<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 September 29, 2000
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)
<TABLE>
<S> <C>
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)
</TABLE>
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 #
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 29, 2000
and June 30, 2000.........................................................................3
Consolidated Statements of Operations for the three months
ended September 29, 2000 and October 1,1999................................................4
Consolidated Statements of Comprehensive Income for the three months
ended September 29, 2000 and October 1, 1999...............................................4
Consolidated Statements of Cash Flows for the three months
ended September 29, 2000 and October 1, 1999...............................................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. Subsequent events.............................................................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>
SEPTEMBER 29, June 30,
2000 2000
(UNAUDITED) (Audited)
--------- ---------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 12,296 $ 12,525
Accounts receivable, net of an allowance of
$1,662 and $1,642 for possible losses 65,432 96,039
Inventories 99,799 91,233
Refundable income taxes 10,811 14,883
Deferred taxes 4,997 4,997
Prepaid expenses and other current assets 4,140 2,171
--------- ---------
Total current assets 197,475 221,848
PROPERTY, PLANT AND EQUIPMENT, NET 135,867 135,926
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $49,420 AND $45,480 RESPECTIVELY 186,602 190,492
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $614 AND $ 0 RESPECTIVELY 18,344 18,897
DEFERRED INCOME TAXES 11,243 5,398
OTHER ASSETS 2,154 2,228
--------- ---------
$ 551,685 $ 574,789
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 8,643 $ 8,401
Accounts payable - trade 26,694 30,026
Accrued payroll and benefits 4,583 11,662
Accrued interest 9,890 2,359
Accrued liabilities - other 14,528 23,521
--------- ---------
TOTAL CURRENT LIABILITIES 64,338 75,969
LONG-TERM DEBT 638,915 643,192
OTHER LIABILITIES 4,724 4,778
--------- ---------
TOTAL LIABILITIES 707,977 723,939
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in capital 84,176 84,176
Cumulative currency translation adjustment (5,889) (4,486)
Retained earnings (deficit) (14,117) (8,378)
Less: Treasury stock (220,462) (220,462)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY (156,292) (149,150)
--------- ---------
$ 551,685 $ 574,789
========= =========
</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
-------------------------------
SEPTEMBER 29, 2000 October 1, 1999
--------- ---------
<S> <C> <C>
NET SALES $ 107,617 $ 109,926
COST OF GOODS SOLD 85,195 80,921
--------- ---------
GROSS PROFIT 22,422 29,005
OPERATING EXPENSES:
Selling, general and administrative 15,111 14,142
--------- ---------
Operating profit 7,311 14,863
Interest expense (18,220) (9,625)
Other income (expenses) (530) (182)
--------- ---------
Income (loss) before income taxes (11,439) 5,056
Provision for income taxes (5,700) 2,500
--------- ---------
NET INCOME (LOSS) $ (5,739) $ 2,556
========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME (LOSS) $ (5,739) $ 2,556
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
Foreign currency translation adjustment (1,403) (643)
--------- ---------
COMPREHENSIVE INCOME (LOSS) $ (7,142) $ 1,913
========= =========
</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
-----------------------------
SEPTEMBER 29, 2000 October 1, 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,739) $ 2,556
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 9,141 8,497
Deferred income taxes (5,876) 596
Changes in operating assets and liabilities:
Accounts receivable 30,101 32,171
Inventories (8,590) (5,072)
Prepaid expenses and other current assets 2,051 (5,289)
Income taxes -- (46)
Accounts payable (3,656) (1,664)
Accrued interest 7,492 (5,415)
Accrued expenses and other liabilities (16,446) (20,783)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,478 5,551
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,434) (3,087)
Acquisition costs (50) (274)
Deposits and other assets 72 (91)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,412) (3,452)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments/borrowings of long-term debt (4,088) (2,982)
Repayments/borrowings of line of credit (135) (544)
Debt financing costs (61) (23)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (4,284) (3,549)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (11) (37)
-------- --------
NET DECREASE IN CASH (229) (1,487)
CASH, BEGINNING OF PERIOD 12,525 22,117
-------- --------
CASH, END OF PERIOD $ 12,296 $ 20,630
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 10,143 $ 16,120
-------- --------
Income taxes 39 2,546
-------- --------
</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 June 30, 2000.
