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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K/A
(Xxxx One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 28, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-28157
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TEKNI-PLEX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 00-0000000
(State of Incorporation) (I.R.S. Employer
Identification No.)
000 XXXXX XXXXXX XXX XXXX 00000
XXXXXXX, XXXXX (Zip Code)
(Address of principal executive offices)
(Registrant's telephone number, including area code)
(000) 000-0000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check xxxx 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 [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of stock as of the latest practicable date.
None
Documents Incorporated by Reference: See Index to Exhibits.
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ITEM 1. BUSINESS
INTRODUCTION
We were founded as a Delaware corporation in 1967 to acquire the General
Felt Products division of Standard Packaging Corporation. At that time, we were
located in Brooklyn, NY, where we produced laminated closure (cap) liners
primarily for the pharmaceutical and food industries. Over the years, we have
built a reputation for solving difficult packaging problems and providing
customers with high quality, advanced packaging materials. In 1970, we built an
additional manufacturing facility in Somerville, New Jersey, diversifying into
the business of producing polystyrene foam trays for the poultry processing
industry.
In March 1994, Tekni-Plex was acquired by Dr. F. Xxxxxxx Xxxxx and other
investors. Xx. Xxxxx was elected Chief Executive Officer. In April 1994, Xx.
Xxxxxxx X.X. Xxxxx joined our company and was appointed Chief Operating Officer.
At that time, the principal product lines consisted of clear, high-barrier
laminations for pharmaceutical blister packaging (which we refer to as clear
blister packaging); closure liners, primarily for pharmaceutical end-uses; and
foam processor trays primarily for the poultry industry.
In December 1995, Tekni-Plex acquired the Flemington, NJ, plant and
business of Xxxxxx Flexible Packaging Corporation. The Flemington plant utilized
lamination and coating technology to produce packaging materials primarily for
pharmaceutical products such as transdermal patches, sutures, iodine and alcohol
swabs, aspirin and other physician samples. We relocated the Brooklyn equipment
and business into the Flemington facility during 1996. The synergistic result of
having complementary technologies in one location created a combined operation
with considerably higher efficiencies and lower costs than the sum of the
stand-alone operations.
In February 1996, we expanded our food packaging business by completing our
acquisition of Dolco Packaging Corp., a publicly-traded $81 million foam
products company that was nearly twice the size of Tekni-Plex. Dolco had been in
the business of producing foam packaging products since the 1960s and had
attained the leading share of foam egg carton sales in the United States. The
Dolco acquisition also solidified our position as a leading supplier of foam
processor trays. In August 1997, Dolco, which had been a wholly owned subsidiary
of Tekni-Plex, was merged into Tekni-Plex.
In July 1997, we acquired the business and operating facility of PurePlast
Inc. of Xxxxxxxxx, Xxxxxxx, Xxxxxx. PurePlast produced calendered polyvinyl
chloride (vinyl) sheet primarily for food and electronics packaging
applications. Following the acquisition, we diversified the end markets served
by this location by developing proprietary formulations of vinyl sheet for
vertical integration into our clear blister packaging business and for sale
directly to our global pharmaceutical customers.
In March 1998, Tekni-Plex acquired PureTec Corporation, a publicly-traded
company with annual sales of $315 million. PureTec was a leading manufacturer of
plastic packaging, products, and materials primarily for the healthcare and
consumer markets. PureTec enjoyed leading market positions in its core products,
including garden and irrigation hose, precision tubing and gaskets primarily for
the aerosol packaging industry, vinyl medical tubing, and vinyl compounds for
the production of medical devices. PureTec is a wholly-owned subsidiary of
Tekni-Plex.
In January 1999, we acquired substantially all the assets of Tri-Seal
International, Inc., a leader in sophisticated extruded and co-extruded
capliners and seals. The Tri-Seal operations have been integrated with and into
our closure liner business.
In April 1999, we acquired substantially all the assets of Xxxxxx, a
producer of disposable medical tubing and electrical sheathing. As with
Tri-Seal, the Xxxxxx acquisition was intended to strengthen our existing core
business and expand product offerings. The Xxxxxx operation has been integrated
into our medical tubing and industrial extrusions businesses.
In June 2000, we completed a recapitalization of Tekni-Plex. As part of the
recapitalization, existing investors other than management sold most of their
interests, and a group of new investors contributed an aggregate of $167 million
in new equity and agreed to contribute up to $103 million in additional equity
over the next five years. All members of management maintained 100% of their
interests in the Company. Also,
1
Tekni-Plex entered into a new credit agreement, issued $275 million in new
senior subordinated notes, and repaid the debt that existed prior to the
recapitalization.
In October 2000, we acquired substantially all the assets of the Super
Plastics division of RCR International Inc. Super Plastics is primarily a
manufacturer of garden hose and has a manufacturing facility in Xxxxxxxxxxx,
Xxxxxxx Xxxxxx. The Super Plastics operations have been integrated with and into
our garden hose business.
In October 2001, we acquired substantially all of the assets of the garden
hose business of Xxxx XX Industries, Inc. which operates under the name Swan
Hose. Swan, which has one manufacturing facility located in Bucyrus, Ohio,
enhanced Tekni-Plex's geographic coverage of the North American garden hose
market. The Swan operations have been integrated with and into our garden hose
business.
In July 2002 we acquired substantially all of the assets of Elm Packaging
Company. Elm produces polystyrene foam plates, bowls, and meat and bakery trays.
The Elm acquisition significantly increases our capacity to produce foamed
polystyrene products primarily for customers in the food packaging and
foodservice markets.
DESCRIPTION OF BUSINESS
We are a global, diversified manufacturer of packaging, packaging products
and materials as well as tubing products. We primarily serve the food,
healthcare and consumer markets. We have built leadership positions in our core
markets, and focus on vertically integrated production of highly specialized
products. We have operations in the United States, Europe and Canada. We believe
that our end market and product line diversity has the effect of reducing
overall risk related to any single product or customer. Our operations are
aligned under two business segments: Packaging and Tubing Products. Products
that do not fit in either of these two segments, including recycled PET, vinyl
compounds and specialty resins have been reflected in Other. Representative
product lines in each of our business segments are listed below:
BUSINESS SEGMENT
PACKAGING TUBING PRODUCTS
--------- ---------------
- Foam egg cartons - Garden and irrigation hose
- Pharmaceutical blister films - Medical tubing
- Poultry and meat processor trays - Pool and vacuum hose
- Closure Liners
- Aerosol and pump packaging components
- Foam plates
COMPETITIVE STRENGTHS
We believe that our competitive strengths include:
- Strong customer relationships. We have long-standing relationships with
many of our customers. We attribute our long-term customer relationships
to our ability to consistently manufacture high quality products and
provide a superior level of customer service. We routinely win customer
awards for our superior products and customer service and have recently
been recognized for supplier excellence by 3M Pharmaceuticals, Pfizer,
Xxx Lilly, Boston Scientific, and Kraft Foods, among others.
2
- Strong market positions in core businesses. We have a strong market
presence in our core product lines. The following table shows what we
believe to be our market position in the U.S. in our primary product
lines:
PRODUCT MARKET POSITION
-----------------------
Vinyl medical device materials.............................. 1
Vinyl medical tubing........................................ 1
Laminated, clear, high barrier pharmaceutical blister
packaging................................................. 1
Multi-layered co-extruded and laminated closure liners...... 1
Garden and irrigation hose.................................. 1
Precision tubing and gaskets for aerosol packaging.......... 1
Egg cartons................................................. 1
Foam processor trays........................................ 2
- Experienced management team. Our management team has been successful in
selecting and integrating strategic acquisitions as well as improving
underlying business fundamentals. After significantly improving the
business of Tekni-Plex following our 1994 acquisition, management
successfully integrated both the Flemington and Dolco operations during
1996, the latter being a public company then nearly twice our size.
During the same period, our Brooklyn operation was successfully merged
into our Flemington plant. In 1997, we acquired and integrated the
PurePlast operations. In 1998, we acquired PureTec, a public company then
more than twice our size. In 1999, we acquired and integrated the assets
and business of Tri-Seal and Xxxxxx. In 2000 we acquired and integrated
all of the assets of the Super Plastics division of RCR International,
Inc. In 2001, we acquired and integrated the Swan Hose business of Xxxx
XX Industries, Inc. In 2002 we acquired the assets and business of Elm
Packaging. Management has substantially improved the operating margins of
each of these acquisitions. Members of our management team have
integrated acquisitions, effected turnarounds, provided strategic
direction and leadership, increased sales and market share, improved
manufacturing efficiencies and productivity, and developed new
technologies to enhance the competitive strengths of the companies they
have managed.
- Cost efficient producer. We continually focus on improving underlying
operations and reducing costs. Since the 1994 acquisition, current
management has improved our cost structure from an EBITDA margin of 8.5%
with EBITDA of $3.8 million on sales of $44.9 million for the 12 months
ended December 31, 1993 to an EBITDA margin of 20.0% with EBITDA of
$115.6 million on sales of $577.7 million for the fiscal year ended June
28, 2002. Our acquisitions since 1995 have provided significant
opportunities to realize cost savings and synergies in the combined
businesses through the sharing of complementary technologies and
manufacturing techniques, as well as economies of scale, including the
purchase of raw materials.
- Producer of high quality, technically sophisticated products. We
believe, based upon our knowledge and experience in the industry, we have
a long-standing reputation as a manufacturer of high quality, high
performance products, materials and primary packaging (where the
packaging material comes into direct contact with the end product). Our
emphasis on quality is evidenced by our product lines which address the
more technically sophisticated areas of their respective markets.
- Strong equity sponsorship. We have obtained a strong equity commitment
from co-investors in conjunction with the recapitalization in June 2000.
New investors agreed to $269.6 million in aggregate equity commitments to
Tekni-Plex Partners, of which $167.0 million was contributed to
consummate the recapitalization in June 2000. Of the remaining $102.6
million, $85.0 million was contributed in conjunction with our
acquisitions of Super Plastics, Xxxx IV's Swan Division, and Elm
Packaging. The remaining $17.6 million is available at least through June
2005 to be used for our general corporate purposes, including
acquisitions. We believe that these equity commitments will provide us
with significant flexibility to take advantage of business opportunities
as they arise. In connection with the recapitalization, all members of
our current management maintained their entire equity investment, which
had an implied aggregate value, as of June 2000, of approximately $96.0
million.
3
BUSINESS STRATEGY
We seek to maximize our profitability and growth and take advantage of our
competitive strengths by pursuing the following business strategy:
- Ongoing cost reduction through technical process improvement. We have an
ongoing program to improve manufacturing and other processes in order to
drive down costs. Examples of cost improvement programs include:
- material and energy conservation through enhanced process controls and
advanced product design.
- reduction in machine set-up time through the use of proprietary
technology.
- continual product line rationalization; and
- development of backward and forward integration opportunities.
- Internal growth through product line extension and improvement. We
continually seek to improve and extend our product lines and leverage our
existing technological capabilities in order to increase market share in
existing markets, effectively penetrate new markets and improve
profitability. Our strategy is to emphasize our expertise in providing
packaging, products and materials with specific high performance
characteristics through the development of various unique proprietary
materials and proprietary manufacturing process techniques.
- Growth through acquisitions. We will continue to pursue acquisitions
selectively when the opportunity arises. Our objective is to pursue
acquisitions that provide us with the opportunity to gain economies of
scale and reduce costs through, among other things, technology sharing
and synergistic cost reduction.
- Growth through international expansion. We believe that there is
significant opportunity to expand our international sales, which
currently represent approximately 10.5% of our total revenues. At
present, we have manufacturing operations with attached sales offices in
Belgium, Italy, The United Kingdom, Canada and Argentina. We have a
regional sales office in Singapore covering southeast Asia, including the
People's Republic of China. In addition, we have manufacturing liaisons
and strategic supplier agreements in Japan, Germany and Italy and a
manufacturing licensee in Japan. We have recently added sales
representatives for Jordan, Saudi Arabia and the United Arab Emirate as
well as in the Philippines and India to our existing representatives in
Australia/New Zealand, South Africa, Central America, Brazil, Mexico,
China (including Hong Kong) and Taiwan. We believe that our growing
international presence, which is a combination of our own regional
manufacturing and sales forces and independent sales representatives,
will continue to generate opportunities to increase our sales.
RECENT DEVELOPMENTS
On July 10, 2002 Tekni-Plex acquired Elm Packaging Company for
approximately $16.4 million in cash. The acquisition was structured as an
acquisition of substantially all of the assets of Elm by a wholly-owned
subsidiary of Tekni-Plex. Elm produces polystyrene foam packaging products such
as plates, bowls, trays and hinged-lid containers for the food packaging and
foodservice industries. Elm will become part of Tekni-Plex's Packaging business
segment.
