<PAGE> 1
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 October 1, 1999
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)
201 Industrial Parkway (908) 722-4800
Somerville, New Jersey 08876 (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 / /
<PAGE> 2
TEKNI-PLEX, INC.
<TABLE>
<CAPTION>
Page #
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of October 1, 1999
and July 2, 1999 ..................................................... 3
Consolidated Statements of Operations for the three months
ended October 1, 1999 and October 2, 1998 ............................ 4
Consolidated Statements of Comprehensive Income for the three months
ended October 1, 1999 and October 2, 1998 ............................ 4
Consolidated Statements of Cash Flows for the three months
ended October 1, 1999 and October 2, 1998 ............................ 5
Notes to Consolidated Financial Statements ............................... 6-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ....................................... 15-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........... 17
PART II. OTHER INFORMATION
Item 1. Legal proceedings ................................................. 18
Item 2. Changes in securities ............................................. 18
Item 3. Defaults upon senior securities ................................... 18
Item 4. Submission of matters to a vote of securities holders ............. 18
Item 5. Other information ................................................. 18
Item 6. Exhibits and reports on Form 8-K .................................. 18
</TABLE>
<PAGE> 3
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
OCTOBER 1, 1999 July 2, 1999
(UNAUDITED)
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 20,630 $ 22,117
Accounts receivable, net of an allowance of
$1,174 and $1,662 for possible losses 64,632 96,835
Inventories 68,226 63,190
Deferred income taxes 5,600 5,900
Prepaid expenses and other current assets 8,930 3,664
--------- ---------
Total current assets 168,018 191,706
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 133,635 136,953
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $33,574 AND $29,581 204,956 206,140
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $4,922 AND $4,287 18,746 19,358
DEFERRED INCOME TAXES 1,036 1,346
OTHER ASSETS 4,019 3,933
--------- ---------
$ 530,410 $ 559,436
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,619 $ 5,207
Line of credit -- 541
Accounts payable - trade 26,018 27,612
Accrued payroll and benefits 7,004 21,581
Accrued interest 2,615 7,965
Accrued liabilities - other 22,038 26,613
Income taxes payable 696 742
--------- ---------
TOTAL CURRENT LIABILITIES 63,990 90,261
--------- ---------
LONG-TERM DEBT 407,279 410,646
OTHER LIABILITIES 4,931 6,232
--------- ---------
TOTAL LIABILITIES 476,200 507,139
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in capital 41,075 41,075
Cumulative currency translation adjustment (2,011) (1,368)
Retained earnings 15,146 12,590
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 54,210 52,297
--------- ---------
$ 530,410 $ 559,436
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TEKNI-PLEX, INC. AND SUBSIDIARIES
(Unaudited -- in thousands)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
OCTOBER 1, 1999 October 2, 1998
--------------- ---------------
<S> <C> <C>
NET SALES $ 109,926 $ 108,069
COST OF SALES 80,921 80,978
--------- ---------
GROSS PROFIT 29,005 27,091
OPERATING EXPENSES:
Selling, general and administrative 14,142 13,960
--------- ---------
INCOME FROM OPERATIONS 14,863 13,131
OTHER EXPENSES:
Interest, net 9,625 9,607
Other 182 375
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,056 3,149
PROVISION FOR INCOME TAXES 2,500 1,606
--------- ---------
NET INCOME $ 2,556 $ 1,543
========= =========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<S> <C> <C>
NET INCOME $ 2,556 $ 1,543
OTHER COMPREHENSIVE INCOME (LOSS), NET OF (643) (1,571)
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ 1,913 $ (28)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited -- in thousands)
<TABLE>
<CAPTION>
Three months ended
OCTOBER 1, 1999 October 2, 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,556 $ 1,547
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 8,432 8,239
Deferred income taxes 599 --
Changes in operating assets and liabilities:
Accounts receivable 32,178 31,530
Inventories (5,064) (10,451)
Prepaid expenses and other current assets (5,284) (3,940)
Income taxes (46) (769)
Accounts payable (1,649) (4,130)
Accrued interest (5,401) (6,935)
Accrued expenses and other liabilities (20,711) (6,972)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,610 8,119
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,190) (1,578)
Acquisition costs (274) (42)
Deposits and other assets (90) 943
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,554) (677)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments/borrowings of long-term debt (2,976) (378)
Repayments/borrowings under line of credit (544) 33
Debt financing costs (23) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,543) (345)
-------- --------
NET INCREASE (DECREASE) IN CASH (1,487) 7,097
CASH, BEGINNING OF PERIOD 22,117 29,363
-------- --------
CASH, END OF PERIOD $ 20,630 $ 36,460
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 16,120 $ 15,983
-------- --------
Income taxes 2,546 433
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 - GENERAL
Tekni-Plex is a global, diversified manufacturer of packaging, products, and
materials for the healthcare, consumer, and food packaging industries. The
Company has built a leadership position in its core markets, and focuses on
vertically integrated production of highly specialized products. The Company's
operations are aligned under four primary business groups: Healthcare Packaging,
Products, and Materials; Consumer Packaging and Products; Food Packaging; and
Specialty Resins and Compounds.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information please refer to the
audited financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended July 2, 1999.
