<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 March 31, 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 March 31, 2000
and July 2, 1999........................................................... 3
Consolidated Statements of Operations for the nine months and three
months ended March 31, 2000 and April 2, 1999............................... 4
Consolidated Statements of Comprehensive Income for the nine months
and three months ended March 31, 2000 and April 2, 1999..................... 4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and April 2, 1999.......................................... 5
Notes to Consolidated Financial Statements........................................ 6-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF Operations.............................................. 14-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 16
PART II. OTHER INFORMATION
Item 1. Legal proceedings............................................... 17
Item 2. Changes in securities........................................... 17
Item 3. Defaults upon senior securities................................. 17
Item 4. Submission of matters to a vote of securities holders........... 17
Item 5. Other information............................................... 17
Item 6. Exhibits and reports on Form 8-K................................ 17
</TABLE>
<PAGE> 3
TEKNI-PLEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, 2000 July 2, 1999
(UNAUDITED)
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 17,960 $ 22,117
Accounts receivable, net of an allowance of
$1,691 and $1,662 for possible losses 90,740 96,835
Inventories 102,019 63,190
Deferred income taxes 5,700 5,900
Prepaid expenses and other current assets 8,866 3,664
--------- ---------
TOTAL CURRENT ASSETS 225,285 191,706
PROPERTY, PLANT AND EQUIPMENT, NET 134,245 136,953
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $41,570 AND $29,581 197,044 206,140
DEFERRED FINANCING COSTS, NET OF ACCUMULATED
AMORTIZATION OF $6,192 AND $4,287 17,495 19,358
DEFERRED INCOME TAXES 1,139 1,346
OTHER ASSETS 3,945 3,933
--------- ---------
$ 579,153 $ 559,436
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,549 $ 5,207
Line of credit 375 541
Accounts payable - trade 29,085 27,612
Accrued payroll and benefits 12,495 21,581
Accrued interest 6,557 7,965
Accrued liabilities - other 17,253 26,613
Income taxes payable 4,168 742
--------- ---------
TOTAL CURRENT LIABILITIES 76,482 90,261
LONG-TERM DEBT 437,812 410,646
OTHER LIABILITIES 4,844 6,232
--------- ---------
TOTAL LIABILITIES 519,138 507,139
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock -- --
Additional paid-in capital 41,075 41,075
Cumulative currency translation adjustment (4,424) (1,368)
Retained earnings 23,364 12,590
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 60,015 52,297
--------- ---------
$ 579,153 $ 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 Nine months ended
MARCH 31, April 2, MARCH 31, April 2,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 138,872 $ 129,754 $ 351,179 $ 331,827
COST OF SALES 100,878 92,074 256,682 242,178
--------- --------- --------- ---------
GROSS PROFIT 37,994 37,680 94,497 89,649
OPERATING EXPENSES:
Selling, general and administrative 14,006 16,407 42,994 44,925
--------- --------- --------- ---------
INCOME FROM OPERATIONS 23,988 21,273 51,503 44,724
OTHER EXPENSES:
Interest, net (10,184) (9,860) (29,723) (28,866)
Other (84) (164) (707) (661)
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 13,720 11,249 21,073 15,197
PROVISION FOR INCOME TAXES 6,700 5,400 10,300 7,300
--------- --------- --------- ---------
NET INCOME $ 7,020 $ 5,849 $ 10,773 $ 7,897
========= ========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME $ 7,020 $ 5,849 $ 10,773 $ 7,897
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAXES
Foreign currency translation adjustment (1,051) (1,509) (3,056) (433)
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 5,969 $ 4,340 $ 7,717 $ 7,464
========= ========= ========= =========
</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>
Nine months ended
MARCH 31, 2000 April 2, 1999
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 10,773 $ 7,897
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 24,735 24,966
Deferred income taxes 386 177
Changes in operating assets and liabilities:
Accounts receivable 5,742 5,948
Inventories (39,403) (23,208)
Prepaid expenses and other current assets (5,278) 2,013
Income taxes 3,426 (1,729)
Accounts payable 1,019 (9,379)
Accrued interest (1,410) (6,400)
Accrued expenses and other liabilities (20,546) (11,429)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (20,556) (11,144)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,176) (9,976)
Acquisition costs (193) (17,571)
Deposits and other assets (336) 1,746
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,705) (25,801)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) of long-term debt 28,312 19,754
