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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 27, 2003
[ ] 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 75019
COPPELL, TEXAS (Zip Code)
(Address of principal executive offices)
(Registrant's telephone number, including area code)
(972) 304-5077
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.
1
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 joined our company and 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 electrical 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.
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.
1
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 SEGMENTS
See footnote 14 of our audited financial statements at June 27, 2003.
DESCRIPTION OF BUSINESS
We are a global, diversified manufacturer of packaging, packaging products
and materials as well as tubing products. We primarily serve 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. We 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. Our operations are
aligned under two business segments: Packaging and Tubing Products. Products
that do not fit in either of these two segments, including recycled PET, vinyl
compounds and specialty resins have been reflected in Other. Representative
product lines in each of our business segments are listed below:
BUSINESS SEGMENT
PACKAGING TUBING PRODUCTS
- ------------------------------------------ ------------------------------
- - Foam egg cartons - Garden and irrigation hose
- - Pharmaceutical blister films - Medical tubing
- - Poultry and meat processor trays - Pool and vacuum hose
- - Closure Liners
- - Aerosol and pump packaging components
- - Foam plates
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, and Kraft Foods, 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
2
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. In 2002 we acquired the assets
and business of Elm Packaging. 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. 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.
- 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. The remaining $102.6
million was contributed in conjunction with our acquisitions of Super
Plastics, Mark IV's Swan Division, and Elm Packaging. In connection with
the recapitalization, all members of our current management maintained
their entire equity investment.
EMPLOYEES
As of June 27, 2003 we had approximately three thousand three hundred
employees. A portion of our employees are represented by labor unions, and we
believe our labor relations with those unions are good.
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.
3
- Growth through international expansion. We believe that there is
significant opportunity to expand our international sales, which
currently represent approximately 13.7% 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 Emirates as
well as in the Philippines and India to our existing representatives in
Australia/New Zealand, South Africa, Central America, Brazil, Mexico,
Chile, China (including Hong Kong), Taiwan, Greece and Turkey. 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.
PACKAGING SEGMENT
The Packaging segment of our business had revenues of $291.8 million (47.8%
of total revenues) for the year ended June 27, 2003 and $253.6 million (43.9% of
total revenues) for the year ended June 28, 2002. Further details of the major
markets served by this segment are given below:
FOAM 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).
PHARMACEUTICAL BLISTER FILMS
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 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.
4
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, who has significantly greater financial resources
than ours and who controls the largest share of this market.
CLOSURE LINERS
Tekni-Plex is also a 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.
AEROSOL AND PUMP PACKAGING COMPONENTS
Our Aerosol and Pump Packaging Components business produces 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. The group also produces writing instrument products,
including pen barrels and ink tubing as well as ink reservoirs for felt-tip
pens.
Sales are primarily to manufacturers of aerosol valves, dispenser pumps, and
writing instruments. 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 supplier of aerosol valve and
dispenser pump gaskets and dip tubes in the world.
Our dip tubes and pen barrels 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.
We are the single-source supplier to much of the industry. The principal
competitive pressure in this product line, particularly the dip tube portion, 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.
FOAM PLATES
Our foam plate operations produce thermoformed foam polystyrene disposable
plates, bowls, and hinged-lid containers as well as agricultural packaging
products. Our sales are primarily to the consumer, agricultural and foodservice
industries. We compete with numerous participants who use a variety of materials
including foam polystyrene, pulp-based products and various plastic materials.
5
TUBING SEGMENT
The Tubing Products segment of our business had revenues of $209.7 million
(34.3 % of total revenues) for the year ended June 27, 2003 and $216.6 million
(37.5% 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".
We sell these products primarily through our direct sales force 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.
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 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 our direct sales force. We remain competitive by focusing on
product quality, performance and prompt delivery.
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
- ------------------------------------ -------------------------------- ------------
Auburn, Maine(3).................... Manufacturing 24,000
Belfast, Northern Ireland........... Manufacturing 47,580
Blauvelt, New York(7)............... Manufacturing 56,400
Burlington, New Jersey.............. Manufacturing 124,000
Bucyrus, Ohio....................... Manufacturing 587,649
Bucyrus, Ohio(3).................... Warehouse 150,000
Buenos Aires, Argentina(5).......... Manufacturing and warehouse 12,900
Cambridge, Ontario, Canada.......... Manufacturing 25,000
City of Industry, California(3)..... Manufacturing 110,000
Clayton, North Carolina............. Manufacturing 76,000
Clinton, Illinois................... Manufacturing 69,000
Columbus, Ohio(4)................... Sales Offices 3,761
Coppell, Texas(5)................... Executive Offices 3,125
6
Dallas, Texas....................... Manufacturing 139,000
Decatur, Indiana.................... Manufacturing 187,000
East Farmingdale, New York(5)....... Manufacturing 56,556
East Farmingdale, New York (5) Warehouse 11,000
Erembodegem (Aalst), Belgium........ Manufacturing 125,667
Flemington, New Jersey.............. Manufacturing 145,000
Fullerton, California (9)........... Manufacturing and warehouse 60,250
Fullerton, California (2)........... Warehouse 49,500
Harrison, New Jersey(6)............. Warehouse 135,501
Lawrenceville, Georgia.............. Manufacturing 150,000
Lawrenceville, Georgia(4)........... Warehouse 13,000
Livonia, Michigan(2)................ Manufacturing 60,000
McKenzie, Tennessee................. Manufacturing and warehouse 60,000
Memphis, Tennessee(7)............... Manufacturing and warehouse 149,800
Memphis, Tennessee(3)............... Warehouse 50,000
Milan (Gaggiano), Italy(5).......... Warehouse 12,920
Milan (Gaggiano), Italy............. Manufacturing 14,900
Milan (Gaggiano), Italy............. Manufacturing 25,800
Milan (Rosate), Italy(7)............ Manufacturing 24,000
Mississauga, Ontario, Canada(10).... Manufacturing 118,196
Mississauga, Ontario, Canada(3)..... Manufacturing 126,650
Piscataway, New Jersey(7)........... 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(1)........................ Sales Office 550
Somerville, New Jersey.............. Manufacturing 172,000
Sparks, Nevada(8)................... Manufacturing 448,000
Tonawanda, New York(8).............. Manufacturing 32,000
Troy, Ohio(7)....................... Manufacturing and warehouse 200,000
Waco, Texas......................... Manufacturing 104,600
Wenatchee, Washington............... Manufacturing 97,000
Wenatchee, Washington(2)............ 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 2003.
(3) Lease expires in 2004.
(4) Lease expires in 2005.
(5) Lease expires in 2006.
(6) Lease expires in 2007.
(7) Lease expires in 2008.
(8) Lease expires in 2012.
(9) Lease expires in 2013.
7
(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. Furthermore, we cannot assure you that
future environmental laws or regulations will not require substantial
expenditures by us or significant modifications of our operations.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
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. Acquisitions the
Company made in certain years result in years not being comparable.
YEARS ENDED
-----------------------------------------------------------------
JULY 2, JUNE 30, JUNE 29, JUNE 28, JUNE 27,
1999 2000 2001 2002 2003
----------- ------------ ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales..................... $ 507,314 $ 524,817 $ 525,837 $ 577,749 $ 610,663
Cost of goods sold............ 376,370 394,480 399,836 430,457 459,471
Gross profit.................. 130,944 130,337 126,001 147,292 151,192
Integration Expense -- -- -- -- 11,164
8
Selling, general and administrative
expenses......................... $ 62,534 $ 58,343 $ 60,999 $ 69,444 $ 61,600
Income from operations............. 68,410 71,994 65,002 77,848 78,428
Interest expense, net(a)........... 38,977 73,821 76,569 70,934 71,266
Unrealized loss on derivative
contracts........................ -- -- 13,891 7,830 1,997
Other expense (income)............. 286 4,705 605 (6) (531)
Pre-tax income (loss).............. 29,147 28,842 (26,063) (910) 5,696
Income tax provision (benefit)..... 14,150 14,436 (7,069) 5,677 2,306
Net income (loss).................. 14,997 (20,968) (18,994) (6,587) 3,390
BALANCE SHEET DATA (AT PERIOD
END):
Working capital.................... $ 101,445 $ 145,879 $ 199,129 $ 218,919 249,665
Total Assets....................... 559,436 574,789 621,494 691,963 784,764
Total debt (including current
portion)......................... 416,394 651,593 678,150 692,821 729,484
Stockholders' equity (deficit)..... 52,297 (149,150) (134,697) (91,111) (64,811)
OTHER FINANCIAL DATA:
Depreciation and amortization...... $ 35,343 $ 34,748 $ 37,670 $ 39,863 28,342
Capital expenditures............... 12,950 16,258 17,116 24,653 32,232
Cash flows:
From operations.................... 38,794 9,485 (3,266) 7,922 15,029
From investing..................... (58,089) (16,905) (26,777) (88,446) (49,994)
From financing..................... 12,057 (1,687) 62,180 64,092 54,203
- ----------
(a) In connection with the adoption of SFAS 145, included in interest expense
for the year ended June 30, 2000 is approximately $35,374 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
9
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 29, JUNE 28, JUNE 27,
2001 2002 2003
-------- -------- --------
Net sales....................................... 100.0% 100.0% 100.0%
Cost of sales................................... 76.0 74.5 75.2
Gross profit.................................... 24.0 25.5 24.8
Integration Expense 1.8
Selling, general and administrative expenses.... 11.6 12.0 10.1
Income from operations.......................... 12.4 13.5 12.8
Interest expense................................ 14.6 12.3 11.7
Provision (Benefit) for income taxes............ (1.3) 1.0 0.4
Net income (loss)............................... (3.6) (1.1) 0.6
Depreciation and amortization................... 7.2 6.9 4.6
YEAR ENDED JUNE 27, 2003 COMPARED TO THE YEAR ENDED JUNE 28, 2002
Net Sales, increased to $610.7 million for the year ended June 27, 2003 from
$577.7 million for the year ended June 28, 2002, representing an increase of
$33.0 million or 5.7%. Our Packaging Segment reported a 15.1% increase in Net
Sales to $291.8 million in the fiscal year ended June 27, 2003 compared to
$253.6 million in the fiscal year ended June 28, 2002. (The increase was
primarily due to the inclusion of our Elm acquisition that occurred in July
2002.) Our Tubing Products Segment's Net Sales decreased by $6.9 million or
3.2%, to $209.7 million from $216.6 million last year, primarily due to soft
garden hose sales in our Fourth Quarter resulting from an unusually rainy Spring
and Summer throughout most of North America. Net Sales for our other products
increased to $109.2 million in the current year from $107.6 million in the
previous year primarily due to higher volume.
