<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 26, 1997
|_| 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 small business issuer as specified in its charter)
Delaware 22-3286312
- --------------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
201 Industrial Parkway, Somerville NJ 08876
- --------------------------------------------------------------------------------
(Address of principal executive office)
Issuer's telephone number: 908-722-4800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
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TEKNI-PLEX, INC.
Page #
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheet as of September 26, 1997 and June 27, 1997............. 3
Statements of operations for the three months ended
September 26, 1997 and September 27, 1996.......................... 4
Statements of cash flows for the three months ended
September 26, 1997 and September 27, 1996.......................... 5
Notes to consolidated financial statements......................... 6-7
ITEM 2. Management's Discussion and Analysis of financial Condition
and Results of Operations....................................... 8
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings................................................ 9
ITEM 2. Changes in securities............................................ 9
ITEM 3. Defaults upon senior securities.................................. 9
ITEM 4. Submission of matters to a vote of securities holders............ 9
ITEM 5. Other information................................................ 9
ITEM 6. Exhibits and reports on Form 8-K................................. 9
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TEKNI-PLEX, INC.
BALANCE SHEETS
September 26, 1997
(Unaudited) June 27, 1997
------------------ -------------
Assets
Current:
Cash $ 12,956,000 $ 11,095,000
Accounts receivable 15,089,000 12,688,000
Inventories 13,363,000 13,315,000
Refundable income taxes 1,083,000
Deferred income taxes 1,500,000 1,500,000
Prepaid expenses and other current assets 2,432,000 2,030,000
------------- -------------
Total current assets 45,340,000 41,711,000
Property, plant and equipment, net 42,409,000 42,389,000
Intangible assets 37,953,000 36,967,000
Deferred charges 4,849,000 5,205,000
Other assets 518,000 2,757,000
------------- -------------
$ 131,069,000 $ 129,029,000
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $ 276,000 $ --
Current portion of long term debt 51,000 --
Accounts payable trade 7,241,000 6,139,000
Accrued payroll and benefits 805,000 5,189,000
Accrued interest 4,189,000 --
Accrued liabilities - other 3,053,000 4,433,000
------------- -------------
Total current liabilities 15,615,000 15,761,000
Long-term debt 75,058,000 75,000,000
Deferred income taxes 7,084,000 7,255,000
Other liabilities 610,000 616,000
------------- -------------
Total liabilities 98,367,000 98,632,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized
20,000 shares, issued and outstanding
1,707 shares -- --
Additional paid-in capital 41,473,000 41,473,000
Retained deficit (8,771,000) (11,076,000)
------------- -------------
Total stockholders' equity 32,702,000 30,397,000
------------- -------------
$ 131,069,000 $ 129,029,000
============= =============
See accompanying notes to financial statements.
3
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TEKNI-PLEX, INC.
STATEMENTS OF OPERATIONS
Quarter ended
September Quarter ended
26, 1997 September
(unaudited) 27, 1996
------------- -------------
Net sales $37,791,000 $35,167,000
Cost of sales 27,857,000 26,546,000
----------- -----------
Gross profit 9,934,000 8,621,000
Operating expenses:
Selling, general and administrative 4,048,000 4,414,000
----------- -----------
Income from operations 5,886,000 4,207,000
Other expenses:
Interest, net 2,109,000 1,901,000
Other 72,000 249,000
----------- -----------
Income before provision for income taxes 3,705,000 2,057,000
Provision for income taxes 1,400,000 780,000
----------- -----------
Net (loss) income $ 2,305,000 $ 1,277,000
=========== ===========
See accompanying notes to financial statements.
4
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TEKNI-PLEX, INC.