NOTE 2 - INVENTORIES
Inventories as of October 1, 1999 and July 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
OCTOBER 1, 1999 July 2, 1999
--------------- ------------
<S> <C> <C>
Raw materials $24,255 $26,663
Work-in-process 5,867 5,282
Finished goods 38,104 31,245
------- -------
$68,226 $63,190
------- -------
</TABLE>
6
<PAGE> 7
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 1, 1999 July 2, 1999
--------------- ------------
<S> <C> <C>
Senior Subordinated Notes issued March 3, 1998 at
9-1/4% due March 1, 2008 $200,000 $200,000
Senior Subordinated Notes issued April 4, 1997 at
11 -1/4% due April 1, 2007 75,000 75,000
Senior Debt:
Revolving line of credit, expiring March 31,
2004. At October 1, 1999, the interest rate was 20,000 22,000
9.00%
Term notes due March 31, 2004 and March 31,
2006, with interest rates at October 1, 1999 of 110,275 111,063
7.25% and 7.75%
Other, primarily foreign term loans, with interest
rates ranging from 4 -1/4% to 8.4% and maturities 7,623 8,331
from 2000 to 2004
-------- --------
412,898 416,394
Less: Current maturities 5,619 5,748
-------- --------
$407,279 $410,646
-------- --------
</TABLE>
7
<PAGE> 8
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 4 - CONTINGENCIES
(a) In January 1993 and 1994, the Company's Belgian subsidiary received
income tax assessments aggregating approximately $2,002 (75,247 Belgian
Francs) for the disallowance of certain foreign tax credits and
investment losses claimed for the years ended July 31, 1990 and 1991.
Additionally, in January 1995, the subsidiary received an income tax
assessment of approximately $853 (32,083 Belgian francs) for the year
ended July 31, 1992. By Belgian law, these assessments are capped at the
values above and do not continue to accrue additional penalties or
interest. Although the future outcome of these matters is uncertain, the
Company believes that its tax position was appropriate and that the
assessments are without merit. Therefore, the Company has appealed the
assessments. Based on advice of legal counsel in Belgium, the Company
believes that the assessment appeals will be accepted by the tax
authorities in Belgium, although there can be no assurance whether or
when such appeals will be accepted.
(b) The Company is a party to various other 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.
8
<PAGE> 9
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 5 - SEGMENT INFORMATION
The Company operates in four industry segments: healthcare packaging, products,
and materials; consumer packaging and products; food packaging; and specialty
resins and compounds. The healthcare packaging, products, and materials segment
principally produces pharmaceutical packaging, medical tubing and medical device
materials. The consumer packaging and products segment principally produces
precision tubing and gaskets, and garden and irrigation hose products. The food
packaging segment produces foamed polystyrene packaging products for the
poultry, meat and egg industries. The specialty resins and compounds segment
produces specialty PVC resins. The healthcare packaging, products, and materials
and consumer packaging and products segments have operations in the United
States, Europe and Canada. Prior to 1998, the Company operated principally in
the food packaging segment.
