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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 333-28157
TEKNI-PLEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3286312
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
260 North Denton Tap Road (972) 304-5077
Coppell, TX 75019 (Registrant's telephone number)
(Address of principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
TEKNI-PLEX, INC.
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 27, 2002
and June 28, 2002 ....................................... 3
Consolidated Statements of Operations for the three
months ended September 27, 2002 and September 28, 2001 .... 4
Consolidated Statements of Comprehensive Loss for
the three months ended September 27, 2002 and
September 28, 2001 ...................................... 4
Consolidated Statements of Cash Flows for the three
months ended September 27, 2002 and September 28, 2001 .. 5
Notes to Consolidated Financial Statements ................ 6-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................. 14-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal proceedings .......................................... 15
Item 2. Changes in securities ...................................... 15
Item 3. Defaults upon senior securities ............................ 15
Item 4. Submission of matters to a vote of securities holders ...... 15
Item 5. Subsequent events .......................................... 15
Item 6. Exhibits and reports on Form 8-K ........................... 15
PART III. CERTIFICATION ................................................ 16-18
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 27, JUNE 28,
2002 2002
(UNAUDITED) (AUDITED)
------------- ----------
ASSETS
CURRENT:
Cash $ 28,099 $ 28,199
Accounts receivable, net of an
allowance for doubtful accounts of $2,675 and
$1,671 respectively 112,855 147,198
Inventories 129,831 117,632
Deferred taxes 9,752 7,472
Prepaid expenses and other current assets 9,363 5,583
--------- ---------
TOTAL CURRENT ASSETS 289,900 306,084
PROPERTY, PLANT AND EQUIPMENT, NET 170,072 158,118
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $78,601 AND $78,399 RESPECTIVELY 213,664 204,252
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $5,662 AND $5,030 RESPECTIVELY 13,900 14,343
DEFERRED INCOME TAXES 19,317 16,278
OTHER ASSETS 972 1,078
--------- ---------
$ 707,825 $ 700,153
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 13,533 $ 13,407
Accounts payable - trade 28,023 32,643
Accrued payroll and benefits 7,506 8,965
Accrued interest 16,756 4,789
Accrued liabilities - other 37,430 28,846
Income taxes payable 1,795 515
--------- ---------
TOTAL CURRENT LIABILITIES 105,043 89,165
LONG-TERM DEBT 668,703 679,414
OTHER LIABILITIES 30,003 22,685
--------- ---------
TOTAL LIABILITIES 803,749 791,264
--------- ---------
STOCKHOLDERS' DEFICIT:
Common stock -- --
Additional paid-in capital 170,568 170,176
Other comprehensive income (7,243) (6,805)
Retained deficit (38,727) (33,959)
Less: Treasury stock (220,522) (220,523)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (95,924) (91,111)
--------- ---------
$ 707,825 $ 700,153
========= =========
See accompanying notes to consolidated financial statements.
3
TEKNI-PLEX, INC. AND SUBSIDIARIES
(in thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
NET SALES $ 140,583 $ 115,164
COST OF GOODS SOLD 110,691 88,150
--------- ---------
GROSS PROFIT 29,892 27,014
OPERATING EXPENSES:
Selling, general and administrative 13,911 15,176
--------- ---------
Operating profit 15,981 11,838
Other expenses
Interest expense 17,662 17,785
Unrealized loss on derivative contracts 5,344 8,314
Other expense 303 292
--------- ---------
Loss before income taxes (7,328) (14,553)
Income tax benefit (2,560) (5,100)
--------- ---------
NET LOSS $ (4,768) $ (9,453)
========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
NET LOSS $ (4,768) $ (9,453)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
Foreign currency translation adjustment (438) 701
--------- ---------
COMPREHENSIVE LOSS $ (5,206) $ (8,752)
========= =========
See accompanying notes to consolidated financial statements.
