company's option,
is charged at the Prime Rate, plus the
Applicable Base Rate Margin (initially 2%)
or the Adjusted LIBOR Rate, as defined, plus
the Applicable Euro-Dollar Margin (initially
3%). The Applicable Base Rate Margin and
Applicable Euro-Dollar Margin can be reduced
by up to 1.25 % based on the maintenance of
certain leverage ratios. At June 28, 2002
the balance of $46,000 outstanding was
borrowed at 4.875% At June 29, 2001, the
rates charged were at various rates ranging
from 6.754% to 8.75%. The Revolving Credit
Agreement expires in June 2006.
Term Loan A
Borrowings under this loan, in the original
amount of $100,000, were used in connection
with the Recapitalization. Interest is
payable quarterly at the same rates and
margins discussed above under the Revolving
Credit Agreement, 5.0% and 7.5% at June 28,
2002 and June 29, 2001, respectively.
Principal is currently payable in quarterly
installments of $1,250. The quarterly
installments subsequently increase with
payments totaling $70,000 due in the final
two years in the period ending in June 2006.
F-19
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
Term Loan B
Borrowings under this loan in the original
amount of $244,000 were used in connection
with the Recapitalization. Interest is
payable quarterly at the same rate discussed
above, except the Applicable Base Rate
Margin is initially 2.5% and the Applicable
Euro-Dollar Margin is initially 3.5%. Rates
of 5.5% and 7.25% were charged at June 28,
2002 and June 29, 2001, respectively. In
addition, the Applicable Base Rate and
Applicable Euro-Dollar Margin can be reduced
by .5% based on the maintenance of certain
leverage ratios. Principal is currently
payable in quarterly installments of $610.
The quarterly installments subsequently
increase with payments totaling $229,000 due
in the final two years in the period ending
in June 2008.
b) Senior Subordinated Notes Issued June 2000
and May 2002
In June 2000, the Company issued $275,000 of
12-3/4% ten year Senior Subordinated Notes
less a discount of $3,768, the proceeds of
which were used in connection with the
Recapitalization. The discount is being
amortized over the term of the notes on the
interest method. Interest is payable
semi-annually and the notes are unsecured
obligations and rank subordinate to existing
and future senior debt, including current
term loans and revolving credit facilities.
The notes are callable by the Company after
June 15, 2005 at a premium of 6.375%, which
decreases to par after June 2008. In
addition, prior to June 15, 2003, the
Company may call up to 35% of the principal
amount of the notes outstanding with
proceeds from one or more public offerings
of the Company's Capital Stock at a premium
of 12.75%. Upon a change in control, the
Company is required to make an offer to
repurchase the notes at 101% of the
principal amount. These notes also contain
various covenants including a limitation on
future indebtedness; limitation of payments,
including prohibiting the payment of
dividends; and limitations on mergers,
consolidations and the sale of assets.
F-20
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
On May 6, 2002, the Company issued an
additional $40,000 of 12-3/4% Senior
Subordinated Notes plus a premium of $600,
the proceeds of which were used to repay
borrowings under the revolving credit
facility. The premium is being amortized
over the term of the notes on the interest
method. These notes have the same terms and
maturity as the June 2000 notes discussed
above.
Principal payments on long-term debt over
the next five years and thereafter are as
follows:
2003 $ 13,407
2004 12,915
2005 37,915
2006 83,915
2007 114,975
Thereafter 432,121
===============================================
The Company believes the recorded value of
long-term debt approximates fair value based
on current rates available to the Company
for similar debt.
F-21
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
8. INCOME TAXES The provision for income taxes, excluding
the income tax benefit associated with the
extraordinary item in 2000, is summarized as
follows:
JUNE 28, June 29, June 30,
Years ended 2002 2001 2000
-------- -------- --------
Current:
Federal $ 259 $ -- $ 7,763
Foreign 2,180 3,984 3,554
State and local 2,004 114 1,016
-------- -------- --------
4,443 4,098 12,333
-------- -------- --------
Deferred:
Federal 474 (9,945) 1,756
Foreign 676 (370) 217
State and local 84 (852) 130
-------- -------- --------
1,234 (11,167) 2,103
-------- -------- --------
Provision (benefit) for income
taxes $ 5,677 $ (7,069) $ 14,436
======== ======== ========
The components of income (loss) before
income taxes are as follows:
JUNE 28, June 29, June 30,
Years ended 2002 2001 2000
------- -------- -------
Domestic $(6,739) $(38,116) $20,150
Foreign 5,829 12,053 8,692
------- -------- -------
$ (910) $(26,063) $28,842
======= ======== =======
F-22
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
The provision (benefit) for income taxes
differs from the amounts computed by
applying the applicable Federal statutory
rates due to the following:
JUNE 28, June 29, June 30,
Years ended 2002 2001 2000
------- ------- --------
Provision (benefit) for Federal
income taxes at statutory rate $ (309) $(8,861) $ 9,806
State and local income taxes, net
of Federal benefit 1,427 (677) 756