Net borrowings (repayments) under line of credit (166) 53
Debt financing costs (42) --
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,104 19,807
-------- --------
NET DECREASE IN CASH (4,157) (17,138)
CASH, BEGINNING OF PERIOD 22,117 29,363
-------- --------
CASH, END OF PERIOD $ 17,960 $ 12,225
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 32,859 $ 28,191
-------- --------
Income taxes 6,624 7,119
-------- --------
</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 March 31, 2000 and July 2, 1999 are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 July 2, 1999
--------------- -------------
<S> <C> <C>
Raw materials $ 33,963 $ 26,663
Work-in-process 7,404 5,282
Finished goods 60,652 31,245
--------- --------
$ 102,019 $ 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>
MARCH 31, 2000 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 March 31, 2000, the interest rate was 54,000 22,000
7.75% and 9.75%
Term notes due March 31, 2004 and March 31,
2006, with interest rates at December 31, 1999 108,700 111,063
of 7.75% and 8.25%
Other, primarily foreign term loans, with interest
rates ranging from 4 -1/4% to 8.4% and maturities 7,036 8,331
from 2000 to 2004
-------- --------
444,736 416,394
Less: Current maturities 6,924 5,748
-------- --------
$437,812 $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 $1,782 (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 $760 (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 Resins and
and Materials and Products Food Packaging Compounds TOTAL
------------- ------------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Three months ended
March 31, 2000
Revenues from external
customers $ 41,805 $ 54,964 $ 27,582 $ 14,521 $138,872
Interest expense 2,864 3,608 2,160 1,552 10,184
Depreciation and
amortization 2,578 2,597 1,560 1,173 7,908
Income from operations 8,631 11,175 6,217 187 26,210
Expenditures for segment
assets 1,907 852 1,263 642 4,664
-------- -------- -------- -------- --------
Three months ended
April 2, 1999
Revenues from external
customers $ 36,083 $ 51,424 $ 26,784 $ 15,463 $129,754
Interest expense 2,958 3,303 2,110 1,489 9,860
Depreciation and
amortization 2,198 3,014 2,313 1,337 8,862
Income from operations 7,586 10,495 7,295 1,376 26,752
Expenditures for segment
assets 2,146 1,495 925 293 4,859
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE> 10
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
<TABLE>
<CAPTION>
Healthcare
Packaging, Consumer Specialty
Products, Packaging Resins and
and Materials and Products Food Packaging Compounds TOTAL
------------- ------------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Nine months ended
March 31, 2000
Revenues from external
customers $ 113,694 $ 115,766 $ 78,649 $ 43,070 $351,179
Interest expense 8,695 10,139 6,383 4,506 29,723
Depreciation and
amortization 7,840 7,750 5,377 3,436 24,403
Income from operations 21,129 20,160 17,790 1,286 60,365
Expenditures for segment
assets 2,988 2,515 4,027 1,196 10,726
-------- -------- -------- -------- --------
Nine months ended
April 2, 1999
Revenues from external
customers $ 97,015 $ 108,265 $ 74,938 $ 51,609 $331,827
Interest expense 8,453 10,055 5,867 4,491 28,866
Depreciation and
amortization 5,398 9,486 5,960 3,933 24,777
Income from operations 17,967 18,950 14,235 5,653 56,805
Expenditures for segment
assets 3,247 2,906 2,980 675 9,808
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
MARCH 31, April 2, MARCH 31, April 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PROFIT OR LOSS
Total operating profit for reportable
segments before income taxes $ 26,210 $ 26,752 $ 60,365 $ 56,805
Corporate and eliminations (2,222) (5,479) (8,862) (12,081)
-------- -------- -------- --------
$ 23,988 $ 21,273 $ 51,503 $ 44,724
======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
Segment totals $ 7,908 $ 8,862 $ 24,403 $ 24,777
Corporate 115 43 332 189
======== ======== ======== ========
Consolidated total $ 8,023 $ 8,905 $ 24,735 $ 24,966
======== ======== ======== ========
EXPENDITURES FOR SEGMENT ASSETS
Total reportable-segment expenditures $ 4,664 $ 4,859 $ 10,726 $ 9,808
Other unallocated expenditures 300 94 450 168
-------- -------- -------- --------
Consolidated total $ 4,964 $ 4,953 $ 11,176 $ 9,976
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
SEGMENT ASSETS
<TABLE>
<CAPTION>
Healthcare
Packaging, Consumer Specialty
Products, Packaging Resins and
and Materials and Products Food Packaging Compounds TOTAL
------------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
March 31, 2000 170,340 237,618 74,627 88,450 571,035
July 2, 1999 173,704 216,067 73,351 83,601 546,723
------- ------- ------ ------ -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000 July 2, 1999
-------------- ------------
TOTAL ASSETS
<S> <C> <C>
Total assets from reportable segments $ 571,035 $ 546,723