4
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 28,
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,768) $ (9,453)
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,475 9,303
Unrealized loss on derivative contracts 5,344 8,314
Deferred income taxes (3,041) (4,623)
Changes in operating assets and liabilities:
Accounts receivable 36,743 26,900
Inventories (9,019) (6,968)
Prepaid expenses and other current assets (3,445) (1,738)
Income Taxes 1,280 --
Accounts payable-trade (11,793) (7,389)
Accrued interest 11,964 13,122
Accrued expenses and other liabilities 2,511 (5,115)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,251 22,353
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,033) (4,723)
Acquisition costs (16,806) (501)
Additions to intangibles (32) --
Deposits and other assets 104 315
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (22,767) (4,909)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (10,658) (37,585)
Payment for treasury stock -- (60)
Receipt of additional paid-in capital 392 --
Debt financing costs (189) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (10,455) (37,645)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (129) 24
-------- --------
Net decrease in Cash (100) (20,177)
Cash, beginning of period 28,199 44,645
-------- --------
Cash, end of period $ 28,099 $ 24,468
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 5,191 $ 4,785
-------- --------
Income taxes 722 --
-------- --------
See accompanying notes to consolidated financial statements.
5
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 - GENERAL
Tekni-Plex is a global, diversified manufacturer of packaging, products, and
materials primarily for the healthcare, food and consumer industries. The
Company has built a leadership position in its core markets, and focuses on
vertically integrated production of highly specialized products. The Company's
operations are aligned under two business groups: Industrial Packaging,
Products, and Materials and Consumer Packaging and Products.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information please refer to the
audited financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 28, 2002.
NOTE 2 New Accounting Pronouncements
a) In June 2001, the Financial Accounting Standards Board finalized
FASB Statements No. 141, Business Combinations (SFAS 141), and No.
142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141
requires the use of the purchase method of accounting and prohibits
the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS 141 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 September 27, 2002, the net
carrying amount of goodwill is $210,195 and other intangible assets
are $3,694. If the Company adopted FASB 142 on June 30, 2001, the
Company's pre-tax loss for the three months ended September 28,
2001 would have been improved by $3,875 due to reduced
amortization. The Company has completed its transitional analysis
of goodwill and has determined no adjustments are necessary.
b) In August 2001, the FASB issued FASB Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets ("SFAS 144").
The new guidance resolves significant implementation issues related
to FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS
121"). SFAS 144 supersedes SFAS 121, but it retains its fundamental
provisions. It also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to
consolidate a subsidiary for which control is likely to be
temporary. SFAS 144 retains the requirement of SFAS 121 to recognize
an impairment loss only if the carrying amount of a long-lived asset
within the scope of SFAS 144 is not recoverable from its
undiscounted cash flows and exceeds its fair value.
SFAS 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early
application encouraged. The provisions of SFAS 144 generally are to
be applied prospectively. The adoption of SFAS 144 did not have a
material impact on the Company's financial position or results of
operations.
6
c) 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. 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 for exit or disposal activities after December 31, 2002,
with earlier adoption encouraged. SFAS 146 does not currently affect
the Company.
7
NOTE 3 - INVENTORIES
Inventories as of September 27, 2002 and June 28, 2002 are summarized as
follows:
SEPTEMBER 27,2002 JUNE 28, 2002
----------------- -------------
Raw materials $ 41,902 $ 37,727
Work-in-process 8,578 8,621
Finished goods 79,351 71,284
-------- --------
$129,831 $117,632
-------- --------
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 27, 2002 JUNE 28, 2002
------------------ ----------------
Senior Subordinated Notes issued June 21, 2000 at 12-3/4%
due June 15, 2010. (less unamortized discount of $2,921
and $3,015) $ 272,079 $ 271,985
Senior Subordinated Notes issued May 2002 at 12-3/4% due
June 15, 2010 (plus unamortized premium of $570 and $588) 40,570 40,588
Senior Debt:
Revolving line of credit, expiring June, 2006. At
September 27, 2002, the interest rate ranged from
4.8125% to 6.75% 35,000 46,000
Term notes due June, 2006 and June, 2008, with interest
rates at September 27, 2002 and June 28, 2002 of
4.875% and 5.375% 329,120 329,120
Other, primarily foreign term loans, with interest rates
ranging from 4.44% to 5.44% and maturities from 2003 to 2010 5,467 5,128
--------------- ---------------
682,236 692,821
Less: Current maturities 13,533 13,407
--------------- ---------------
$ 668,703 $ 679,414
=============== ===============
NOTE 5 - CONTINGENCIES
The Company is a party to various 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.