Non-deductible goodwill
amortization 3,647 2,785 2,310
Foreign tax rates in excess of
Federal tax rate 874 (470) 785
Other, net 38 154 779
------- ------- --------
Provision (benefit) for income
taxes $ 5,677 $(7,069) $ 14,436
======= ======= ========
Significant components of the Company's
deferred tax assets and liabilities are as
follows:
JUNE 28, June 29,
2002 2001
-------- --------
Current deferred taxes:
Allowance for doubtful accounts $ 1,309 $ 582
Inventory 1,928 1,190
Net operating loss carryforwards 1,402 3,201
Accrued expenses 2,833 180
-------- --------
Total current deferred tax assets $ 7,472 $ 5,153
======== ========
Long-term deferred taxes:
Net operating loss carryforwards $ 29,836 $ 39,593
Accrued pension and post-retirement 1,365 1,457
Unrealized loss on derivative contracts 8,254 5,360
Unrealized loss of pension plan 1,890 --
Difference in book vs. tax basis of assets (1,500) (3,028)
Accelerated tax vs. book depreciation (18,419) (19,292)
Other expenses 652 620
-------- --------
Total long-term net deferred tax assets 22,078 24,710
Valuation allowance (5,800) (5,700)
-------- --------
Total long-term net deferred tax assets $ 16,278 $ 19,010
======== ========
F-23
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
Net Operating Losses
The Company and its U.S. subsidiaries file a
consolidated tax return. The Company and its
U.S. subsidiaries have net operating loss
("NOL") carryforwards of approximately
$81,369. These NOL's expire at various dates
from 2009 through 2021. Approximately
$80,000 of the NOL's are as a result of the
acquisition of PureTec in 1997 (the "PureTec
NOL's"). The PureTec NOL's are subject to
IRC Section 382 change of ownership annual
limitation of approximately $5,900.
The Company and its U.S. subsidiaries would
need to realize taxable income of not less
than $15,000 through to 2009, and not less
than $80,000 through 2013 in order to fully
realize the benefit of the NOL
carryforwards. The net long-term domestic
deferred tax assets have been subjected to a
valuation allowance of $5,000 since
management believes it is more likely than
not that a portion of the NOL balance will
not be realized as a result of the various
limitations on their usage, discussed above.
In addition to the domestic NOL balances,
the Company has incurred losses relating to
a subsidiary, taxable in Northern Ireland.
Through fiscal 2002 losses aggregated $2,500
which have no expiration date. The Company
believes that it is more likely than not
that this deferred tax asset will not be
realized and has recorded a full valuation
allowance on these amounts.
9. EMPLOYEE BENEFIT (a) Savings Plans
PLANS
i. The Company maintains a
discretionary 401(k) plan
covering all eligible employees
with at least one year of service
Contributions to the plan were
determined annually by the Board
of Directors.
F-24
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
The Company will determine
matching contributions to the
plan each year not to exceed 2%
of the employee's eligible
compensation. Contributions for
the fiscal years ended June 28,
2002, June 29, 2001 and June 30,
2000 amounted to approximately
$1,130, $863 and $996,
respectively.
(b) Pension Plans
i. The Company's Burlington
subsidiary has a non-contributory
defined benefit pension plan that
covers substantially all hourly
compensated employees covered by
a collective bargaining agreement,
who have completed one year of
service. The funding policy of the
Company is to make contributions
to this plan based on actuarial
computations of the minimum
required contribution for the plan
year.
The components of net periodic pension
costs are as follows:
YEAR ENDED Year ended Year ended
JUNE 28, 2002 June 29, 2001 June 30, 2000
------------- ------------- -------------
Service cost $ 105 $ 105 $ 117
Interest cost on projected
benefit obligation 400 393 390
Expected actual return on plan
assets (494) (494) (492)
------- ------- -------
Net pension cost $ 11 $ 4 $ 15
======= ======= =======
CHANGE IN PROJECTED BENEFIT
OBLIGATION
Projected benefit obligation,
beginning of period $ 5,600 $ 5,334
Service cost 105 105
Interest cost 400 393
Plan amendments 111 --
Actuarial loss 145 38
Benefits paid (327) (270)
------- -------
Projected benefit obligation,
end of period $ 6,034 $ 5,600
======= =======
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of period $ 5,440 $ 5,550
Actual return on plan assets (179) 3
Company contributions 233 157
F-25
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
YEAR ENDED Year ended
JUNE 28, 2002 June 29, 2001
------------- -------------
Benefits paid (327) (270)
------- -------
Plan assets at fair value, end
of period $ 5,167 $ 5,440
======= =======
F-26
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
================================================================================
The funded status of the Plan and amounts
recorded in the Company's balance sheets are
as follows:
JUNE 28, June 29,
2002 2001
------- -----
Funded status of the plan $ (867) $(160)
Unrecognized prior service cost 111 -
Unrecognized net loss 1,494 676
------- -----
Prepaid pension cost $ 738 $ 516
======= =====
The expected long-term rate of return on
plan assets was 9% for the periods presented
and the discount rate was 7.0% and 7-1/2% at
June 28, 2002 and June 29, 2001.
