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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 333-28157
TEKNI-PLEX, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3286312
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
260 North Denton Tap Road (972) 304-5077
Coppell, TX 75019 (Registrant's telephone number)
(Address of principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
TEKNI-PLEX, INC.
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 26, 2003
and June 27, 2003............................................ 3
Consolidated Statements of Operations for the three
months ended September 26, 2003 and September 27, 2002....... 4
Consolidated Statements of Comprehensive Loss for
the three months ended September 26, 2003 and
September 27, 2002........................................... 4
Consolidated Statements of Cash Flows for the three
months ended September 26, 2003 and September 27, 2002....... 5
Notes to Consolidated Financial Statements............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................................... 14
ITEM 4. CONTROLS AND PROCEDURES.......................................................... 14
PART II. OTHER INFORMATION
Item 1. Legal proceedings...................................................... 15
Item 2. Changes in securities.................................................. 15
Item 3. Defaults upon senior securities........................................ 15
Item 4. Submission of matters to a vote of securities holders.................. 15
Item 5. Subsequent events...................................................... 15
Item 6. Exhibits and reports on Form 8-K....................................... 15
2
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 26,
2003 JUNE 27,
(UNAUDITED) 2003
------------- -------------
ASSETS
CURRENT:
Cash $ 56,594 $ 48,062
Accounts receivable, net of
allowance for doubtful accounts of $9,258 and
$8,398 respectively 91,896 135,719
Inventories 171,526 161,333
Deferred income taxes 6,735 6,735
Prepaid expenses and other current assets 8,393 7,939
------------- -------------
TOTAL CURRENT ASSETS 335,144 359,788
PROPERTY, PLANT AND EQUIPMENT, NET 181,228 179,521
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $79,579 AND $79,332 RESPECTIVELY 213,202 213,152
DEFERRED CHARGES, NET OF ACCUMULATED
AMORTIZATION OF $7,522 AND $6,899 RESPECTIVELY 11,228 11,851
DEFERRED INCOME TAXES 19,729 19,172
OTHER ASSETS 1,284 1,280
------------- -------------
$ 761,815 $ 784,764
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 22,991 $ 16,709
Accounts payable - trade 28,572 52,371
Accrued payroll and benefits 10,651 9,525
Accrued interest 16,241 6,317
Accrued liabilities - other 21,870 19,143
Income taxes payable 24 6,058
------------- -------------
TOTAL CURRENT LIABILITIES 100,349 110,123
LONG-TERM DEBT 703,341 712,775
OTHER LIABILITIES 24,203 26,677
------------- -------------
TOTAL LIABILITIES 827,893 849,575
------------- -------------
STOCKHOLDERS' DEFICIT:
Common stock -- --
Additional paid-in capital 188,018 188,018
Other comprehensive income (1,863) (1,737)
Accumulated deficit (31,710) (30,569)
Less: Treasury stock (220,523) (220,523)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (66,078) (64,811)
------------- -------------
$ 761,815 $ 784,764
============= =============
See accompanying notes to consolidated financial statements.
3
TEKNI-PLEX, INC. AND SUBSIDIARIES
(in thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 26, 2003 SEPTEMBER 27, 2002
------------------ ------------------
NET SALES $ 136,058 $ 140,583
COST OF GOODS SOLD 106,230 110,691
------------------ ------------------
GROSS PROFIT 29,828 29,892
OPERATING EXPENSES:
Selling, general and administrative 15,365 13,911
Integration expense 1,174 --
------------------ ------------------
OPERATING PROFIT 13,289 15,981
OTHER EXPENSES
Interest expense 17,526 17,662
Unrealized (gain) loss on derivative contracts (2,454) 5,344
Other expense 118 303
------------------ ------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,901) (7,328)
Provision (benefit)for income tax (760) (2,560)
------------------ ------------------
NET (LOSS) $ (1,141) $ (4,768)
================== ==================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET (LOSS) $ (1,141) $ (4,768)
COMPREHENSIVE (LOSS), NET OF TAXES
Foreign currency translation adjustment (126) (438)
------------------ ------------------
COMPREHENSIVE (LOSS) $ (1,267) $ (5,206)
================== ==================
See accompanying notes to consolidated financial statements.