PACKAGING SEGMENT
The Packaging segment of our business had revenues of $234.7 million (40.6%
total revenues) for the year ended June 28, 2002. Further details of the major
markets served by this segment are given below:
FOAM EGG CARTONS
We believe that we are the leading manufacturer of egg cartons in the
United States. Thermoformed foam polystyrene packaging has been the material of
choice for food packaging cartons for many years. In terms of economic and
functional characteristics, foamed polystyrene products offer a combination of
high strength, minimum material content and superior moisture barrier
performance. Foamed polystyrene products
4
also offer greater dimensional consistency that enhances the high speed
mechanical feeding of cartons into automated package filling operations. We sell
these products through our direct sales force.
In the egg packaging market, our primary competitor manufactures pulp-based
egg cartons. We believe that we compete effectively based on product quality,
performance and prompt delivery. Our customer base includes most of the domestic
egg packagers (including those owned by egg retailers).
PHARMACEUTICAL BLISTER FILMS
We believe that we are a market leader for clear, high-barrier laminations
for pharmaceutical blister packaging. These packaging materials are used for
fast-acting pharmaceuticals that are generally highly reactive to moisture.
Transparent, high-barrier blister packaging is primarily used to protect drugs
from moisture vapor infiltration or desiccation. Blister packaging is the
preferred packaging form when dispenser handling can affect shelf life or drug
efficacy, or when unit dose packaging is needed. Unit dose packaging is being
used to improve patient compliance with regard to dosage regimen, and has been
identified as the packaging form of choice in addressing child safety aspects of
drug packaging. The advantages of transparent blisters, as opposed to opaque
foil-based materials manufactured by various competitors, include the ability to
visually inspect the contents of the blister and to present the product with
maximum confidence.
We believe the flexible and semi-rigid packaging segment of the
pharmaceutical packaging industry is growing at a faster rate than the
non-plastics segments because of the generally lower package cost and broader
range of functional characteristics of plastic packaging. As a result, the
technologies used to manufacture plastic packaging materials continue to develop
at a faster pace than those used in the more mature paper, glass, and metal
products.
Our high-barrier blister packaging is sold to major pharmaceutical
companies (or their designated contract packagers). We market our full
pharmaceutical product line directly on a worldwide basis, and have assembled a
global network of sales and marketing personnel on six continents.
In the clear blister packaging market, we have two principal competitors
worldwide with resources equal to or greater than ours. However, we believe that
neither of these competitors has the breadth of product offering to match ours,
and that this differentiation is significant as viewed by the pharmaceutical
industry. Also, the high manufacturing and audit compliance standards imposed by
the pharmaceutical companies on their suppliers provide a significant barrier to
the entry of new competitors. Entry barriers also arise due to the lengthy and
stringent approval process required by pharmaceutical companies. Since approval
requires that the drug be tested while packaged in the same packaging materials
intended for commercial use, changing materials after approval risks renewed
scrutiny by the FDA. The packaging materials for pharmaceutical applications
also require special documentation of material sources and uses within the
manufacturing process as well as heightened quality assurance measures.
POULTRY AND MEAT PROCESSOR TRAYS
Our processor tray operations produce thermoformed foam polystyrene poultry
and meat processor trays. We are a leading supplier of processor trays to the
poultry industry.
As with egg cartons, thermoformed foam polystyrene has been the material of
choice for processor trays for the same reasons noted above.
Within the polystyrene foam processor tray market, we compete principally
with one large competitor, who has significantly greater financial resources
than ours and who controls the largest share of this market.
CLOSURE LINERS
Tekni-Plex is also the leading producer of sophisticated extruded,
co-extruded and laminated cap-liners and seals, known as closure liners, for
glass and plastic bottles. Closure liners perfect the seal between a container
and its closure, for example, between a bottle and its cap. The liner material
has become an integral
5
part of the container/closure package. Without the gasketing effect of the
liner, most container/closure packages would not be secure enough to protect the
contents from contamination or loss of product efficacy.
We sell these products through our direct sales force primarily to
packagers of pharmaceutical, healthcare and food products. We have two principal
competitors in North America but also compete with several smaller companies
having substantially smaller market shares. However, as a result of the Tri-Seal
acquisition, we believe that we offer the widest range of liner materials in the
industry. We remain competitive by focusing on product quality, performance and
prompt delivery.
AEROSOL AND PUMP PACKAGING COMPONENTS
Our Aerosol and Pump Packaging Components business produces dip tubes,
which transmit the contents of the container to the nozzle, and specialized,
molded or punched rubber-based valve gaskets that serve to control the release
of the product from the container. The group also produces writing instrument
products including pen barrels and ink tubing as well as ink reservoirs for
felt-tip pens.
Sales are primarily to manufacturers of aerosol valves, dispenser pumps,
and writing instruments. These products are sold throughout the United States
and Europe, as well as selected worldwide markets. Sales are made through our
direct sales force. We believe that we are the leading supplier of aerosol valve
and dispenser pump gaskets and dip tubes in the world.
Our dip tubes and pen barrels are manufactured at extremely high speeds
while holding to precise tolerances. The process enhancements that allow
simultaneous high speed and precision are proprietary to us. The precision
rubber gasket products, which we have manufactured for over fifty years, are
produced using proprietary formulations. These formulations are designed to
provide consistent functional performance throughout the entire shelf life of
the product by incorporating chemical resistance characteristics appropriate to
the fluid being packaged. For example, we have developed unique formulations
that virtually eliminate contamination of the products packaged in spray
dispensers. This has greatly expanded the use of these dispensers for personal
hygiene products, foods, and fragrances. The Company has also developed
proprietary methods for achieving extremely accurate thickness control, superior
surface finish, and the elimination of internal imperfections prevalent in other
processing methods.
We are the single-source supplier to much of the industry. The principal
competitive pressure in this product line, particularly the dip tube portion, is
the possibility of customers switching to internal production, or vertical
integration. To counteract this possibility, the Company focuses on product
quality, cost reduction, prompt delivery, technical service and innovation.
FOAM PLATES
Our foam plate operations produce thermoformed foam polystyrene disposable
plates, bowls, and hinged-lid containers as well as agricultural packaging
products. Our sales are primarily to the consumer, agricultural and foodservice
industries. We compete with numerous participants who use a variety of materials
including foam polystyrene, pulp-based products and various plastic materials.
TUBING PRODUCTS
The Tubing Products segment of our business had revenues of $235.5 million
(40.8% of total revenues) for the year ended June 28, 2002. Further details of
the major markets served by this segment are given below:
GARDEN AND IRRIGATION HOSE PRODUCTS
We believe that we are the leading producer of garden hose in North
America. We have produced garden hose products for over fifty years, and produce
its primary components internally, including proprietary material formulations
and brass couplings. Innovations have included the patented Colorite(R)
Evenflow(R) design and ultra high quality product lines that utilize
medical-grade plastics. We also manufacture specialty hose products such as air
hose and irrigator "soaker hose".
6
We sell these products primarily through our direct sales force and also
through independent representatives. Both private label and brand-name products
are sold to the retail market, primarily to home centers, hardware cooperatives,
food, automotive, drug and mass merchandising chains and catalog companies
throughout the United States and Canada. Our customers include some of the
fastest growing and the most widely respected retail chains in North America.
Our market strategy is to provide a complete line of innovative, high-quality
products along with superior customer service.
The garden hose business is highly seasonal with approximately 75% of sales
occurring in the spring and early summer months. This seasonality tends to have
an impact on the Company's financial results from quarter to quarter.
MEDICAL TUBING
We believe we are the leading non-captive supplier of vinyl medical tubing
in North America and Europe. We manufacture medical tubing using proprietary
plastic extrusion processes. The primary raw materials are proprietary
compounds, which we produce. We specialize in high-quality; close tolerance
tubing for various surgical procedures and related medical applications. These
applications include intravenous ("IV") therapy, hemodialysis therapy,
cardio-vascular procedures such as coronary bypass surgery, suction and
aspiration products, and urinary drainage and catheter products. New medical
tubing products we have developed include microbore tubing and silicone
substitute formulations. Microbore tubing can be used to regulate the delivery
of critical intravenous fluids without the need for more expensive drip control
devices. Medical professionals can precisely control the drug delivery speed
simply by selecting the proper (color-coded) diameter tube, thereby improving
accuracy and reducing cost. More importantly, as home healthcare trends
continue, the use of microbore tubing will help eliminate critical dosage errors
on the part of the non-professional caregiver or the patient.
Medical tubing is sold primarily to manufacturers of medical devices that
are packaged specifically for such procedures and applications. These products
are sold through our direct sales force. We remain competitive by focusing on
product quality, performance and prompt delivery.
ITEM 2. FACILITIES
The Company believes that its facilities are suitable for their purposes
and have sufficient productive capacity for its current and foreseeable
operational and administrative needs. Set forth below is a list and brief
description of all of the Company's offices and facilities, all of which are
owned unless otherwise indicated.
APPROXIMATE
LOCATION PRIMARY FUNCTION SQUARE FEET
-------- --------------------------- -----------
Alliance, Ohio(5)........................... Sales Offices 1,300
Auburn, Maine(4)............................ Manufacturing 24,000
Belfast, Northern Ireland................... Manufacturing 47,580
Xxxxxxxx, New York(8)....................... Manufacturing 56,400
Burlington, New Jersey...................... Manufacturing 124,000
Bucyrus, Ohio............................... Manufacturing 587,649
Bucyrus, Ohio(3)............................ Warehouse 150,000
Buenos Aires, Argentina(3).................. Manufacturing and warehouse 15,500
Cambridge, Ontario, Canada.................. Manufacturing 25,000
City of Industry, California(4)............. Manufacturing 110,000
Clayton, North Carolina..................... Manufacturing 76,000
Clinton, Illinois........................... Manufacturing 69,000
Columbus, Ohio(5)........................... Sales Offices 5,830
Coppell, Texas(6)........................... Executive Offices 3,125
Dallas, Texas............................... Manufacturing 139,000
7
APPROXIMATE
LOCATION PRIMARY FUNCTION SQUARE FEET
-------- --------------------------- -----------
Dalton, Georgia............................. Manufacturing 40,000
Decatur, Indiana............................ Manufacturing 187,000
East Farmingdale, New York(2)............... Manufacturing 56,556
Erembodegem (Aalst), Belgium................ Manufacturing 125,667
Flemington, New Jersey...................... Manufacturing 145,000
Fullerton, California(3).................... Manufacturing and warehouse 109,750
Harrison, New Jersey(7)..................... Warehouse 135,501
Lawrenceville, Georgia...................... Manufacturing 150,000
Lawrenceville, Georgia(3)................... Warehouse 39,195
Livonia, Michigan(3)........................ Manufacturing 60,000
McKenzie, Tennessee......................... Manufacturing and warehouse 60,000
Memphis, Tennessee(8)....................... Manufacturing and warehouse 149,800
Memphis, Tennessee(4)....................... Warehouse 50,000
Milan (Gaggiano), Italy(6).................. Warehouse 12,920
Milan (Gaggiano), Italy(6).................. Manufacturing 14,900
Milan (Gaggiano), Italy..................... Manufacturing 25,800
Milan (Rosate), Italy(2).................... Manufacturing 24,000
Mississauga, Ontario, Canada(10)............ Manufacturing 111,570
Mississauga, Ontario, Canada(4)............. Manufacturing 126,650
Piscataway, New Jersey(2)................... Manufacturing 155,000
Ridgefield, New Jersey...................... Manufacturing 330,000
Rockaway, New Jersey........................ Manufacturing 90,550
Schaumburg, Illinois(12).................... Manufacturing 59,100
Schiller Park, Illinois..................... Manufacturing 15,232
Shelby, Ohio(3)............................. Warehouse 350,000
Singapore(3)................................ Sales Office 550
Somerville, New Jersey...................... Manufacturing 172,000
Sparks, Nevada(9)........................... Manufacturing 448,000
Tonawanda, New York(3)...................... Manufacturing 32,000
Troy, Ohio(8)............................... Manufacturing and warehouse 200,000
Waco, Texas................................. Manufacturing 104,600
Wenatchee, Washington....................... Manufacturing 97,000
Wenatchee, Washington(3).................... Warehouse 26,200
Wenatchee, Washington(1).................... Warehouse 8,000
---------------
(Years relate to calendar years)
(1) Leased on a month-to-month basis.
(2) Lease expires in 2002.
(3) Lease expires in 2003.
(4) Lease expires in 2004.
(5) Lease expires in 2005.
(6) Lease expires in 2006.
(7) Lease expires in 2007.
8
(8) Lease expires in 2008.
(9) Lease expires in 2012.
(10) Lease expires in 2015.
(11) Lease expires in 2019.
(12) Lease expires in 2020.
ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
We are regularly involved in legal proceedings arising in the ordinary
course of business, none of which are currently expected to have a material
adverse effect on our businesses, financial condition or results of operation.