During 2002, the Company recorded an
unrecognized pension liability of $1,494 as
an accumulated other comprehensive loss
adjustment to stockholders' equity. This
amount represents a portion of the
unrecognized net actuarial loss for the year
ending June 28, 2002 as a result of
investment return less than the actuarial
assumption.
ii. The Company maintains a non-contributory
defined benefit pension plan that covers
substantially all non-collective bargaining
unit employees of PST and Burlington, who
have completed one year of service and are
not participants in any other pension plan.
The funding policy of the Company is to make
contributions to the plan based on actuarial
computations of the minimum required
contribution for the plan year. On September
8, 1998, the Company approved a plan to
freeze this defined benefit pension plan
effective September 30, 1998.
F-27
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
YEAR ENDED Year ended Year ended
JUNE 28, 2002 June 29, 2001 June 30, 2000
------------- ------------- -------------
Service cost $ -- $ -- $ --
Interest cost on
projected benefit
obligation 787 750 704
Expected actual return
on plan assets (931) (978) (986)
---------- ---------- ----------
Net pension cost $ (144) $ (228) $ (282)
========== ========== ==========
YEAR ENDED Year ended
JUNE 28, 2002 June 29, 2001
------------- -------------
CHANGE IN PROJECTED
BENEFIT OBLIGATION
Projected benefit obligation,
beginning of period $ 10,501 $ 9,978
Interest cost 762 750
Actuarial loss 525 204
Benefits paid (514) (431)
---------- ----------
Projected benefit obligation,
end of period $ 11,274 $ 10,501
========== ==========
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of period $ 10,545 $ 11,055
Actual return on plan assets (492) (79)
Benefits paid (514) (431)
---------- ----------
Plan assets at fair value,
end of period $ 9,539 $ 10,545
========== ==========
F-28
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The funded status of the Plan and amounts recorded
in the Company's balance sheets are as follows:
JUNE 28, June 29,
2002 2001
-------- --------
Funded status of the plan $ (1,735) $ 44
Unrecognized net loss 3,480 1,557
-------- --------
Prepaid pension cost $ 1,745 $ 1,601
======== ========
The expected long-term rate of return on plan
assets was 9% for the periods presented and the
discount rate was 7.0% and 7-1/2% at June 28, 2002
and June 29,2001.
During 2002, the Company recorded an unrecognized
pension liability of $3,480 as an accumulated
other comprehensive loss adjustment to
stockholders' equity. This amount represents a
portion of the unrecognized net actuarial loss for
the year ending June 28, 2002 as a result of
investment return less than the actuarial
assumption.
iii. The Company also has a defined benefit pension
plan for the benefit of all employees having
completed one year of service with Dolco. The
Company's policy is to fund the minimum amounts
required by applicable regulations. Dolco's Board
of Directors approved a plan to freeze the pension
plan on June 30, 1987, at which time benefits
ceased to accrue. The Company has not been
required to contribute to the plan since 1990.
F-29
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
(c) Post-retirement Benefits
In addition to providing pension benefits, the
Company also sponsors the Burlington Retiree
Welfare Plan, which provides certain healthcare
benefits for retired employees of the Burlington
division who were employed on an hourly basis,
covered under a collective bargaining agreement
and retired prior to July 31, 1997. Those
employees and their families became eligible for
these benefits after the employee completed five
years of service, if retiring at age fifty-five,
or at age sixty-five, the normal retirement age.
Post retirement healthcare benefits paid for the
years ended June 28, 2002, June 29, 2001 and June
30, 2000 amounted to $177, $182 and $130,
respectively.
F-30
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Net periodic post-retirement benefit costs are as
follows:
YEAR ENDED Year ended Year ended
JUNE 28, June 29, June 30,
2002 2001 2000
---------- ---------- ----------
Service cost $ 55 $ 45 $ 45
Interest cost 206 179 155
Transition obligation 34 4 --
---------- ---------- ----------
Net post-retirement
benefit cost $ 295 $ 228 $ 200
========== ========== ==========
CHANGE IN PROJECTED
BENEFIT OBLIGATION
Projected benefit
obligation, beginning
of period $ 2,847 $ 2,457
Service cost 55 45
Interest cost 206 179
Actuarial loss 690 348
Benefits paid (177) (182)
---------- ----------
Projected benefit
obligation, end of
period $ 3,621 $ 2,847
========== ==========
CHANGE IN PLAN ASSETS
Plan assets at fair
value, beginning of
period $ -- $ --
Company contributions 177 182
Benefits paid (177) (182)
---------- ----------
Plan assets at fair
value, end of period $ -- $ --
========== ==========
F-31
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The funded status of the Plan and amounts recorded
in the Company's balance sheets are as follows:
YEAR ENDED Year ended
JUNE 28, June 29,
2002 2001
---------- ----------
Funded status of the plan $ (3,621) $ (2,847)
Unrecognized loss 1,286 630
---------- ----------
Accrued post retirement cost $ (2,335) $ (2,217)
========== ==========
The accumulated post-retirement benefit obligation
was deter-mined using a 7.0% and 7-1/2% discount
rate for the periods presented. The healthcare
cost trend rate for medical benefits was assumed
to be 6%. The healthcare cost trend rate
assumption has a significant effect on the amounts
reported. A 1% increase in healthcare trend rate
would increase the accumulated post-retirement
benefit obligation by $282 and $295 and increase
the service and interest components by $24 and $27
at June 28, 2002 and June 29, 2001, respectively.