Financial information concerning the Company's business segments and the
geographic areas in which it operates are as follows:
<TABLE>
<CAPTION>
Healthcare
Packaging, Consumer Specialty
Products, Packaging Food Resins and
and Materials and Products Packaging Compounds TOTAL
------------- ------------ --------- ---------- -----
<S> <C> <C> <C> <C> <C>
October 1, 1999
Revenues from external
customers $ 37,270 $ 32,426 $ 25,116 $ 15,114 $109,926
Interest expense 2,857 3,212 2,101 1,455 9,625
Depreciation and
amortization 2,583 2,726 1,889 1,127 8,325
Segment income from
operations 7,102 4,513 4,673 1,469 17,757
Segment assets 169,997 194,019 73,394 82,539 519,949
Expenditures for segment
assets 879 904 1,178 180 3,141
-------- -------- -------- -------- --------
October 2, 1998
Revenues from external
customers $ 32,266 $ 32,448 $ 23,732 $ 19,623 $108,069
Interest expense 3,201 3,503 1,669 1,234 9,607
Depreciation and
amortization 1,410 2,374 2,772 1,335 7,891
Segment income from
operations 5,281 6,187 2,791 1,910 16,169
Expenditures for segment
assets 573 326 590 71 1,560
-------- -------- -------- -------- --------
July 2, 1999
Segment assets 173,704 216,067 73,351 83,601 546,723
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE> 10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
<TABLE>
<CAPTION>
OCTOBER 1, 1999 October 2, 1998
--------------- ---------------
<S> <C> <C>
PROFIT OR LOSS
Total operating profit for reportable segments before
income taxes $17,757 $ 16,169
Corporate and eliminations (2,894) (3,038)
------- --------
$14,863 $ 13,131
======= ========
DEPRECIATION AND AMORTIZATION
Segment totals $ 8,325 $ 7,891
Corporate 107 348
======= ========
Consolidated total $ 8,432 $ 8,239
======= ========
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures from reportable segments $ 3,141 $ 1,560
Other unallocated expenditures 49 18
------- --------
Consolidated total $ 3,190 $ 1,578
======= ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1, 1999 July 2, 1999
--------------- ------------
<S> <C> <C>
ASSETS
Total assets from reportable segments $519,949 $546,723
Other unallocated amounts 10,461 12,713
-------- --------
Consolidated total $530,410 $559,436
======== ========
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
OCTOBER 1, 1999 October 2, 1998
--------------- ---------------
<S> <C> <C>
REVENUES
United States $100,039 $ 97,431
International 9,887 10,638
-------- --------
Total $109,926 $108,069
======== ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1, 1999 July 2, 1999
--------------- ------------
<S> <C> <C>
LONG-LIVED ASSETS
United States $333,707 $339,409
International 28,685 28,321
-------- --------
Total $362,392 $367,730
======== ========
</TABLE>
10
<PAGE> 11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Consolidated Statement of Earnings
(Unaudited)
For the three months ended October 1, 1999
<TABLE>
<CAPTION>
Non-
TOTAL Issuer Guarantors Guarantors
----- ------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales $109,926 $ 40,614 $ 59,425 $ 9,887
Cost of sales 80,921 27,879 46,334 6,708
-------- -------- -------- --------
Gross profit 29,005 12,735 13,091 3,179
Operating expenses:
Selling, General and administrative 14,142 9,065 3,954 1,123
-------- -------- -------- --------
Income from operations 14,863 3,670 9,137 2,056
Interest expense, net 9,625 9,704 (84) 5
Other expense (income) 182 94 (286) 374
-------- -------- -------- --------
Income (loss) before provision for income
taxes 5,056 (6,128) 9,507 1,677
Provision for income taxes 2,500 (3,035) 4,705 830
-------- -------- -------- --------
Net income(loss) $ 2,556 $ (3,093) $ 4,802 $ 847
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
For the three months ended October 2, 1998
<TABLE>
<CAPTION>
Non-
Total Issuer Guarantors Guarantors
----- ------ ---------- ----------
<S> <C> <C> <C> <C>
Net sales $108,069 $ 36,026 $ 61,405 $ 10,638
Cost of sales 80,978 27,149 46,534 7,295
-------- -------- -------- --------
Gross profit 27,091 8,877 14,871 3,343
Operating expenses:
Selling, General and administrative 13,960 6,467 6,575 918
-------- -------- -------- --------
Income from operations 13,131 2,410 8,296 2,425