NOTE 6 - SEGMENT INFORMATION
Tekni-Plex has organized its business into two industry segments: Industrial
Packaging, Products, and Materials and Consumer Packaging and Products. The
Industrial Packaging, Products, and Materials Segment principally produces
pharmaceutical packaging, medical tubing, medical device materials, foamed
polystyrene packaging products for the poultry, meat and egg industries and
vinyl resins and compounds. The Consumer Packaging and Products Segment
principally produces precision tubing and gaskets, and garden and irrigation
hose products. Both segments have operations in the United States, Europe
and Canada.
Financial information concerning the Company's business segments and the
geographic areas in which they operate are as follows:
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
------------ ------------ ------------
September 27, 2002
Revenues from external customers $ 85,884 $ 54,699 $ 140,583
Interest expense 12,055 5,607 17,662
Depreciation and amortization 5,163 2,056 7,219
Segment income from operations 9,998 10,011 20,009
Expenditures for segment assets 1,044 4,826 5,870
Segment assets 339,695 341,795 681,490
------------ ------------ ------------
September 28, 2001
Revenues from external customers $ 76,450 $ 38,714 $ 115,164
Interest expense 12,074 5,711 17,785
Depreciation and amortization 5,926 3,121 9,047
Segment income from operations 8,551 7,016 15,567
Expenditures for segment assets 1,586 2,967 4,553
------------ ------------ ------------
June 28, 2002
8
INDUSTRIAL
PACKAGING, CONSUMER
PRODUCTS, PACKAGING
AND MATERIALS AND PRODUCTS TOTAL
------------ ------------ ------------
Segment assets 314,967 372,591 687,558
------------ ------------ ------------
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
OPERATING PROFIT OR LOSS
Total operating profit for reportable segments
before income taxes $ 20,009 $ 15,567
Corporate and eliminations (4,028) (3,729)
--------------- ---------------
$ 15,981 $ 11,838
=============== ===============
DEPRECIATION AND AMORTIZATION
Segment totals $ 7,219 $ 9,047
Corporate 256 256
--------------- ---------------
Consolidated total $ 7,475 $ 9,303
=============== ===============
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures from reportable segments $ 5,870 $ 4,553
Other unallocated expenditures 163 170
--------------- ---------------
Consolidated total $ 6,033 $ 4,723
=============== ===============
SEPTEMBER 27, 2002 JUNE 28, 2002
------------------ ----------------
ASSETS
Total assets from reportable segments $ 681,265 $ 687,558
Other unallocated amounts 26,560 12,595
--------------- ---------------
Consolidated total $ 707,825 $ 700,153
=============== ===============
GEOGRAPHIC INFORMATION
SEPTEMBER 27, 2002 SEPTEMBER 28, 2001
------------------ ------------------
REVENUES
United States $ 124,539 $ 102,032
International 16,044 13,132
--------------- -------------
Total $ 140,583 $ 115,164
=============== =============
SEPTEMBER 27, 2002 JUNE 28, 2002
------------------ ------------------
LONG-LIVED ASSETS
United States $ 374,530 $ 352,365
International 45,900 41,704
--------------- ---------------
Total $ 420,430 $ 394,069
=============== ===============
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Earnings
(in thousands)
(Unaudited)
For the three months ended September 27, 2002
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------------- --------------- --------------- ---------------
Net sales $ 140,583 $ 39,197 $ 85,342 $ 16,044
Cost of goods sold 110,691 27,435 71,723 11,533
--------------- --------------- --------------- ---------------
Gross profit 29,892 11,762 13,619 4,511
Operating expenses:
Selling, General and administrative 13,911 6,094 6,377 1,440
--------------- --------------- --------------- ---------------
Operating profit 15,981 5,668 7,242 3,071
Interest expense, net 17,662 17,665 (23) 20
Unrealized loss on derivative contracts 5,344 5,344 -- --
Other expense 303 69 (279) 513
--------------- --------------- --------------- ---------------
Income (loss) before income taxes (7,328) (17,410) 7,544 2,538
Provision for income taxes (2,560) (6,090) 2,640 890