Like similar companies, our facilities, operations and properties are
subject to foreign, federal, state, provincial and local laws and regulations
relating to, among other things, emissions to air, discharges to water, the
generation, handling, storage, transportation and disposal of hazardous and
non-hazardous materials and wastes and the health and safety of employees. We
maintain a primary commitment to employee health and safety, and environmental
responsibility. Our intention and policy are to be at all times a responsible
corporate citizen.
Our management includes a Director of Environmental Affairs who is
responsible for compliance with all foreign, federal, state and local laws and
regulations relating to the environment, and health and safety. This director
performs internal auditing procedures and provides direction to all local
facility managers in the compliance areas. The Director of Environmental Affairs
and our President direct outside environmental counsel and outside environmental
consulting firms to ensure that regulations are properly interpreted and
reporting requirements are met.
We are also subject to environmental laws requiring the investigation and
cleanup of environmental contamination. Currently, we are remediating
contamination resulting from past industrial activity at three of our New Jersey
facilities which we acquired from PureTec in 1998. This remediation is being
conducted pursuant to the requirements of New Jersey's Industrial Site Recovery
Act which were triggered by the 1998 PureTec transaction. We believe that any
costs ultimately borne by us in connection with this remediation would not be
material.
Although we believe that, based on historical experience, the costs of
achieving and maintaining compliance with environmental laws and regulations are
unlikely to have a material adverse effect on our business, financial condition
or results of operations, it is possible that we could incur significant fines,
penalties, capital costs or other liabilities associated with any confirmed
noncompliance or remediation of contamination or natural resource damage
liability at or related to any of our current or former facilities, the precise
nature of which we cannot now predict. Furthermore, we cannot assure you that
future environmental laws or regulations will not require substantial
expenditures by us or significant modifications of our operations.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Not Applicable.
9
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information of the Company, and has been derived from and should be read in
conjunction with the Company's audited consolidated financial statements,
including the notes thereto, which appear elsewhere herein.
YEARS ENDED
-------------------------------------------------------
JULY 3, JULY 2, JUNE 30, JUNE 29, JUNE 28,
1998 1999 2000 2001 2002
--------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales............................ $ 316,332 $507,314 $ 524,817 $ 525,837 $577,749
Cost of goods sold................... 239,234 376,370 394,480 399,836 430,457
Gross profit......................... 77,098 130,944 130,337 126,001 147,292
Selling, general and administrative
expenses........................... 39,220 62,534 58,343 60,999 69,444
Income from operations............... 37,878 68,410 71,994 65,002 77,848
Interest expense, net................ 19,682 38,977 38,447 76,569 70,934
Unrealized loss on derivative
contracts.......................... -- -- -- 13,891 7,830
Other expense (income)............... 415 286 4,705 605 (6)
Pre-tax income (loss) before
extraordinary item................. 17,781 29,147 28,842 (26,063) (910)
Income tax provision (benefit)....... 9,112 14,150 14,436 (7,069) 5,677
Income before extraordinary item..... 8,669 14,997 14,406 (18,994) (6,587)
Extraordinary item (loss)(b)......... -- -- (35,374) -- --
Net income (loss).................... $ 8,669 $ 14,997 $ (20,968) $ (18,994) $ (6,587)
BALANCE SHEET DATA (AT PERIOD END):
Working capital...................... $ 84,897 $101,445 $ 145,879 $ 199,129 $216,919
Total Assets......................... 539,279 559,436 574,789 621,494 700,153
Total debt (including current
portion)........................... 401,905 416,394 651,593 678,150 692,821
Stockholders' equity (deficit)....... 38,673 52,297 (149,150) (134,697) (91,111)
OTHER FINANCIAL DATA:
Depreciation and amortization........ $ 17,249 $ 35,343 $ 34,748 $ 37,670 $ 39,863
Capital expenditures................. 7,283 12,950 16,258 17,116 24,653
Cash flows:
From operations...................... 29,009 38,794 9,485 (3,266) 7,922
From investing....................... (310,672) (58,089) (16,905) (26,777) (88,446)
From financing....................... 299,926 12,057 (1,687) 62,180 64,092
NON-GAAP FINANCIAL DATA:
Adjusted EBITDA(a)................... $ 54,479 $101,681 $ 100,527 $ 100,064 $115,556
Adjusted EBITDA margin(a)............ 17.2% 20.0% 19.2% 19.0% 20.0%
---------------
(a) Adjusted EBITDA is defined as earnings before interest, unrealized loss on
derivative contracts, income taxes, depreciation and amortization. Adjusted
EBITDA is presented because it is a widely accepted financial indicator of
the Company's ability to incur and service debt. However, Adjusted EBITDA
should not be considered in isolation as a substitute for net income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. In
addition, this measure of Adjusted EBITDA may not be comparable to similar
measures reported by other companies. Adjusted EBITDA margin is calculated
as the ratio of Adjusted EBITDA to net sales for the period.
10
(b) Net loss for the year ended June 30, 2000 includes an extraordinary loss of
approximately $35,374. The extraordinary loss is comprised of prepayment
penalties and other interest costs of $39,303, the write-off of deferred
financing costs of $16,696 and other fees of $1,325, net of a tax benefit of
$21,950.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Historical Financial Information" and the Financial Statements
included elsewhere in this
Annual Report. The table below sets forth, for the
periods indicated, selected operating data as a percentage of net sales.
SELECTED FINANCIAL INFORMATION
(PERCENTAGE OF NET SALES)
YEAR ENDED
------------------------------
JUNE 30, JUNE 29, JUNE 28,
2000 2001 2002
-------- -------- --------
Net sales................................................. 100.0% 100.0% 100.0%
Cost of sales............................................. 75.2 76.0 74.5
Gross profit.............................................. 24.8 24.0 25.5
Selling, general and administrative expenses.............. 11.1 11.6 12.0
Income from operations.................................... 13.7 12.4 13.5
Interest expense.......................................... 7.3 14.6 12.3
Provision (Benefit) for income taxes...................... 2.8 (1.3) 1.0
Income (loss) before extraordinary item................... 2.7 (3.6) (1.1)
Extraordinary item (loss)................................. (6.7) -- --
Net income (loss)......................................... (4.0) (3.6) (1.1)
Depreciation and amortization............................. 6.6 7.2 6.9
YEAR ENDED JUNE 28, 2002 COMPARED TO THE YEAR ENDED JUNE 29, 2001
Net Sales, increased to $577.7 million for the year ended June 28, 2002
from $525.8 million for the year ended June 29, 2001, representing an increase
of $51.9 million or 9.9% due to the inclusion of sales generated by our Swan
acquisition which closed in October 2001. Our increased sales were tempered
somewhat by disappointing revenue in our garden hose business due to unusually
adverse weather conditions in the June quarter, particularly along the East
Coast, as well as continued softness in demand for our pharmaceutical blister
packaging products due to a slowdown in new drug introductions in the United
States.
Our Packaging Segment reported a 0.8% decline in Net Sales to $234.7
million in the fiscal year ended June 28, 2002 compared to $236.6 million in the
fiscal year ended June 29, 2001. The decline was the result of continued
softness in sales to healthcare customers due to the general slowdown in new
drug introductions by our pharmaceutical customers compared to recent historical
norms. Our Tubing Products Segment's Net Sales increased by $61.0 million or
35.0%, to $235.5 million from $174.5 million last year, primarily due to our
Swan acquisition. Net Sales for our other products declined to $107.6 million in
the current year from $114.7 million in the previous year primarily due to soft
demand for specialty resins.
Cost of Goods Sold, increased to $430.5 million for the year ended June 28,
2002 from $399.8 million for the year ended June 29, 2001. Expressed as a
percentage of Net Sales, Cost of Goods Sold decreased to 74.5% for the year
ended June 28, 2002 compared to 76.0% for the year ended June 29, 2001. The
decrease in Cost of Goods Sold as a percentage of Net Sales was due primarily to
lower raw material costs.
Gross Profit, as a result, increased to $147.3 million for the year ended
June 28, 2002 from $126.0 million for the year ended June 29, 2001. The ratio of
Gross Profit to Net Sales increased to 25.5% for the year ended June 28, 2002
from 24.0% for the year ended June 29, 2001.
11
Our Packaging Segment Gross Profit increased by $3.2 million to $67.0
million from $63.8 million in the fiscal year ending June 28, 2002 primarily due
to lower raw material costs and improved operating efficiencies. Measured as a
percentage of Net Sales our Packaging Segment Gross Profit increased to 28.5%
for the year ended June 28, 2002 from 27.0% for the year ended June 29, 2001.
Our Tubing Products Segment Gross Profit increased by $19.1 million to $65.2
million from $46.1 million in the fiscal year ending June 28, 2002 primarily due
to our Swan acquisition. Measured as a percentage of Net Sales our Tubing
Products Segment Gross Profit increased to 27.7% for the year ended June 28,
2002 from 26.4% for the year ended June 29, 2001. Gross Profit for our other
products declined to $15.1 million in the current fiscal year from $16.1 million
in the previous year. Measured as a percentage of Net Sales, other segment Gross
Profit increased to 14.1% in the current fiscal year from 14.0% in the previous
year
Selling, General and Administrative Expenses increased to $69.4 million for
the year ended June 28, 2002 from $61.0 million for the year ended June 29, 2001
primarily due to the inclusion of expenses associated with our Swan acquisition.
The resultant ratio to Net Sales increased to 12.0% for the year ended June 28,
2002 from 11.6% for the year ended June 29, 2001.
Operating Profit, as a result of the above, increased to $77.8 million or
13.5% of Net Sales for the year ended June 28, 2002 from $65.0 million or 12.4%
of Net Sales for the year ended June 29, 2001.
Our Packaging Segment Operating Profit increased by $4.0 million or 10.0%
to $43.9 million from $39.9 million last year, primarily due to lower raw
material costs and improved operating efficiencies. Measured as a percentage of
Net Sales, Packaging Segment Operating Profit improved to 18.7% in the year
ended June 28, 2002 compared to 16.8% in the previous year. Our Tubing Products
Segment Operating Profit increased by $13.8 million or 45.2% to $44.2 million
from $30.4 million in the year ended June 28, 2002, primarily due to our Swan
acquisition. Measured as a percentage of Net Sales, Tubing Products Segment
Operating Profit improved to 18.8% from 17.4% last year. Operating Profit for
our other products declined to $6.6 million in the current year from $7.3
million in the previous year. Measured as a percentage of Net Sales, other
segment Operating Profit declined to 6.2% in the current fiscal year from 6.4%
in the previous fiscal year.
Interest Expense, decreased to $70.9 million for the fiscal year ending
June 28, 2002 from $76.6 million for the fiscal year ending June 29, 2001
primarily due to lower average interest rates on our floating rate debt. The
unrealized loss on derivative obligations decreased to $7.8 million in the
current fiscal year compared to a loss of $13.9 million in the previous fiscal
year.
The provision (benefit) for income taxes increased to $5.7 million from a
benefit of ($7.1) due to improved earnings. The provision for the year ended
June 28, 2002 differs from the amount computed by applying the Federal statutory
rate, primarily due to non-deductible goodwill, $3.6 million and the effect of
state income taxes $1.4 million.
Net Income (loss), as a result, was a loss of ($6.6) million or (1.1%) of
net sales for the fiscal year ending June 28, 2002 compared to a loss of ($19.0)
million or (3.6%) of net sales for the year ending June 29, 2001.
Depreciation and Amortization Expense, increased to 39.9 million or 6.9% of
net sales for the fiscal year ending June 28, 2002 from $37.7 million or 7.2% of
net sales for the fiscal year ending June 29, 2001 due to our Swan acquisition.
YEAR ENDED JUNE 29, 2001 COMPARED TO YEAR ENDED JUNE 30 2000
Net Sales, increased to $525.8 million for the year ended June 29, 2001
from $524.8 million for the year ended June 30, 2000, representing an increase
of $1.0 million or 0.2%.
Our Packaging Segment reported Net Sales of $236.6 million for the fiscal
year ending June 29, 2001 compared to $226.6 million for the fiscal year ending
June 30, 2000, a 4.4% increase. Net Sales increases to our food customers more
than offset weaker sales to our healthcare customers. Our Tubing Products
Segment reported a $3.1 million decline in Net Sales to $174.5 million in fiscal
2001 compared to $177.6 million in fiscal 2000 as a result of inventory
de-stocking by some of our customers. Net Sales for our other products declined
to $114.7 million in Fiscal 2001 from $120.6 million in the previous year
primarily due to soft demand for specialty resins.
12
Cost of Goods Sold, increased to $399.8 million for the year ended June 29,
2001 from $394.5 million for the year ended June 30, 2000. Expressed as a
percentage of Net Sales, Cost of Goods Sold increased to 76.0% for the year
ended June 29, 2001 compared to 75.2% for the year ended June 30, 2000. The
increase in Cost of Goods Sold as a percentage of Net Sales was due primarily to
raw material costs, which rose rapidly in the early part of the year before
trending down over the remainder of the year.