Interest expense, net 9,607 9,509 52 46
Other expense (income) 375 80 (325) 620
-------- -------- -------- --------
Income (loss) before provision for income
taxes 3,149 (7,179) 8,569 1,759
Provision for income taxes 1,606 (3,590) 4,446 750
-------- -------- -------- --------
Net income(loss) $ 1,543 $ (3,589) $ 4,123 $ 1,009
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at October 1, 1999
(Unaudited)
<TABLE>
<CAPTION>
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
----- ------------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Current assets $ 168,018 $ -- $ 46,659 $ 91,855 $ 29,504
Property, plant and equipment, net 133,635 -- 44,964 72,985 15,686
Intangible assets 204,956 -- 49,675 153,878 1,403
Investment in subsidiaries -- (372,816) 372,816 -- --
Deferred financing costs, net 18,746 -- 18,357 175 214
Other long-term assets 5,055 (122,437) 53,170 62,940 11,382
--------- --------- --------- --------- ---------
Total assets $ 530,410 $(495,253) $ 585,641 $ 381,833 $ 58,189
========= ========= ========= ========= =========
Current liabilities $ 63,990 $ -- $ 18,825 $ 32,209 $ 12,956
Long-term debt 407,279 -- 400,875 -- 6,404
Other long-term liabilities 4,931 (122,437) 104,463 4,293 18,612
--------- --------- --------- --------- ---------
Total liabilities 476,200 (122,437) 524,163 36,502 37,972
--------- --------- --------- --------- ---------
Additional paid-in capital 41,075 (312,408) 41,076 296,766 15,641
Retained earnings 15,146 (60,408) 20,402 48,565 6,587
Cumulative currency translation adjustment (2,011) -- -- -- (2,011)
--------- --------- --------- --------- ---------
Total equity 54,210 (372,816) 61,478 345,331 20,217
--------- --------- --------- --------- ---------
Total liabilities and equity $ 530,410 $(495,253) $ 585,641 $ 381,833 $ 58,189
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at July 2, 1999
<TABLE>
<CAPTION>
Non-
Total Eliminations Issuer Guarantors Guarantors
----- ------------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Current assets $ 191,706 $ -- $ 45,967 $ 117,689 $ 28,050
Property, plant and equipment, net 136,953 -- 44,507 77,132 15,314
Intangible assets 206,140 -- 68,073 136,639 1,428
Investment in subsidiaries -- (367,167) 367,167 -- --
Deferred financing costs, net 19,358 -- 19,257 (128) 229
Deferred taxes 1,346 -- 1,346 -- --
Other long-term assets 3,933 (132,685) 89,222 36,046 11,350
--------- --------- --------- --------- ---------
Total assets $ 559,436 $(499,852) $ 635,539 $ 367,378 $ 56,371
========= ========= ========= ========= =========
Current liabilities $ 90,261 $ -- $ 52,551 $ 26,868 $ 10,842
Long-term debt 410,646 -- 404,288 -- 6,358
Other long-term liabilities 6,232 (132,685) 119,759 -- 19,158
--------- --------- --------- --------- ---------
Total liabilities 507,139 (132,685) 576,598 26,868 36,358
--------- --------- --------- --------- ---------
Additional paid-in capital 41,075 (312,408) 41,095 296,747 15,641
Retained earnings 12,590 (54,759) 17,846 43,763 5,740
Cumulative currency translation adjustment
(1,368) -- -- -- (1,368)
--------- --------- --------- --------- ---------
Total equity 52,297 (367,167) 58,941 340,510 20,013
--------- --------- --------- --------- ---------
Total liabilities and equity $ 559,436 $(499,852) $ 635,539 $ 367,378 $ 56,371
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER OF FISCAL 2000 COMPARED WITH THE FIRST QUARTER OF FISCAL 1999
Net Sales increased to $109.9 million for the three months ended October 1, 1999
from $108.1 million for the three months ended October 2, 1998. This represents
an increase of $1.86 million or 1.7%. The increase in sales over the same period
in the prior year is due primarily to the acquisition of Tri-Seal International
in January 1999 and Natvar in April 1999, offset by factors related to the
restructuring of acquired operations. These factors include primarily the
elimination in fiscal 2000 of low-margin sales in certain acquired businesses,
and to a lesser extent the elimination of sales to Natvar, which became
intercompany transfers after the acquisition. The level of growth for the first
quarter of fiscal 2000 may not be indicative of future operations.