--------------- --------------- --------------- ---------------
Net loss $ (4,768) $ (11,320) $ 4,904 $ 1,648
=============== =============== =============== ===============
9
Consolidated Statement of Earnings
(in thousands)
(Unaudited)
For the three months ended September 28, 2001
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
--------- --------- ---------- ----------
Net sales $ 115,164 $ 39,430 $ 62,602 $ 13,132
Cost of sales 88,150 29,901 48,143 10,106
--------- --------- --------- ---------
Gross profit 27,014 9,529 14,459 3,026
Operating expenses:
Selling, General and administrative 15,176 10,067 3,657 1,452
--------- --------- --------- ---------
Operating profit (loss) 11,838 (538) 10,802 1,574
Interest expense, net 17,785 17,795 (46) 36
Unrealized loss on derivative contracts 8,314 8,314 -- --
Other expense (income) 292 53 (139) 378
--------- --------- --------- ---------
Income (loss) before provision for income (14,553) (26,700) 10,987 1,160
taxes
Provision (benefit) for income taxes (5,100) (8,644) 2,800 744
--------- --------- --------- ---------
Net income(loss) $ (9,453) $ (18,056) $ 8,187 $ 416
========= ========= ========= =========
Condensed Consolidated Balance Sheet - at September 27, 2002
(Unaudited)
NON-
TOTAL ELIMINATIONS ISSUER GUARANTORS GUARANTORS
--------- ------------ --------- ---------- ----------
Current assets $ 289,900 $ -- $ 56,686 $ 180,829 $ 52,385
Property, plant and equipment, net 170,072 -- 39,461 109,065 21,546
Intangible assets 213,664 -- 8,103 193,563 11,998
Investment in subsidiaries -- (505,070) 505,070 -- --
Deferred income taxes 19,317 -- 20,940 -- (1,623)
Deferred financing costs 13,900 -- 13,604 -- 296
Other assets 972 (345,557) 64,656 269,813 12,060
--------- --------- --------- --------- ---------
Total assets $ 707,825 $(850,627) $ 708,520 $ 753,270 $ 96,662
========= ========= ========= ========= =========
Current liabilities $ 105,043 $ -- $ 43,291 $ 47,648 $ 14,104
Long-term debt 668,703 -- 664,329 -- 4,374
Other long-term liabilities 30,003 (345,557) 89,601 247,059 38,900
--------- --------- --------- --------- ---------
Total liabilities 803,749 (345,557) 797,221 294,707 57,378
--------- --------- --------- --------- ---------
Additional paid-in capital 170,568 (312,420) 170,548 296,784 15,656
Retained earnings (deficit) (38,727) (192,650) (38,727) 164,864 27,786
Other comprehensive income (7,243) -- -- (3,085) (4,158)
adjustment
Less: Treasury stock (220,522) -- (220,522) -- --
--------- --------- --------- --------- ---------
Total deficit (95,924) (505,070) (88,701) 458,563 39,284
--------- --------- --------- --------- ---------
Total liabilities and deficit $ 707,825 $(850,627) $ 708,520 $ 753,270 $ 96,662
========= ========= ========= ========= =========
Condensed Consolidated Balance Sheet - at June 28, 2002
NON-
TOTAL ELIMINATIONS ISSUER GUARANTORS GUARANTORS
--------- ------------ --------- ---------- ----------
Current assets $ 306,084 $ -- $ 44,828 $ 209,798 $ 51,458
Property, plant and equipment, net 158,118 -- 41,704 95,366 21,048
Intangible assets 204,252 -- 7,907 184,093 12,252
Investment in subsidiaries -- (498,518) 498,518 -- --
Deferred income taxes 16,278 -- 20,177 -- (3,899)
Deferred financing costs 14,343 -- 14,134 -- 209
Other assets 1,078 (321,468) 74,008 236,444 12,094
--------- --------- --------- --------- ---------
Total assets $ 700,153 $(819,986) $ 701,276 $ 725,701 $ 93,162
========= ========= ========= ========= =========
Current liabilities $ 89,165 $ -- $ 29,889 $ 42,563 $ 16,713
Long-term debt 679,414 -- 675,253 -- 4,161
Other long-term liabilities 22,685 (321,468) 80,460 229,752 33,941
--------- --------- --------- --------- ---------
Total liabilities 791,264 (321,468) 785,602 272,315 54,815
--------- --------- --------- --------- ---------
Additional paid-in capital 170,176 (312,420) 170,156 296,784 15,656
Retained earnings (deficit) (33,959) (186,098) (33,959) 159,960 26,138
Other comprehensive income (6,805) -- -- (3,358) (3,447)
Less: Treasury stock (220,523) -- (220,523) -- --
--------- --------- --------- --------- ---------
Total deficit (91,111) (498,518) (84,326) 453,386 38,347
