<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 December 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)
New Jersey 22-3286312
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
201 Industrial Parkway,
Somerville, New Jersey 08876 (908) 722-4800
(Address of principal executive office) Issuer's telephone number:
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.
<TABLE>
<CAPTION>
Page #
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of December 26, 1997
and June 27, 1997.................................................. 3
Statements of operations for the six months and three months
ended December 26, 1997 and December 27,1996....................... 4
Statements of cash flows for the six months ended
December 26, 1997 and December 27, 1996............................ 5
Notes to consolidated financial statements........................... 6
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
</TABLE>
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TEKNI-PLEX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 26,1997 June 27, 1997
(UNAUDITED)
---------------- --------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 9,235,000 $ 11,095,000
Accounts receivable 15,055,000 12,688,000
Inventories 13,893,000 13,315,000
Refundable income taxes - 1,083,000
Deferred income taxes 1,172,000 1,500,000
Prepaid expenses and other current assets 2,091,000 2,030,000
------------ ------------
TOTAL CURRENT ASSETS 41,446,000 41,711,000
PROPERTY, PLANT AND EQUIPMENT, NET 41,646,000 42,389,000
INTANGIBLE ASSETS 42,391,000 36,967,000
DEFERRED CHARGES 4,920,000 5,205,000
OTHER ASSETS 281,000 2,757,000
------------ ------------
$130,684,000 $129,029,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 564,000 $ -
Accounts payable trade 5,674,000 6,139,000
Accrued payroll and benefits 1,956,000 5,189,000
Accrued interest 2,119,000 2,038,000
Income tax payable 1,375,000 -
Accrued liabilities - other 1,358,000 2,395,000
------------ ------------
TOTAL CURRENT LIABILITIES 13,046,000 15,761,000
Long-term debt 75,044,000 75,000,000
Deferred income taxes 6,967,000 7,255,000
Other liabilities 556,000 616,000
------------ ------------
TOTAL LIABILITIES 95,613,000 98,632,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - -
Additional paid-in capital 4 1,473,000 41,473,000
Cumulative currency translation adjustment (67,000) --
Retained deficit (6,335,000) (11,076,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 35,071,000 30,397,000
------------- -------------
$130,684,000 $129,029,000
------------- -------------
</TABLE>
See accompanying notes to financial statements.
3
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TEKNI-PLEX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
DECEMBER 26,1997 DECEMBER 27, 1996 December 26, 1997 December 27,1996
(UNAUDITED) (Unaudited)
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 37,831,000 $ 36,428,000 $ 75,622,000 $ 71,595,000
COST OF SALES 27,367,000 26,914,000 55,224,000 53,460,000
------------ ------------ ------------ ------------
GROSS PROFIT 10,464,000 9,514,000 20,398,000 18,135,000
OPERATING EXPENSES:
Selling, general and administrative 4,207,000 2,736,000 8,255,000 7,150,000
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 6,257,000 6,778,000 12,143,000 10,985,000
OTHER EXPENSES:
Interest, net (2,227,000) (2,228,000) (4,336,000) (4,129,000)
Other (87,000) (191,000) (159,000) (440,000)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION 3,943,000 4,359,000 7,648,000 6,416,000
PROVISION FOR INCOME TAXES 1,507,000 1,475,000 2,907,000 2,255,000
------------ ------------ ------------ ------------
NET INCOME $ 2,436,000 $ 2,884,000 $ 4,741,000 $ 4,161,000
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
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TEKNI-PLEX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six months ended
DECEMBER 26,1997 December 27,1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 4,741,000 $ 4,161,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,793,000 5,179,000
Deferred income taxes 40,000 705,000
Changes in operating assets and liabilities:
Accounts receivable (1,454,000) (1,279,000)
Inventories (225,000) (861,000)
Prepaid expenses and other current assets 147,000 717,000
Income taxes 2,458,000 989,000
Accounts payable and accrued expenses (1,206,000) 1,103,000
Accrued interest 81,000 347,000
Accrued expenses (4,409,000) (1,153,000)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,966,000 9,908,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,939,000) (1,402,000)
Acquisitions (2,292,000) --
Investment in PureTec (5,263,000) --
Deposits 2,485,000 (369,000)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,009,000) (1,771,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs -- (160,000)