Cost of Goods Sold, increased to $459.5 million for the year ended June 27,
2003 from $430.5 million for the year ended June 28, 2002. Expressed as a
percentage of Net Sales, Cost of Goods Sold increased to 75.2% of Net Sales for
the year ended June 27, 2003 compared to 74.5% for the year ended June 28, 2002,
primarily due to higher raw material costs.
Gross Profit, as a result, increased to $151.2 million for the year ended
June 27, 2003 from $147.3 million for the year ended June 28, 2002. The ratio of
Gross Profit to Net Sales decreased to 24.8% for the year ended June 27, 2003
from 25.5% for the year ended June 28, 2002. Our Packaging Segment Gross Profit
increased by $16.5 million to $88.3 million from $71.8 million in the fiscal
year ending June 27, 2003 primarily due to our Elm acquisition. Measured as a
percentage of Net Sales our Packaging Segment Gross Profit increased to 30.3%
for the year ended June 27, 2003 from 28.3% for the year ended June 28, 2002.
Our Tubing Products Segment Gross Profit decreased by $7.4 million to $52.9
million from $60.3 million in the fiscal year ending June 27, 2003. Measured as
a percentage of Net Sales our Tubing Products Segment Gross Profit decreased to
25.2% for the year ended June 27, 2003 from 27.9% for the year ended June 28,
2002. This decline was the result of both higher raw material costs as well as
weak garden hose sales in the Fourth Quarter as noted above. Gross Profit for
our other products declined to $10.0 million in the current fiscal year from
$15.1 million in the previous year. Measured as a percentage of Net Sales, other
Gross Profit decreased to 9.2% in the current fiscal year from 14.1% in the
previous year primarily due to our inability to fully pass through higher raw
material costs for our specialty resins business.
10
Selling, General and Administrative Expenses decreased to $61.6 million for
the year ended June 27, 2003 from $69.4 million for the year ended June 28, 2002
primarily due to the elimination of $12.4 million of goodwill amortization
expense due to a mandated change in accounting for goodwill effective during the
year ended June 27, 2003 offset by an increase in expenses due to the Elm
acquisition. The resultant ratio to Net Sales decreased to 10.1% for the year
ended June 27, 2003 from 12.0% for the year ended June 28, 2002.
Operating Profit, as a result of the above, increased to $78.4 million in
the current fiscal year compared to $77.8 million in the previous year. Measured
as a percentage of Net Sales, Operating Profit decreased to 12.8% in fiscal 2003
from 13.5% in fiscal 2002. Our Packaging Segment Operating Profit increased by
$12.9 million or 27.3% to $60.2 million from $47.3 million last year. Measured
as a percentage of Net Sales, Packaging Segment Operating Profit improved to
20.6% in the year ended June 27, 2003 compared to 18.6% in the previous year.
Our Tubing Products Segment Operating Profit decreased by $5.4 million to $35.4
million from $40.8 million in the year ended June 27, 2003. Measured as a
percentage of Net Sales, Tubing Products Segment Operating Profit decreased to
16.9% from 18.8% last year. Operating Profit for our other products declined to
$3.5 million in the current year from $6.6 million in the previous year.
Measured as a percentage of Net Sales, other Operating Profit declined
to 3.2% in the current fiscal year from 6.2% in the previous fiscal year.
Interest Expense, increased to $71.3 million for the fiscal year ending June
27, 2003 from $70.9 million for the fiscal year ending June 28, 2002 primarily
due to higher average debt levels. The unrealized loss on derivative obligations
decreased to $2.0 million in the current fiscal year compared to a loss of $7.8
million in the previous fiscal year.
The provision for income taxes decreased to $2.3 million in the current
fiscal year from $5.7 million in the previous year due to lower earnings. Our
effective tax rate declined to 40.4% in 2003 from 623.8% in 2002 due to a large
portion of our goodwill amortization not being tax deductible in 2002.
Net Income (loss), as a result, was income of $3.4 million or 0.6% of Net
Sales for the fiscal year ending June 27, 2003 compared to a loss of ($6.6)
million or (1.1%) of Net sales for the year ending June 28, 2002.
Depreciation and Amortization Expense, decreased to $28.3 million or 4.6%
of Net Sales for the fiscal year ending June 27, 2003 from $39.9 million or 6.9%
of Net Sales for the fiscal year ending June 28, 2002 primarily due to a $12.4
million reduction in goodwill amortization resulting from a mandated change in
the accounting for goodwill effective during the year ended June 27, 2003.
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 Packaging Segment reported a 0.9% decline in Net Sales to $253.6 million
in the fiscal year ended June 28, 2002 compared to $256.0 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 Tubing Products Segment's Net Sales increased by $61.4 million or
39.6%, to $216.6 million from $155.2 million last year, primarily due to our
Swan acquisition. Net Sales for our other products declined to $107.6 million in
the current year from $114.7 million in the previous year primarily due to soft
demand for specialty resins.
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.
11
Our Packaging Segment Gross Profit increased by $2.2 million to $71.8
million from $69.6 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 Packaging Segment Gross Profit increased to 28.3%
for the year ended June 28, 2002 from 27.2% for the year ended June 29, 2001.
Our Tubing Products Segment Gross Profit increased by $20.0 million to $60.3
million from $40.3 million in the fiscal year ending June 28, 2002 primarily due
to our Swan acquisition. Measured as a percentage of Net Sales our Tubing
Products Segment Gross Profit increased to 27.9% for the year ended June 28,
2002 from 26.0% for the year ended June 29, 2001. Gross Profit for our other
products declined to $15.1 million in the current fiscal year from $16.1 million
in the previous year. Measured as a percentage of Net Sales, other Gross Profit
increased to 14.1% in the current fiscal year from 14.0% in the previous year
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 Packaging Segment Operating Profit increased by $3.1 million or 7.0% to
$47.3 million from $44.2 million last year, primarily due to lower raw material
costs and improved operating efficiencies. Measured as a percentage of Net
Sales, Packaging Segment Operating Profit improved to 18.6% in the year ended
June 28, 2002 compared to 17.3% in the previous year. Our Tubing Products
Segment Operating Profit increased by $14.7 million or 56.3% to $40.8 million
from $26.1 million in the year ended June 28, 2002, primarily due to our Swan
acquisition. Measured as a percentage of Net Sales, Tubing Products Segment
Operating Profit improved to 18.8% from 16.8% last year. Operating Profit for
our other products declined to $6.6 million in the current year from $7.3
million in the previous year. Measured as a percentage of Net Sales, other
Operating Profit declined to 6.2% in the current fiscal year from 6.4% in the
previous fiscal 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.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 27, 2003, net cash provided by operating activities
was $15.0 million compared to $7.9 million of cash provided by operating
activities in the prior year. The $7.1 million increase was due primarily to
collection of accounts receivable offset by higher year-end garden hose
inventories due to a weaker than expected selling season noted above. Various
year-over-year changes in operating assets, accrued expenses, and liabilities
are generally due to offsetting timing differences.
Working capital at June 27, 2003 was $249.7 million compared to $218.9
million at June 28, 2002. The increase was primarily due to higher cash
balances, partially due to a capital contribution, which was invested in
inventories.
As of June 27, 2003, we had an outstanding balance of $91.0 million under
our $100.0 million revolving credit line of our existing credit facility. This
was an increase of $45.0 million from the $46.0 million outstanding balance as
of June 28, 2002. The increase in revolver borrowings reflects the increase in
Working Capital and Fixed Assets in fiscal 2003. In Fiscal 2002, our revolver
balance was reduced by the application of the proceeds from our $40 million
senior subordinated notes offering in May of 2002. As of June 27, 2003 we had
$48.1 million of cash compared to $28.2 million of cash as of June 28, 2002. Our
cash balances were positively impacted by $17.6 million of equity issuance in
June 2003.