NOTE 2 - INVENTORIES
Inventories as of September 29, 2000 and June 30, 2000 are summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 29, 2000 June 30, 2000
----------------------- -----------------------
<S> <C> <C>
Raw materials $ 42,453 $ 44,002
Work-in-process 7,049 7,024
Finished goods 50,297 40,207
----------------------- -----------------------
$ 99,799 $ 91,233
----------------------- -----------------------
</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>
SEPTEMBER 29,2000 June 30, 2000
------------------------ -----------------------
<S> <C> <C>
Senior Subordinated Notes issued June 21,2000 at
12-3/4% due June 15, 2010. (less unamortized discount $ 271,327 $ 271,232
of $ 3,673 and $3,768)
Senior Debt:
Revolving line of credit, expiring June, 2006.
At September 29, 2000, the interest rate was 28,000 30,000
9.625% and 11.5%.
Term notes due June, 2006 and June, 2008, with
interest rates at September 29, 2000 of 9.6875% 342,140 344,000
and 10.1875%.
Other, primarily foreign term loans, with interest
rates ranging from 4 -1/4% to 8.4% and maturities 6,091 6,361
from 2000 to 2004
------------------------ -----------------------
647,558 651,593
Less: Current maturities 8,643 8,401
------------------------ -----------------------
$ 638,915 $ 643,192
------------------------ -----------------------
</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 $1,640 (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 $699 (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>
September 29, 2000
Revenues from external
customers $ 35,916 $ 31,632 $ 27,831 $ 12,238 $107,617
Interest expense 5,501 5,939 4,122 2,658 18,220
Depreciation and
amortization 2,746 2,880 2,140 1,120 8,886
Segment income (loss) from
operations 2,963 3,837 5,750 (1,754) 10,796
Expenditures for segment
assets 1,281 1,129 1,364 638 4,412
Segment assets 167,527 209,671 73,646 80,962 531,806
-------- -------- -------- -------- --------
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
Expenditures for segment
assets 879 904 1,178 180 3,141
-------- -------- -------- -------- --------
June 30, 2000
Segment assets 171,764 220,576 77,642 83,900 553,882
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE> 10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 29, 2000 October 1, 1999
--------- ---------
<S> <C> <C>
PROFIT OR LOSS
Total operating profit for reportable segments before
income taxes $ 10,796 $ 17,757
Corporate and eliminations (3,485) (2,894)
--------- ---------
$ 7,311 $ 14,863
========= =========
DEPRECIATION AND AMORTIZATION
Segment totals $ 8,886 $ 8,325
Corporate 255 107
--------- ---------
Consolidated total $ 9,141 $ 8,432
========= =========
EXPENDITURES FOR SEGMENT ASSETS
Total expenditures from reportable segments $ 4,412 $ 3,141
Other unallocated expenditures 22 49
--------- ---------
Consolidated total $ 4,434 $ 3,190
========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 2000 June 30, 2000
--------- ---------
<S> <C> <C>
ASSETS
Total assets from reportable segments $ 531,806 $ 553,882
Other unallocated amounts 19,879 20,907
--------- ---------
Consolidated total $ 551,685 $ 574,789
========= =========
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
SEPTEMBER 29, 2000 October 1, 1999
--------- ---------
<S> <C> <C>
REVENUES
United States $ 96,781 $ 100,039
International 10,836 9,887
--------- ---------
Total $ 107,617 $ 109,926
========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 2000 June 30, 2000
--------- ---------
<S> <C> <C>
LONG-LIVED ASSETS
United States $ 318,182 $ 323,691
International 36,028 29,250
--------- ---------
Total $ 354,210 $ 352,941
========= =========
</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 September 29, 2000
<TABLE>
<CAPTION>
Non-
TOTAL Issuer Guarantors Guarantors
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 107,617 $ 36,701 $ 60,080 $ 10,836
Cost of sales 85,195 27,245 50,275 7,675
--------- --------- --------- ---------
Gross profit 22,422 9,456 9,805 3,161
Operating expenses:
Selling, General and administrative 15,111 9,461 4,544 1,106
--------- --------- --------- ---------
Income from operations 7,311 (5) 5,261 2,055
Interest expense, net 18,220 18,548 (107) (221)
Other expense (income) 530 74 (63) 519
--------- --------- --------- ---------
Income (loss) before provision for income
taxes (11,439) (18,627) 5,431 1,757
Provision for income taxes (5,700) (9,125) 2,700 725
--------- --------- --------- ---------
Net income(loss) $ (5,739) $ (9,502) $ 2,731 $ 1,032
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