4
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 26, SEPTEMBER 27,
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,141) $ (4,768)
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,079 7,475
Unrealized (gain) loss on derivative contracts (2,454) 5,344
Deferred income taxes (556) (3,041)
Changes in operating assets and liabilities:
Accounts receivable 43,609 36,743
Inventories (10,197) (9,019)
Prepaid expenses and other current assets (416) (3,445)
Income taxes (6,034) 1,280
Accounts payable-trade (23,729) (11,793)
Accrued interest 9,926 11,964
Accrued expenses and other liabilities 3,828 2,511
------------- -------------
Net cash provided by operating activities 19,915 33,251
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,841) (6,033)
Acquisition costs -- (16,806)
Additions to intangibles (297) (32)
Deposits and other assets (4) 104
------------- -------------
Net cash (used in) investing activities (8,142) (22,767)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments/borrowings of long-term debt (3,224) (10,658)
Receipt of additional paid-in capital -- 392
Debt financing costs -- (189)
------------- -------------
Net cash (used in) financing activities (3,224) (10,455)
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (17) (129)
------------- -------------
Net increase (decrease) in cash 8,532 (100)
Cash, beginning of period 48,062 28,199
------------- -------------
Cash, end of period $ 56,594 $ 28,099
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 7,142 $ 5,191
Income taxes 141 722
See accompanying notes to consolidated financial statements.
5
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 - GENERAL
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.
The results for the first quarter and three months of 2003 are not
necessarily indicative of the results to be expected for the full
fiscal year and have not been audited. In the opinion of management,
the accompanying unaudited consolidated financial statements contain
all adjustments, consisting primarily of normal recurring accruals,
necessary for a fair statement of the results of operations for the
period presented and the consolidated balance sheet at September 26,
2003. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
SEC rules and regulations. These financial statements should be read in
conjunction with the financial statements and notes thereto that were
included in the Company's latest annual report on Form 10-K for the
fiscal year ended June 27, 2003.
NOTE 2 New Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity." This Statement establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and
equity. In accordance with the standard, financial instruments that
embody obligations for the issuer are required to be classified as
liabilities. This Statement shall be effective for financial
instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS 150 does not currently apply to the
Company.
6
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 3 - INVENTORIES
Inventories as of September 26, 2003 and June 27, 2003 are summarized as
follows:
SEPTEMBER 26, 2003 JUNE 27, 2003
------------------ ------------------
Raw materials $ 53,088 $ 51,810
Work-in-process 11,307 10,219
Finished goods 107,131 99,304
------------------ ------------------
$ 171,526 $ 161,333
------------------ ------------------
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 26, 2003 JUNE 27, 2003
------------------ ------------------
Senior Subordinated Notes issued June 21, 2000 at 12-3/4%
due June 15, 2010. (less unamortized discount of $2,542
and $2,637) $ 272,458 $ 272,363
Senior Subordinated Notes issued May 2002 at 12-3/4% due
June 15, 2010 (plus unamortized premium of $493 and $512) 40,493 40,512
Senior Debt:
Revolving line of credit, expiring June, 2006. At
September 26, 2003, the interest rate was
4.125% 91,000 91,000
Term notes due June, 2006 and June, 2008, with interest
rates at September 26, 2003 of 4.125% and 4.625% 316,680 319,790
Other, primarily foreign term loans, with interest rates
ranging from 4.44% to 5.44% and maturities from 2003 to 2010 5,701 5,819
------------------ ------------------
726,332 729,484
Less: Current maturities 22,991 16,709
------------------ ------------------
$ 703,341 $ 712,775
================== ==================
NOTE 5 - CONTINGENCIES
The Company is a party to various legal proceedings arising in the normal
conduct of business. Management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's financial
position.