12
As of June 27, 2003, we had $7.2 million undrawn and available under our
revolving credit facility and $48.1 of cash to fund ongoing general corporate
and working capital requirements.
Our principal uses of cash will be debt service, capital expenditures and
working capital requirements. Our capital expenditures for the years ended June
27, 2003, June 28, 2002 and June 29, 2001 were $32.2 million, $24.7 million and
$17.1 million, respectively. We expect that annual capital expenditures will
decrease somewhat from recent levels during the next few years as we make
improvements in our recently acquired operations.
In June 2000, Tekni-Plex entered into a series of interest rate derivative
transactions designed to protect us from rising interest rates on our senior
term debt facilities while enabling us to partially benefit from falling
interest rates. Since June 2000, LIBOR, the benchmark interest rate for our
senior term debt facilities, has declined. Because we did not receive all of the
benefit of falling interest rates, we recorded an unrealized loss from
derivative transactions of $2.0 million and $7.8 million in fiscal years 2003
and 2002, respectively.
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.
Our Senior debt and our Senior Subordinated Notes include various covenants,
the most restrictive of which require a minimum consolidated EBITDA, as defined
in the debt agreement, minimum fixed charge coverage ratio and a minimum
leverage ratio. We have amended certain of such covenants for the period ending
June 27, 2003 and future periods. In connection with that amendment, the
interest rate margins of the credit facilities have been increased by
approximately 50 basis points.
At June 27 2003 the Company's contractual obligations for borrowings are as
follows:
LONG-TERM
PAYMENTS DUE BY PERIOD DEBT LEASES TOTAL
- ------------------------ --------- ------- -------
(IN THOUSANDS)
Less than 1 year........ $ 16,709 $ 8,281 $ 24,990
Year 2.................. 38,041 6,509 44,550
Year 3.................. 128,905 5,931 134,836
Year 4.................. 114,965 5,509 120,474
Year 5.................. 134,230 4,124 138,354
After 5 years........... 432,850 16,064 448,914
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 based on written agreements and past experience.
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.
The Company records inventories at the lower of cost (weighted average) or
market. We record inventory reserves to reduce the carrying value of inventory
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and estimated market value based on assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory reserves may
be required.
The Company extends credit based upon evaluations of a customer's financial
condition and provide for any anticipated credit losses in our financial
statements based upon management's estimates and ongoing reviews of recorded
allowances. If the financial conditions of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
reserves may be required. Conversely, reserves are deducted to reflect credit
and collection improvements.
The Company has intangible assets related to acquired intangibles. The
determination of related estimated useful lives and whether or not these assets
are impaired involves management judgments. Changes in strategy and/or market
conditions could significantly impact these judgments and required adjustments
to recorded asset balances. We adopted SFAS 142, which requires us to cease
amortization of goodwill, to perform a transitional test for potential goodwill
impairment upon adoption, and then test goodwill for impairment at least
annually by reporting unit. See Note 6.
The Company records a valuation allowance to reduce the amount of our
deferred tax assets to the amount that is more likely than not to be realized.
While we have considered future taxable income and ongoing tax planning
strategies in assessing the need for the valuation allowance, in the event that
we determined that we would not be able to realize our deferred tax assets in
the future in excess of the net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, if it were determined that we would not be able to realize all or part
of the net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made.
The Company makes estimates of sales rebates and allowances related to
current period product revenue. Management analyzes historical trends, current
economic conditions, and compliance with written agreements when evaluating the
adequacy of the reserve for sales rebates and allowances. Management judgments
and estimates must be made and used in connection with establishing the sales
rebates and allowances in any accounting period.
NEW ACCOUNTING PRONOUNCEMENTS
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
13
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.
On December 31, 2002, the FASB amended the transition and disclosure
requirements of FASB Statement No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), through the issuance of FASB Statement No. 148,
"Accounting for Stock-Based Compensation--Transition and Disclosure," ("FAS
148"). FAS 148 amends the existing disclosures that a company should make in its
annual financial statements and requires, for the first time, disclosures in
interim financial reports. Those disclosures are required regardless of the
method being used to account for stock-based employee compensation. The amended
and new disclosure requirements are effective for the Company for the fiscal
year ending June 27, 2003. The adoption of the disclosure requirements of FAS
148 will not have a material affect on the Company's financial statements. As
permitted under FAS 123, management applies Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
In July 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments With Characteristics of Both Liabilities and Equity." SFAS 150
requires the shares that are mandatorily redeemable for cash or other assets at
a specified or determinable date or upon an event certain to occur, be
classified as liabilities, not as part of shareholders equity. SFAS 150 does
not currently apply to the Company.
In November 2002, FASB Interpretation 45 (FIN 45), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," was issued. FIN 45 interprets the guidance in SFAS 5,
"Accounting for Contingencies." Specifically, FIN 45 requires that a guarantor
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. FIN 45 does not currently
apply to the Company.
In January 2003, the FASB issued FASB Interpretation 46, "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 provides new guidance for the
consolidation of variable interest entities for which the voting interest model
is difficult to apply. The new guidance, however, applies to a larger
population of entities. FIN 46 does not currently apply to the Company.
INFLATION
During the closing months of fiscal year 2003, 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 27, 2003 and June 28, 2002 the principal amount of the Company's aggregate
outstanding variable rate indebtedness was $410,790 and $375,120 respectively. A
hypothetical 1% adverse change in interest rates would have had an annualized
unfavorable impact of approximately $1,234 and $1,304, 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.
14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9a. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, including our chief executive officer and chief financial
officer, have carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of June 27, 2003, pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(c). Based upon that evaluation, our chief executive
officer and chief financial officer have concluded that as of such date, our
disclosure controls and procedures in place are adequate to ensure material
information and other information requiring disclosure is identified and
communicated on a timely basis.
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... 55 Chairman of the Board and Chief
Executive Officer
Kenneth W.R. Baker..... 59 President, Chief Operating Officer and
Director
Arthur P. Witt......... 73 Corporate Secretary and Director
John S. Geer........... 57 Director
J. Andrew McWethy...... 62 Director
Michael F. Cronin...... 49 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.
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.
15
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 ..................... 2003 $ 6,050,000 $ -- -- $ 16,000
Chairman and Chief Executive Officer 2002 5,500,000 -- -- 16,000
2001 5,000,000 -- -- 16,000
Mr. Kenneth W.R. Baker ................... 2003 $ 3,025,000 $ -- -- $ 9,000
President and Chief Operating Officer 2002 2,750,000 -- -- 9,000
2001 2,500,000 -- -- 9,000
Mr. James E. Condon ...................... 2003 $ 500,000 $ 140,000 $ -- $ 7,200
Vice President and Chief Financial 2002 400,000 105,000 -- 7,200
Officer 2001 122,308 -- 254,000 7,200
(a) Includes amounts reimbursed during the fiscal year for payment of taxes,
auto expense, membership fees, etc.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL EXERCISE STOCK PRICE
SECURITIES OPTIONS/SARS OR BASE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PER EXPIRATION --------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---------------------- ------------ ------------ -------- ---------- --------- --------
Dr. F. Patrick Smith.. -- --% -- -- -- --
Kenneth W.R. Baker.... -- --% -- -- -- --
James E. Condon....... -- --% -- -- -- --
16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE ($000)
UNDERLYING OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------- --------------- -------------- ------------- --------------
Dr. F. Patrick Smith.. -- -- -- --/--
Kenneth W.R. Baker.... -- -- -- --/--
James E. Condon....... -- -- -- --/--
EMPLOYMENT AGREEMENTS
In June 2000, Dr. Smith and Mr. Baker entered into amended and restated
employment agreements that currently expire July 1, 2006 and contain renewal
provisions. The employment agreements provide for a 10% annual salary increase.
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.
Neither Dr. Smith's nor Mr. Baker's amended and restated employment
agreement provides for any mandatory bonus compensation.
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 96.4% (approximately 93.9% on a
fully diluted basis) and MST/TP Partners LLC holds approximately 3.6%
(approximately 3.5% 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.
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING ARRANGEMENTS
In fiscal year 2001 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 for fiscal year 2001.
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.
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
18
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, 2003
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
Dated: October 8, 2003
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 8, 2003.
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
19
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-51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE F-52
SUPPLEMENTAL SCHEDULE:
Valuation and qualifying accounts and reserves F-53
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 27, 2003 and June 28, 2002, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended June 27, 2003. 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 27, 2003 and June 28, 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
June 27, 2003, in conformity with accounting principles generally accepted in
the United States of America.