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>
12
<PAGE> 13
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at September 29, 2000
(Unaudited)
<TABLE>
<CAPTION>
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets $ 197,475 $ -- $ 53,962 $ 117,749 $ 25,764
Property, plant and equipment, net 135,867 -- 41,176 79,433 15,258
Intangible assets 186,602 -- 24,286 154,038 8,278
Investment in subsidiaries -- (402,642) 402,642 -- --
Deferred charges 18,344 -- 18,344 -- --
Other assets 13,397 (301,515) 48,989 253,431 12,492
--------- --------- --------- --------- ---------
Total assets $ 551,685 $(704,157) $ 589,399 $ 604,651 $ 61,792
========= ========= ========= ========= =========
Current liabilities $ 64,338 $ -- $ 28,798 $ 21,652 $ 13,888
Long-term debt 638,915 -- 634,027 -- 4,888
Other long-term liabilities 4,724 (301,515) 74,555 210,300 21,384
--------- --------- --------- --------- ---------
Total liabilities 707,977 (301,515) 737,380 231,952 40,160
--------- --------- --------- --------- ---------
Additional paid-in capital 84,176 (312,408) 84,156 296,787 15,641
Retained earnings (14,117) (90,234) (11,675) 75,912 11,880
Cumulative currency translation adjustment (5,889) -- -- -- (5,889)
Less: Treasury stock (220,462) -- (220,462) -- --
--------- --------- --------- --------- ---------
Total equity (156,292) (402,642) (147,981) 372,699 21,632
--------- --------- --------- --------- ---------
Total liabilities and equity $ 551,685 $(704,157) $ 589,399 $ 604,651 $ 61,792
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at June 30, 2000
<TABLE>
<CAPTION>
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets $ 221,848 $ -- $ 61,275 $ 134,456 $ 26,117
Property, plant and equipment, net 135,926 -- 41,852 78,957 15,117
Intangible assets 190,492 -- 31,519 150,476 8,497
Investment in subsidiaries -- (398,879) 398,879 -- --
Deferred financing costs, net 18,897 -- 18,897 -- --
Deferred taxes 5,398 -- 5,398 -- --
Other long-term assets 2,228 (301,702) 50,471 240,823 12,636
--------- --------- --------- --------- ---------
Total assets $ 574,789 $(700,581) $ 608,291 $ 604,712 $ 62,367
========= ========= ========= ========= =========
Current liabilities $ 75,969 $ -- $ 37,296 $ 24,390 $ 14,283
Long-term debt 643,192 -- 637,793 -- 5,399
Other long-term liabilities 4,778 (300,410) 72,660 211,846 20,682
--------- --------- --------- --------- ---------
Total liabilities 723,939 (300,410) 747,749 236,236 40,364
--------- --------- --------- --------- ---------
Additional paid-in capital 84,176 (313,700) 85,355 296,880 15,641
Retained earnings (deficit) (8,378) (86,471) (4,351) 71,596 10,848
Cumulative currency translation adjustment
(4,486) -- -- -- (4,486)
Treasury stock (220,462) -- (220,462) -- --
--------- --------- --------- --------- ---------
Total equity (149,150) (400,171) (139,458) 368,476 22,003
--------- --------- --------- --------- ---------
Total liabilities and equity $ 574,789 $(700,581) $ 608,291 $ 604,712 $ 62,367
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER OF FISCAL 2001 COMPARED WITH THE FIRST QUARTER OF FISCAL 2000
Net Sales decreased to $107.6 million for the three months ended September 29,
2000 from $109.9 million for the three months ended October 1, 1999. This
represents a decrease of $2.3 million or 2.1%. Declines in the Consumer,
Healthcare and Specialty Resins segments were partially offset by gains in Food
Packaging sales. In the Consumer Packaging and Products business segment, sales
were affected by continued wet weather in the Northeast and a decision by the
unit's major customer to minimize customer-held inventories during the
off-season. The latter factor is a timing issue, because normal customer
inventories will be required to meet demand in the heavy selling season,
requiring a re-filling of the distribution pipeline prior to that time. In the
Healthcare Packaging, Products and Materials business segment, sales were
affected by contracting customer inventories in anticipation of lower pricing as
a result of falling resin costs. In the Specialty Resins and Compounds business
segment, comparative sales were affected by the precipitous loss of one of the
unit's traditional markets during the fiscal first quarter of 2000, when a large
resin producer began to offer competitive products below the unit's costs. To
offset this loss, the Company has already developed several new premium
specialty products, primarily for medical device markets, but it will take a
number of quarters before the full amount of lost sales can be replaced.