7
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SEGMENT INFORMATION
Tekni-Plex management reviews its operating plants to evaluate performance and
allocate resources. As a result, beginning in fiscal year 2002, Tekni-Plex has
aggregated its operating plants into two industry segments: Packaging and Tubing
Products. 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. The Tubing Products
segment principally produces garden and irrigation hose, medical tubing and pool
hose. Products that do not fit in either of these segments, including recycled
PET, vinyl compounds and specialty resins have been reflected in Other. The
Packaging and Tubing Products segments have operations in the United States,
Europe and Canada. Other products not included in either segment are produced in
the United States. The prior year has been restated to conform to this
presentation. Financial information concerning the Company's business segments
and the geographic areas in which it operates are as follows:
TUBING
PACKAGING PRODUCTS OTHER TOTAL
--------- --------- --------- ---------
Three Months Ended
September 26, 2003
Revenues from external customers $ 68,659 $ 39,393 $ 28,006 $ 136,058
Interest expense 5,583 8,216 3,727 17,526
Depreciation and amortization 3,388 1,954 1,481 6,823
Segment income from operations 10,029 8,282 68 18,379
Expenditures for segment assets 4,817 333 2,459 7,609
Segment assets as of
September 26, 2003 285,480 305,708 $ 143,913 735,101
--------- --------- --------- ---------
Three Months Ended
September 27, 2002
Revenues from external customers $ 70,703 $ 43,444 $ 26,436 $ 140,583
Interest expense 5,624 8,291 3,747 17,662
Depreciation and amortization 4,208 1,665 1,346 7,219
Segment income from operations 12,312 7,558 139 20,009
Expenditures for segment assets 716 3,887 1,267 5,870
Segment assets as of June 27, 2003 297,303 322,822 141,638 761,763
SEPTEMBER 26, 2003 SEPTEMBER 27, 2002
------------------ ------------------
OPERATING PROFIT OR LOSS
Total operating profit for reportable segments
before income taxes $ 18,379 $ 20,009
Corporate and eliminations (5,090) (4,028)
------------------ ------------------
$ 13,289 $ 15,981
================== ==================
DEPRECIATION AND AMORTIZATION
Segment totals $ 6,823 $ 7,219
Corporate 256 256
------------------ ------------------
Consolidated total $ 7,079 $ 7,475
================== ==================
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures from reportable segments $ 7,609 $ 5,870
Other unallocated expenditures 232 163
------------------ ------------------
Consolidated total $ 7,841 $ 6,033
================== ==================
SEPTEMBER 26, 2003 JUNE 27, 2003
------------------ ------------------
ASSETS
Total assets from reportable segments $ 735,101 $ 761,763
Other unallocated amounts 26,714 23,001
------------------ ------------------
Consolidated total $ 761,815 $ 784,764
================== ==================
8
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
GEOGRAPHIC INFORMATION
SEPTEMBER 26, 2003 SEPTEMBER 27, 2002
------------------ ------------------
REVENUES
United States $ 118,174 $ 124,539
International 17,884 16,044
------------------ ------------------
Total $ 136,058 $ 140,583
================== ==================
SEPTEMBER 26, 2003 JUNE 27, 2003
------------------ ------------------
LONG-LIVED ASSETS
United States $ 379,377 $ 377,406
International 47,294 47,570
------------------ ------------------
Total $ 426,671 $ 424,976
================== ==================
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Operations
(in thousands)
(Unaudited)
For the three months ended September 26, 2003
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
------------ ------------ ------------ ------------
Net sales $ 136,058 $ 33,648 $ 84,526 $ 17,884
Cost of goods sold 106,230 26,110 66,071 14,049
------------ ------------ ------------ ------------
Gross profit 29,828 7,538 18,455 3,835
Operating expenses:
Selling, General and administrative 15,365 6,692 6,905 1,768
Integration expense 1,174 -- 1,174 --
------------ ------------ ------------ ------------
Operating profit 13,289 846 10,376 2,067
Interest expense, net 17,526 17,498 (16) 44
Unrealized gain on derivative contracts (2,454) (2,454) -- --
Other expense 118 (194) (315) 627