August 31, 2003
Woodbridge, New Jersey
F-2
TEKNI-PLEX, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 27, 2003 June 28, 2002
- ------------------------------------------------------------------------------------------------------------
ASSETS (NOTE 7)
CURRENT:
Cash and cash equivalents $ 48,062 $ 28,199
Accounts receivable, net of an allowance of $8,398 and $5,271 for
possible losses 135,719 139,008
Inventories (Note 4) 161,333 117,632
Deferred income taxes (Note 8) 6,735 7,472
Prepaid expenses and other current assets 7,939 5,583
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 359,788 297,894
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 5) 179,521 158,118
INTANGIBLE ASSETS, NET (NOTE 6) 213,152 204,252
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $6,899 AND
$5,030 11,851 14,343
DEFERRED INCOME TAXES (NOTE 8) 19,172 16,278
OTHER ASSETS 1,280 1,078
- ------------------------------------------------------------------------------------------------------------
$ 784,764 $ 691,963
============================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt (Note 7) $ 16,709 $ 13,407
Accounts payable 52,371 32,643
Accrued payroll and benefits 9,525 8,965
Accrued interest 6,317 4,789
Accrued integration reserve (Note 3) 5,000 6,755
Accrued liabilities - other 14,143 11,901
Income taxes payable 6,058 515
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 110,123 78,975
LONG-TERM DEBT (NOTE 7) 712,775 679,414
OTHER NON-CURRENT LIABILITIES (NOTE 1) 26,677 24,685
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 849,575 783,074
- ------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 9 AND 11)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value, authorized 20,000 shares, issued 1,008
at June 27, 2003 and June 28, 2002 - -
Additional paid-in capital 188,018 170,176
Accumulated other comprehensive loss (1,737) (6,805)
Accumulated deficit (30,569) (33,959)
Less treasury stock at cost, 431 shares (Note 2) (220,523) (220,523)
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (64,811) (91,111)
- ------------------------------------------------------------------------------------------------------------
$ 784,764 $ 691,963
============================================================================================================
See accompanying notes to consolidated financial statements.
F-3
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Years ended June 27, 2003 June 28, 2002 June 29, 2001
- ---------------------------------------------------------------------------------------------------
NET SALES $ 610,663 $ 577,749 $ 525,837
COST OF SALES 459,471 430,457 399,836
- -------------------------------------------------------------------------------------------------
GROSS PROFIT 151,192 147,292 126,001
OPERATING EXPENSES:
Selling, general and administrative 61,600 69,444 60,999
Integration expenses (Note 16) 11,164 - -
- -------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 78,428 77,848 65,002
OTHER EXPENSES:
Interest, net 71,266 70,934 76,569
Unrealized loss on derivative contracts (Note 1) 1,997 7,830 13,891
Other (531) (6) 605
- -------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 5,696 (910) (26,063)
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 8) 2,306 5,677 (7,069)
- -------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3,390 $ (6,587) $ (18,994)
=================================================================================================
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, 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 on 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)
Net income - - - 3,390 - 3,390
Foreign currency translation - - 6,320 - - 6,320
Unrealized loss on pension plan, net
of tax - - (1,252) - - (1,252)
----------
Comprehensive income - - - - - 8,458
Capital contributions - 17,842 - - - 17,842
- --------------------------------------------------------------------------------------------------------------------
BALANCE, June 27, 2003 - $ 188,018 $ (1,737) $ (30,569) $ (220,523) $ (64,811)
====================================================================================================================
See accompanying notes to consolidated financial statements.
F-5
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 13)
(DOLLARS IN THOUSANDS)
Years ended June 27, 2003 June 28, 2002 June 29, 2001
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,390 $ (6,587) $ (18,994)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 24,615 20,981 18,741
Amortization 3,727 18,882 18,929
Unrealized loss on derivative contracts 1,997 7,830 13,891
Provision for bad debts 2,350 484 250
Deferred income taxes (2,547) 1,234 (11,167)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 4,388 (35,632) (9,527)
Inventories (40,372) 4,226 (11,019)
Prepaid expenses and other current assets (567) 866 8,859
Other assets (202) (50) (58)
Accounts payable and other current liabilities 13,630 (6,136) 2,713
Income taxes payable 4,625 5,419 3,349
Other liabilities (5) (3,595) (19,233)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 15,029 7,922 (3,266)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of net assets including acquisition costs (16,762) (63,624) (9,233)
Capital expenditures (32,232) (24,653) (17,116)
Additions to intangibles (1,000) (169) (428)
- --------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (49,994) (88,446) (26,777)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 45,000 (19,000) 35,000
Proceeds from long-term debt 1,116 40,747 -
Repayments of long-term debt (9,755) (7,440) (8,820)
Proceeds from capital contributions 17,842 50,000 36,000
Debt financing costs - (154) -
Purchase of treasury stock - (61) -
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 54,203 64,092 62,180
- --------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 625 (14) (17)
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,863 (16,446) 32,120
CASH, BEGINNING OF PERIOD AND CASH EQUIVALENTS 28,199 44,645 12,525
- --------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD AND CASH EQUIVALENTS $ 48,062 $ 28,199 $ 44,645
==============================================================================================================
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 ACCOUNTING POLICIES
Nature of Business
Tekni-Plex, Inc. and its subsidiaries ("Tekni-Plex" or the "Company")
is a global, diversified manufacturer of packaging, packaging products,
and materials as well as tubing products. The Company primarily serves
the food, healthcare and consumer markets. 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: Packaging and
Tubing Products.
Consolidation Policy
The consolidated financial statements include the financial statements
of Tekni-Plex, Inc. and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade
terms. The Company sells its products primarily to large manufacturers,
retailers, and pharmaceutical companies. The Company performs
continuing credit evaluations of its customers' financial condition and
although the Company generally does not require collateral, letters of
credit may be required from its customers in certain circumstances.
Management reviews accounts receivable on a monthly basis to determine
if any receivables will potentially be uncollectible. The Company
includes any accounts receivable balances that are determined to be
uncollectible, along with a general reserve, in its overall allowance
for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Based on
the information available, the Company believes its allowance for
doubtful accounts as of June 27, 2003 is adequate. However, actual
write-offs might exceed the recorded allowance.
Inventories
Inventories are stated at the lower of cost (weighted average) or
market.
F-7
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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 (other than goodwill)
The cost of acquiring certain patents, trademarks, and customer lists
is amortized over seventeen, ten and five years, respectively.
Recoverability is evaluated periodically based on the expected
undiscounted net cash flows of the related businesses.
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 based upon agreements and past experience.
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.
F-8
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
Fiscal Year-End
The Company utilizes a 52/53 week fiscal year ending on the Friday
closest to June 30. The years ended June 27, 2003, June 28, 2002 and
June 29, 2001 each contained 52 weeks.
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 accumulated other comprehensive income
(loss). The statement of operations accounts are translated at the
average rates during the period.
Long-Lived Assets
Long-lived assets, excluding goodwill, are evaluated annually 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 which would be determined based on the net present value of
estimated future cash flows. No impairment losses have been recorded
through June 27, 2003.
F-9
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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.
Stock Based Compensation
The Company applies the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock Based Compensation - Transition and Disclosure," 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. Had compensation cost been determined based
on the fair value at the grant dates for these awards consistent with
the method of SFAS No. 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%, expected volatility of zero, a dividend
yield of zero, and expected lives of 8 years.
Years ended June 27, 2003 June 28, 2002 June 29, 2001
------------------------------------------------
Net income (loss):
As reported $ 3,390 $ (6,587) $ (18,994)
Adjustment for fair
value of stock options,
net of tax 124 138 99
------------------------------------------------
Pro forma $ 3,266 $ (6,725) $ (19,093)
==============================================
F-10
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Derivative Instruments
The Company applies the provision of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," as
amended and interpreted by SFAS 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 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 SFAS 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. These are the only derivative instruments
held by Tekni-Plex as of June 27, 2003. The fair value of derivative
contracts are determined based on quoted market values obtained from a
third party.
F-11
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Tekni-Plex has 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
$290,000 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
$(23,719) and $(21,721) on June 27, 2003 and June 28, 2002,
respectively, and is included in other liabilities on the Consolidated
Balance Sheet. For the years ended June 27, 2003, June 28, 2002 and
June 29, 2001, Tekni-Plex incurred realized losses of $8,677, $7,939
and $1,806, respectively, which have been reflected in interest
expense.
Goodwill and Business Combinations
F-12
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
On June 29, 2002 the Company adopted SFAS 142 which 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
requires the Company to complete a transitional goodwill impairment
test six months from the date of adoption.
The Company's business combinations prior to July 1, 2001 were
accounted for using the purchase method and goodwill was amortized over
15 years. In accordance with SFAS 142 no amortization expense was
recorded during the year ended June 27, 2003. During the year ended
June 28, 2002 the acquisition of the Swan garden hose division of Mark
IV Industries, Inc. resulted in customer lists and goodwill of $3,900
and $36,200, respectively. In accordance with SFAS 142, the Swan
goodwill was not amortized during the year ended June 28, 2002.
If the Company had adopted SFAS 142 on July 2, 1999, the Company's net
income (loss) for each of the two years in the period ended June 28,
2002 would have been as follows:
June 27, 2003 June 28, 2002 June 29, 2001
------------- ------------- -------------
Net income (loss) as previously reported $3,390 $ (6,587) $ (18,994)
Add amortization, net of tax -- 9,299 9,299
Adjusted net income (loss) $3,390 $ 2,712 $ (9,695)
F-13
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Company has completed its transitional and year-end analysis of
goodwill, and has not determined that the adoption of SFAS 142 had no
impact on the carrying amount of goodwill or the results of operations
in the current year ended June 27, 2003.
New Accounting Pronouncements
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 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.