Other unallocated amounts 8,118 12,713
--------- ---------
Consolidated total $ 579,153 $ 559,436
========= =========
</TABLE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
Three months ended Nine months ended
MARCH 31, April 2, MARCH 31, April 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
United States $124,912 $117,590 $316,855 $299,664
International 13,960 12,164 34,324 32,163
-------- -------- -------- --------
Total $138,872 $129,754 $351,179 $331,827
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000 July 2, 1999
-------------- ------------
<S> <C> <C>
LONG-LIVED ASSETS
United States $ 326,465 $ 339,409
International 27,403 28,321
========= =========
Total $ 353,868 $ 367,730
========= =========
</TABLE>
11
<PAGE> 12
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 March 31, 2000
<TABLE>
<CAPTION>
Non-
TOTAL Issuer Guarantors Guarantors
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 138,872 $ 38,233 $ 86,679 $ 13,960
Cost of sales 100,878 27,180 64,490 9,208
--------- -------- -------- --------
Gross profit 37,994 11,053 22,189 4,752
Operating expenses:
Selling, general and administrative 14,006 7,589 5,294 1,123
--------- -------- -------- --------
Income from operations 23,988 3,464 16,895 3,629
Interest income (expense), net (10,184) (10,269) (8) 93
Other income (expense) (84) (232) 288 (140)
--------- -------- -------- --------
Income (loss) before provision for income
taxes 13,720 (7,037) 17,175 3,582
Provision for income taxes 6,700 (3,400) 8,300 1,800
--------- -------- -------- --------
Net income (loss) $ 7,020 $ (3,637) $ 8,875 $ 1,782
========= ======== ======== ========
</TABLE>
For the nine months ended March 31, 2000
<TABLE>
<CAPTION>
Non-
TOTAL Issuer Guarantors Guarantors
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 351,179 $ 110,892 $ 205,963 $ 34,324
Cost of sales 256,682 78,582 154,775 23,325
--------- --------- --------- --------
Gross profit 94,497 32,310 51,188 10,999
Operating expenses:
Selling, general and administrative 42,994 28,347 11,076 3,571
--------- --------- --------- --------
Income from operations 51,503 3,963 40,112 7,428
Interest income (expense), net (29,723) (29,924) (44) 245
Other income (expense) (707) (346) 868 (1,229)
--------- --------- --------- --------
Income (loss) before provision for income
taxes 21,073 (26,307) 40,936 6,444
Provision for income taxes 10,300 (12,900) 20,000 3,200
--------- --------- --------- --------
Net income (loss) $ 10,773 $ (13,407) $ 20,936 $ 3,244
========= ========= ========= ========
</TABLE>
12
<PAGE> 13
TEKNI-PLEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Condensed Consolidated Balance Sheet - at March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Non-
TOTAL Eliminations Issuer Guarantors Guarantors
--------- ------------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Current assets $ 225,285 $ -- $ 48,813 $141,358 $ 35,114
Property, plant and equipment, net 134,245 -- 41,395 78,364 14,486
Intangible assets 197,044 -- 41,499 154,142 1,403
Investment in subsidiaries -- (391,347) 391,347 -- --
Deferred financing costs, net 17,495 -- 17,096 212 187
Other long-term assets 5,084 (112,819) 81,748 24,828 11,327
--------- --------- -------- -------- --------
Total assets $ 579,153 $(504,166) $621,898 $398,904 $ 62,517
========= ========= ======== ======== ========
Current liabilities $ 76,482 $ -- $ 28,960 $ 31,753 $ 15,769
Long-term debt 437,812 -- 432,050 -- 5,762
Other long-term liabilities 4,844 (112,819) 92,422 4,456 20,785
--------- --------- -------- -------- --------
Total liabilities 519,138 (112,819) 553,432 36,209 42,316
--------- --------- -------- -------- --------
Additional paid-in capital 41,075 (312,408) 41,076 296,766 15,641
Retained earnings 23,364 (78,939) 27,390 65,929 8,984
Cumulative currency translation adjustment (4,424) -- -- -- (4,424)
--------- --------- -------- -------- --------
Total equity 60,015 (391,347) 68,466 362,695 20,201
--------- --------- -------- -------- --------
Total liabilities and equity $ 579,153 $(504,166) $621,898 $398,904 $ 62,517
========= ========= ======== ======== ========
</TABLE>
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>
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRD QUARTER OF FISCAL 2000 COMPARED WITH THE THIRD QUARTER OF FISCAL 1999
Net Sales increased to $138.9 million for the three months ended March 31, 2000
from $129.8 million for the three months ended April 2, 1999. This represents an
increase of $9.1 million or 7.0%. The increase was due primarily to the
acquisition of Tri-Seal International in January 1999 and Natvar in April 1999,
and growth in the Consumer Packaging and Products business segment. The
increase from these factors was partially offset by actions related to the
restructuring of acquired operations such as the elimination in fiscal 2000 of
low-margin sales in certain acquired businesses.