------------ ------------ ------------ ------------
Income (loss) before income taxes (1,901) (14,004) 10,707 1,396
Provision (benefit) for income taxes (760) (5,600) 4,289 551
------------ ------------ ------------ ------------
Net income (loss) $ (1,141) $ (8,404) $ 6,418 $ 845
============ ============ ============ ============
Consolidated Statement of Operations
(in thousands)
For the three months ended September 27, 2002
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
------------ ------------ ------------ ------------
Net sales $ 140,583 $ 39,197 $ 85,342 $ 16,044
Cost of sales 110,691 27,435 71,723 11,533
------------ ------------ ------------ ------------
Gross profit 29,892 11,762 13,619 4,511
Operating expenses:
Selling, General and administrative 13,911 6,094 6,377 1,440
------------ ------------ ------------ ------------
Operating profit 15,981 5,668 7,242 3,071
Interest expense, net 17,662 17,665 (23) 20
Unrealized loss on derivative contracts 5,344 5,344 -- --
Other expense (income) 303 69 (279) 513
------------ ------------ ------------ ------------
Income (loss) before provision (benefit)
for income
taxes (7,328) (17,410) 7,544 2,538
Provision (benefit) for income taxes (2,560) (6,090) 2,640 890
------------ ------------ ------------ ------------
Net income(loss) $ (4,768) $ (11,320) $ 4,904 $ 1,648
============ ============ ============ ============
9
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at September 26, 2003
NON-
TOTAL ELIMINATIONS ISSUER GUARANTORS GUARANTORS
------------ ------------ ------------ ------------ ------------
Current assets $ 335,144 $ -- $ 69,139 $ 204,771 $ 61,234
Property, plant and equipment, net 181,228 -- 44,474 111,617 25,137
Intangible assets 213,202 -- 9,925 191,048 12,229
Investment in subsidiaries -- (543,830) 543,830 -- --
Deferred income taxes 19,729 -- 27,637 (5,610) (2,298)
Deferred financing costs 11,228 -- 11,112 116 --
Other assets 1,284 (351,426) 49,689 290,795 12,226
------------ ------------ ------------ ------------ ------------
Total assets $ 761,815 $ (895,256) $ 755,806 $ 792,737 $ 108,528
============ ============ ============ ============ ============
Current liabilities $ 100,349 $ -- $ 53,541 $ 28,920 $ 17,888
Long-term debt 703,341 -- 698,832 -- 4,509
Other long-term liabilities 24,203 (351,426) 68,543 269,015 38,071
------------ ------------ ------------ ------------ ------------
Total liabilities 827,893 (351,426) 820,916 297,935 60,468
------------ ------------ ------------ ------------ ------------
Additional paid-in capital 188,018 (313,420) 187,998 296,784 16,656
Retained earnings (deficit) (31,710) (230,410) (31,710) 201,589 28,821
Cumulative currency translation (1,863) -- (875) (3,571) 2,583
adjustment
Less: Treasury stock (220,523) -- (220,523) -- --
------------ ------------ ------------ ------------ ------------
Total equity (66,078) (543,830) (65,110) 494,802 48,060
------------ ------------ ------------ ------------ ------------
Total liabilities and deficit $ 761,815 $ (895,256) $ 755,806 $ 792,737 $ 108,528
============ ============ ============ ============ ============
Condensed Consolidated Balance Sheet - at June 27, 2003
NON-
TOTAL ELIMINATIONS ISSUER GUARANTORS GUARANTORS
------------ ------------ ------------ ------------ ------------
Current assets $ 359,788 $ -- $ 56,727 $ 241,910 $ 61,151
Property, plant and equipment, net 179,521 -- 42,411 111,880 25,230
Intangible assets 213,152 -- 8,713 192,049 12,390
Investment in subsidiaries -- (535,567) 535,567 -- --
Deferred income taxes 19,172 -- 21,204 64 (2,096)
Deferred financing costs, net 11,851 -- 11,735 116 --
Other assets 1,280 (358,967) 81,667 266,534 12,046
------------ ------------ ------------ ------------ ------------
Total assets $ 784,764 $ (894,534) $ 758,024 $ 812,553 $ 108,721
============ ============ ============ ============ ============
Current liabilities $ 110,123 $ -- $ 46,758 $ 43,487 $ 19,878
Long-term debt 712,775 -- 708,115 -- 4,660
Other long-term liabilities 26,677 (358,967) 67,887 279,805 37,952
------------ ------------ ------------ ------------ ------------
Total liabilities 849,575 (358,967) 822,760 323,292 62,490
------------ ------------ ------------ ------------ ------------
Additional paid-in capital 188,018 (312,420) 187,998 296,784 15,656