Gross Profit, as a result, fell to $126.0 million for the year ended June
29, 2001 from $130.3 million for the year ended June 30, 2000. The ratio of
Gross Profit to Net Sales decreased to 24.0% for the year ended June 29, 2001
from 24.8% for the year ended June 30, 2000.
Our Packaging Segment reported a $1.9 million decline in Gross Profit to
$63.8 million in fiscal 2001 compared to $65.7 million in fiscal 2000. Measured
as a percentage of Net Sales, Packaging Segment Gross Profit declined to 27.0%
in 2001 compared to 29.0% in 2000. Our Tubing Products Segment Gross Profit
declined slightly to $46.1 million in fiscal 2001 from $46.5 million in the
previous year. Measured as a percentage of Net Sales, Tubing Products Segment
Gross Profit improved to 26.4% in fiscal 2001 from 26.2% in fiscal 2000. Our
other segment Gross Profit declined to $16.1 million in fiscal 2001 from $18.2
million in the previous year. Measured as a percentage of Net Sales, Gross
Profit for our other products decreased to 14.0% in fiscal 2001 from 15.1% in
the previous fiscal year.
Selling, General and Administrative Expenses, increased to $61.0 million
for the year ended June 29, 2001 from $58.3 million for the year ended June 30,
2000, an increase of $2.7 million or 4.6%. This increase reflects general cost
of living increases for our salaried personnel as well as the Selling, General
and Administrative expenses associated with our Super Plastics acquisition. The
resultant ratio to Net Sales increased to 11.6% for the year ended June 29, 2001
from 11.1% for the year ended June 30, 2000.
Operating Profit, as a result of the above, decreased to $65.0 million or
12.4% for the year ended June 29, 2001 from $72.0 million or 13.7% for the year
ended June 30, 2000.
Our Packaging Segment reported a $3.0 million decline in Operating Profit
to $39.9 million in fiscal 2001 compared to $42.9 million in fiscal 2000.
Measured as a percentage of Net Sales, Packaging Segment Operating Profit
declined to 16.8% in 2001 compared to 18.9% in 2000. Our Tubing Products Segment
Operating Profit declined to $30.4 million in fiscal 2001 from $32.4 million in
the previous year. Measured as a percentage of Net Sales, Tubing Products
Segment Operating Profit declined to 17.4% in fiscal 2001 from 18.2% in fiscal
2000. Operating Profit for our other products declined to $7.3 million in fiscal
2001 from $9.4 million in the previous year. Measured as a percentage of Net
Sales, other segment Operating Profit declined to 6.4% in fiscal 2001 from 7.8%
in the previous fiscal year.
Other Expenses, decreased to $0.6 million for the year ended June 29, 2001
from $4.7 million for the year ended June 29, 2000 primarily due to
non-recurring expenses associated with the recapitalization. The year ended June
30, 2000 included approximately $4.0 million of non-recurring expenses
associated with the recapitalization.
Interest Expense, increased to $76.6 million for the fiscal year ending
June 29, 2001 from $38.4 million for the fiscal year ending June 30, 2000
primarily due to increased debt associated with the recapitalization. The
Company has also incurred an unrealized loss of $13.9 million from derivative
contracts for the year ended June 29, 2001. The Company had no similar gains or
losses for the year ended June 30, 2000.
The ratio of the provision (benefit) for income taxes to income (loss)
before income taxes was 27.1% for the year ended June 29, 2001 compared to 50.1%
for the year ending June 30, 2000. The decrease in the effective rate for the
year ended June 29, 2001 is due to non-deductible goodwill and other permanent
differences in foreign subsidiaries.
Net Income (loss), as a result, was a loss of ($19) million or (3.6%) of
net sales for the fiscal year ending June 29, 2001 compared to a loss of ($21.0)
million or (4.0%) of net sales after an extraordinary charge of ($35.4) million
for the year ending June 30, 2000.
Depreciation and Amortization Expense, increased to 37.7 million or 7.2% of
net sales for the fiscal year ending June 29, 2001 from $34.7 million or 6.6% of
net sales for the fiscal year ending June 30, 2000 due to increased depreciation
and amortization expense primarily associated with our Super Plastics
acquisition.
13
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 28, 2002, net cash provided by operating activities
was $7.9 million compared to ($3.3) million of cash used by operating activities
in the prior year. The $11.2 million increase was due primarily to improved
profitability as well as lower inventories before accounting for the impact of
our Swan acquisition. These improvements more than offset an increase in
accounts receivable in our Consumer Segment that accompanied a shift in the
buying patterns of this segment's customers. Various year-over-year changes in
operating assets, accrued expenses, and liabilities are generally due to
offsetting timing differences.
Working capital at June 28, 2002 was $216.9 million compared to $199.1
million at June 29, 2001 primarily due to our Swan acquisition.
As of June 28, 2002, we had an outstanding balance of $46.0 million under
our $100.0 million revolving credit line of our existing credit facility. This
was a decrease of $19.0 million from the $65.0 million outstanding balance as of
June 29, 2001. The decrease in revolver borrowings was primarily due to the
application of the proceeds from our $40 million senior subordinated notes
offering to pay down revolver borrowings. As of June 28, 2002 we had $28.2
million of cash compared to $44.6 million of cash as of June 29, 2001. Our cash
balance at the end of our 2002 fiscal year was positively impacted by the senior
subordinated notes offering we completed in May. The large cash balance at the
end of our 2001 fiscal year was primarily due to the $30 million equity capital
contribution that was made in June of 2001 to partially finance our Swan
acquisition.
As of June 28, 2002, we had $54.0 million undrawn and available under our
revolving credit facility to fund ongoing general corporate and working capital
requirements. In addition, as part of the recapitalization, our new equity
investors agreed to contribute to Tekni-Plex Partners $269.6 million in the
aggregate, of which $167.0 million was used to purchase interests of certain
previous Tekni-Plex investors. An additional $85.0 million was used to finance
acquisitions, including the acquisition of Elm Packaging which closed in July
2002. Tekni-Plex Management, the managing member of Tekni-Plex Partners, may for
at least five years from the recapitalization, call upon the remainder of the
commitment, $17.6 million, for our future use for general corporate purposes,
including acquisitions.
Apart from acquisitions, our principal uses of cash will be debt service,
capital expenditures and working capital requirements. Our capital expenditures
for the year ended June 28, 2002 and June 29, 2001 were $24.7 million and $17.1
million, respectively. We expect that annual capital expenditures will increase
somewhat from historical levels during the next few years as we make
improvements in our recently acquired operations.
Concurrent with our recapitalization, Tekni-Plex entered into a series of
interest rate derivative transactions designed to protect us from rising
interest rates on our senior term debt facilities while enabling us to partially
benefit from falling interest rates. Since our recapitalization, LIBOR, the
benchmark interest rate for our senior term debt facilities, has declined.
Because we did not receive all of the benefit of falling interest rates, we
recorded an unrealized loss from derivative transactions of $7.8 million and
$13.9 million in fiscal years 2002 and 2001, respectively.
Management believes that cash generated from operations plus funds from our
existing credit facility will be sufficient to meet our expected debt service
requirements, planned capital expenditures and operating needs. However, we
cannot assure you that sufficient funds will be available from operations or
borrowings under our credit facility to meet our anticipated cash needs. To the
extent we pursue future acquisitions, we may be required to obtain additional
financing. We cannot assure you that we will be able to obtain such financing in
amounts and on terms acceptable to us.
Our Senior debt and our Senior Subordinated Notes include various
covenants, the most restrictive of which require a minimum consolidated EBITDA,
as defined in the debt agreement, minimum fixed charge coverage ratio and a
minimum leverage ratio. At June 28, 2002, we are in compliance with all
covenants.
14
At June 28, 2002, the Company's contractual obligations for borrowings are
as follows:
LONG-TERM
PAYMENTS DUE BY PERIOD DEBT LEASES TOTAL
---------------------- --------- ------ -------------
(IN MILLIONS)
Less than 1 year....................................... $ 13.4 $ 7.9 $ 21.3
Year 2................................................. 12.9 5.7 18.6
Year 3................................................. 37.9 4.3 42.2
Year 4................................................. 83.9 4.1 88.0
Year 5................................................. 115.0 4.0 119.0
After 5 years.......................................... 432.1 14.7 446.8
CRITICAL ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Preparing financial
statements in accordance with generally accepted accounting principles requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following paragraphs include a
discussion of some critical areas where estimates are required. You should also
review Note 1 to the financial statements for further discussion of significant
accounting policies.
The Company records revenue when products are shipped. Legal title and risk
of loss with respect to the products pass to customers at the point of shipment.
The Company provides an allowance for returned product and volume sales rebates
on an estimated basis.
The Company evaluates its long-lived assets for impairment based on the
undiscounted future cash flows of such assets. If a long-lived asset is
identified as impaired, the value of the asset will be reduced to its fair
value.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of June 28, 2002, the net carrying amount of goodwill for
acquisitions prior to July 1, 2001 is $164,100 and other intangible assets is
$600. Amortization expense during the period ended June 28, 2002 was $15,500
related to those acquisitions. The acquisition of the Swan garden hose division
of Xxxx XX Industries, Inc. was accounted for as a purchase. The acquisition
resulted in customer lists and goodwill of $3,900 and $38,200
15
respectively. In accordance with SFAS 142, the Swan goodwill is not being
amortized. Amortization of customer lists was approximately $600 for the year
ended June 28, 2002. Currently, the Company is assessing, but has not yet
determined how the adoption of SFAS 141 and SFAS 142 will impact its financial
position and results of operations.
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets ("SFAS 144"). The new guidance
resolves significant implementation issues related to FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS 121"). SFAS 144 supersedes SFAS 121, but it retains its
fundamental provisions. It also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidate a
subsidiary for which control is likely to be temporary. SFAS 144 retains the
requirement of SFAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of SFAS 144 is not recoverable
from its undiscounted cash flows and exceeds its fair value.
SFAS 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of SFAS 144 generally are to be applied
prospectively. The Company is currently assessing the impact SFAS 144 will have
on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring
Costs. SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require a company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company cannot restate its previously issued financial statements and the
new Statement grandfathers the accounting for liabilities that a company had
previously recorded under Emerging Issues Task Force Issue 94-3.
INFLATION
During the closing months of fiscal year 2002, we contended with rising raw
material prices. We believe we have generally been able to offset the effects
thereof through continuing improvements in operating efficiencies and by
increasing prices to our customers to the extent permitted by competitive
factors. However, we cannot assure you that such cost increases can be passed
through to our customers in the future or that the effects can be offset by
further improvements in operating efficiencies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At June 28, 2002 and June 29, 2001 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $375,120 and $401,560
respectively. A hypothetical 1% adverse change in interest rates would have had
an annualized unfavorable impact of approximately $1,304 and $4,000,
respectively, on the Company's earnings and cash flows based upon these year-end
debt levels. To ameliorate these risks, in June 2000, the Company entered into
interest rate Swap and Cap Agreements for a notional amount of $344,000.
ITEM 8. FINANCIAL STATEMENTS
The financial statements commence on Page F-1.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our current directors and executive officers are listed below. Each
director is elected at the annual meeting of the stockholders of Tekni-Plex to
serve a one year term until the next annual meeting or until a successor is
elected and qualified, or until his earlier resignation. Each executive officer
holds his office until a successor is chosen and qualified or until his earlier
resignation or removal. Pursuant to our by-laws, we indemnify our officers and
directors to the fullest extent permitted by the General Corporation Law of the
State of Delaware and our certificate of incorporation.
The board of directors is composed of six directors. A nominating committee
composed of Xx. Xxxxx and Xx. Xxxxxx designate two directors, Xx. Xxxxx
designates three directors, and Xx. Xxxxxx designates one director. Directors
may only be removed for cause or at the request of the person entitled to
designate that director.
NAME AGE POSITION
---- --- --------
Dr. F. Xxxxxxx Xxxxx.................. 54 Chairman of the Board and Chief
Executive Officer
Xxxxxxx X.X. Xxxxx.................... 58 President, Chief Operating Officer and
Director
Xxxxxx X. Xxxx........................ 72 Corporate Secretary and Director
Xxxx X. Xxxx.......................... 56 Director
J. Xxxxxx XxXxxxx..................... 61 Director
Xxxxxxx X. Xxxxxx..................... 48 Director
Dr. F. Xxxxxxx Xxxxx has been Chairman of the Board and Chief Executive
Officer of Tekni-Plex since March 1994. He received his doctorate degree in
chemical engineering from Texas A&M University in 1975. He served as Senior
Chemical Engineer to Texas Xxxxxxx Company, a wholly owned chemical and plastics
subsidiary of Xxxxxxx Kodak, where he developed new grades of polyolefin resins
and hot melt and pressure sensitive adhesives. In 1979, he became Technical
Manager of the Petrochemicals and Plastics Division of Cities Service Company,
and a Member of the Business Steering Committee of that division. From 1982 to
1984, Xx. Xxxxx was Vice President of R&D and Marketing for Guardian Packaging
Corporation, a diversified flexible packaging company. Thereafter, he joined
Lily-Tulip, Inc. and managed their research and marketing functions before
becoming Senior Vice President of Manufacturing and Technology. Following the
acquisition of Lily-Tulip by Fort Xxxxxx Corporation in 1986, he became the
Corporate Vice President of Fort Xxxxxx, responsible for the manufacturing and
technical functions of the combined Sweetheart Products and Lily-Tulip
operations. From 1987 to 1990, Xx. Xxxxx was Chairman and Chief Executive
Officer of WFP Corporation. Since 1990, Xx. Xxxxx has been a principal of Brazos
Financial Group, a business consulting firm. Since 2000, Xx. Xxxxx has been a
general partner of Eastport Operating Partners L.P.