Cost of Sales increased to $100.9 million for the three months ended March 31,
2000 from $92.1 million for the three months ended April 2, 1999. Expressed as a
percentage of net sales, cost of sales increased to 72.6% for the three months
ended March 31, 2000 from 71.0% for the three months ended April 2, 1999. The
primary cause of the increase was higher raw material costs. While the Company
passes on most of these cost increases to its customers, there is usually
a time lag between receiving a material cost increase and passing this cost
through in the form of higher selling prices. The time lag problem is
aggravated in the Consumer Packaging and Products segment where prices to
customers in garden hose, which is the largest business unit in that segment,
are set in the fall of the year for the following twelve months.
Gross Profit, as a result, increased to $38.0 million for the three months ended
March 31, 2000 from $37.7 million for the three months ended April 2, 1999.
Expressed as a ratio to net sales, gross profit declined from 29.0% in the three
months ended April 2, 1999 to 27.4% in the three months ended March 31, 2000.
Selling, general, and administrative expense declined to $14.0 million or 10.1%
of net sales for the three months ended March 31, 2000 from $16.4 million or
12.6% of net sales for the three months ended April 2, 1999 due to efficiencies
realized from integration of the Tri-Seal and Natvar operations, and to
adjustments to certain benefits accruals.
Operating profit increased to $24.0 million or 17.3% of net sales for the three
months ended March 31, 2000 from $21.3 million or 16.4% of net sales for the
three months ended April 2, 1999, for the reasons discussed above.
Interest expense increased moderately to $10.2 million or 7.3% of net sales for
the three months ended March 31, 2000 from $9.9 million or 7.6% of net sales for
the same period in the prior year. This was due primarily to an increase in the
revolving line of credit incurred to acquire Tri-Seal International and Natvar,
higher interest rates, and an increase in inventories in Consumer Packaging and
Products to support the higher sales in that business segment.
Provision for income taxes increased to $6.7 million or 4.8% of net sales for
the three months ended March 31, 2000 from $5.4 million or 4.2% of net sales for
the same period in the prior year. The Company's effective tax rate was 48.8%
for the three months ended March 31, 2000 compared to 48.0% for the same period
in the prior year.
Net income increased to $7.0 million or 5.1% of net sales for the three months
ended March 31, 2000 from $5.8 million or 4.5% of net sales for the same period
in the prior year, for the reasons discussed above.
14
<PAGE> 15
FIRST NINE MONTHS OF FISCAL 2000 COMPARED WITH THE FIRST NINE MONTHS OF FISCAL
1999
Net Sales increased to $351.2 million for the nine months ended March 31, 2000
from $331.8 million for the nine months ended April 2, 1999. This represented an
increase of $19.4 million or 5.8%. The increase was due primarily to the
acquisition of Tri-Seal International in January 1999 and Natvar in April 1999,
and growth in the Consumer, Healthcare, and Food business segments. The
increase from these factors was partially offset by actions related to the
restructuring of acquired operations such as the elimination in fiscal 2000
of low-margin sales in certain acquired businesses.
Cost of Sales increased to $256.7 million for the nine months ended March 31,
2000 from $242.2 million for the nine months ended April 2, 1999. Expressed as a
percentage of net sales, cost of sales was stable at 73.1% for the nine months
ended March 31, 2000 versus 73.0% for the first nine months ended April 2, 1999.