10. RELATED PARTY The Company had a management consulting agreement with
TRANSACTIONS an affiliate of a stockholder. The terms of the
agreement required the Company to pay a fee of
approximately $30 per month for a period of ten years,
with certain renewal provisions. Consulting service fees
were approximately $400 for the year ending July 2,
1999. In June 2000 the Company agreed to terminate the
management consulting agreement at a cost of $3,651
which has been included in other income/expense.
F-32
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
11. STOCK OPTIONS In January 1998, the Company adopted an incentive stock
plan (the "Stock Incentive Plan"). Under the Stock
Incentive Plan, 45.75206 shares are available for awards
to employees of the Company. Options will be granted at
fair market value on the date of grant. During 2001,
2000, 1999 and 1998, options were granted to purchase
4.02, 1.27, 7.52 and 30.65 shares of common stock at
weighted-average exercise prices of $559, $508, $270 and
$154 per share, respectively. The options are subject to
vesting provisions, as determined by the Board of
Directors, and generally vest 100% five years from grant
date and expire 10 years from date of grant. In
connection with the Recapitalization 25.16363 of the
1998 options were cancelled.
At June 28, 2002, no options were exercisable and no
options have been exercised or forfeited as of June 28,
2002.
The Company applies APB Opinion 25 and related
interpretations in accounting for these options.
Accordingly, no compensation cost has been recognized.
Had compensation cost been determined based on the fair
value at the grant dates for these awards consistent
with the method of SFAS Statement 123, the Company's
income (loss) before extraordinary items would have been
reduced (increased) to the pro forma amounts indicated
below. The calculations were based on a risk free
interest rate of 4.0% and 5.7% for the 2001 and 2000
options, respectively, expected volatility of zero, a
dividend yield of zero and expected lives of 8 years.
Years ended JUNE 28, 2002 June 29, 2001 June 30, 2000
- --------------------- ------------- ------------- -------------
Income (loss) before
extraordinary item:
As reported $ (6,587) $ (18,994) $ 14,406
========== ========== ==========
Pro forma $ (6,725) $ (19,093) $ 14,343
========== ========== ==========
F-33
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
12. COMMITMENTS AND Commitments
CONTINGENCIES
(a) The Company leases building space and certain
equipment in approximately 20 locations throughout
the United States, Canada and Europe. At June 28,
2002, the Company's future minimum lease payments
are as follows:
2003 $ 7,921
2004 5,698
2005 4,278
2006 4,132
2007 4,000
Thereafter 14,703
--------
$ 40,732
========
Rent expense, including escalation charges,
amounted to approximately $6,665, $5,308 and
$4,427 for the years ended June 28, 2002 and June
29, 2001 and June 30, 2000, respectively.
(b) The Company has employment contracts with two
employees, providing minimum salaries of $7,500
with no mandatory bonuses. The salaries will
increase 10% annually until the agreements expire
on July 1, 2005. Salaries and bonuses for the
years ended June 28, 2002, June 29, 2001 and June
30, 2000 amounted to $8,250, $7,500 and $8,733.
Contingencies
(a) 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, results of operations or cash flows.
13. CONCENTRATIONS Financial instruments that potentially subject the
OF CREDIT RISKS Company to significant concentrations of credit risk
consist principally of cash deposits and trade accounts
receivable.
F-34
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company provides credit to customers on an unsecured
basis after evaluating customer credit worthiness. Since
the Company sells to a broad range of customers,
concentrations of credit risk are limited. The Company
provides an allowance for bad debts where there is a
possibility for loss.
The Company maintains demand deposits at several major
banks throughout the United States Canada and Europe. As
part of its cash management process, the Company
periodically reviews the credit standing of these banks.
14. SUPPLEMENTAL (a) Cash Paid
CASH FLOW
INFORMATION
JUNE 28, June 29, June 30,
Years ended 2002 2001 2000
-------- -------- --------
Interest $ 65,831 $ 74,568 $102,359
======== ======== ========
Income taxes $ 2,771 $ 1,661 $ 7,540
======== ======== ========
(b) Non-Cash Financing and Investing Activities
The Company purchased certain assets of Swan
effective October 2001, for approximately $63,600
in cash. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 48,602
Goodwill 36,228
Purchase price (63,600)
--------
Liabilities assumed $ 21,230
========
F-35
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company purchased certain assets of RCR
International, Inc. effective November 2000, for
approximately $10,226 in cash. In conjunction with
the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired $ 7,314
Goodwill 5,558
Purchase price (10,226)
--------
Liabilities assumed $ 2,646
========
15. SEGMENT Tekni-Plex has reorganized its business into two
INFORMATION industry segments: Industrial Packaging, Products, and
Materials and Consumer Packing 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.