--------- --------- --------- --------- ---------
Total liabilities and deficit $ 700,153 $(819,986) $ 701,276 $ 725,701 $ 93,162
========= ========= ========= ========= =========
10
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the three months ended September 27, 2002
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
----- ------ ---------- ----------
Net cash provided by (used in) operating activities $ 33,251 $ (3,838) $ 30,122 $ 6,967
-------- -------- -------- --------
Cash flows from Investing activities:
Capital expenditures (6,033) 242 (5,122) (1,153)
Acquisition costs (16,806) -- (16,806) --
Additions to intangibles (32) (32) -- --
Deposits and other assets 104 71 1 32
-------- -------- -------- --------
Net cash provided by (used in) provided
by investing activities (22,767) 281 (21,927) (1,121)
-------- -------- -------- --------
Cash flows from financing activities
Repayment of long term debt (10,658) (10,924) -- 266
Receipt of additional paid in capital 392 392 -- --
Debt financing (189) -- -- (189)
Change in intercompany accounts -- 17,879 (18,038) 159
-------- -------- -------- --------
Net cash flows provided by (used in)
financing activities (10,455) 7,347 (18,038) 236
-------- -------- -------- --------
Effect of exchange rate changes on cash (129) -- -- (129)
-------- -------- -------- --------
Net increase (decrease) in cash (100) 3,790 (9,843) 5,953
Cash, beginning of period 28,199 9,035 10,660 8,504
-------- -------- -------- --------
Cash, end of period $ 28,099 $ 12,825 $ 817 $ 14,457
======== ======== ======== ========
For the three months ended September 28, 2001
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
-------- -------- ---------- ----------
Net cash provided by (used in) operating activities $ 22,353 $ (213) $ 19,541 $ 3,025
-------- -------- -------- -------
Cash flows from Investing activities:
Capital expenditures (4,723) (1,647) (1,658) (1,418)
Additions to intangibles (501) (140) -- (361)
Deposits and other assets 315 (1,909) 2,751 (527)
-------- -------- -------- -------
Net cash provided by (used in) provided
by investing activities (4,909) (3,696) 1,093 (2,306)
-------- -------- -------- -------
Cash flows from financing activities
Repayment of long term debt (37,585) (37,860) -- 275
Payment for treasury stock (60) (60) -- --
Change in intercompany accounts -- 20,117 (20,117) --
-------- -------- -------- -------
Net cash flows provided by (used in)
financing activities (37,645) (17,803) (20,117) 275
-------- -------- -------- -------
Effect of exchange rate changes on cash 24 -- -- 24
-------- -------- -------- -------
Net increase (decrease) in cash (20,177) (21,712) 517 1,018
Cash, beginning of period 44,645 32,890 5,321 6,434
-------- -------- -------- -------
Cash, end of period $ 24,468 $ 11,178 $ 5,838 $ 7,452
======== ======== ======== =======
11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 8 - ACQUISITIONS
The Company purchased certain assets and assumed certain liabilities of ELM
Packaging "ELM" on July 10, 2002, for approximately $16,806, including
acquisition costs, in cash. The allocation of the purchase is as follows:
Assets:
Accounts receivable $ 2,640
Inventory 3,159
Prepaid expenses 334
Deferred Taxes 2,280
Fixed Assets 12,487
Goodwill 9,582
-------
Total Assets 30,482
-------
Accounts payable and accrued
liabilities 7,676
Integration reserve 6,000
-------
Net Investment $16,806
=======
The Company utilized preliminary estimates and assumptions in determining the
allocation of purchase price to assets acquired and liabilities assumed of ELM.
While management believes such estimates and assumptions are reasonable, the
final allocation of the purchase price may differ from that reflected in the
unaudited September 27, 2002 consolidated balance sheet after a more extensive
review of fair values of the assets and liabilities is completed.
In connection with the acquisition, a reserve of $6,000 has been established for
the costs to integrate ELM's operations with the company. The reserve is
included in accrued expenses. The components of the integration reserve and
activity through September 27, 2002.