Net borrowings (repayments) under line of credit 213,000 (4,853,000)
Repayments of long-term debt (30,000) (1,552,000)
---------- -----------
NET CASH USED IN FINANCING ACTIVITIES 183,000 (6,565,000)
---------- -----------
NET INCREASE (DECREASE) IN CASH (1,860,000) 1,572,000
CASH, BEGINNING OF PERIOD 11,095,000 1,048,000
------------ -----------
CASH, END OF PERIOD $ 9,235,000 $ 2,620,000
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 4,236,000 $ 3,330,000
Income taxes 409,000 525,000
------------ -----------
INVESTING ACTIVITIES:
The Company purchased certain assets and assumed
certain liabilities of PurePlast, Inc. effective July 3, 1997,
for approximately $2,292,292,000 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
-----------
</TABLE>
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 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.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information to 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 December 26, 1997 and June 27, 1997 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 26, 1997 June 27, 1997
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<S> <C> <C>
Raw materials $ 6,226,000 $ 5,943,000
Work-in-process 3,542,000 3,362,000
Finished goods 4,125,000 4,010,000
----------- -----------
$13,893,000 $13,315,000
----------- -----------
</TABLE>
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 26, 1997 June 27, 1997
----------------- -------------
<S> <C> <C>
Senior subordinated notes (a) $75,000,000 $75,000,000
Other (b) 608,000 --
----------- -----------
75,608,000 75,000,000
Less: Current maturities 564,000 --
----------- -----------
$75,044,000 $75,000,000
----------- -----------
</TABLE>
6
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
(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.
(b) PurePlast has loan facilities as follows:
Line of credit for $722,000 (CDN $1,000,000) at prime rate, plus -1/4%.
The line is due on demand and is unsecured. There is $515,000 (CDN $738,000)
outstanding at September 26, 1997.
Term loan in the amount of $93,000 (CDN $133,000). The loan is due in
monthly payments of $4,000 (CDN $6,000), 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.
7
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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 OPERATION
SECOND THREE MONTHS OF 1998 COMPARED WITH THE SECOND THREE MONTHS OF 1997
NET SALES increased to $37.8 million for the three months ended December 26,
1997 from $36.4 million for the three months ended December 27, 1996. This
represents an increase of $1.4 million or 3.9%. The increased sales are
primarily attributed to the acquisition of PurePlast, and increased demand for
the Company's pharmaceutical packaging products.
Cost of Goods Sold increased to $27.4 million for the three months ended
December 26, 1997 from $26.9 million for the three months ended December 27,
1996. Expressed as a percentage of net sales, cost of goods sold fell to 72.3%
for the three months ended December 26, 1997 from 73.9% for the three months
ended December 27, 1996. The decline in cost of goods sold as a percentage of
net sales was due primarily to continued reductions in overhead costs and
improved fixed cost absorption from higher sales volumes.
Gross Profit as a result, increased to $10.5 million or 27.7% of net sales for
the three months ended December 26, 1997, from $9.5 million or 26.1% of net
sales for the same period in 1996.
Selling, general and administrative expenses increased to $4.2 million or 11.1%
of net sales for the three months ended December 26, 1997 from $2.7 million or
7.5% of net sales for the same period in 1996. This is due primarily to
increased administrative costs and higher selling expenses associated with the
global expansion of the Company's pharmaceutical business.
Operating profit decreased to $6.3 million or 16.5% of net sales for the three
months ended December 26, 1997, from $6.8 million or 18.6% for the same period
in 1996, for the reasons stated above.
Interest expense remained steady at $2.2 million or 5.9% of net sales for the
three months ended December 26, 1997, from $2.2 million or 6.1% of net sales for
the same period in 1996.
Provision for income taxes remained steady at $1.5 million or 4.0% of net sales
for the three months ended December 26, 1997, from $1.5 million or 4.0% for the
same period in 1996. The Company's effective tax rate was 38% for the three
months ended December 26, 1997 compared to 35% for the same period in 1996. The
increase between periods is due primarily to the expiration of tax carryover
losses and credits.
Net income decreased to $2.4 million or 6.4% of net sales for the three months
ended December 26, 1997, from $2.9 million or 7.9% of net sales for the same
period in 1996, for the same reasons discussed above.