F-36
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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 and
Year end June 28, 2002 Materials Products TOTALS
- ------------------------------------- ---------- ---------- ----------
Revenues from external customers $ 317,664 $ 260,085 $ 577,749
Interest expense 48,409 22,525 70,934
Depreciation and amortization 25,421 13,395 38,816
Segment income from operations 45,593 49,108 94,701
Segment assets 314,967 372,591 687,558
Expenditures for segment fixed assets 10,539 6,347 16,886
========== ========== ==========
Industrial
Packaging, Consumer
Products Packaging
and and
Year end June 29, 2001 Materials Products TOTALS
- ------------------------------------- ---------- ---------- ----------
Revenues from external customers $ 323,799 $ 202,038 $ 525,837
Interest expense 52,925 23,644 76,569
Depreciation and amortization 23,891 13,501 37,392
Segment income from operations 40,706 36,914 77,620
Segment assets 333,570 270,731 604,301
Expenditures for segment fixed assets 9,069 8,047 17,116
========== ========== ==========
Industrial
Packaging, Consumer
Products Packaging
and and
Year end June 30, 2000 Materials Products TOTALS
- ------------------------------------- ---------- ---------- ----------
Revenues from external customers $ 328,881 $ 195,936 $ 524,817
Interest expense 25,910 12,537 38,447
Depreciation and amortization 22,222 12,316 34,538
Segment income from operations 49,205 35,491 84,696
Segment assets 333,306 220,576 553,882
Expenditures for segment fixed assets 12,246 4,012 16,258
========== ========== ==========
F-37
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
JUNE 28, 2002 June 29, 2001 June 30, 2000
------------- ------------- -------------
PROFIT OR LOSS
Total operating profit for
reportable segments before
income taxes $ 94,701 $ 77,620 $ 84,696
Corporate and eliminations (16,853) (12,618) (12,702)
------------ ------------ ------------
$ 77,848 $ 65,002 $ 71,994
============ ============ ============
ASSETS
Total assets from reportable
segments $ 687,558 $ 604,301 $ 553,882
Other unallocated amounts 12,595 17,193 20,907
------------ ------------ ------------
Consolidated total $ 700,153 $ 621,494 $ 574,789
============ ============ ============
DEPRECIATION AND AMORTIZATION
Segment totals $ 38,816 $ 37,392 $ 34,538
Corporate 1,047 278 210
------------ ------------ ------------
Consolidated total $ 39,863 $ 37,670 $ 34,748
============ ============ ============
REVENUES
GEOGRAPHIC INFORMATION
United States $ 516,873 $ 466,804 $ 477,489
Foreign 60,876 59,033 47,328
------------ ------------ ------------
Total $ 577,749 $ 525,837 $ 524,817
============ ============ ============
LONG-LIVED ASSETS
GEOGRAPHIC INFORMATION
United States $ 360,929 $ 307,328 $ 323,691
Foreign 44,250 42,308 29,250
------------ ------------ ------------
Total $ 405,179 $ 349,636 $ 352,941
============ ============ ============
Income from operations is total net sales less cost of
goods sold and operating expenses of each segment before
deductions for general corporate expenses not directly
related to an individual segment and interest.
Identifiable assets by industry are those assets that
are used in the Company's operation in each industry
segment, including assigned value of goodwill. Corporate
identifiable assets consist primarily of cash, prepaid
expenses, deferred income taxes and fixed assets.
F-38
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
For the year ended June 28, 2002, no single customer
represented at least 10% of sales nor did any customer
represent at least 10% of accounts receivable at June
28, 2002.
No customer represented 10% or more of total sales
during the year ended June 29, 2001 and one customer
represented 10% of sales during the year ended June 30,
2000.
16. SUPPLEMENTAL Tekni-Plex, Inc. issued 12-3/4% Senior Subordinated
CONDENSED Notes in June 2000 and May 2002. These notes are
CONSOLIDATING guaranteed by all domestic subsidiaries of Tekni-Plex.
FINANCIAL The guarantor subsidiaries are 100% owned by the issuer.
STATEMENTS The guaranties are full and unconditional and joint and
several. There are no restrictions on the transfer of
funds from guarantor subsidiaries to the issuer. The
following condensed consolidating financial statements
present separate information for Tekni-Plex (the
"Issuer") and its domestic subsidiaries (the
"Guarantors") and the foreign subsidiaries (the
"Non-Guarantors").