F-14
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
On December 31, 2002, the FASB amended the transition and disclosure
requirements of FASB Statement No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"), through the issuance of FASB Statement No.
148, "Accounting for Stock-Based Compensation -Transition and
Disclosure," ("FAS 148"). FAS 148 amends the existing disclosures that
a company should make in its annual financial statements and requires,
for the first time, disclosures in interim financial reports. Those
disclosures are required regardless of the method being used to account
for stock-based employee compensation. The amended and new disclosure
requirements are effective for the Company for the fiscal year ending
June 27, 2003. The adoption of the disclosure requirements of FAS 148
did not have a material affect on the Company's financial statements.
As permitted under FAS 123, management applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB
25"), and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
In July 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments With Characteristics of Both Liabilities and
Equity." SFAS 150 requires the shares that are mandatorily redeemable
for cash or other assets at a specified or determinable date or upon an
event certain to occur, be classified as liabilities, not as part of
shareholders equity. SFAS 150 does not currently apply to the Company.
F-15
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In November 2002, FASB Interpretation 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," was issued. FIN 45
interprets the guidance in SFAS 5, "Accounting for Contingencies."
Specifically, FIN 45 requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. FIN 45 does not
currently apply to the Company.
In January 2003, the FASB issued FASB Interpretation 46, "Consolidation
of Variable Interest Entities" (FIN 46). FIN 46 provides new guidance
for the consolidation of variable interest entities for which the
voting interest model is difficult to apply. The new guidance, however,
applies to a larger population of entities. FIN 46 does not currently
apply to the Company.
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 during
2000.
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-16
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. ACQUISITIONS
(a) In July 2002, the Company acquired substantially all the net assets
of Elm Packaging Company ("ELM") for $16,762. Elm produces polystyrene
foam plates, bowls, and meat and bakery trays. The financial results of
Elm are included in the Packaging segment. The acquisition was recorded
under the purchase method, whereby Elm'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 purchase
price is as follows:
Assets:
Accounts receivable $ 3,449
Inventory 1,829
Deferred taxes 1,695
Fixed assets 12,487
Goodwill 10,051
Other assets 334
--------
Total Assets 29,845
Liabilities:
Accounts payable and accrued expenses 8,583
Integration reserve 4,500
--------
Net investment $ 16,762
========
F-17
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The components of the Integration reserve and activity through June 27,
2003 was as follows:
Costs Balance
Balance charged to June 27,
July 2002 reserve 2003
--------- ---------- --------
Reduction in personnel and $ 1,000 $ 1,000 $ -
related costs
Legal and environmental
liability 3,500 1,000 2,500
------- ------- -------
$ 4,500 $ 2,000 $ 2,500
======= ======= =======
The remaining legal and environmental costs are expected to extend over
the next two years.
The following table represents the unaudited proforma results of
operations as though the acquisition of Elm occurred on June 29, 2001.
The proforma effect on the year ended June 27, 2003 would be
immaterial.
Year ended
June 28, 2002
-------------
Net sales $ 617,892
Income from operations 75,553
Loss before income taxes (4,794)
F-18
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
In October 2001, the Company purchased certain assets and assumed
certain liabilities of Swan for approximately $63,600. Swan is a
manufacturer of garden hose. The financial results of Swan are included
in the tubing segment. 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 is as follows:
Assets:
Accounts Receivable $ 7,184
Inventory 15,600
Deferred Taxes 3,570
Fixed Assets 17,568
Customer lists 3,900
Goodwill 35,008
--------
Total Assets 82,830
Liabilities:
Accounts Payable and accrued expenses 11,230
Integration reserve 8,000
--------
Net Investment $ 63,600
========
The components of the Integration reserve and activity through June 27,
2003 was as follows:
Cost Balance Cost Balance
October Charged June 28, Charged Adjustments June 27,
2001 to Reserve 2002 to Reserve to Reserve 2003
------- ----------- -------- ---------- ----------- --------
Cost to close duplicate
facilities 3,500 1,340 2,160 101 (2,059) --
Reduction in personnel and
related costs 2,100 718 1,382 -- (1,382) --
Legal and environmental 1,275 40 1,235 1,360 2,625 2,500
Manufacturing reconfiguration 1,455 175 1,280 -- (1,280) --
Other 1,670 972 698 794 96 --
------ ----- ----- ----- ------ -----
10,000 3,245 6,755 2,255 (2,000)* 2,500
====== ===== ===== ===== ====== =====
* $2,000 adjustment was recorded to beginning balance Integration reserve as an
adjustment to the original estimates prepared by the Company. Goodwill was
adjusted for the aforementioned amount.
F-19
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The remaining legal and environmental costs are expected to extend over
the next two years.
The following table represents the unaudited proforma results of
operations as though the acquisition of Swan occurred on June 29, 2001.
Since Swan was purchased subsequent to July 1, 2001 no amortization of
goodwill has been reflected for the years ended June 27, 2003 or June
28, 2002 in accordance with SFAS 142.
Year ended
June 28, 2002
-------------
Net sales $ 589,045
Income from operations 75,863
Loss before income taxes (2,895)
=========
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.
4. INVENTORIES
Inventories are summarized as follows:
June 27, 2003 June 28, 2002
------------- -------------
Raw materials $ 51,810 $ 37,727
Work-in-process 10,219 8,621
Finished goods 99,304 71,284
--------- ---------
$ 161,333 $ 117,632
========= =========
F-20
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Estimated
June 27, 2003 June 28, 2002 useful lives
------------- ------------- ------------
Land $ 16,315 $ 16,256
Building and improvements 54,072 52,383 30-40 years
Machinery and equipment 196,279 163,909 5 - 10 years
Furniture and fixtures 11,203 7,125 5 - 10 years
Construction in progress 17,366 8,663
--------- --------- ------------
295,235 248,336
Less accumulated depreciation 115,714 90,218
--------- --------- ------------
$ 179,521 $ 158,118
========= ========= ============
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
June 27, 2003 June 28, 2002
------------- -------------
Goodwill $ 286,839 $ 278,006
Customer list 3,900 3,900
Patents 1,745 745
--------- ---------
292,484 282,651
Less accumulated amortization 79,332 78,399
--------- ---------
$ 213,152 $ 204,252
========= =========
As a result of the adoption of SFAS 142, the Company discontinued
amortizing goodwill effective June 29, 2002. Patents and customer list
continue to be amortized. Amortization of customer list will be $780
annually through the first quarter of 2007. Patents will be amortized
$152 annually. Amortization is expected to continue at this amount
until 2010 when it will begin to decline. Accumulated amortization for
Goodwill, customer list and Patents at June 27, 2003 and June 28, 2002
were $77,650, $317, $1,365, and $77,650, $164, and $585 respectively.
F-21
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
7. LONG-TERM DEBT
Long-term debt consists of the following:
June 27, 2003 June 28, 2002
------------- -------------
Senior Debt (a):
Revolving line of credit $ 91,000 $ 46,000
Term notes 319,790 329,120
Senior Subordinated Notes issued June
21, 2000 at 12 3/4%, due June 15, 2010
(less unamortized discount of $2,637
and $3,015) (b). 272,363 271,985
Senior Subordinated Notes issued May
2002 at 12 3/4%, due June 15, 2010
(less unamortized premium of $512
and $588) (b). 40,512 40,588
Other, primarily foreign term loans, with
interest rates ranging from 4.44% to
5.44% and maturities from 2003 to
2010. 5,819 5,128
--------- ---------
729,484 692,821
Less: Current maturities 16,709 13,407
--------- ---------
$ 712,775 $ 679,414
========= =========
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. These loans are senior
to all other indebtedness and are collateralized by
substantially all the assets of the Company. The debt amended
agreement includes various covenants which include a
limitation on capital expenditures and compliance with
customary financial ratios. The Company was in compliance with
all such financial covenants as of June 27, 2003 per the
amended debt agreement.
F-22
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Revolving Credit Agreement
Borrowings under the agreement may be used for general
corporate purposes with $7.2 million of additional borrowings
available at June 27, 2003. Interest, at the Company's option,
is charged at the Prime Rate, plus the Applicable Base Rate
Margin (currently 2.5%) or the Adjusted LIBOR Rate, as
defined, plus the Applicable Euro-Dollar Margin (currently
3.5%). At June 27, 2003 the balance of $91,000 outstanding
was borrowed at 4.875%. At June 28, 2002, the rates charged
were at various rates ranging from 6.754% to 8.75%. The
Revolving Credit Agreement expires in June 2006. The Company
also had approximately $1.8 million of outstanding letters of
credit as of June 27, 2003.
Term Loan A
This loan, in the original amount of $100,000, bears interest
payable quarterly at the same rates and margins discussed
above under the Revolving Credit Agreement, 4.4% and 5.0% at
June 27, 2003 and June 28, 2002, 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.
Term Loan B
This loan, in the original amount of $244,000, bears interest
payable quarterly at the same rate discussed above, except the
Applicable Base Rate Margin is currently 3.0% and the
Applicable Euro-Dollar Margin is currently 4.0%. Rates of 4.9%
and 5.5% were charged at June 27, 2003 and June 28, 2002,
respectively. 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.
F-23
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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
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 the 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. 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.
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.