Xxxxxxx X.X. Xxxxx has served as Tekni-Plex Chief Operating Officer since
April 1994 and as President since July 1995. Xx. Xxxxx served in various
management roles including systems development, finance, industrial engineering,
research and development, and manufacturing operations at Xxxxx-Illinois, Inc.
and Lily-Tulip, Inc. from 1965 to 1985. From 1986 to 1987, he served as Vice
President, Operations at Fort Xxxxxx Cup Corporation. In 1987, Xx. Xxxxx joined
WFP Corporation, Inc. as Senior Vice President, Operations and eventually became
the company's President and CEO before leaving the company in 1992. Thereafter,
Xx. Xxxxx became Vice President, Research and Development at the Molded Products
Division of Carlisle Plastics, Inc. until joining Tekni-Plex in 1994.
17
Xxxxxx X. Xxxx has been a director of Tekni-Plex since March 1994 and was
appointed Secretary in January 1997. Since July 1989, he has been president of
PAJ Investments which is involved in financial consulting and property
management. Over the same period, Xx. Xxxx also served as a temporary chief
financial officer for WFP Corporation and Flexible Technology. Prior to 1989,
Xx. Xxxx served in a number of senior management positions for companies such as
Lily-Tulip, Inc., BMC Industries and Fort Xxxxxx Paper Co.
Xxxx X. Xxxx has served as a director of Tekni-Plex since June 2000. He is
a partner of Mellon Ventures, Inc., having joined Mellon in 1997. Previously,
Xx. Xxxx was senior vice president of Security Pacific Capital Corp. He has
served on 20 boards of directors of emerging growth and middle market companies.
J. Xxxxxx XxXxxxx has served as a director of Tekni-Plex since March 1994.
He co-founded and managed MST Partners L.P., a private equity investment fund,
from 1989 to 2000. In 2000, Xx. XxXxxxx co-founded Eastport Operating Partners,
L.P., a private equity investment fund that he continues to manage. Prior to
1989, Xx. XxXxxxx was employed by Irving Trust Company for 12 years.
Xxxxxxx X. Xxxxxx has served as a director of Tekni-Plex since March 1994.
He has invested in emerging growth companies and various industrial and service
businesses since 1978. Since June 1991, Xx. Xxxxxx has been a general partner of
Weston Presidio Capital.
COMPENSATION OF DIRECTORS
Tekni-Plex reimburses directors for any reasonable out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, each director is paid an annual fee of $50,000.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the remuneration paid by Tekni-Plex to the
Chief Executive Officer and the two next most highly compensated executive
officers of Tekni-Plex
SUMMARY COMPENSATION TABLE
FISCAL STOCK OTHER ANNUAL
NAME & PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(A)
------------------------- ------ ---------- ---------- -------- ---------------
Dr. F. Xxxxxxx Xxxxx.................... 2002 $5,500,000 $ -- -- $16,000
Chairman and Chief Executive Officer 2001 5,000,000 -- -- 16,000
2000 1,200,000 4,622,100 -- 16,000
Xx. Xxxxxxx X.X. Xxxxx.................. 2002 $2,750,000 $ -- -- $ 9,000
President and Chief Operating Officer 2001 2,500,000 -- -- 9,000
2000 600,000 2,311,050 -- 9,000
Xx. Xxxxx X. Xxxxxx..................... 2002 $ 341,030 $ -- $ -- $ 7,200
Vice President and Chief Financial
Officer 2001 122,308 -- 254,000 7,200
2000 -- -- -- --
---------------
(a) Includes amounts reimbursed during the fiscal year for payment of taxes,
auto expense, membership fees, etc.
18
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL EXERCISE STOCK PRICE
SECURITIES OPTIONS/SARS OR BASE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ------------ ------------ ---------- ---------- ------ ------
Dr. F. Xxxxxxx Xxxxx........ -- --% -- -- -- --
Xxxxxxx X.X. Xxxxx.......... -- --% -- -- -- --
Xxxxx X. Xxxxxx............. -- --% -- -- -- --
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE ($000)
UNDERLYING OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- ------------- --------------
Dr. F. Xxxxxxx Xxxxx.................. -- -- -- --/--
Xxxxxxx X.X. Xxxxx.................... -- -- -- --/--
Xxxxx X. Xxxxxx....................... -- -- -- --/--
EMPLOYMENT AGREEMENTS
As part of the recapitalization, Xx. Xxxxx and Xx. Xxxxx entered into
amended and restated employment agreements that currently expire July 1, 2005
and contain renewal provisions.
Each employment agreement provides that the executive may be terminated by
us for cause or upon death or disability of the executive. Each of Xx. Xxxxx and
Xx. Xxxxx is entitled to severance benefits if he is terminated due to death or
disability. The employment agreements also contain certain non-compete
provisions.
The annual salaries of Xx. Xxxxx and Xx. Xxxxx are $5 million and $2.5
million, respectively, and each of these salaries will be increased by 10%
annually. Neither Xx. Xxxxx'x nor Xx. Xxxxx'x amended and restated employment
agreement provides for any mandatory bonus compensation. No other provisions of
Xx. Xxxxx'x and Xx. Xxxxx'x employment agreements changed materially.
COMPENSATION COMMITTEE
The board of directors maintains a three-member compensation committee
comprised of Xx. Xxxxx, Xx. Xxxx and Xx. Xxxxxx. The compensation committee's
duties include the annual review and approval of the compensation for each of
our Chief Executive Officer and President, as well as the administration of our
stock incentive plan. No member of the compensation committee is allowed to vote
on issues pertaining to that member's compensation (including option grants).
The board may also delegate additional duties to the compensation committee in
the future.
Compensation levels and bonus awards for all other employees are controlled
by Xx. Xxxxx and Xx. Xxxxx.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As Chief Executive Officer of Tekni-Plex, Xx. Xxxxx participated in
deliberations concerning the compensation of the Chief Operating Officer of
Tekni-Plex (but not the compensation for himself).
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Tekni-Plex Partners LLC holds approximately 96.2% (approximately 93.6% on a
fully diluted basis) and MST/TP Partners LLC holds approximately 3.8%
(approximately 3.7% on a fully diluted basis) of Tekni-Plex's outstanding common
stock.
Tekni-Plex Management LLC, controlled by Xx. Xxxxx, is the sole managing
member of both Tekni-Plex Partners LLC and MST/TP Partners LLC.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSULTING ARRANGEMENTS
In fiscal years 2001 and 2000 we had an arrangement with Xxxxxx X. Xxxx,
one of our directors and our corporate secretary, under which Xx. Xxxx provided
us with customary management consulting services. Xx. Xxxx'x compensation for
consulting services rendered on our behalf was approximately $50,400 and $66,500
for fiscal years 2001 and 2000, respectively.
Our policy is not to enter into any significant transaction with one of our
affiliates unless a majority of the disinterested directors of the board of
directors determines that the terms of the transaction are at least as favorable
as those we could obtain in a comparable transaction made on an arm's-length
basis with unaffiliated parties. This determination is made in the board's sole
discretion.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Schedules
The financial statements listed in the Index to Financial
Statements under Part II, Item 8 and the financial statement
schedules listed under Exhibit 27 are filed as part of this
annual
report.
(a)(2) Financial Statement Schedule -- Schedule II -- Valuation and
Qualifying Accounts
(a)(3) Exhibits
The exhibits listed on the Index to Exhibits following the
Signature Page herein are filed as part of this
annual report or by
incorporation by reference from the documents there listed.
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TEKNI-PLEX, INC.
By: /s/ F. XXXXXXX XXXXX
------------------------------------
F. Xxxxxxx Xxxxx
Chairman of the Board and
Chief Executive Officer
Dated: April 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ XXXXX X. XXXXXX
------------------------------------
Xxxxx X. Xxxxxx
Chief Financial Officer
Date April 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities indicated, on October 1, 2001.
SIGNATURE TITLE
--------- -----
/s/ F. XXXXXXX XXXXX Chairman of the Board and Chief Executive Officer
------------------------------------------------
F. Xxxxxxx Xxxxx
/s/ XXXXXXX X.X. XXXXX President and Chief Operating Officer and Director
------------------------------------------------
Xxxxxxx X.X. Xxxxx
/s/ XXXXXX X. XXXX Corporate Secretary and Director
------------------------------------------------
Xxxxxx X. Xxxx
/s/ XXXX X. XXXX Director
------------------------------------------------
Xxxx X. Xxxx
/s/ J. XXXXXX XXXXXXX Director
------------------------------------------------
J. Xxxxxx XxXxxxx
/s/ XXXXXXX X. XXXXXX Director
------------------------------------------------
Xxxxxxx X. Xxxxxx
21
CERTIFICATIONS*
I, Dr. F. Xxxxxxx Xxxxx, certify that:
1. I have reviewed this
annual report on Form 10-K of Tekni-Plex;
2. Based on my knowledge, this
annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this
annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this
annual report;
/s/ DR. F. XXXXXXX XXXXX
--------------------------------------
Dr. F. Xxxxxxx Xxxxx
Chief Executive Officer
Date: April 28, 2003
22
CERTIFICATIONS*
I, Xxxxx X. Xxxxxx, certify that:
1. I have reviewed this
annual report on Form 10-K of Tekni-Plex;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
/s/ XXXXX X. XXXXXX
--------------------------------------
Xxxxx X. Xxxxxx
Chief Financial Officer
Date: April 28, 2003
23
TEKNI-PLEX, INC.
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets............................................ F-3
Statements of operations.................................. F-4
Statements of stockholders' deficit....................... F-5
Statements of cash flows.................................. F-6
Notes to financial statements............................. F-7-F-29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
SUPPLEMENTAL SCHEDULE..................................... F-30
SUPPLEMENTAL SCHEDULE:
Valuation and qualifying accounts and reserves............ F-31
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
We have audited the accompanying consolidated balance sheets of Tekni-Plex,
Inc. and its subsidiaries (the "Company") as of June 28, 2002 and June 29, 2001,
and the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended June 28, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tekni-Plex,
Inc. and its subsidiaries as of June 28, 2002 and June 29, 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended June 28, 2002, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 15 to the financial statements, the Company has
changed its method of aggregating its operating segments.
BDO XXXXXXX, LLP
September 13, 2002
Woodbridge, New Jersey
F-2
TEKNI-PLEX, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
ASSETS (NOTE 7)
CURRENT:
Cash and cash equivalents................................. $ 28,199 $ 44,645
Accounts receivable, net of an allowance of $1,671 and
$1,500 for possible losses............................. 147,198 105,316
Inventories (Note 4)...................................... 117,632 106,258
Deferred income taxes (Note 8)............................ 7,472 5,153
Prepaid expenses and other current assets................. 5,583 5,595
--------- ---------
Total Current Assets................................... 306,084 266,967
Property, Plant and Equipment, Net (Note 5)................. 158,118 137,008
Intangible Assets, Net of Accumulated Amortization (Note
6)........................................................ 204,252 179,616
Deferred Financing Costs, Net of Accumulated Amortization of
$5,030 And $2,549......................................... 14,343 16,607
Deferred Income Taxes (Note 8).............................. 16,278 19,010
Other Assets................................................ 1,078 2,286
--------- ---------
$ 700,153 $ 621,494
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long term debt (Note 7)................ $ 13,407 $ 8,072
Accounts payable.......................................... 32,643 34,076
Accrued payroll and benefits.............................. 8,965 5,222
Accrued interest.......................................... 4,789 1,673
Accrued integration reserve (Note 3)...................... 6,755 --
Accrued customer allowances............................... 8,214 4,904
Accrued liabilities -- other.............................. 13,877 10,542
Income taxes payable...................................... 515 3,349
--------- ---------
Total Current Liabilities.............................. 89,165 67,838
Long-Term Debt (Note 7)..................................... 679,414 670,078
Other Liabilities (Note 1).................................. 22,685 18,275
--------- ---------
Total Liabilities...................................... 791,264 756,191
--------- ---------
Commitments and Contingencies (Notes 8, 9 and 12)
Stockholders' Deficit:
Common stock, $.01 par value, authorized 20,000 shares,
issued 1088 at June 28, 2002 and 1011 at June 29,
2001................................................... -- --
Additional paid-in capital................................ 170,176 120,176
Accumulated other comprehensive loss...................... (6,805) (7,039)
Accumulated deficit....................................... (33,959) (27,372)
Less: Treasury stock at cost, 431 shares (Note 2)......... (220,523) (220,462)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT............................ (91,111) (134,697)
--------- ---------
$ 700,153 $ 621,494
========= =========
See accompanying notes to consolidated financial statements.