F-39
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Statement of Operations - For
the year ended June 28, 2002
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Sales, net $ 160,252 $ 356,621 $ 60,876 $ 577,749
Cost of sales 116,130 270,380 43,947 430,457
---------- ---------- ---------- ----------
Gross profit 44,122 86,241 16,929 147,292
Selling, general and
administrative 39,610 23,464 6,370 69,444
---------- ---------- ---------- ----------
Income from operations 4,512 62,777 10,559 77,848
Interest expense, net 70,881 (101) 154 70,934
Unrealized loss on
derivative contract 7,830 -- -- 7,830
Other expense (income) (756) (1,155) 1,905 (6)
---------- ---------- ---------- ----------
Income (loss) before
provision for income taxes (73,443) 64,033 8,500 (910)
Provision (benefit) for
income taxes (25,979) 28,597 3,059 5,677
---------- ---------- ---------- ----------
Net income (loss) $ (47,464) $ 35,436 $ 5,441 $ (6,587)
========== ========== ========== ==========
F-40
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheet - at June 28, 2002
Non-
Issuer Guarantors Guarantors Eliminations TOTAL
---------- ---------- ---------- ------------ ----------
CURRENT ASSETS $ 44,828 $ 209,798 $ 51,458 $ -- $ 306,084
Property, plant and
equipment, net 41,704 95,366 21,048 -- 158,118
Intangible assets 7,907 184,093 12,252 -- 204,252
Investment in
subsidiaries 498,518 -- -- (498,518) --
Deferred financing
costs, net 14,134 -- 209 -- 14,343
Deferred taxes 20,177 -- (3,899) -- 16,278
Other long-term assets 74,008 236,444 12,094 (321,468) 1,078
---------- ---------- ---------- ------------ ----------
TOTAL ASSETS $ 701,276 $ 725,701 $ 93,162 $ (819,986) $ 700,153
========== ========== ========== ============ ==========
CURRENT LIABILITIES
$ 29,889 $ 38,715 $ 20,561 $ -- $ 89,165
Long-term debt 675,253 -- 4,161 -- 679,414
Other long-term
liabilities 79,193 230,166 34,794 (321,468) 22,685
---------- ---------- ---------- ------------ ----------
TOTAL LIABILITIES 784,335 268,881 59,516 (321,468) 791,264
---------- ---------- ---------- ------------ ----------
Additional paid-in
capital 170,156 296,784 15,656 (312,420) 170,176
Retained earnings
(accumulated deficit) (32,692) 163,121 21,710 (186,098) (33,959)
Accumulated other
comprehensive loss -- (3,085) (3,720) -- (6,805)
Treasury stock (220,523) -- -- -- (220,523)
---------- ---------- ---------- ------------ ----------
TOTAL STOCKHOLDERS'
DEFICIT (83,059) 456,820 33,646 (498,518) (91,111)
---------- ---------- ---------- ------------ ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
DEFICIT $ 701,276 $ 725,701 $ 93,162 $ (819,986) $ 700,153
========== ========== ========== ============ ==========
F-41
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Cash Flows - For the year ended
June 28, 2002
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities: $ (31,450) $ 35,167 $ 4,205 $ 7,922
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Acquisitions -- (63,624) -- (63,624)
Capital expenditures (11,147) (11,421) (2,085) (24,653)
Additions to intangibles (169) -- -- (169)
---------- ---------- ---------- ----------
Net cash used in investing
activities (11,316) (75,045) (2,085) (88,446)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayment)
under line of credit (19,000) -- -- (19,000)
Proceeds from long-term debt 40,600 -- 147 40,747
Repayment of long-term debt (7,440) -- -- (7,440)
Proceeds from capital
contribution 50,000 -- -- 50,000
Deferred financing costs (154) -- -- (154)
Purchase of Treasury Stock (61) -- -- (61)
Change in intercompany accounts (45,034) 45,217 (183) --
---------- ---------- ---------- ----------
Net cash provided by financing
activities 18,911 45,217 (36) 64,092
---------- ---------- ---------- ----------
Effect of exchange rate changes
on cash -- -- (14) (14)
---------- ---------- ---------- ----------
Net increase (decrease) in cash (23,855) 5,339 2,070 (16,446)
Cash, beginning of period 32,890 5,321 6,434 44,645
---------- ---------- ---------- ----------
Cash, end of period $ 9,035 $ 10,660 $ 8,504 $ 28,199
========== ========== ========== ==========
F-42
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Statement of Operations - For
the year ended June 29, 2001
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Sales, net $ 161,854 $ 304,950 $ 59,033 $ 525,837
Cost of sales 121,521 236,723 41,592 399,836
---------- ---------- ---------- ----------
Gross profit 40,333 68,227 17,441 126,001
Selling, general and
administrative 38,295 17,320 5,384 60,999
---------- ---------- ---------- ----------
Income from operations 2,038 50,907 12,057 65,002
Interest expense, net 76,958 (318) (71) 76,569
Unrealized loss on
derivative contract 13,891 -- -- 13,891
Other expense (income) (1,119) 1,063 661 605
---------- ---------- ---------- ----------
Income (loss) before
provision (benefit) for
income taxes (87,692) 50,162 11,467 (26,063)
Provision (benefit) for
income taxes (16,574) 6,626 2,879 (7,069)
---------- ---------- ---------- ----------
Net income (loss) $ (71,118) $ 43,536 $ 8,588 $ (18,994)
========== ========== ========== ==========
F-43
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Balance Sheet - At June 29, 2001
Non-
Issuer Guarantors Guarantors Eliminations TOTAL
---------- ---------- ---------- ------------ ----------
CURRENT ASSETS $ 80,305 $ 146,839 $ 39,823 $ -- $ 266,967
Property, plant and
equipment, net 38,788 79,517 18,703 -- 137,008