Cost of Sales decreased slightly to $80.9 million for the three months ended
October 1, 1999 from $81.0 million for the three months ended October 2, 1998.
Expressed as a percentage of net sales, cost of sales decreased to 73.6% for the
three months ended October 1, 1999 from 74.9% for the three months ended October
2, 1998. The decrease in cost of sales as a percentage of net sales was due
primarily to efficiencies achieved in operations acquired with the purchase of
PureTec, partially offset by higher raw material costs.
Gross Profit as a result, increased to $29.0 million or 26.4% of net sales for
the three months ended October 1, 1999, from $27.1 million or 25.1% of net sales
for the three months ended October 2, 1998.
Selling, general and administrative expense, at $14.1 million or 12.9% of net
sales, was essentially unchanged from the prior year's first quarter. Additional
selling, general and administrative expenses incurred with the acquisitions of
Tri-Seal International and Natvar were offset by reductions related to the
restructuring of other acquired operations.
Operating profit increased to $14.9 million or 13.5% of net sales for the three
months ended October 1, 1999, from $13.1 million or 12.2% of net sales for the
three months ended October 2, 1998, for the reasons discussed above.
Interest expense, at $9.6 million, was essentially unchanged from the prior
year's first quarter. As a percent of sales, interest expense decreased slightly
to 8.8% from 8.9% in the prior year.
Provision for income taxes increased to $2.5 million or 2.3% of net sales for
the three months ended October 1, 1999, from $1.6 million or 1.5% of net sales
for the same period in the prior year. The Company's effective tax rate was
49.5% for the three months ended October 1, 1999 compared to 51.0% for the same
period in the prior year. The decrease in the effective tax rate is the result
of the decrease in non-deductible expenses in relation to pretax income.
Net income increased to $2.6 million or 2.3% of net sales for the three months
ended October 1, 1999, from $1.5 million or 1.4% of net sales for the same
period in the prior year, for the reasons discussed above.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended October 1, 1999, net cash provided by operating
activities was $5.6 million compared to $8.1 million for the same period in the
prior year. This was due primarily to the timing of accrued payroll and benefit
payments.
Working capital at October 1, 1999 was $104.0 million compared to $101.4 million
at July 2, 1999. The increase in working capital was due primarily to the
decrease in accrued expenses offset by normal seasonal decreases in accounts
receivable.
As of October 1, 1999 the Company had an outstanding balance of $20.0 million
under the $90 million revolving credit line of the existing credit facility.
This is a reduction of $2.0 million from the outstanding balance as of July 2,
1999.
The Company's capital expenditures for the three months ended October 1, 1999
and October 2, 1998 were $3.2 million, and $1.6 million respectively. Management
expects that annual capital expenditures will increase from historical levels
during the next few years as the Company makes improvements in the recently
acquired operations.
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 credit facility will be sufficient to meet the Company's expected debt
service requirements, planned capital expenditures, and operating needs.
However, there can be no assurance that sufficient funds will be available from
operations or borrowings under the credit facility to meet the Company's cash
needs to the extent management anticipates. The credit facility will provide the
Company with the increased flexibility to make capital expenditures and
acquisitions that management believes will provide an attractive return on
investment. To the extent the Company pursues future acquisitions, the Company
may be required to obtain additional financing. There can be no assurance that
it will be able to obtain such financing in amounts and on terms acceptable to
it.
YEAR 2000 ISSUES
Definition: "Year 2000 issues" refer to possible events resulting directly or
indirectly from the inability of digital computer equipment or software to
accurately and without interruption handle dates both before and after January
1, 2000 and to process the year 2000 as a leap year.
Assessment: Tekni-Plex has evaluated the potential impact and remediation costs
of Year 2000 issues. The Company believes that, due to the nature of its
manufacturing processes and procedures, the Year 2000 issues will not have a
material impact on its business.