Scheduled principal payments on long-term debt over the next
five years and thereafter are as follows:
2004 $ 16,709
2005 38,041
2006 128,905
2007 114,965
2008 134,230
Thereafter 432,850
F-24
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Company believes the recorded value of long-term debt approximates
fair value based on current rates available to the Company for similar
debt.
8. INCOME TAXES
The provision for income taxes is summarized as follows:
June 27, June 28, June 29,
Years ended 2003 2002 2001
- ----------------------------------------------------------------------------
Current:
Federal $ - $ 259 $ -
Foreign 4,504 2,180 3,984
State and local 349 2,004 114
---------------------------------------
4,853 4,443 4,098
---------------------------------------
Deferred:
Federal (2,072) 474 (9,945)
Foreign (89) 676 (370)
State and local (386) 84 (852)
---------------------------------------
(2,547) 1,234 (11,167)
---------------------------------------
Provision (benefit) for income
taxes $ 2,306 $ 5,677 $ (7,069)
=======================================
F-25
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The components of income (loss) before income taxes are as follows:
June 27, June 28, June 29,
Years ended 2003 2002 2001
- ------------------------------------------------------------------------------
Domestic $ (5,918) $ (9,448) $ (38,116)
Foreign 11,614 8,538 12,053
---------------------------------------
$ 5,696 $ (910) $ (26,063)
=======================================
The provision (benefit) for income taxes differs from the amounts
computed by applying the applicable Federal statutory rates due to the
following:
June 27, June 28, June 29,
Years ended 2003 2002 2001
- -----------------------------------------------------------------------------
Provision (benefit) for Federal
income taxes at statutory rate $ 1,937 $ (309) $ (8,861)
State and local income taxes, net
of Federal benefit (24) 1,427 (677)
Non-deductible goodwill
amortization - 3,647 2,785
Foreign tax rates in excess of
Federal tax rate 406 874 (470)
Other, net (13) 38 154
------------------------------------
Provision (benefit) for income
taxes $ 2,306 $ 5,677 $ (7,069)
====================================
F-26
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
June 27, 2003 June 28, 2002
- ----------------------------------------------------------------------------------
Current deferred taxes:
Allowance for doubtful accounts $ 1,302 $ 1,309
Inventory 1,877 1,928
Net operating loss carryforwards 557 1,402
Accrued expenses 2,999 2,833
- ----------------------------------------------------------------------------------
Total current deferred tax assets $ 6,735 $ 7,472
==================================================================================
Long-term deferred taxes:
Net operating loss carryforwards $ 33,983 $ 29,836
Accrued pension and post-retirement 1,265 1,365
Unrealized loss on derivative contracts 9,013 8,254
Unrealized loss of pension plan 2,657 1,890
Difference in book and tax basis of assets (848) (1,500)
Difference in depreciation (18,720) (18,419)
Goodwill - deductible for tax purposes (2,768) -
Other expenses 190 652
- ----------------------------------------------------------------------------------
Total long-term net deferred tax assets 24,772 22,078
Valuation allowance (5,600) (5,800)
- ----------------------------------------------------------------------------------
Total long-term net deferred tax assets $ 19,172 $ 16,278
==================================================================================
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 $93,600. These NOL's expire at various
dates from 2009 through 2023. Approximately $82,000 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 $5,600.
F-27
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Company and its U.S. subsidiaries would need to realize taxable
income of $93,000 through 2023, of which $82 million is limited as
discussed above, in order to fully realize the benefit of the NOL carry
forwards. 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 2003 losses aggregated $1,783 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 PLANS
(a) Savings Plans
i. The Company maintains a discretionary 401(k) plan
covering all eligible employees (excluding Elm
employees) with at least one year of service.
Contributions to the plan are determined annually by
the Board of Directors.
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 27, 2003, June 28, 2002, and June
29, 2001 amounted to $1,207, $1,130, and $863,
respectively.
ii. The Company maintains a 401(k) plan covering all
eligible Elm employees with at least sixty days of
service and who have attained the age of twenty-one.
The Company matches 50% of employee contributions up
to 6% of the employee's eligible compensation.
Contributions for the fiscal year ended June 27, 2003
amounted to $26.
F-28
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(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 27, 2003 June 28, 2002 June 29, 2001
- ---------------------------------------------------------------------------------
Service cost $ 107 $ 105 $ 105
Interest cost on projected
benefit obligation 420 400 393
Expected actual return on plan
assets (451) (494) (494)
Amortization of unrecognized:
Prior service cost 12 - -
Net loss 105 - -
- ---------------------------------------------------------------------------------
Net pension cost $ 193 $ 11 $ 4
=================================================================================
YEAR ENDED Year ended
June 27, 2003 June 28, 2002
- ------------------------------------------------------------------
CHANGE IN PROJECTED BENEFIT
OBLIGATION
Projected benefit obligation,
beginning of period $ 6,034 $ 5,600
Service cost 107 105
Interest cost 420 400
Plan amendments - 111
Actuarial loss 612 145
Benefits paid (338) (327)
- ------------------------------------------------------------------
Projected benefit obligation,
end of period $ 6,835 $ 6,034
==================================================================
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of period $ 5,167 $ 5,440
Actual return on plan assets 158 (179)
Company contributions 26 233
Benefits paid (338) (327)
- ------------------------------------------------------------------
Plan assets at fair value, end
of period $ 5,013 $ 5,167
==================================================================
F-29
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 27, 2003 June 28, 2002
- ------------------------------------------------------------------
Funded status of the plan $(1,822) $ (867)
Unrecognized prior service cost 99 111
Unrecognized net loss 2,294 1,494
- ------------------------------------------------------------------
Prepaid pension cost $ 571 $ 738
==================================================================
The expected long-term rate of return on
plan assets was 9% for the periods presented
and the discount rate was 6.25% and 7.0% at
June 27, 2003 and June 28, 2002.
The Company recorded an unrecognized pension
liability of $2,294 and $1,494 at June 27,
2003 and June 28, 2002, respectively, as an
accumulated other comprehensive loss
adjustment to stockholders' equity. These
amounts represent a portion of the
unrecognized net actuarial loss for the
years ending June 27, 2003 and June 28, 2002
as a result of an 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 Plastics,
Specialties and Technology ("PS&T") and Burlington,
who have completed one year of service and are not
participants in any other pension plan required by
applicable regulations. 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-30
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The components of net periodic pension cost are as
follows:
YEAR ENDED Year ended Year ended
June 27, 2003 June 28, 2002 June 29, 2001
- -------------------------------------------------------------------------
Service cost $ - $ - $ -
Interest cost on
projected benefit
obligation 790 762 750
Expected actual
return on plan assets (839) (931) (978)
Amortization of
unrecognized Net loss 178 25 -
- -------------------------------------------------------------------------
Net pension cost $ 129 $(144) $(228)
=========================================================================
YEAR ENDED Year ended
June 27, 2003 June 28, 2002
- ---------------------------------------------------------------------
CHANGE IN PROJECTED BENEFIT
OBLIGATION
Projected benefit obligation,
beginning of period $ 11,274 $ 10,501
Interest cost 790 762
Actuarial loss 1,370 525
Benefits paid (502) (514)
- ---------------------------------------------------------------------
Projected benefit obligation, end
of period $ 12,932 $ 11,274
=====================================================================
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of period $ 9,539 $ 10,545
Actual return on plan assets 266 (492)
Benefits paid (502) (514)
- ---------------------------------------------------------------------
Plan assets at fair value, end of
period $ 9,303 $ 9,539
=====================================================================
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:
June 27, 2003 June 28, 2002
- -------------------------------------------------------------------
Funded status of the plan $(3,628) $(1,735)
Unrecognized net loss 5,245 3,480
- -------------------------------------------------------------------
Prepaid pension cost $ 1,617 $ 1,745
===================================================================
The expected long-term rate of return on plan assets
was 9% for the periods presented and the discount
rate was 6.25% and 7.0% at June 27, 2003 and June 28,
2002.
The Company recorded an unrecognized pension
liability of $5,245 and $3,480 as of June 27, 2003
and June 28, 2002, respectively, as an accumulated
other comprehensive loss adjustment to stockholders'
equity. These amounts represent a portion of the
unrecognized net actuarial loss for the years ending
June 27, 2003 and June 28, 2002 as a result of an
investment return less than the actuarial assumption.
ii. The Company also has a defined benefit pension plan
for the benefit of all employees having completed one
year of service with Dolco. The funding policy of the
Company is to make the minimum required contribution
for the plan year required by applicable regulations.