Intangible assets 13,208 153,960 12,448 -- 179,616
Investment in
subsidiaries 457,641 -- -- (457,641) --
Deferred financing
costs, net 16,607 -- -- -- 16,607
Deferred taxes 19,022 (12) -- -- 19,010
Other long-term assets 28,577 261,520 12,510 (300,321) 2,286
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $ 654,148 $ 641,824 $ 83,484 $ (757,962) $ 621,494
========== ========== ========== ========== ==========
CURRENT LIABILITIES $ 22,370 $ 26,923 $ 18,545 $ -- $ 67,838
Long-term debt 665,729 -- 4,349 -- 670,078
Other long-term
liabilities 92,460 190,399 35,737 (300,321) 18,275
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 780,559 217,322 58,631 (300,321) 756,191
---------- ---------- ---------- ---------- ----------
Additional paid-in
capital 120,156 296,784 15,656 (312,420) 120,176
Retained earnings
(accumulated
deficit) (26,105) 127,685 16,269 (145,221) (27,372)
Accumulated other
comprehensive loss -- 33 (7,072) -- (7,039)
Treasury stock (220,462) -- -- -- (220,462)
---------- ---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS'
DEFICIT (126,411) 424,502 24,853 (457,641) (134,697)
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
DEFICIT $ 654,148 $ 641,824 $ 83,484 $ (757,962) $ 621,494
========== ========== ========== ========== ==========
F-44
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Statement of Cash Flows - For
the year ended June 29, 2001
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities: $ (47,908) $ 36,694 $ 7,948 $ (3,266)
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Acquisitions, net of cash
acquired -- (9,233) -- (9,233)
Capital expenditures (2,710) (11,208) (3,198) (17,116)
Additions to intangibles (322) (106) -- (428)
---------- ---------- ---------- ----------
Net cash used in investing
activities (3,032) (20,547) (3,198) (26,777)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayments)
under line of credit 35,000 -- -- 35,000
Repayments of long-term debt (7,400) -- (1,420) (8,820)
Proceeds from capital
contribution 36,000 -- -- 36,000
Change in intercompany accounts 14,592 (14,592) -- --
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 78,192 (14,592) (1,420) 62,180
---------- ---------- ---------- ----------
Effect of exchange rate changes
on cash -- -- (17) (17)
---------- ---------- ---------- ----------
Net increase in cash 27,252 1,555 3,313 32,120
Cash, beginning of period 5,638 3,766 3,121 12,525
---------- ---------- ---------- ----------
Cash, end of period $ 32,890 $ 5,321 $ 6,434 $ 44,645
========== ========== ========== ==========
F-45
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Statement of Operations - For
the year ended June 30, 2000
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Sales, net $ 151,587 $ 325,902 $ 47,328 $ 524,817
Cost of sales 110,272 251,512 32,696 394,480
---------- ---------- ---------- ----------
Gross profit 41,315 74,390 14,632 130,337
Selling, general and
administrative 37,991 16,042 4,310 58,343
---------- ---------- ---------- ----------
Income from operations 3,324 58,348 10,322 71,994
Interest expense, net 38,717 (280) 10 38,447
Other expense (income) 4,272 (1,187) 1,620 4,705
---------- ---------- ---------- ----------
Income (loss) before
provision for income
taxes and extraordinary
item (39,665) 59,815 8,692 28,842
Provision (benefit) for
income taxes (22,359) 33,211 3,584 14,436
---------- ---------- ---------- ----------
Income (loss) before
extraordinary item (17,306) 26,604 5,108 14,406
Extraordinary item (35,374) -- -- (35,374)
---------- ---------- ---------- ----------
Net income (loss) $ (52,680) $ 26,604 $ 5,108 $ (20,968)
========== ========== ========== ==========
F-46
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Condensed Consolidating Statement of Cash Flows - For
the year ended June 30, 2000
Non-
Issuer Guarantors Guarantors TOTAL
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities: $ (25,883) $ 29,834 $ 5,534 $ 9,485
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Capital expenditures (7,224) (6,747) (2,287) (16,258)
Additions to intangible (805) -- -- (805)
Cash proceeds from sale of
assets -- -- 158 158
---------- ---------- ---------- ----------
Net cash used in investing
activities (8,029) (6,747) (2,129) (16,905)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayments)
under line of credit (2,030) -- -- (2,030)
Proceeds from long-term debt 645,232 -- -- 645,232
Repayments of long-term debt (446,661) -- (1,970) (448,631)
Proceeds from capital
contribution 43,101 -- -- 43,101
Debt financing costs (18,897) -- -- (18,897)
Purchase of treasury stock (220,462) -- -- (220,462)
Change in intercompany accounts 34,880 (26,508) (8,372) --
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities 35,163 (26,508) (10,342) (1,687)
---------- ---------- ---------- ----------
Effect of exchange rate changes
on cash -- -- (485) (485)
---------- ---------- ---------- ----------
Net increase (decrease) in cash 1,251 (3,421) (7,422) (9,592)
Cash, beginning of period 4,387 7,187 10,543 22,117
---------- ---------- ---------- ----------
Cash, end of period $ 5,638 $ 3,766 $ 3,121 $ 12,525
========== ========== ========== ==========
F-47
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
17. SUBSEQUENT During July 2002, the Company acquired substantially all
EVENT the net assets of Elm Packaging Company for $16,400. Elm
produces polystyrene foam packaging products for the
food and foodservice industries.