Manufacturing Infrastructure: The Company's basic operations involve certain
plastics converting processes. These processes involve primarily plastic
extrusion and fabrication equipment of various forms. For the most part, this
equipment is controlled either manually or by means of mechanical and analog
devices. For equipment that does include microprocessors, the applications being
controlled are mechanical and not date-sensitive, and can be controlled manually
if necessary. In its investigations thus far, the Company has identified no
significant manufacturing processes that will be disrupted by the Year 2000
issues.
16
<PAGE> 17
Support Systems: The Company believes that it has identified the major
computers, software applications, and other equipment utilized by support
systems, primarily the accounting systems, that must be modified, upgraded, or
replaced to minimize the possibility of any disruption of business. The Company
has commenced the process of modifying, upgrading, and replacing major systems
that may be adversely affected, and expects to complete this process before the
occurrence of any significant disruption of business. However, to a large
extent, this includes replacing systems of acquired businesses as part of the
Company's normal integration strategy. As a result, additional costs that will
be incurred solely due to Year 2000 issues are difficult to isolate.
Nonetheless, the Company estimates such additional costs will be less than
$250,000 in the aggregate. In addition, the Company does routine data backup of
critical systems during the normal course of business. This backup provides the
ability to recover data in the event of a catastrophic computer failure. It is
the Company's belief that its customers and suppliers, for the most part, have
similar data safeguards in place.
Suppliers: The Company has contacted its suppliers to identify any potential
disruption in the supply of raw materials. As a result, the Company believes
that the supply of basic chemicals and other raw materials used in its
vertically integrated manufacturing processes is unlikely to be significantly
disrupted. In addition, the Company, in the normal course of business, maintains
adequate inventories of such raw materials to protect against short-term
delivery interruptions.
Customers: Tekni-Plex is committed to providing uninterrupted service to its
customers. In a few cases, the Company has direct interfaces with the computer
systems of its customers, primarily for "vendor managed inventory" applications.
The Company expects to resolve any significant Year 2000 issues with such
customers before the occurrence of any business disruptions, although the
Company has no control over the actions of these customers. The
Company expects to maintain adequate finished goods inventories to protect
customers against the possibility of temporary computer interface interruptions,
if any.
Conclusion: Tekni-Plex believes that it is taking adequate steps to address all
significant internal Year 2000 issues that could adversely affect its business
operations. Of course, it is not possible to identify, with complete certainty,
all potential Year 2000 issues that may in some way affect the Company, its
suppliers, or its customers. The Company expects that any disputes arising as
the result of such unidentified Year 2000 issues will be resolved in the normal
course of business.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in certain debt instruments. At
October 1, 1999, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $130.3 million. A hypothetical 10% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$0.5 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.
17
<PAGE> 18
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. Other Information
In order to provide liquidity to certain investors in the Company's
sole stockholder, the Company has decided to pursue a recapitalization
of the Company. The Company currently anticipates completing the
recapitalization in the first quarter of calendar year 2000. The
recapitalization is subject to various contingencies, including the
availability of sufficient debt and equity financing on terms acceptable
to the Company and certain of its principle investors, and approval by
various investors in the Company. Although there can be no assurance
that the proposed recapitalization will be consummated at all or without
delay, the Company currently contemplates that substantially all of the
Company's current outstanding indebtness will be refinanced as part of
the proposed recapitalization of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE> 19
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 15, 1999
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 Principal Accounting and Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX,
INC. STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED OCTOBER 1, 1999 AND
BALANCE SHEET AS AT OCTOBER 1, 1999 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-30-2000
<PERIOD-START> JUL-03-1999
<PERIOD-END> OCT-01-1999
<CASH> 20,630
<SECURITIES> 0
<RECEIVABLES> 65,806
<ALLOWANCES> 1,174
<INVENTORY> 68,226
<CURRENT-ASSETS> 168,018
<PP&E> 170,167
<DEPRECIATION> 36,532
<TOTAL-ASSETS> 530,410
<CURRENT-LIABILITIES> 63,990
<BONDS> 275,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 530,410
<SALES> 109,926
<TOTAL-REVENUES> 109,926
<CGS> 80,921
<TOTAL-COSTS> 80,921
<OTHER-EXPENSES> 14,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,625
<INCOME-PRETAX> 5,056
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 2,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,556
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