BALANCE COSTS CHARGED TO BALANCE
JULY 2002 RESERVE SEPTEMBER 27, 2002
Manufacturing Reconfiguration $ 2,500 $ 103 $ 2,397
Reduction in personnel and related costs 1,000 227 773
Legal, environmental and other 2,500 26 2,474
---------- ----------- -----------
$ 6,000 $ 356 $ 5,644
========== =========== ===========
The remaining costs are expected to be paid over the next six to nine months.
12
The proforma results of operations for the quarter ended September 28, 2001,
assuming ELM was acquired on June 30, 2001, would not be materially different
from the historical presentation.
In October 2001, the Company purchased certain assets and assumed certain
liabilities of Swan Hose 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 components of the Integration reserve and activity through
September 27, 2002 is as follows:
BALANCE COSTS CHARGED BALANCE
OCTOBER 2001 TO RESERVE SEPTEMBER 27, 2002
------------ --------------- ------------------
Cost to close duplicate facilities $ 3,500 $2,245 $1,255
Reduction in personnel and related costs 2,100 864 1,236
Legal and environmental 1,275 53 1,222
Manufacturing reconfiguration 1,455 199 1,256
Other 1,670 1,164 506
------- ------ ------
$10,000 $4,525 $5,475
======= ====== ======
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, 2001. Since Swan was
purchased subsequent to July 1, 2001, no amortization of goodwill has been
reflected in accordance with SFAS 142.
QUARTER ENDED
SEPTEMBER 28, 2001
------------------
Net sales $ 125,276
Income from operations 11,155
Loss before income taxes (15,236)
==========
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER OF FISCAL 2003 COMPARED WITH THE FIRST QUARTER OF FISCAL 2002
Net Sales increased by $25.4 million or 22.1% to $140.6 million for the three
months ended September 27, 2002 from $115.2 million for the three months ended
September 28, 2001. The increase in sales is largely attributable to the
inclusion of Swan Hose which was acquired in October 2001 and Elm Packaging
which was acquired in July 2002. Swan and Elm combined accounted for
approximately $21.7 million of net sales in the current period.
Net Sales for our Industrial Segment increased 8.1% to $85.9 million in the
current period from $76.5 million in the prior period. This increase was
primarily due to our Elm acquisition. Net Sales for our Consumer Segment
increased 41.3% to $54.7 million in the current period from $38.7 million in the
prior period primarily due to our Swan acquisition.
Cost of Sales increased to $110.7 million for the three months ended September
27, 2002 from $88.2 million for the three months ended September 28, 2001.
Expressed as a percentage of net sales, cost of sales increased to 78.7% for the
three months ended September 27, 2002 from 76.5% for the three months ended
September 28, 2001 primarily due to the inclusion of lower margin business from
Elm Packaging. Higher raw material cost also contributed to the increase in cost
of sales.
Gross Profit, as a result, increased to $29.9 million for the three months ended
September 27, 2002 from $27.0 million for the three months ending September 28,
2001. Expressed as a percentage of net sales, gross profit declined to 21.3% in
the current year from 23.5% in the previous year.
Selling, general and administrative expense declined to $13.9 million in the
three months ended September 27, 2002 compared to $15.2 million in the three
months ended September 28, 2001. Higher selling, general and administrative
expenses associated with our Swan and Elm acquisitions were more than offset by
a $3.9 million reduction in amortization expense associated with goodwill due to
a mandated change in accounting policy. The ratio of selling, general and
administrative expense to net sales decreased to 9.9% for the three months
ending September 27, 2002 from 13.2% in the comparable period of last year.
Operating profit, as a result of the foregoing, increased to $16.0 million or
11.4% of net sales for the three months ended September 27, 2002 from $11.8
million or 10.3% of net sales for the three months ended September 28, 2001.
Operating Profit for our Industrial Segment increased to $10.0 million in the
current period from $8.6 million in the prior period. Measured as a percentage
of net sales, operating profit increased to 11.6% in the current period from
11.2% in the prior period. Operating Profit for our Consumer Segment increased
$10.0 million in the current period from $7.0 million in the prior period due
to our Swan acquisition. Measured as a percent of net sales, operating profit
for our Consumer Segment increased to 18.3% in the current period from 18.1% in
the prior period.
Interest expense decreased to $17.7 million or 12.6% of net sales in the three
months ended September 27, 2002 from $17.8 million or 15.4% of net sales in the
three months ended September 28, 2001. The decrease as a percent of sales is due
to increased sales.