18. QUARTERLY
RESULTS OF
OPERATIONS
(UNAUDITED)
First Second Third Fourth
2002 Quarter Quarter Quarter Quarter
---- --------- --------- --------- ---------
Net sales $ 115,164 $ 113,740 $ 153,393 $ 195,452
Gross profit 27,014 27,684 42,008 50,586
Income from
operations 11,838 11,075 23,479 31,456
Net income (loss) (9,453) 67 2,305 494
2001
Net sales $ 111,907 $ 105,873 $ 140,681 $ 167,376
Gross profit 22,422 24,123 36,785 42,671
Income from
operations 7,311 9,755 21,127 26,809
Net income (loss) (5,739) (12,136) (1,473) 354
========= ========= ======== ========
Fluctuations in net sales are due primarily to
seasonality in a number of product lines, particularly
garden hose and irrigation hose products.
F-48
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
The audits referred to in our report dated September 13, 2002 relating to the
consolidated financial statements of Tekni-Plex, Inc. and its subsidiaries (the
"Company"), included the audits of the financial statement schedule for the
years ended June 28, 2002, June 29, 2001 and June 30, 2000 listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
September 13, 2002
F-49
TEKNI-PLEX, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Balance at Charged to BALANCE AT
Beginning Costs and Deductions END OF
of Period Expenses(1) (2) PERIOD
---------- ---------- ---------- ----------
YEAR ENDED JUNE 30, 2000
Accounts receivable allowance $ 1,662 $ 310 $ 330 $ 1,642
========== ========== ========== ==========
YEAR ENDED JUNE 29, 2001
Accounts receivable allowance $ 1,642 $ 250 $ 392 $ 1,500
========== ========== ========== ==========
YEAR ENDED JUNE 28, 2002
Accounts receivable allowance $ 1,500 $ 484 $ 313 $ 1,671
========== ========== ========== ==========
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
F-50
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc.*
3.2 Amended and Restated By-laws of Tekni-Plex, Inc.*
3.3 Certificate of Incorporation of PureTec Corporation.*
3.4 By-laws of PureTec Corporation.*
3.5 Certificate of Incorporation of Tri-Seal Holdings, Inc.*
3.6 By-laws of Tri Seal Holdings, Inc.*
3.7 Certificate of Incorporation of Natvar Holdings, Inc.*
3.8 By-laws of Natvar Holdings.*
3.9 Certificate of Incorporation of Plastic Specialities and
Technologies, Inc.*
3.10 By-laws of Plastic Specialities and Technologies, Inc.*
3.11 Certificate of Incorporation of Plastic Specialities and
Technologies Investments, Inc.*
3.12 By-laws of Plastic Specialities and Technologies
Investments, Inc.*
3.13 Certificate of Incorporation of Burlington Resins, Inc.*
3.14 By-laws of Burlington Resins, Inc.*
3.15 Certificate of Incorporation of Pure Tech APR, Inc.*
3.16 By-laws of Pure Tech APR, Inc.*
3.17 Certificate of Incorporation of TPI Acquisition Subsidiary,
Inc.*
3.18 By-laws of TPI Acquisition Subsidiary, Inc.*
3.19 Certificate of Incorporation of Coast Recycling North, Inc.*
3.20 By-laws of Coast Recycling North, Inc.*
3.21 Certificate of Incorporation of Distributors Recycling,
Inc.*
3.22 By-laws of Distributors Recycling, Inc.*
3.23 Certificate of Incorporation of REI Distributors, Inc.*
3.24 By-laws of REI Distributors, Inc.*
3.25 Certificate of Incorporation of Pure Tech Recycling of
California.*
3.26 By-laws of Pure Tech Recycling of California.*
3.27 Certificate of Incorporation of Alumet Smelting Corp.*
3.28 By-laws of Alumet Smelting Corp.*
3.29 Certificate of Incorporation of TP/Elm Acquisition
Subsidiary, Inc.*
3.30 By-laws of TP/Elm Acquisition Subsidiary, Inc.*
4.1 Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc.,
the Guarantors listed therein and HSBC Bank USA, as
Trustee.*
4.2 First Supplemental Indenture, dated as of May 6, 2002 among
Tekni-Plex, Inc., TPI Acquisition Subsidiary, Inc. and HSBC
Bank USA, as Trustee*
4.3 Second Supplemental Indenture, dated as of August 22, 2002
among Tekni-Plex, Inc., TP/Elm Acquisition Subsidiary, Inc.
and HSBC Bank USA, as Trustee*
4.4 Senior Subordinated Note and Guarantee (original not
included; form of Note and Guarantee included in Exhibit
4.1).
4.5 Purchase Agreement, dated as of May 1, 2002 among
Tekni-Plex, Inc., the Guarantors listed therein, and Lehman
Brothers Inc.*
4.6 Registration Right Agreement, dated as of May 6, 2002 among
Tekni-Plex, Inc., the Guarantors listed therein and Lehman
Brothers Inc.*
- ---------------
* Filed previously as an Exhibit to the Form S-4 (File No. 333-43800) filed on
August 15, 2000.
** Filed herewith.