F-3
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
---------------------------------------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Net Sales.............................................. $577,749 $525,837 $524,817
Cost of Sales.......................................... 430,457 399,836 394,480
-------- -------- --------
Gross Profit...................................... 147,292 126,001 130,337
Operating Expenses:
Selling, general and administrative.................. 69,444 60,999 58,343
-------- -------- --------
Income from Operations............................ 77,848 65,002 71,994
Other Expenses:
Interest, net........................................ 70,934 76,569 38,447
Unrealized loss on derivative contracts (Note 1)..... 7,830 13,891 --
Other (Note 10)...................................... (6) 605 4,705
-------- -------- --------
Income (Loss) Before Provision
(Benefit) for Income Taxes and
Extraordinary Item................................ (910) (26,063) 28,842
Provision (Benefit) for Income Taxes (Note 8):
Current.............................................. 4,443 4,098 12,333
Deferred............................................. 1,234 (11,167) 2,103
-------- -------- --------
Income (Loss) Before Extraordinary Item........... (6,587) (18,994) 14,406
Extraordinary Item, Net of Income Taxes (Note 2)....... -- -- (35,374)
-------- -------- --------
Net Loss............................................... $ (6,587) $(18,994) $(20,968)
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED TREASURY
STOCK CAPITAL LOSS DEFICIT STOCK TOTAL
------ ---------- ------------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE, JULY 2, 1999......... $ -- $ 41,075 $(1,368) $ 12,590 $ -- $ 52,297
Net loss...................... -- -- -- (20,968) -- (20,968)
Foreign currency
translation................. -- -- (3,118) -- -- (3,118)
---------
Comprehensive loss............ -- -- -- -- -- (24,086)
Purchase of treasury stock.... -- -- -- -- (220,462) (220,462)
Capital contribution.......... -- 43,101 -- -- -- 43,101
----- -------- ------- -------- --------- ---------
BALANCE, JUNE 30, 2000........ -- 84,176 (4,486) (8,378) (220,462) (149,150)
Net loss...................... -- -- -- (18,994) -- (18,994)
Foreign currency
translation................. -- -- (2,553) -- -- (2,553)
---------
Comprehensive loss............ -- -- -- -- -- (21,547)
Capital contributions......... -- 36,000 -- -- -- 36,000
----- -------- ------- -------- --------- ---------
BALANCE, JUNE 29, 2001........ -- 120,176 (7,039) (27,372) (220,462) (134,697)
Net loss...................... -- -- -- (6,587) -- (6,587)
Foreign currency
translation................. -- -- 3,319 -- -- 3,319
Unrealized loss of pension
plan, net of tax............ -- -- (3,085) -- -- (3,085)
---------
Comprehensive loss............ -- -- -- -- -- (6,353)
Acquisition of shares......... -- -- -- -- (61) (61)
Capital contributions......... -- 50,000 -- -- -- 50,000
----- -------- ------- -------- --------- ---------
BALANCE, JUNE 28, 2002........ $ -- $170,176 $(6,805) $(33,959) $(220,523) $ (91,111)
===== ======== ======= ======== ========= =========
See accompanying notes to consolidated financial statements.
F-5
TEKNI-PLEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 14)
YEARS ENDED
---------------------------------------------
JUNE 28, 2002 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Cash Flows from Operating Activities:
Net loss............................................... $ (6,587) $(18,994) $ (20,968)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation......................................... 20,981 18,741 16,026
Amortization......................................... 18,882 18,929 18,722
Unrealized loss on derivative contracts.............. 7,830 13,891
Provision for bad debts.............................. 484 250 310
Deferred income taxes................................ 1,234 (11,167) 2,103
Loss on sale of assets............................... -- -- 62
Extraordinary loss on extinguishment of debt, net of
tax............................................... -- -- 35,374
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable............................... (35,632) (9,527) 186
Inventories....................................... 4,226 (11,019) (29,243)
Prepaid expenses and other current assets......... 866 8,859 4,898
Other assets...................................... (50) (58) 205
Accounts payable and other current liabilities.... (6,136) 2,713 (15,994)
Income taxes payable.............................. 5,419 3,349 (742)
Other liabilities................................. (3,595) (19,233) (1,454)
-------- -------- ---------
Net Cash Provided by (used in) Operating
Activities................................... 7,922 (3,266) 9,485
-------- -------- ---------
Cash Flows from Investing Activities:
Acquisitions of net assets including acquisition
costs............................................. (63,624) (9,233) --
Capital expenditures................................. (24,653) (17,116) (16,258)
Additions to intangibles............................. (169) (428) (805)
Cash proceeds from sale of assets.................... -- -- 158
-------- -------- ---------
Net Cash Used in Investing Activities........... (88,446) (26,777) (16,905)
-------- -------- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of credit..... (19,000) 35,000 (2,030)
Proceeds from long-term debt......................... 40,747 -- 645,232
Repayments of long-term debt......................... (7,440) (8,820) (448,631)
Proceeds from capital contributions.................. 50,000 36,000 43,101
Debt financing costs................................. (154) -- (18,897)
Purchase of treasury stock........................... (61) -- (220,462)
-------- -------- ---------
Net Cash Provided by (used in) Financing
Activities................................... 64,092 62,180 (1,687)
-------- -------- ---------
Effect of Exchange Rate Changes on Cash................ (14) (17) (485)
-------- -------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents... (16,446) 32,120 (9,592)
Cash, Beginning of Period and Cash Equivalents......... 44,645 12,525 22,117
-------- -------- ---------
Cash, End of Period and Cash Equivalents............... $ 28,199 $ 44,645 $ 12,525
======== ======== =========
See accompanying notes to consolidated financial statements.
F-6
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
Tekni-Plex, Inc. and its subsidiaries ("Tekni-Plex" or the "Company") is a
global, diversified manufacturer of packaging, packaging products, and materials
as well as tubing products. We primarily serve the food, healthcare and consumer
markets. 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 two primary business groups: Packaging
and Tubing Products.
CONSOLIDATION POLICY
The consolidated financial statements include the financial statements of
Tekni-Plex, Inc. and its subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost (weighted average) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed over the estimated useful lives of the assets
primarily on the straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes. Repairs and maintenance are charged
to expense as incurred.
INTANGIBLE ASSETS
The Company amortizes the excess of cost over the fair value of net assets
acquired on a straight-line basis over 15 years, and the cost of acquiring
certain patents, trademarks, and customer lists over seventeen, five and ten
years, respectively. Recoverability is evaluated periodically based on the
expected undiscounted net cash flows of the related businesses.
DEFERRED FINANCING COSTS
The Company amortizes the deferred financing costs incurred in connection
with the Company's borrowings over the life of the related indebtedness (5-10
years).
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Deferred income tax assets and liabilities are recognized for
differences between the financial statement and income tax basis of assets and
liabilities based upon statutory rates enacted for future periods. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped to customers. The
Company provides for returned goods and volume rebates on an estimated basis.
F-7
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHIPPING AND HANDLING COSTS
Shipping and handling costs are recorded to cost of sales.
RESEARCH AND DEVELOPMENT
Research and development expenditures for the Company's projects are
expensed as incurred.
TREASURY STOCK
Treasury Stock is recorded at cost. Gains and losses on disposition are
recorded as increases or decreases to additional paid-in capital with losses in
excess of previously recorded gains charged directly to retained earnings.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
FISCAL YEAR-END
The Company utilizes a 52/53 week fiscal year ending on the Friday closest
to June 30. The years ended June 28, 2002, June 29, 2001, and June 30, 2000
contained 52 weeks each.
RECLASSIFICATIONS
Certain items in the prior year financial statements have been reclassified
to conform to the current year presentation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of international subsidiaries are translated at year
end exchange rates and related translation adjustments are reported as a
component of stockholders' deficit. The statement of operations accounts are
translated at the average rates during the period.
LONG-LIVED ASSETS
Long-lived assets, such as goodwill, customer lists and property and
equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows from the use of these assets. When
such impairments exist, the related assets will be written down to fair value.
No impairment losses have been recorded through June 28, 2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK BASED COMPENSATION
The Company applies the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," which allows the Company to apply APB Opinion 25 and
related interpretations in accounting for its stock options and present pro
forma effects of the fair value of such options.
DERIVATIVE INSTRUMENTS
Effective July 1, 2000, Tekni-Plex adopted Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended and interpreted. FAS 133 requires that all derivative instruments, such
as interest rate swaps, be recognized in the financial statements and measured
at their fair market value. Changes in the fair market value of derivative
instruments are recognized each period in current operations or stockholders'
equity (as a component of accumulated other comprehensive loss), depending on
whether a derivative instrument qualifies as a hedge transaction.
In the normal course of business, Tekni-Plex is exposed to changes in
interest rates. The objective in managing its exposure to interest rates is to
decrease the volatility that changes in interest rates might have on operations
and cash flows. To achieve this objective, Tekni-Plex uses interest rate swaps
and caps to hedge a portion of total long-term debt that is subject to variable
interest rates. These derivative contracts are considered to be a hedge against
changes in the amount of future cash flows associated with the interest payments
on variable-rate debt obligations, however, they do not qualify for hedge
accounting under FASB 133. Accordingly, the interest rate swaps are reflected at
fair value in the Consolidated Balance Sheet and the related gains or losses on
these contracts are recorded as an unrealized loss from derivative instruments
in the Consolidated Statements of Operations. Currently these are the only
derivative instruments held by Tekni-Plex as of June 28, 2002. The fair value of
derivative contracts are determined based on quoted market values obtained from
a third party.
As of July 1, 2000, Tekni-Plex had interest swap contracts to pay variable
rates of interest based on a basket of LIBOR benchmarks and receive variable
rates of interest based on a 3 month dollar LIBOR on an aggregate of $29,000
amount of indebtedness with maturity dates ranging from June 2006 through June
2008. In conjunction with these swap contracts, Tekni-Plex also purchased an
interest rate cap. The aggregate fair market value of these interest rate swap
and cap contracts was $(21,721) and $(13,891) on June 28, 2002 and June 29,
2001, respectively, and is included in other liabilities on the Consolidated
Balance Sheet. For the years ended June 28, 2002 and June 29, 2001, Tekni-Plex
incurred realized losses of $7,939 and $1,806, respectively, which have been
reflected in interest expense.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life.
F-9
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to
be applied in fiscal years beginning after December 15, 2001 to all goodwill and
other intangible assets recognized at that date, regardless of when those assets
were initially recognized. SFAS 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS 142.
The Company's previous business combinations were accounted for using the
purchase method. As of June 28, 2002, the net carrying amount of goodwill for
acquisitions prior to July 1, 2001 is $164,100 and other intangible assets are
$600. Amortization expense during the year ended June 28, 2002 was $15,500
related to those acquisitions. The acquisition of the Swan garden hose division
of Xxxx XX Industries, Inc. was accounted for as a purchase. The acquisition
resulted in customer lists and goodwill of $3,900 and $36,200, respectively. In
accordance with SFAS 142, the Swan goodwill is not being amortized. Amortization
of customer lists was approximately $600 for the year ended June 28, 2002. If
the Company had adopted SFAS 142 on July 2, 1999, the Company's net loss for
each of the three years in the period ended June 28, 2002 would have been as
follows:
JUNE 28, JUNE 29, JUNE 20,
2002 2001 2000
-------- -------- --------
Net income (loss) before extraordinary item, as
previously reported.................................. $(6,587) $(18,994) $14,406
Add amortization, net of tax........................... 9,299 9,299 9,315
Adjusted net income(loss).............................. $ 2,712 $ (9,695) $23,721
The Company has not yet completed its transitional analysis of goodwill,
and has therefore not yet determined the impact, if any, the adoption of SFAS
142 will have on the carrying amount of goodwill or the results of operations,
other then discussed above.
In August 2001, the FASB issued FASB Statement No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets ("SFAS 144"). The new guidance
resolves significant implementation issues related to FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS 121"). SFAS 144 supercedes SFAS 121, but it retains its
fundamental provisions. It also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidate a
subsidiary for which control is likely to be temporary. SFAS 144 retains the
requirement of SFAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset within the scope of SFAS 144 is not recoverable
from its undiscounted cash flows and exceeds its fair value.
SFAS 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The provisions of SFAS 144 generally are to be applied
prospectively. The Company is currently assessing the impact SFAS 144 will have
on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring
Costs. SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value.