Cost of Sales rose to $85.2 million for the three months ended September 29,
2000 from $80.9 million for the three months ended October 1, 1999, an increase
of $4.3 million. Expressed as a percentage of net sales, cost of sales increased
to 79.2% for the three months ended September 29, 2000 from 73.6% for the three
months ended October 1, 1999. Higher resin costs, which appear to have peaked in
the fiscal first quarter of 2001, accounted for the increase. Aggressive selling
in the Medical Plastics business unit to fill its recent capacity expansion
precluded passing the last round of resin increases through to its customers.
Overhead absorption issues in the Healthcare Packaging, Products and Materials
and Specialty Resins and Compounds segments as a result of lower sales, also
contributed to higher cost of sales for the period.
Gross Profit as a result, decreased to $22.4 million or 20.8% of net sales for
the three months ended September 29, 2000, from $29.0 million or 26.4% of net
sales for the three months ended October 1, 1999.
Selling, general and administrative expense was $15.1 million or 14.0% of net
sales in the three months ended September 29, 2000 compared to $14.1 million
or 12.9% of net sales in the three months ended October 1, 1999. The increase
is a timing issue due to a change in senior executive compensation structure
in connection with the recapitalization of the Company on June 21, 2000. For
fiscal 2001, total senior executive compensation is expected to be less than
for fiscal 2000.
Operating profit, as a result of the foregoing, declined to $7.3 million or 6.8%
of net sales for the three months ended September 29, 2000, from $14.9 million
or 13.5% of net sales for the three months ended October 1, 1999.
Interest expense increased to $18.2 million or 16.9% of net sales in the three
months ended September 29, 2000 from $9.6 million or 8.8% of net sales in the
three months ended October 1, 1999. The increase was due to higher debt levels
as a result of the recapitalization of the Company on June 21, 2000, and higher
interest rates.
15
<PAGE> 16
Income (loss) before income taxes, as a result, was a loss of $11.4 million for
the three months ended September 29, 2000 compared to a gain of $5.1 million for
the three months ended October 1, 1999.
Provision for income taxes was a credit of $5.7 million for the three
months ended September 29, 2000, compared to a provision of $2.5 million for the
three months ended October 1, 1999. The Company's effective tax rate was 49.8%
for the three months ended September 29, 2000. This was about the same as the
effective tax rate of 49.5% for the three months ended October 1, 1999.
Net income, as a result, was a loss of $5.7 million for the three months ended
September 29, 2000 compared with a gain of $2.6 million for the three months
ended October 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended September 29, 2000
was $8.5 million compared with $5.6 million in the same period in the prior
year. The increase of $2.9 million was due primarily to the timing of interest
payments.
Working capital on September 29, 2000 was $133.1 million compared to $145.9
million on June 30, 2000. The decrease was due primarily to a seasonal reduction
in accounts receivable offset by a normal seasonal increase in inventories.
As of September 29, 2000, the Company had an outstanding balance of $28.0
million under the $100.0 million revolving credit line. This represents a
reduction of $2.0 million from the outstanding balance as of June 30, 2000.
The Company's capital expenditures for the three months ended September 29, 2000
and October 1, 1999 were $4.4 million compared with $3.1 million for the three
months ended October 1, 1999.
The Company continues to expect that its principal uses of cash for the next
several years will be acquisitions, 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 in the next several quarters. 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 29, 2000, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $376.3 million. A hypothetical 10% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$1.9 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.
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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
On October 25, 2000, the Company acquired substantially all of the
assets of Super Plastics, Inc. from RCR International, Inc. for
approximately $9.3 million to be adjusted for actual inventory to be
acquired. Super Plastics is located in Mississauga, Canada, where it
manufactures garden hose, air hose, carpet runners, and flex tube
products primarily for the U.S. and Canadian markets. It will become
part of the Company's Consumer Packaging and Products business segment.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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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 13, 2000
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
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