The primary cause of the increase was higher raw materials costs in the nine
months ended March 31, 2000 from the nine months ended April 2, 1999.
Gross Profit, as a result, increased to $94.5 million for the nine months ended
March 31, 2000 from $89.6 million for the nine months ended April 2, 1999, and
the ratio of gross profit to net sales remained stable at 26.9% of net sales for
the nine months ended March 31, 2000 compared with 27.0% for the nine months
ended April 2, 1999.
Selling, general, and administrative expense declined to $43.0 million for the
nine months ended March 31, 2000 from $44.9 million for the nine months ended
April 2,1999. As a ratio to net sales, selling, general, and administrative
expense declined to 12.2% for the nine months ended March 31, 2000 from 13.5%
for the nine months ended April 2, 1999 due to higher sales for the current
period and efficiencies realized from integration of the Tri-Seal and Natvar
operations.
Operating profit increased to $51.5 million or 14.7% of net sales for the nine
months ended March 31, 2000 from $44.7 million or 13.5% for the nine months
ended April 2, 1999 for the reasons discussed above.
Interest expense increased to $29.7 million or 8.5% of net sales for the nine
months ended March 31, 2000 from $28.9 million or 8.7% of net sales for the same
period in the prior year due primarily to an increase in the revolving line of
credit incurred to acquire Tri-Seal International and Natvar and to higher
interest rates.
Provision for income taxes increased to $10.3 million or 2.9% of net sales for
the nine months ended March 31, 2000 from $7.3 million or 2.2% of net sales for
the same period in the prior year. The Company's effective tax rate was 48.9%
for the nine months ended March 31, 2000 compared to 48.0% for the same period
in the prior year.
Net income increased to $10.8 million or 3.1% of net sales for the nine months
ended March 31, 2000 from $7.9 million or 2.4% 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 nine months ended March 31, 2000, net cash used by operating activities
was $20.6 million compared to $11.1 million for the same period in the prior
year for an increased usage of $9.4 million. The increase was due to higher
inventories in Consumer Packaging and Products to accommodate a higher sales
level in that business segment, and a reduction in accrued expenses and
liabilities. Various year-over-year changes in operating assets, accrued
expenses, and liabilities are generally due to offsetting timing differences.
Working capital at March 31, 2000 was $148.8 million compared to $101.4 million
at July 2, 1999. The increase was due primarily to higher inventories in
Consumer Packaging and Products to support the increased level of sales and the
highly seasonal nature of that business segment. Approximately 75% of the annual
sales in garden hose, which is the largest business unit in that segment, occur
in the spring and early summer months.
As of March 31, 2000, the Company had an outstanding balance of $54.0 million
under the $90 million revolving credit line of the existing credit facility.
This was an increase of $32.0 million from the outstanding balance as of July 2,
1999, and was due primarily to normal seasonal requirements of the Consumer
Packaging and Products business segment.
The Company's capital expenditures for the nine months ended March 31, 2000 and
April 2, 1999 were $11.2 million, and $10.0 million, respectively. Management
expects that annual capital expenditures will increase somewhat 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 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk inherent in certain debt instruments. At
March 31, 2000, the principal amount of the Company's aggregate outstanding
variable rate indebtedness was $162.7 million. A hypothetical 10% adverse change
in interest rates would have an annualized unfavorable impact of approximately
$0.9 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.
16
<PAGE> 17
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 agreed to pursue a recapitalization
of the Company. The Company currently anticipates completing the
recapitalization before the end of fiscal 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 principal 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 indebtedness 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
17
<PAGE> 18
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.
May 12, 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX,
INC. STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND BALANCE
SHEET AS AT MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-03-1999
<PERIOD-END> MAR-31-2000
<CASH> 17,960
<SECURITIES> 0
<RECEIVABLES> 92,431
<ALLOWANCES> 1,691
<INVENTORY> 102,019
<CURRENT-ASSETS> 225,285
<PP&E> 177,918
<DEPRECIATION> 43,673
<TOTAL-ASSETS> 579,153
<CURRENT-LIABILITIES> 76,482
<BONDS> 275,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 579,153
<SALES> 351,179
<TOTAL-REVENUES> 351,179
<CGS> 256,682
<TOTAL-COSTS> 256,682
<OTHER-EXPENSES> 42,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,723
<INCOME-PRETAX> 21,073
<INCOME-TAX> 10,300
<INCOME-CONTINUING> 10,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,773
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