Loss before income taxes, as a result, was a loss of ($7.3) million for the
three months ended September 27, 2002 compared to a loss of ($14.6) million for
the three months ended September 28, 2001.
Benefit for income taxes was a credit of ($2.6) million for the three months
ended September 27, 2002, compared to a credit of ($5.1) million for the three
months ended September 28, 2001. The Company's effective tax rate was 34.9% for
the three months ended September 27, 2002 compared to 35.0% for the three months
ending September 28, 2001.
Net loss, as a result, was a loss of ($4.8) million for the three months ended
September 27, 2002 compared with a loss of ($9.5) million for the three months
ended September 28, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended September 27, 2002
was $33.3 million compared with $22.3 million in the same period of the prior
year. The $10.9 million increase was due primarily to the increase in the normal
seasonal reduction of accounts receivable related to our Swan Hose acquisition.
Working capital on September 27, 2002 was $184.9 million compared to $216.9
million on June 28, 2002. The decrease was due primarily to cash expended to
acquire Elm at $16.8 million, the acquisition of fixed assets of $6.0 million
and the reduction of borrowings under our revolving line of credit at $11.0
million.
As of September 27, 2002, the Company had an outstanding balance of $35 million
under the $100.0 million revolving credit line. This represents a reduction of
$11.0 million from the $46.0 million outstanding balance as of June 28, 2002.
The Company's capital expenditures for the three months ended September 27, 2002
and September 28, 2001 were $6.0 million and $4.7 million respectively.
14
The Company continues to expect that its principal uses of cash for the next
several years will be acquisitions, debt service, capital expenditures and
working capital requirements. Management believes that cash generated from
operations plus funds available in the Company's credit facility will be
sufficient to meet its needs and to provide it with the flexibility to make
capital expenditures and acquisitions which management believes will provide an
attractive return on investment. However, the probability exists that the
Company may need additional financing to take advantage of all the acquisition
opportunities that might arise. There can be no assurance that such financing
will be available in the amounts and terms acceptable to the Company.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in certain debt instruments. At
September 27, 2002, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $363.7 million. A hypothetical 10% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$1.7 million on the Company's after-tax earnings and cash flows, assuming the
Company's current effective tax rate and assuming no change in the principal
amount. Conversely, a reduction in interest rates would favorably impact the
Company's after-tax earnings and cash flows in a similar proportion.
ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness of
the Company's "disclosure controls and procedures" (as defined in Exchange Act
Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90
days of the filing date of this quarterly report, have concluded that as of the
Evaluation Date, our disclosure controls and procedures were adequate and
designed to ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.
(b) Changes in internal controls. There were no significant changes in our
internal controls or [to our knowledge,] in other factors that could
significantly affect our internal controls subsequent to the Evaluation Date.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings The Company is party to certain litigation in the
ordinary course of business, none of which the Company believes is
likely to have a material adverse effect on its consolidated financial
position or results of operations.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Securities holders Not applicable
Item 5. Subsequent Events
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
15
CERTIFICATION
I, Dr. F. Patrick Smith, Chairman of the Board and Chief Executive Officer of
Tekni-Plex, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tekni-Plex, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statement made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12,2002
By: /s/ Dr. F. Patrick Smith
----------------------------
Dr. F. Patrick Smith
Chairman and Chief Executive Officer
16
CERTIFICATION
I, James E. Condon, Chief Financial Officer of Tekni-Plex, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tekni-Plex, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statement made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12,2002
By: /s/ James E. Condon
---------------------------
James E. Condon
Chief Financial Officer
17
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Tekni-Plex, Inc. (the
"Company") on Form 10-Q for the period ending September 27, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Dr. F. Patrick Smith, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Dr. F. Patrick Smith
- ------------------------------------
Dr. F. Patrick Smith
Chairman and Chief Executive Officer
November , 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Tekni-Plex, Inc. (the
"Company") on Form 10-Q for the period ending September 27, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James E. Condon, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ James E. Condon
- -------------------------------
James E. Condon
Chief Financial Officer
November , 2002
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEKNI-PLEX, INC.
November 12, 2002
By: /s/ F. Patrick Smith
---------------------------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth W.R. Baker
---------------------------------------
Kenneth W. R. Baker
President and Chief Operating Officer
By: /s/ James E.Condon
---------------------------------------
James E.Condon
Vice President and Chief Financial
Officer