STATEMENTS OF CASH FLOWS
Quarter ended
September Quarter ended
26, 1997 September
(unaudited) 27, 1996
------------- -------------
Cash flows from operating activities:
Net income $ 2,305,000 $ 1,277,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,423,000 2,568,000
Deferred income taxes (170,000) (171,000)
Changes in operating assets and liabilities:
Accounts receivable (1,489,000) (1,273,000)
Inventories 304,000 (711,000)
Prepaid expenses and other current assets 619,000 794,000
Income taxes -- 1,117,000
Accounts payable 1,102,000 5,794,000
Accrued interest 2,151,000 337,000
Accrued expenses (3,910,000) (420,000)
------------ -----------
Net cash provided by
operating activities 3,335,000 9,312,000
------------ -----------
Cash flows from investing activities:
Capital expenditures (1,221,000) (892,000)
Acquisitions (2,292,000) --
Deposits 2,240,000 127,000
------------ -----------
Net cash used in investing
activities (1,273,000) (765,000)
------------ -----------
Cash flows from financing activities:
Net borrowings (repayments) under
line of credit -- (3,319,000)
Repayments of long-term debt (201,000) (599,000)
------------ -----------
Net cash used in
financing activities (201,000) (3,918,000)
------------ -----------
Net increase in cash 1,861.000 4,629,000
Cash, beginning of period 11,095,000 1,048,000
------------ -----------
Cash, end of period $ 12,956,000 $ 5,677,000
============ ===========
Supplemental cash flow information:
Cash paid for:
Interest $ -- $ 1,390,000
Income taxes 529,000 56,000
============ ===========
Investing activities:
The Company purchased certain assets
and assumed certain liabilities of
PurePlast, Inc. effective July 3,
1997, for approximately $2,292,000
in cash. In conjunction with the
acquisition, liabilities were assumed
as follows:
Fair value of assets acquired $ 1,802,000
Goodwill 1,734,000
Cash paid (2,292,000)
-----------
Liabilities assumed $ 1,244,000
===========
See accompanying notes to financial statements.
5
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Tekni-Plex, Inc. is a New Jersey based manufacturer of primary packaging
materials for the pharmaceutical, food, foodservice disposables and
telecommunications industries. The Company is organized into two operating
groups. The Flexible Packaging Group produces printed and unprinted multi-layer
constructions of plastic, paper and metal films and sheets, with emphasis on
pharmaceutical applications. The Foam Products Group primarily produces
polystyrene foam packaging products for the food and foodservice disposables
industries.
The results for the three months ended September 26, 1997 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 financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results of operations for the
period presented and the consolidated balance sheet at September 26, 1997.
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 audited financial
statements and footnotes thereto included in the Company's Annual Report on form
S-4 for the year ended June 27, 1997.
NOTE 2 - INVENTORIES
Inventories as of June 27, 1997 and June 28, 1996 are summarized as follows:
September 26, 1997 June 27, 1997
------------------ -------------
Raw materials $5,736,000 $5,943,000
Work-in-process 3,486,000 3,362,000
Finished goods 4,141,000 4,010,000
------------------ -------------
$13,363,000 $13,315,000
================== =============
NOTE 3 - DEBT
Debt consists of the following:
September 26, 1997 June 27, 1997
------------------ -------------
Senior subordinated notes (a) $75,000,000 $75,000,000
Other (b) 385,000 -
------------------ -------------
75,385,000 75,000,000
Less: Current maturities 327,000 -
------------------ -------------
$75,058,000 $75,000,000
================== =============
(a) On April 4, 1997, the Company issued $75,000,000 of 11 1/4% ten year notes.
Interest on the notes is payable semi-annually. These proceeds along with a
capital contribution of $18,373,000 were used to repay the balance of
$36,800,000 on the credit facility, repay the senior subordinated notes of
$25,200,000, including a prepayment penalty of $1,200,000 and repurchase
the redeemable warrants for $20,000,000. These transactions resulted in an
extraordinary loss of approximately $20,666,000. The extraordinary loss was
comprised of (i) the prepayment penalty of $1,200,000 and the write-off of
deferred financing costs and debt discount of $3,449,000 net of the
combined tax benefit of $1,757,000 and (ii) the loss of the repurchase of
the warrant of $17,773,000. The fair value of the warrants was determined
pursuant to the contractually agreed value among the relevant parties.
(b) PurePlast has loan facilities as follows:
o Line of credit for $722,000 at the prime rate, plus 1/4%. The line
is due on demand and is unsecured. There is $276,000 outstanding at
September 26, 1997.
o Term loan in the amount of $109,000. The loan is due in monthly
payments of $4,000, plus interest at prime, plus 1 1/4%
NOTE 4 - 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 or results of operations.
6
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
TEKNI-PLEX, INC.