8
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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
First six months of 1998 Compared with the first six months of 1997
Net Sales increased to $75.6 million for the six months ended December 26, 1997
from $71.6 million for the six months ended December 27, 1996. This represents
an increase of $4.0 million or 5.6%. The increased sales are primarily
attributed to increased demand for the Company's pharmaceutical packaging
products, and the acquisition of PurePlast.
Cost of Goods Sold increased to $55.2 million for the six months ended December
26, 1997 from $53.5 million for the six months ended December 27, 1996.
Expressed as a percentage of net sales, cost of goods sold fell to 73.0% for the
six months ended December 26, 1997 from 74.7% for the six months ended December
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 $20.4 million or 27.0% of net sales for
the six months ended December 26, 1997, from $18.1 million or 25.3% of net sales
for the same period in 1996.
Selling, general and administrative expenses increased to $8.3 million or 10.9%
of net sales for the six months ended December 26, 1997 from $7.2 million or
10.0% of net sales for the same period in 1996. This is due primarily to
increases in administrative costs and higher selling expenses associated with
the global expansion of the Company's pharmaceutical business.
Operating profit increased to $12.1 million or 16.1% of net sales for the six
months ended December 26, 1997, from $11.0 million or 15.3% for the same period
in 1996, for the reasons stated above.
Interest expense increased to $4.3 million or 5.7% of net sales for the six
months ended December 26, 1997, from $4.1 million or 5.8% of net sales for the
same period in 1996 due primarily to a restructuring of the Company's debt from
notes to bonds.
Provision for income taxes increased to $2.9 million or 3.8% of net sales for
the six months ended December 26, 1997, from $2.3 million or 3.1% for the same
period in 1996. The Company's effective tax rate was 38% for the six months
ended December 26, 1997 compared to 35% for the same period in 1996.. The
increase between periods is due primarily to the expiration of tax carryover
losses and credits.
Net income increased to $4.7 million or 6.2% of net sales for the six months
ended December 26, 1997, from $4.1 million or 5.8% of net sales for the same
period in 1996, for the same reasons discussed above.
9
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
TEKNI-PLEX, INC.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 26, 1997, net cash provided by operating
activities was $5.0 million compared to $9.9 million for the same period in
1996. This was due primarily to the decrease in liabilities between periods.
Working capital at December 26, 1997 was $28.4 million compared to $26.0
million. The increase working capital at December 26, 1997 was due primarily to
higher accounts receivable and inventory associated with increased sales.
As of December 26, 1997 and June 27, 1997, there was no outstanding balance
under $75 million revolving credit line of the Existing Credit Facility.
The Company's capital expenditures for the six months ended December 26, 1997
and December 27, 1996 were $1.9 million and $1.4 million respectively.
Management expects that annual capital expenditures will increase from
historical levels during the next few years as the Company makes improvements
needed to address air emissions at three of the Company's manufacturing
facilities, and the Company pursues new development and cost-reduction
opportunities. Management has identified potential capital investment
opportunities of approximately $5.1 million for the calendar year 1998 in
addition to approximately $3.0 million of non-discretionary capital expenditures
anticipated during such period.
Apart from acquisitions, the Company's 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
from the current and anticipated credit facilities will be sufficient to meet
the Company's expected debt service requirements, planned capital expenditures,
and operating needs.
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.
10
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TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
TEKNI-PLEX, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
none
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
11
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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.
February 6, 1998
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
and Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI PLEX,
INC. STATEMENT OF EARNINGS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 26, 1997 AND
BALANCE SHEET AS AT DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-03-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> DEC-26-1997
<CASH> 9,235
<SECURITIES> 0
<RECEIVABLES> 15,371
<ALLOWANCES> 316
<INVENTORY> 13,893
<CURRENT-ASSETS> 41,446
<PP&E> 55,155
<DEPRECIATION> 13,509
<TOTAL-ASSETS> 130,684
<CURRENT-LIABILITIES> 13,046
<BONDS> 75,000
0
0
<COMMON> 0
<OTHER-SE> 35,071
<TOTAL-LIABILITY-AND-EQUITY> 130,684
<SALES> 37,831
<TOTAL-REVENUES> 37,831
<CGS> 27,367
<TOTAL-COSTS> 27,367
<OTHER-EXPENSES> 4,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,227
<INCOME-PRETAX> 3,943
<INCOME-TAX> 1,507
<INCOME-CONTINUING> 2,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,438
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