Retained earnings (deficit) (30,569) (223,147) (30,569) 195,171 27,976
Other comprehensive loss (1,737) -- (1,642) (2,694) 2,599
Less: Treasury stock (220,523) -- (220,523) -- --
------------ ------------ ------------ ------------ ------------
Total Stockholders' deficit (64,811) (535,567) (64,736) 489,261 46,231
------------ ------------ ------------ ------------ ------------
Total liabilities and deficit $ 784,764 $ (894,534) $ 758,024 $ 812,553 $ 108,721
============ ============ ============ ============ ============
10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidated Cash Flows
(Unaudited)
For the three months ended September 26, 2003
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities $ 19,915 $ (13,771) $ 22,604 $ 11,082
---------- ---------- ---------- ----------
Cash flows from Investing activities:
Capital expenditures (7,841) (3,754) (3,367) (720)
Additions to intangibles (297) (50) (193) (54)
Deposits and other assets (4) (4) -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) provided
by investing activities $ (8,142) $ (3,808) $ (3,560) $ (774)
---------- ---------- ---------- ----------
Cash flows from financing activities
Repayment of long term debt (3,224) (3,034) -- (190)
Change in intercompany accounts -- 33,086 (30,687) (2,399)
---------- ---------- ---------- ----------
Net cash flows provided by (used in)
financing activities (3,224) 30,052 (30,687) (2,589)
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash (17) -- -- (17)
---------- ---------- ---------- ----------
Net increase (decrease) in cash 8,532 12,473 (11,643) 7,702
Cash, beginning of period 48,062 20,900 19,650 7,512
---------- ---------- ---------- ----------
Cash, end of period $ 56,594 $ 33,373 $ 8,007 $ 15,214
========== ========== ========== ==========
For the three months ended September 27, 2002
NON-
TOTAL ISSUER GUARANTORS GUARANTORS
---------- ---------- ---------- ----------
Net cash provided by (used in) operating activities $ 33,251 $ (3,838) $ 30,122 $ 6,967
---------- ---------- ---------- ----------
Cash flows from Investing activities:
Capital expenditures (6,033) 242 (5,122) (1,153)
Additions to intangibles (16,806) -- (16,806) --
Deposits and other assets (32) (32) -- --
Net cash provided by (used in) provided
by investing activities 104 71 1 32
---------- ---------- ---------- ----------
Cash flows from financing activities (22,767) 281 (21,927) (1,121)
---------- ---------- ---------- ----------
Repayment of long term debt
Payment for treasury stock (10,658) (10,924) -- 266
Change in intercompany accounts 392 392 -- --
Net cash flows provided by (used in) (189) -- -- (189)
financing activities -- 17,879 (18,038) 159
---------- ---------- ---------- ----------
Effect of exchange rate changes on cash
Net increase (decrease) in cash (10,455) 7,347 (18,038) 236
---------- ---------- ---------- ----------
Cash, beginning of period (129) -- -- (129)
---------- ---------- ---------- ----------
Cash, end of period (100) 3,790 (9,843) 5,953
28,199 9,035 10,660 8,504
---------- ---------- ---------- ----------
$ 28,099 $ 12,825 $ 817 $ 14,457
========== ========== ========== ==========
11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 8 - ACQUISITIONS
In July 2002, the Company purchased certain assets and assumed certain
liabilities of ELM Packaging "ELM" for approximately $16,806. 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.
In connection with the acquisition, a reserve of $4,500 has been established for
the costs to integrate ELM's operations with the company. The reserve is
included in accrued expenses. The components of the integration reserve and
activity through September 26, 2003.
BALANCE COSTS CHARGED TO BALANCE
JULY 2002 RESERVE SEPTEMBER 26, 2003
--------- ------- ------------------
Reduction in personnel and related costs $ 1,000 $ 1,000 $ --
Legal, environmental and other 3,500 1,453 2,047
------------- -------------- --------------
$ 4,500 $ 2,453 $ 2,047
============= ============== ==============
The remaining legal and environmental costs are expected to be paid over the
next two years.
The proforma results of operations for the quarter ended September 27, 2002,
assuming ELM was acquired on June 30, 2001, would not be materially different
from the historical presentation.