Dolco's Board of Directors approved a plan to freeze
this defined benefit 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-32
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The components of net periodic pension costs are as follows:
YEAR ENDED Year ended Year ended
June 27, 2003 June 28, 2002 June 29, 2001
- -------------------------------------------------------------------------
Service cost $ - $ - $ -
Interest cost on projected
benefit obligation 261 257 259
Expected actual return on
plan assets (285) (301) (292)
Amortization of
unrecognized net loss 79 28 16
- -------------------------------------------------------------------------
Net pension cost $ 55 (16) (17)
=========================================================================
YEAR ENDED Year ended
June 27, 2003 June 28, 2002
- --------------------------------------------------------------------
CHANGE IN PROJECTED
BENEFIT OBLIGATION
Projected benefit
obligation, beginning of period $ 4,049 3,696
Interest cost 261 257
Actuarial loss 365 321
Benefits paid (470) (225)
- --------------------------------------------------------------------
Projected Benefit
Obligation, end of period $ 4,205 $ 4,049
====================================================================
CHANGE IN PLAN ASSETS
Plan assets at Fair Value,
beginning of period $ 3,388 3,566
Actual return on plan assets 226 47
Benefits paid (470) (225)
- --------------------------------------------------------------------
Plan assets at Fair Value,
end of period $ 3,144 $ 3,388
====================================================================
F-33
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The funded status of the Plan and amounts reconciled in the
Company's balance sheets are as follows:
June 27, 2003 June 28, 2002
- ----------------------------------------------------------
Funded status of the Plan $(1,061) $ (661)
Unrecognized net loss 1,642 1,278
- ----------------------------------------------------------
Prepaid pension cost $ 581 $ 617
==========================================================
The expected long term rate of return on plan assets was 8.5%
and the discount rate was 6.5% for the periods presented.
The Company recorded an unrecognized pension liability of
$1,642 and $1,278 as of June 27, 2003 and June 28, 2002,
respectively, an accumulated other comprehensive loss and
adjustment to stockholders equity. These amounts represent a
portion of the unrecognized net loss for the years ending June
27, 2003 and June 28, 2002.
(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 27, 2003, June 28, 2002 and June 29, 2001 amounted to
$337, $177 and $182, respectively, net of retiree
contributions.
F-34
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 27, 2003 June 28, 2002 June 29, 2001
- -----------------------------------------------------------------------
Service cost $ 82 $ 55 $ 45
Interest cost 247 206 179
Transition obligation 91 34 4
- -----------------------------------------------------------------------
Net post-retirement
benefit cost $420 $295 $228
=======================================================================
CHANGE IN PROJECTED YEAR ENDED Year ended
BENEFIT OBLIGATION June 27, 2003 June 28, 2002
- --------------------------------------------------------------------------
Projected benefit
obligation, beginning of period $ 3,621 $ 2,847
Service cost 82 55
Interest cost 247 206
Plan amendments 1,198 -
Actuarial loss 1,888 690
Benefits paid (337) (177)
- --------------------------------------------------------------------------
Projected benefit
obligation, end of period $ 6,699 $ 3,621
==========================================================================
CHANGE IN PLAN ASSETS
Plan assets at fair value,
beginning of period $ - $ -
Company contributions 337 177
Benefits paid (337) (177)
- --------------------------------------------------------------------------
Plan assets at fair value,
end of period $ - $ -
==========================================================================
The funded status of the Plan and amounts recorded in the
Company's balance sheets are as follows:
YEAR ENDED Year ended
June 27, 2003 June 28, 2002
- -------------------------------------------------------------------------
Funded status of the plan $(6,699) $(3,621)
Unrecognized loss 3,081 1,286
Unrecognized service cost 1,198 -
- -------------------------------------------------------------------------
Accrued post retirement cost $(2,420) $(2,335)
=========================================================================
F-35
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The accumulated post-retirement benefit obligation was
determined using a 6.25% and 7.0% discount rate for the
periods presented. The healthcare cost trend rate for medical
benefits was changed from a flat 6.00% as of June 28, 2002 to
a graded trend started at 12% for 2003 and decreasing 1% each
year to 6.00% in 2009 and then to an ultimate rate of 5.50%
for 2010 and beyond. 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 $518 and
$365 and increase the service and interest components by $33
and $24 at June 27, 2003 and June 28, 2002, respectively.
10. 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
are granted at fair market value on the date of grant. As of July 2,
1999 options to purchase 38.17 shares of common stock were outstanding
at weighted-average exercise price of $177. During 2001 options were
granted to purchase 4.02 shares of common stock at weighted average
exercise prices of $559 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.
At June 27, 2003, 18.29 options were outstanding, 5.49 options were
exercisable and no options have been exercised or forfeited as of June
27, 2003. No options were granted during 2002 and 2003.
F-36
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES
Commitments
(a) The Company leases building space and certain equipment in
approximately 20 locations throughout the United States,
Canada and Europe. At June 27, 2003, the Company's future
minimum lease payments are as follows:
--------------------------------------------------------------
2004 $ 8,281
2005 6,509
2006 5,931
2007 5,509
2008 4,124
Thereafter 16,064
--------------------------------------------------------------
46,418
==============================================================
Rent expense, including escalation charges, amounted to
approximately $6,645, $6,665 and $5,308 or the years ended
June 27, 2003, June 28, 2002 and June 29, 2001, respectively.
(b) The Company has employment contracts with two officers,
providing minimum annual salaries of $7,500 with no mandatory
bonuses. The salaries will increase 10% annually until the
agreements expire on July 2, 2005. Salaries and bonuses to
these officers for the years ended June 27, 2003, June 28,
2002 and June 29, 2001 amounted to $9,075, $8,250 and $7,500.
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, results of
operations or cash flows.
12. CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
deposits and trade accounts receivable.
F-37
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.
13. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Cash Paid
June 27, June 28, June 29,
Years ended 2003 2002 2001
--------------------------------------------------------------
Interest $ 69,642 $ 65,831 $ 74,568
==============================================================
Income taxes $ 1,027 $ 2,771 $ 1,661
==============================================================
(b) Non-Cash Financing and Investing Activities
The Company purchased certain assets of ELM effective July
2002, for $16,762 in cash. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 19,794
Goodwill 10,051
Purchase price (16,762)
-------------------------------------------------------------
Liabilities assumed $ 13,083
=============================================================
F-38
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
The Company purchased certain assets of Swan effective October
2001, for $63,600 in cash. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 48,728
Goodwill 36,228
Purchase price (63,600)
-------------------------------------------------------------
Liabilities assumed $ 21,356
=============================================================
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
==============================================================
14. SEGMENT INFORMATION
Tekni-Plex management reviews its operating plants to evaluate
performance and allocate resources. Tekni-Plex has aggregated its
operating plants into two industry segments: Tubing Products and
Packaging. The Tubing Products segment principally produces garden and
irrigation hose, medical tubing and pool hose. The Packaging segment
principally produces foam egg cartons, pharmaceutical blister films,
poultry and meat processor trays, closure liners, aerosol and pump
packaging components and foam plates. Products that do not fit in
either of these segments, including recycled PET, vinyl compounds and
specialty resins, have been reflected in Other. The Tubing Products and
Packaging segments have operations in the United States, Europe and
Canada. The other segment has operations in the United States.
F-39
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:
Year end June 27, 2003 Tubing Products Packaging Other TOTALS
- --------------------------------------------------------------------------------------------
Revenues from external
customers $ 209,655 $ 291,794 $ 109,214 $ 610,663
Interest expense 33,420 22,698 15,148 71,266
Depreciation and amortization 6,769 14,243 6,482 27,494
Segment income from
operations 35,361 60,175 3,540 99,076
Segment assets 322,822 297,303 141,638 761,763
Expenditures for segment
fixed assets 5,371 18,603 7,460 31,434
============================================================================================
Year end June 28, 2002 Tubing Products Packaging Other TOTALS
- --------------------------------------------------------------------------------------------
Revenues from external
customers $ 216,564 $ 253,624 $ 107,561 $ 577,749
Interest expense 31,851 24,703 14,380 70,934
Depreciation and amortization 11,674 20,097 7,046 38,817
Segment income from
operations 40,802 47,277 6,622 94,701
Segment assets 326,520 222,798 130,050 679,368
Expenditures for segment
fixed assets 5,023 7,390 4,473 16,886
============================================================================================
F-40
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Year end June 29, 2001 Tubing Products Packaging Other TOTALS
- --------------------------------------------------------------------------------------------
Revenues from external customers $ 155,154 $ 255,993 $ 114,690 $ 525,837
Interest expense 27,705 29,156 20,020 76,881
Depreciation and amortization 10,010 19,851 7,531 37,392
Segment income from operations 26,075 44,212 7,333 77,620
Segment assets 214,308 244,071 145,922 604,301
Expenditures for segment fixed
assets 4,093 7,492 5,531 17,116
============================================================================================
Years ending June 27, 2003 June 28, 2002 June 29, 2001
- ----------------------------------------------------------------------------------------------
PROFIT OR LOSS
Total operating profit for
reportable segments before
income taxes $ 99,076 $ 94,701 $ 77,620
Corporate and eliminations (20,648) (16,853) (12,618)
- ----------------------------------------------------------------------------------------------
$ 78,428 $ 77,848 $ 65,002
==============================================================================================
ASSETS
Total assets from reportable
segments $ 761,763 $ 679,368 $ 604,301
Other unallocated amounts 23,001 12,595 17,193
- ----------------------------------------------------------------------------------------------
Consolidated total $ 784,764 $ 691,963 $ 621,494
==============================================================================================
DEPRECIATION AND AMORTIZATION
Segment totals $ 27,494 $ 38,817 $ 37,392
Corporate 848 1,046 278
- ----------------------------------------------------------------------------------------------
Consolidated total $ 28,342 $ 39,863 $ 37,670
==============================================================================================
REVENUES
- ----------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
United States $ 531,556 $ 516,873 $ 466,804
Canada 12,361 10,078 15,155
Europe, primarily Belgium 66,746 50,798 43,878
- ----------------------------------------------------------------------------------------------
Total $ 610,663 $ 577,749 $ 525,837
==============================================================================================
LONG-LIVED ASSETS
- ----------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
United States $ 377,634 $ 352,365 $ 307,328
Canada 22,275 18,998 21,565
Europe, primarily Belgium 25,067 22,706 20,743
- ----------------------------------------------------------------------------------------------
Total $ 424,976 $ 394,069 $ 349,636
==============================================================================================
F-41
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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.