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
In additon to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business propects, new products, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operation, performance, development
and results of the Company's business include, but are not limited to, those
matters discussed herein in the sections entitled Part I, Item 1-Management's
Discussion and Analysis of Financial Condition and Results of operations and
Part II, Item 1-Legal Proceedings. The words "believe", "expect", "anticipate",
"project" and similar expressions identify forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statemtns to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with Securities and Exchange Commission, including without
limitation, the Company's Form S-4 for the year ended June 27, 1997.
First three months of 1998 Compared with the first three months of 1997
Net Sales increased to $37.8 million for the three months ended September 26,
1997 from $35.2 million for the three months ended September 26, 1996. This
represents an increase of $2.6 million or 6.9%. The increased sales are
primarily attributed to the acquisition of PurePlast and the intensive efforts
to expand our market in the flexible packaging division.
Cost of Goods Sold increased to $27.9 million for the three months ended
September 26, 1996. Expressed as a percentage of net sales, cost of goods sold
improved to 73.7% for the three months ended September 26, 1997 from 75.5% for
the three months ended September 27, 1996. The decline in cost of goods sold as
a percentage of net sales was due primarily to a decline in raw material costs,
continued reductions in overhead costs and improved fixed cost absorption from
higher sales volumes.
Gross Profit as a result, increased to $9.9 million or 26.2% of net sales for
the three months ended September 26, 1997, from $8.6 million or 24.5% of net
sales for the same period in 1996.
Selling, general and administrative expenses decreased to $4.0 million or 10.7%
from $4.4 million or 12.6% due primarily to decreased administrative expense.
Operating profit increased to $5.9 million or 15.6% of net sales for the three
months ended September 26, 1997, from $4.2 or 12.0% for the same period in 1996,
for the reasons stated above.
Interest expense increased to $2.1 million or 5.6% of net sales for the three
months ended September 26, 1997, from $1.9 million or 5.4% of net sales for the
same period in 1996 due primarily to a restructuring of our debt from notes to
bonds.
Provision for income taxes increased to $1.4 million or 3.7% of net sales for
the three months ended September 26, 1997, from $.8 million or 2.2% for the same
period in 1996. The Company's effective tax rate was 38% for the three months
ended September 26, 1997. The increase between periods is due primarily to the
utilization of certain state tax carryover losses and credits in the first
quarter of fiscal year 1997.
Net income increased to $2.3 million or 6.1% of net sales for the three months
ended September 26, 1997, from $1.3 million or 3.6% of net sales for the same
period in 1996, for the same reasons discussed above.
New Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income," and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. Both statements are effective for the Company's 1999 fiscal
year. The Company will be reviewing these pronouncements to determine their
applicability to the Company, if any.
7
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
TEKNI-PLEX, INC.
PART II. Other Information
Item 1. Legal Proceedings
The Company is a party to various legal proceedings arising in the
normal conduct of business. Managment believes that the final
outcome of these proceedings will not have a material adverse
effect on the Company's financial position or results of
operations.
Item 2. Changes in Securities
none
Item 3. Defaults Upon Senior Securities
none
Item 4. Submission of Matters to a Vote of Securities holders
not applicable
Item 5. Other Information
none
Item 6. Exhibits and Reports on Form 8-K
none
8
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
TEKNI-PLEX, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 10, 1997
By: /s/ F. Patrick Smith
----------------------------------
F. Patrick Smith
Chairman of the Board
By: /s/ Kenneth W. R. Baker
-------------------------------------
Kenneth W. R. Baker
President and Chief Operating Officer
Principal Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX,
INC. STATEMENT OF EARNINGS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 26, 1997
AND BALANCE SHEET AS AT SEPTEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> SEP-26-1997
<CASH> 12,956
<SECURITIES> 0
<RECEIVABLES> 15,089
<ALLOWANCES> 313
<INVENTORY> 13,363
<CURRENT-ASSETS> 45,340
<PP&E> 54,884
<DEPRECIATION> 12,475
<TOTAL-ASSETS> 131,069
<CURRENT-LIABILITIES> 15,615
<BONDS> 75,000
0
0
<COMMON> 0
<OTHER-SE> 32,702
<TOTAL-LIABILITY-AND-EQUITY> 131,069
<SALES> 37,791
<TOTAL-REVENUES> 37,791
<CGS> 27,857
<TOTAL-COSTS> 27,857
<OTHER-EXPENSES> 4,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,109
<INCOME-PRETAX> 3,705
<INCOME-TAX> 1,400
<INCOME-CONTINUING> 2,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,305
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