In October 2001, the Company purchased certain assets and assumed certain
liabilities of Swan Hose for approximately $63,600. The acquisition was recorded
under the purchase method, whereby Swan's net assets were recorded at estimated
fair value and its operations have been reflected in the statement of operations
since that date. The components of the Integration reserve and activity through
September 26, 2003 is as follows:
BALANCE
BALANCE COSTS CHARGED ADJUSTMENTS SEPTEMBER 26,
OCTOBER 2001 TO RESERVE TO RESERVE 2003
------------ ------------- ----------- -------------
Cost to close duplicate facilities $ 3,500 $ 1,441 $ (2,059) $ --
Reduction in personnel and related costs 2,100 718 (1,382) --
Legal and environmental 1,275 1,847 2,625 2,053
Manufacturing reconfiguration 1,455 175 (1,280) --
Other 1,670 1,766 96 --
------------ ------------- ----------- -------------
$ 10,000 $ 5,947 $ (2,000)* $ 2,053
============ ============= =========== =============
* $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. These adjustments were recorded during
the fiscal year ended June 27, 2003.
The remaining legal and environmental costs are expected to extend over the next
two years.
12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER OF FISCAL 2004 COMPARED WITH THE FIRST QUARTER OF FISCAL 2003
Net sales declined by $4.5 million or 3.2% to $136.1 million for the three
months ended September 26, 2003 from $140.6 million for the three months ended
September 27, 2002. The decrease in net sales was largely attributable to lower
garden hose sales due to unusually rainy weather throughout much of North
America in July and August. Net sales for our Tubing Segment decreased $4.1
million to $39.4 million in the current period from $43.4 million in the prior
period. Net sales for our Packaging Segment decreased $2.0 million or 2.8% to
$68.7 million in the current period from $70.7 million in the prior period due
to lower egg carton sales in the quarter. Other net sales increased 5.9% to
$28.0 million in the current period compared to $26.4 million last year.
Cost of sales decreased to $106.2 million for the three months ended September
26, 2003 from $110.7 million for the three months ended September 27, 2002.
Expressed as a percentage of net sales, cost of sales decreased to 78.1% for the
three months ended September 26, 2003 from 78.7% for the three months ended
September 27, 2002 primarily due to improved profitability at our garden hose
unit.
Gross profit, as a result, remained essentially flat at $29.8 million for the
three months ended September 26, 2003 from $29.9 million for the three months
ending September 27, 2002. Expressed as a percentage of net sales, gross profit
improved to 21.9% in the current period from 21.3% in the previous year. Our
Tubing Segment gross profit increased to $11.6 million or 29.6% of net sales in
the first quarter of fiscal 2004 compared to $10.8 million or 24.9% in the first
quarter of the previous year due to improved profitability at our garden hose
unit stemming from our continuous cost reduction program. Gross profit at our
Packaging Segment declined to $16.6 million in the most recent period from $17.3
million in the comparable period of last year due to lower sales volume.
Measured as a percentage of net sales, gross profit declined to 24.1% in fiscal
2004 from 24.5% in fiscal 2003. Other gross profit decreased slightly to $1.6
million in the current period from $1.7 million in the comparable period of the
previous year. Measured as a percentage of net sales, other gross profit
decreased to 5.8% in the first quarter of fiscal 2004 compared to 6.5% in the
same period of the previous year.
Selling, general and administrative expense increased to $15.4 million in the
three months ended September 26, 2003 compared to $13.9 million in the three
months ended September 27, 2002 due to higher selling expense associated with
our expanding picnic plate business as well as higher legal, and insurance
related expenses due to timing differences. The ratio of selling, general and
administrative expense to net sales increased to 11.3% for the three months
ending September 26, 2003 from 9.9% in the comparable period of last year.
Integration expense of $1.2 million represents costs to reconfigure and realign
the Elm production facilities to conform to our current production and product
standards.
Operating profit, as a result of the foregoing, decreased to $13.3 million or
9.8% of net sales for the three months ended September 26, 2003 from $16.0
million or 11.4% of net sales for the three months ended September 27, 2002.