SFAS 146 will require a company to disclose information about its exit and
disposal activities, the related costs, and changes in those costs in the notes
to the interim and annual financial statements that include the period in which
an exit activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with
F-10
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earlier adoption encouraged. Under SFAS 146, a company cannot restate its
previously issued financial statements and the new Statement grandfathers the
accounting for liabilities that a company had previously recorded under Emerging
Issues Task Force Issue 94-3.
2. RECAPITALIZATION
In June 2000, the Company entered into a Recapitalization (the
"Recapitalization") with certain of its stockholders, whereby the Company
purchased approximately 51% of the outstanding stock for approximately $220,500
including related transaction fees. This stock has been reflected as treasury
stock in the accompanying balance sheet.
As a result of provisions in the Company's Senior Debt and Subordinated
Note Agreements, the Company redeemed it's $200,000 9 1/4% Senior Subordinated
Notes, its $75,000 11 1/4% Senior Subordinated Notes and repaid its Senior Debt
in the amount of approximately $153,000. These transactions resulted in an
extraordinary loss on the extinguishment of debt of approximately $35,374. The
extraordinary loss is comprised of prepayment penalties and other interest costs
of $39,303, the write-off of deferred financing costs of $16,696 and other fees
of $1,325, net of a tax benefit of $21,950.
These transactions were funded by $43,101 of new equity, $275,000 12 3/4%
Senior Subordinated Notes (see Note 7(b)) and initial borrowings of $374,000 on
a $444,000 Senior Credit Facility (see Note 7(a)).
3. ACQUISITIONS
In October 2001, the Company purchased certain assets and assumed certain
liabilities of Swan for approximately $63,600. The acquisition was recorded
under the purchase method, whereby Swan's net assets were recorded at estimated
fair value and its operations have been reflected in the statement of operations
since that date. The allocation of the purchase price was as follows:
Assets:
Accounts receivable......................................... $ 7,184
Inventory................................................... 15,600
Deferred taxes.............................................. 4,350
Fixed Assets................................................ 17,568
Customer lists.............................................. 3,900
Goodwill.................................................... 36,228
-------
Total Assets................................................ 84,830
Liabilities:
Accounts payable and accrued expenses....................... 11,230
Integration reserve......................................... 10,000
-------
Net Investment.............................................. $63,600
=======
F-11
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Integration reserve and activity through June 28,
2002 is as follows:
OCTOBER COST CHARGED BALANCE
2001 TO RESERVE JUNE 28, 2002
------- ------------ -------------
Cost to close duplicate facilities................ $ 3,500 $1,340 $2,160
Reduction in personnel and related costs.......... 2,100 718 1,382
Legal and environmental........................... 1,275 40 1,245
Manufacturing reconfiguration..................... 1,455 175 1,275
Other............................................. 1,670 972 698
------- ------ ------
$10,000 $3,245 $6,755
======= ====== ======
The remaining personnel related costs will be paid over the next four-six
months, lease payments on duplicate warehouse facilities will extend over the
next two years and the manufacturing reconfiguration is expected to be completed
during the next year.
The following table represents the unaudited proforma results of operations
as though the acquisition of Swan occurred on July 1, 2000. Since Swan was
purchased subsequent to July 1, 2001, no amortization of goodwill has been
reflected for the years ended June 28, 2002 or June 29, 2001 in accordance with
SFAS 142.
YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
Net sales................................................... $589,045 $602,593
Income from operations...................................... 75,863 73,305
Loss before income taxes.................................... (2,895) (17,760)
======== ========
In November 2000, the Company purchased certain assets of Super Plastics
Division ("Super Plastics") of RCR International, Inc., for approximately
$10,200. The acquisition was recorded under the purchase method, whereby Super
Plastics' net assets were recorded at estimated fair value and its operations
have been reflected in the statement of operations since that date. As a result
of the acquisition, goodwill of approximately $5,500 has been recorded, which is
being amortized over 15 years. In connection with the acquisition, the Company
established a reserve of $2,600. The reserve was comprised of the costs to close
a duplicate facility and terminate employees. There was no balance remaining in
this reserve at June 29, 2001.
4. INVENTORIES
Inventories are summarized as follows:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Raw materials............................................... $ 37,727 $ 33,971
Work-in-process............................................. 8,621 7,812
Finished goods.............................................. 71,284 64,475
-------- --------
$117,632 $106,258
======== ========
F-12
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 28, JUNE 29, ESTIMATED
2002 2001 USEFUL LIVES
-------- -------- ------------
Land............................................... $ 21,256 $ 15,390
Building and improvements.......................... 47,383 34,000 00-00 years
Machinery and equipment............................ 163,909 139,591 5-10 years
Furniture and fixtures............................. 7,125 6,176 5-10 years
Construction in progress........................... 8,663 10,115
-------- --------
248,336 206,158
Less: Accumulated depreciation..................... 90,218 69,150
-------- --------
$158,118 $137,008
======== ========
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Goodwill.................................................... $278,006 $241,311
Customer lists.............................................. 3,900 --
Patents..................................................... 745 576
-------- --------
282,651 241,887
Less: Accumulated amortization.............................. 78,399 62,271
-------- --------
$204,252 $179,616
======== ========
7. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Senior Debt(a):
Revolving line of credit.................................. $ 46,000 $ 65,000
Term notes................................................ 329,120 336,560
Senior Subordinated Notes issued June 21, 2000 at 12 3/4%,
due June 15, 2010 (less unamortized discount of $3,015 and
$3,391)(b)................................................ 271,985 271,609
Senior Subordinated Notes issued May 2002 at 12 3/4%, due
June 15, 2010 (less unamortized premium of $588)(b)....... 40,588 --
Other, primarily foreign term loans, with interest rates
ranging from 4.44% to 5.44% and maturities from 2003 to
2010...................................................... 5,128 4,981
-------- --------
692,821 678,150
Less: Current maturities.................................... 13,407 8,072
-------- --------
$679,414 $670,078
======== ========
F-13
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A) SENIOR DEBT
The Company has a Senior Debt agreement, which includes a $100,000
revolving credit agreement, and two term loans in the original aggregate amount
of $344,000. The proceeds of the credit agreement were used as part of the
Recapitalization (Note 2). These loans are senior to all other indebtedness and
are collateralized by substantially all the assets of the Company. The debt
agreement includes various covenants including compliance with customary
financial ratios. The Company is in compliance with all such financial
covenants.
REVOLVING CREDIT AGREEMENT
Borrowings under the agreement may be used for general corporate purposes
with $54,000 of additional borrowings available at June 28, 2002. Interest, at
the Company's option, is charged at the Prime Rate, plus the Applicable Base
Rate Margin (initially 2%) or the Adjusted LIBOR Rate, as defined, plus the
Applicable Euro-Dollar Margin (initially 3%). The Applicable Base Rate Margin
and Applicable Euro-Dollar Margin can be reduced by up to 1.25 % based on the
maintenance of certain leverage ratios. At June 28, 2002 the balance of $46,000
outstanding was borrowed at 4.875% At June 29, 2001, the rates charged were at
various rates ranging from 6.754% to 8.75%. The Revolving Credit Agreement
expires in June 2006.
TERM LOAN A
Borrowings under this loan, in the original amount of $100,000, were used
in connection with the Recapitalization. Interest is payable quarterly at the
same rates and margins discussed above under the Revolving Credit Agreement,
5.0% and 7.5% at June 28, 2002 and June 29, 2001, respectively. Principal is
currently payable in quarterly installments of $1,250. The quarterly
installments subsequently increase with payments totaling $70,000 due in the
final two years in the period ending in June 2006.
TERM LOAN B
Borrowings under this loan in the original amount of $244,000 were used in
connection with the Recapitalization. Interest is payable quarterly at the same
rate discussed above, except the Applicable Base Rate Margin is initially 2.5%
and the Applicable Euro-Dollar Margin is initially 3.5%. Rates of 5.5% and 7.25%
were charged at June 28, 2002 and June 29, 2001, respectively. In addition, the
Applicable Base Rate and Applicable Euro-Dollar Margin can be reduced by .5%
based on the maintenance of certain leverage ratios. Principal is currently
payable in quarterly installments of $610. The quarterly installments
subsequently increase with payments totaling $229,000 due in the final two years
in the period ending in June 2008.
B) SENIOR SUBORDINATED NOTES ISSUED JUNE 2000 AND MAY 2002
In June 2000, the Company issued $275,000 of 12 3/4% ten year Senior
Subordinated Notes less a discount of $3,768, the proceeds of which were used in
connection with the Recapitalization. The discount is being amortized over the
term of the notes on the interest method. Interest is payable semi-annually and
the notes are unsecured obligations and rank subordinate to existing and future
senior debt, including current term loans and revolving credit facilities. The
notes are callable by the Company after June 15, 2005 at a premium of 6.375%,
which decreases to par after June 2008. In addition, prior to June 15, 2003, the
Company may call up to 35% of the principal amount of the notes outstanding with
proceeds from one or more public offerings of the Company's Capital Stock at a
premium of 12.75%. Upon a change in control, the Company is required to make an
offer to repurchase the notes at 101% of the principal amount. These notes also
contain various covenants including a limitation on future indebtedness;
limitation of payments, including prohibiting the payment of dividends; and
limitations on mergers, consolidations and the sale of assets.
On May 6, 2002, the Company issued an additional $40,000 of 12 3/4% Senior
Subordinated Notes plus a premium of $600, the proceeds of which were used to
repay borrowings under the revolving credit facility. The
F-14
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
premium is being amortized over the term of the notes on the interest method.
These notes have the same terms and maturity as the June 2000 notes discussed
above.
Principal payments on long-term debt over the next five years and
thereafter are as follows:
2003........................................................ $ 13,407
2004........................................................ 12,915
2005........................................................ 37,915
2006........................................................ 83,915
2007........................................................ 114,975
Thereafter.................................................. 432,121
========
The Company believes the recorded value of long-term debt approximates fair
value based on current rates available to the Company 8. INCOME TAXES
The provision for income taxes, excluding the income tax benefit associated
with the extraordinary item in 2000, is summarized as follows:
YEARS ENDED
------------------------------
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
Current:
Federal............................................... $ 259 $ -- $ 7,763
Foreign............................................... 2,180 3,984 3,554
State and local....................................... 2,004 114 1,016
------ -------- -------
4,443 4,098 12,333
------ -------- -------
Deferred:
Federal............................................... 474 (9,945) 1,756
Foreign............................................... 676 (370) 217
State and local....................................... 84 (852) 130
------ -------- -------
1,234 (11,167) 2,103
------ -------- -------
Provision (benefit) for income taxes.................... $5,677 $ (7,069) $14,436
====== ======== =======
The components of income (loss) before income taxes are as follows:
YEARS ENDED
------------------------------
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
Domestic............................................... $(9,448) $(38,116) $20,150
Foreign................................................ 8,538 12,053 8,692
------- -------- -------
$ (910) $(26,063) $28,842
======= ======== =======
F-15
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes differs from the amounts computed
by applying the applicable Federal statutory rates due to the following:
YEARS ENDED
------------------------------
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
Provision (benefit) for Federal income taxes at statutory
rate................................................... $ (309) $(8,861) $ 9,806
State and local income taxes, net of Federal benefit..... 1,427 (677) 756
Non-deductible goodwill amortization..................... 3,647 2,785 2,310
Foreign tax rates in excess of Federal tax rate.......... 874 (470) 785
Other, net............................................... 38 154 779
------ ------- -------
Provision (benefit) for income taxes..................... $5,677 $(7,069) $14,436
====== ======= =======
Significant components of the Company's deferred tax assets and liabilities
are as follows:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Current deferred taxes:
Allowance for doubtful accounts........................... $ 1,309 $ 582
Inventory................................................. 1,928 1,190
Net operating loss carryforwards.......................... 1,402 3,201
Accrued expenses.......................................... 2,833 180
-------- --------
Total current deferred tax assets...................... $ 7,472 $ 5,153
======== ========
Long-term deferred taxes:
Net operating loss carryforwards.......................... $ 29,836 $ 39,593
Accrued pension and post-retirement....................... 1,365 1,457
Unrealized loss on derivative contracts................... 8,254 5,360
Unrealized loss of pension plan........................... 1,890 --
Difference in book vs. tax basis of assets................ (1,500) (3,028)
Accelerated tax vs. book depreciation..................... (18,419) (19,292)
Other expenses............................................ 652 620
-------- --------
Total long-term net deferred tax assets................ 22,078 24,710
Valuation allowance......................................... (5,800) (5,700)
-------- --------
Total long-term net deferred tax assets..................... $ 16,278 $ 19,010
======== ========
NET OPERATING LOSSES
The Company and its U.S. subsidiaries file a consolidated tax return. The
Company and its U.S. subsidiaries have net operating loss ("NOL") carryforwards
of approximately $81,369. These NOL's expire at various dates from 2009 through
2021. Approximately $80,000 of the NOL's are as a result of the acquisition of
PureTec in 1997 (the "XxxxXxx XXX'x"). The XxxxXxx XXX'x are subject to IRC
Section 382 change of ownership annual limitation of approximately $5,900.