For each of the three years in the period ended June 27, 2003 no single
customer represented at least 10% of sales.
Garden hose products represented 33%, 33%, and 24% of sales in fiscal
years 2003, 2002 and 2001, respectively. Foam egg cartons represented
17%, 18% and 13% of sales in fiscal year 2003, 2002 and 2001,
respectively. It is impractical for the Company to provide further
product line information. However, no other product lines represented
10% or more of revenues in any years presented.
15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Tekni-Plex, Inc. issued 12 3/4% Senior Subordinated Notes in June 2000
and May 2002. These notes are guaranteed by all domestic subsidiaries
of Tekni-Plex. The guarantor subsidiaries are 100% owned by the issuer.
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-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 27, 2003
Non-
Issuer Guarantors Guarantors TOTAL
- --------------------------------------------------------------------------------------------------
Sales, net $ 149,202 $ 382,354 $ 79,107 $ 610,663
Cost of sales 104,251 296,519 58,701 459,471
- --------------------------------------------------------------------------------------------------
Gross profit 44,951 85,835 20,406 151,192
Selling, general and
administrative 28,709 25,835 7,056 61,600
Integration expense - 11,164 - 11,164
- --------------------------------------------------------------------------------------------------
Income from operations 16,242 48,836 13,350 78,428
Interest expense, net 71,168 (61) 159 71,266
Unrealized loss on
derivative contract 1,997 - - 1,997
Other expense (income) (825) (1,851) 2,145 (531)
- --------------------------------------------------------------------------------------------------
Income (loss) before
provision for income
taxes (56,098) 50,748 11,046 5,696
Provision (benefit) for
income taxes (22,439) 20,330 4,415 2,306
- --------------------------------------------------------------------------------------------------
Net income (loss) $ (33,659) $ 30,418 $ 6,631 $ 3,390
==================================================================================================
F-43
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Condensed Consolidating Balance Sheet - at June 27, 2003
Non-
Issuer Guarantors Guarantors Eliminations TOTAL
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS $ 56,727 $ 241,910 $ 61,151 $ - $ 359,788
Property, plant and
equipment, net 42,411 111,880 25,230 - 179,521
Intangible assets 8,713 192,049 12,390 - 213,152
Investment in
subsidiaries 535,567 - - (535,567) -
Deferred financing
costs, net 11,735 116 - - 11,851
Deferred taxes 21,204 64 (2,096) - 19,172
Other long-term
assets 81,667 266,534 12,046 (358,967) 1,280
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 758,024 812,553 $ 108,721 $ (894,534) $ 784,764
=================================================================================================================
CURRENT LIABILITIES $ 46,758 $ 43,487 $ 19,878 $ - $ 110,123
Long-term debt 708,115 - 4,660 - 712,775
Other long-term
liabilities 67,887 279,805 37,952 (358,967) 26,677
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 822,760 323,292 62,490 (358,967) 849,575
- -----------------------------------------------------------------------------------------------------------------
Additional paid-in
capital 187,999 296,783 15,656 (312,420) 188,018
Retained earnings
(accumulated
deficit) (30,569) 195,171 27,976 (223,147) (30,569)
Accumulated other
comprehensive
loss (1,642) (2,694) 2,599 - (1,737)
Treasury stock (220,523) - - - (220,523)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
DEFICIT (64,736) 489,261 46,231 (535,567) (64,811)
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 758,024 $ 812,553 $ 108,721 $ (894,534) $ 784,764
=================================================================================================================
F-44
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Condensed Consolidating Cash Flows - For the year ended June 27, 2003
Non-
Issuer Guarantors Guarantors TOTAL
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in\
operating activities: $ (33,777) $ 42,558 $ 6,248 $ 15,029
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions - (16,762) - (16,762)
Capital expenditures (11,726) (45,805) (4,641) (32,232)
Additions to intangibles (149) - (851) (1,000)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing
activities (11,875) (32,627) (5,492) (49,994)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Net borrowings (repayment)
under line of credit 45,000 - - 45,000
Proceeds from long-term debt - - 1,116 1,116
Repayment of long-term debt (9,330) - (425) (9,755)
Proceeds from capital contribution 17,842 - - 17,842
Change in intercompany accounts 4,229 (941) (3,288) -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 57,741 (941) (2,597) 54,203
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate
changes on cash - - 625 625
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 12,089 8,990 (1,216) 19,863
Cash, beginning of period 9,035 10,660 8,504 28,199
- -----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 21,124 $ 19,650 $ 7,288 $ 48,062
=================================================================================================================
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 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-46
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 $ 201,608 $ 51,458 $ - $ 297,894
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 $ 717,511 $ 93,162 $(819,986) $ 691,963
=============================================================================================
CURRENT LIABILITIES $ 27,889 $ 34,373 $ 16,713 $ - $ 78,975
Long-term debt 675,253 - 4,161 - 679,414
Other long-term
liabilities 82,460 229,752 33,941 (321,468) 24,685
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 785,602 264,125 54,815 (321,468) 783,074
- ---------------------------------------------------------------------------------------------
Additional paid-in
capital 170,156 296,784 15,656 (312,420) 170,176
Retained earnings
(accumulated
deficit) (33,959) 159,960 26,138 (186,098) (33,959)
Accumulated other
comprehensive
loss - (3,358) (3,447) - (6,805)
Treasury stock (220,523) - - - (220,523)
- ---------------------------------------------------------------------------------------------
TOTAL
STOCKHOLDERS'
DEFICIT (84,326) 453,386 38,347 (498,518) (91,111)
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND
STOCKHOLDERS'
DEFICIT $ 701,276 $ 717,511 $ 93,162 $(819,986) $ 691,963
=============================================================================================
F-47
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-48
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 121,521 239,144 39,171 399,836
- --------------------------------------------------------------------------------------
Gross profit 40,333 65,806 19,862 126,001
Selling, general and
administrative 38,295 17,320 5,384 60,999
- --------------------------------------------------------------------------------------
Income from operations 2,038 48,486 14,478 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) 47,741 13,888 (26,063)
Provision (benefit) for
income taxes (16,574) 5,532 3,973 (7,069)
- --------------------------------------------------------------------------------------
Net income (loss) $ (71,118) $ 42,209 $ 9,915 $ (18,994)
======================================================================================
F-49
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-50
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
First Second Third Fourth
2003 Quarter Quarter Quarter Quarter
(restated) (restated)
- -------------------------------------------------------------------------------
Net sales $ 140,583 $ 118,584 $ 166,091 $ 185,405
Gross profit 29,982 31,370 44,125 45,805
Income from
operations 15,981 14,897 23,188 24,362
Net income
(loss)* (5,206) 2,641 8,843 (2,888)
2002
- -------------------------------------------------------------------------------
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
===============================================================================
Fluctuations in net sales are due primarily to seasonality in a number
of product lines, particularly garden hose and irrigation hose
products.
*The second and third quarters for the year ended June 27, 2003
reflected adjustments of $(1,900) and $(6,375), respectively to net
income (loss) from previously issued financial statements related to
integration expenses related to acquisitions of Swan and Elm. These
expenses were previously recorded as reductions to the integration
reserve liability. For year ended June 27, 2003 total integration costs
are approximately $11,200. These costs relate to reconfiguration and
realignment of acquired facilities to conform to the Company's current
production and product standards. The related 10Q's are in process of
being amended.
F-51
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 August 31, 2003 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 27, 2003, June 28, 2002, and June 29, 2001 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.
Woodbridge, New Jersey
August 31, 2003
F-52
TEKNI-PLEX, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
Balance at Charged to BALANCE AT
Beginning of Costs and END OF
Period Expenses (1) Deductions (2) PERIOD (3)
=================================================================================================================
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
=================================================================================================================
YEAR ENDED June 27, 2003
Accounts receivable allowance $1,671 $2,350 $223 $3,798
=================================================================================================================
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
(3) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they
are not valuation reserves.
F-53
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 Specialties and Technologies, Inc.*
3.10 By-laws of Plastic Specialties and Technologies, Inc.*
3.11 Certificate of Incorporation of Plastic Specialties and Technologies Investments, Inc.*
3.12 By-laws of Plastic Specialties 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.*
31 Certification**
32.1 Certification of Chief Executive Officer, as required
by Section 906 of the Sabanes-Oxley Act of 2002**
32.2 Certification of Chief Financial Officer, as required
by Section 906 of the Sabanes-Oxley Act of 2002**
- --------------------------------
* Filed previously as an Exhibit to the Form S-4 (File No. 333-43800) filed
on August 15, 2000.
** Filed herewith.
F-54