Operating profit for our Tubing Segment increased to $8.3 million in the current
period from $7.6 million in the prior period. Measured as a percentage of net
sales, operating profit increased to 21.0% in the current period from 17.4% in
the prior period. Operating Profit for our Packaging Segment decreased to $10.0
million in the current period from $12.3 million in the prior period due to
lower egg carton sales volume and higher selling expense associated with our
picnic plate business. Measured as a percent of net sales, operating profit for
our Packaging Segment decreased to 14.6% in the current period from 17.4% in the
prior period. Other operating profit was flat at 0.1 million in the current
period compared to the previous year. Measured as a percentage of net sales,
other operating profit decreased slightly to 0.2% in the first quarter of fiscal
2004 compared to 0.5% in the same period of the previous year.
Interest expense decreased to $17.5 million in the three months ended September
26, 2003 from $17.7 million in the three months ended September 27, 2002.
Measured as a percentage of net sales, interest expense increased to 12.9% in
the current period compared to 12.6% in the previous period due to lower sales.
The unrealized (gain) loss in derivative contracts increased to a gain of $2.4
million in the current period as compared to a loss of $5.3 million for the
three months ended September 27, 2002.
Loss before income taxes, as a result, was a loss of ($1.9) million for the
three months ended September 26, 2003 compared to a loss of ($7.3) million for
the three months ended September 27, 2002.
Benefit for income taxes was a credit of ($0.8) million for the three months
ended September 26, 2003, compared to a credit of ($2.6) million for the three
months ended September 27, 2002. The Company's effective tax rate was 40.0% for
the three months ended September 26, 2003 compared to 34.9% for the three months
ending September 27, 2002.
Net loss, as a result, was a loss of ($1.1) million for the three months ended
September 26, 2003 compared with a loss of ($4.8) million for the three months
ended September 27, 2002.
13
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended September 26, 2003
was $19.9 million compared with $33.3 million in the same period of the prior
year. The $13.4 million decrease was due primarily to a reduction in accounts
payable.
Working capital on September 26, 2003 was $234.8 million compared to $249.7
million on June 27, 2003. During the quarter, a normal seasonal reduction in
accounts receivable was partially offset by a normal seasonal increase in
inventories.
As of September 26, 2003, the Company had an outstanding balance of $91 million
under the $100.0 million revolving credit line.
The Company's capital expenditures for the three months ended September 26, 2003
and September 27, 2002 were $7.8 million and $6.0 million respectively.
The Company continues to expect that its principal uses of cash for the next
several years will be debt service, capital expenditures and working capital
requirements. Management believes that cash generated from operations plus funds
available in the Company's credit facility will be sufficient to meet its needs
and to provide it with the flexibility to make capital expenditures and
acquisitions which management believes will provide an attractive return on
investment. However, the probability exists that the Company may need additional
financing to take advantage of all the acquisition opportunities that might
arise. There can be no assurance that such financing will be available in the
amounts and terms acceptable to the Company.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in certain debt instruments. At
September 26, 2003, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $407.7 million. A hypothetical 1% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$1.1 million on the Company's after-tax earnings and cash flows, assuming the
Company's current effective tax rate and assuming no change in the principal
amount. Conversely, a reduction in interest rates would favorably impact the
Company's after-tax earnings and cash flows in a similar proportion.
ITEM 4. Controls and Procedures
The management of the Company, including the Company's principal executive
officer and principal financial officer have evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of
Exchange Act) as of September 26, 2003. Based on such evaluation, the Company's
principal executive officer and principal financial officer have concluded that
as of September 26, 2003, such disclosure controls and procedures are effective
for the purpose of ensuring that material information required to be in this
Annual Report is made known to them by others on a timely basis. There have not
been any changes in the Company's internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f) of the Exchange Act) during the quarter
ended September 26, 2003 that have materially affected or are reasonably likely
to materially affect the Company's internal control over financial reporting.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings The Company is party to certain litigation in the
ordinary course of business, none of which the Company believes is
likely to have a material adverse effect on its consolidated financial
position or results of operations.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Securities holders Not applicable
Item 5. Subsequent Events
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chairman and Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chairman and Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEKNI-PLEX, INC.
November 07, 2003
By: /s/ F. Patrick Smith
--------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth W.R. Baker
----------------------
Kenneth W. R. Baker
President and Chief Operating Officer
By: /s/ James E.Condon
------------------
James E.Condon
Vice President and Chief Financial Officer
16