The Company and its U.S. subsidiaries would need to realize taxable income
of not less than $15,000 through to 2009, and not less than $80,000 through 2013
in order to fully realize the benefit of the NOL carryforwards. The net
long-term domestic deferred tax assets have been subjected to a valuation
allowance of
F-16
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$5,000 since management believes it is more likely than not that a portion of
the NOL balance will not be realized as a result of the various limitations on
their usage, discussed above.
In addition to the domestic NOL balances, the Company has incurred losses
relating to a subsidiary, taxable in Northern Ireland. Through fiscal 2002
losses aggregated $2,500 which have no expiration date. The Company believes
that it is more likely than not that this deferred tax asset will not be
realized and has recorded a full valuation allowance on these amounts.
9. EMPLOYEE BENEFIT PLANS
(A) SAVINGS PLANS
i. The Company maintains a discretionary 401(k) plan covering all eligible
employees with at least one year of service Contributions to the plan were
determined annually by the Board of Directors.
The Company will determine matching contributions to the plan each year not
to exceed 2% of the employee's eligible compensation. Contributions for the
fiscal years ended June 28, 2002, June 29, 2001 and June 30, 2000 amounted to
approximately $1,130, $863 and $996, respectively.
(B) PENSION PLANS
i. The Company's Burlington subsidiary has a non-contributory defined
benefit pension plan that covers substantially all hourly compensated employees
covered by a collective bargaining agreement, who have completed one year of
service. The funding policy of the Company is to make contributions to this plan
based on actuarial computations of the minimum required contribution for the
plan year.
The components of net periodic pension costs are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- -------------
Service cost................................... $ 105 $ 105 $ 117
Interest cost on projected benefit
obligation................................... 400 393 390
Expected actual return on plan assets.......... (494) (494) (492)
------ ------ -----
Net pension cost............................... $ 11 $ 4 $ 15
====== ====== =====
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of
period....................................... $5,600 $5,334
Service cost................................... 105 105
Interest cost.................................. 400 393
Plan amendments................................ 111 --
Actuarial loss................................. 145 38
Benefits paid.................................. (327) (270)
------ ------
Projected benefit obligation, end of period.... $6,034 $5,600
====== ======
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning of
period....................................... $5,440 $5,550
Actual return on plan assets................... (179) 3
Company contributions.......................... 233 157
Benefits paid.................................. (327) (270)
------ ------
Plan assets at fair value, end of period....... $5,167 $5,440
====== ======
F-17
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Plan and amounts recorded in the Company's balance
sheets are as follows:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Funded status of the plan................................... $ (867) $(160)
Unrecognized prior service cost............................. 111 --
Unrecognized net loss....................................... 1,494 676
------ -----
Prepaid pension cost........................................ $ 738 $ 516
====== =====
The expected long-term rate of return on plan assets was 9% for the periods
presented and the discount rate was 7.0% and 7 1/2% at June 28, 2002 and June
29, 2001.
During 2002, the Company recorded an unrecognized pension liability of
$1,494 as an accumulated other comprehensive loss adjustment to stockholders'
equity. This amount represents a portion of the unrecognized net actuarial loss
for the year ending June 28, 2002 as a result of investment return less than the
actuarial assumption.
ii. The Company maintains a non-contributory defined benefit pension plan
that covers substantially all non-collective bargaining unit employees of PST
and Burlington, who have completed one year of service and are not participants
in any other pension plan. The funding policy of the Company is to make
contributions to the plan based on actuarial computations of the minimum
required contribution for the plan year. On September 8, 1998, the Company
approved a plan to freeze this defined benefit pension plan effective September
30, 1998.
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- -------------
Service cost................................... $ -- $ -- $ --
Interest cost on projected benefit
obligation................................... 787 750 704
Expected actual return on plan assets.......... (931) (978) (986)
----- ----- -----
Net pension cost............................... $(144) $(228) $(282)
===== ===== =====
YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of period........... $10,501 $ 9,978
Interest cost............................................... 762 750
Actuarial loss.............................................. 525 204
Benefits paid............................................... (514) (431)
------- -------
Projected benefit obligation, end of period................. $11,274 $10,501
======= =======
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning of period.............. $10,545 $11,055
Actual return on plan assets................................ (492) (79)
Benefits paid............................................... (514) (431)
------- -------
Plan assets at fair value, end of period.................... $ 9,539 $10,545
======= =======
F-18
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Plan and amounts recorded in the Company's balance
sheets are as follows:
JUNE 28, JUNE 29,
2002 2001
-------- --------
Funded status of the plan................................... $(1,735) $ 44
Unrecognized net loss....................................... 3,480 1,557
------- ------
Prepaid pension cost........................................ $ 1,745 $1,601
======= ======
The expected long-term rate of return on plan assets was 9% for the periods
presented and the discount rate was 7.0% and 7 1/2% at June 28, 2002 and June
29,2001.
During 2002, the Company recorded an unrecognized pension liability of
$3,480 as an accumulated other comprehensive loss adjustment to stockholders'
equity. This amount represents a portion of the unrecognized net actuarial loss
for the year ending June 28, 2002 as a result of investment return less than the
actuarial assumption.
iii. The Company also has a defined benefit pension plan for the benefit
of all employees having completed one year of service with Dolco. The Company's
policy is to fund the minimum amounts required by applicable regulations.
Dolco's Board of Directors approved a plan to freeze the pension plan on June
30, 1987, at which time benefits ceased to accrue. The Company has not been
required to contribute to the plan since 1990.
(C) POST-RETIREMENT BENEFITS
In addition to providing pension benefits, the Company also sponsors the
Burlington Retiree Welfare Plan, which provides certain healthcare benefits for
retired employees of the Burlington division who were employed on an hourly
basis, covered under a collective bargaining agreement and retired prior to July
31, 1997. Those employees and their families became eligible for these benefits
after the employee completed five years of service, if retiring at age
fifty-five, or at age sixty-five, the normal retirement age. Post retirement
healthcare benefits paid for the years ended June 28, 2002, June 29, 2001 and
June 30, 2000 amounted to $177, $182 and $130, respectively.
F-19
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic post-retirement benefit costs are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001 JUNE 30, 2000
------------- ------------- -------------
Service cost................................... $ 55 $ 45 $ 45
Interest cost.................................. 206 179 155
Transition obligation.......................... 34 4 --
------ ------ ----
Net post-retirement benefit cost............. $ 295 $ 228 $200
====== ====== ====
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of
period....................................... $2,847 $2,457
Service cost................................... 55 45
Interest cost.................................. 206 179
Actuarial loss................................. 690 348
Benefits paid.................................. (177) (182)
------ ------
Projected benefit obligation, end of period.... $3,621 $2,847
====== ======
CHANGE IN PLAN ASSETS
Plan assets at fair value, beginning of
period....................................... $ -- $ --
Company contributions.......................... 177 182
Benefits paid.................................. (177) (182)
------ ------
Plan assets at fair value, end of period....... $ -- $ --
====== ======
The funded status of the Plan and amounts recorded in the Company's balance
sheets are as follows:
YEAR ENDED YEAR ENDED
JUNE 28, 2002 JUNE 29, 2001
------------- -------------
Funded status of the plan................................... $(3,621) $(2,847)
Unrecognized loss........................................... 1,286 630
------- -------
Accrued post retirement cost................................ $(2,335) $(2,217)
======= =======
The accumulated post-retirement benefit obligation was deter-mined using a
7.0% and 7 1/2% discount rate for the periods presented. The healthcare cost
trend rate for medical benefits was assumed to be 6%. The healthcare cost trend
rate assumption has a significant effect on the amounts reported. A 1% increase
in healthcare trend rate would increase the accumulated post-retirement benefit
obligation by $282 and $295 and increase the service and interest components by
$24 and $27 at June 28, 2002 and June 29, 2001, respectively.
10. RELATED PARTY TRANSACTIONS
The Company had a management consulting agreement with an affiliate of a
stockholder. The terms of the agreement required the Company to pay a fee of
approximately $30 per month for a period of ten years, with certain renewal
provisions. Consulting service fees were approximately $400 for the year ending
July 2, 1999. In June 2000 the Company agreed to terminate the management
consulting agreement at a cost of $3,651 which has been included in other
income/expense.
11. STOCK OPTIONS
In January 1998, the Company adopted an incentive stock plan (the "Stock
Incentive Plan"). Under the Stock Incentive Plan, 45.75206 shares are available
for awards to employees of the Company. Options will be
F-20
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted at fair market value on the date of grant. As of July 2, 1999 options to
purchase 38.17 shares of common stock were outstanding with an average exercise
price of $177. During 2001 and 2000 options were granted to purchase 4.02 and
1.27 shares of common stock at weighted-average exercise prices of $559 and $508
per share, respectively. The options are subject to vesting provisions, as
determined by the Board of Directors, and generally vest 100% five years from
grant date and expire 10 years from date of grant. In connection with the
Recapitalization 25.16363 options with an exercise price of $154 were cancelled.
At June 28, 2002, no options were exercisable and no options have been
exercised or forfeited as of June 28, 2002.
The Company applies APB Opinion 25 and related interpretations in
accounting for these options. Accordingly, no compensation cost has been
recognized. Had compensation cost been determined based on the fair value at the
grant dates for these awards consistent with the method of SFAS Statement 123,
the Company's income (loss) before extraordinary items would have been reduced
(increased) to the pro forma amounts indicated below. The calculations were
based on a risk free interest rate of 4.0% and 5.7% for the 2001 and 2000
options, respectively, expected volatility of zero, a dividend yield of zero and
expected lives of 8 years.
YEARS ENDED
------------------------------
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
Income (loss) before extraordinary item:
As reported.......................................... $(6,587) $(18,994) $14,406
======= ======== =======
Pro forma............................................ $(6,725) $(19,093) $14,343
======= ======== =======
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
(a) The Company leases building space and certain equipment in
approximately 20 locations throughout the United States, Canada and Europe. At
June 28, 2002, the Company's future minimum lease payments are as follows:
2003........................................................ $ 7,921
2004........................................................ 5,698
2005........................................................ 4,278
2006........................................................ 4,132
2007........................................................ 4,000
Thereafter.................................................. 14,703
-------
$40,732
=======
Rent expense, including escalation charges, amounted to approximately
$6,665, $5,308 and $4,427 for the years ended June 28, 2002 and June 29, 2001
and June 30, 2000, respectively.
(b) The Company has employment contracts with two employees, providing
minimum salaries of $7,500 with no mandatory bonuses. The salaries will increase
10% annually until the agreements expire on July 1, 2005. Salaries and bonuses
for the years ended June 28, 2002, June 29, 2001 and June 30, 2000 amounted to
$8,250, $7,500 and $8,733.
F-21
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENCIES
(a) 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, results of operations or cash flows.
13. CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable.
The Company provides credit to customers on an unsecured basis after
evaluating customer credit worthiness. Since the Company sells to a broad range
of customers, concentrations of credit risk are limited. The Company provides an
allowance for bad debts where there is a possibility for loss.
The Company maintains demand deposits at several major banks throughout the
United States Canada and Europe. As part of its cash management process, the
Company periodically reviews the credit standing of these banks.
14. SUPPLEMENTAL CASH FLOW INFORMATION
(A) CASH PAID
YEARS ENDED
------------------------------
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
Interest............................................... $65,831 $74,568 $102,359
======= ======= ========
Income taxes........................................... $ 2,771 $ 1,661 $ 7,540
======= ======= ========
(B) NON-CASH FINANCING AND INVESTING ACTIVITIES
The Company purchased certain assets of Swan effective October 2001, for
approximately $63,600 in cash. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired............................... $ 48,602
Goodwill.................................................... 36,228
Purchase price.............................................. (63,600)
--------
Liabilities assumed......................................... $ 21,230
========
The Company purchased certain assets of RCR International, Inc. effective
November 2000, for approximately $10,226 in cash. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired............................... $ 7,314
Goodwill.................................................... 5,558
Purchase price.............................................. (10,226)
--------
Liabilities assumed......................................... $ 2,646
========
15. SEGMENT INFORMATION
Tekni-Plex management reviews its operating plants to evaluate performance
and allocate resources. As a result, beginning in fiscal year 2002, Tekni-Plex
has aggregated its operating plants into two industry segments: Tubing Products
and Packaging. The Tubing Products segment principally produces garden and
irrigation
F-22
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hose, medical tubing and pool hose. The Packaging segment principally produces
foam egg cartons, pharmaceutical blister films, poultry and meat processor
trays, closure liners, aerosol and pump packaging components and foam plates.
Products that do not fit in either of these segments, including recycled PET,
vinyl compounds and specialty resins, have been reflected in Other. The Tubing
Products and Packaging segments have operations in the United States, Europe and
Canada. The other segment has operations in the United States. The prior years
have been restated to conform to this presentation.
Financial information concerning the Company's business segments and the
geographic areas in which it operates are as follows:
TUBING
YEAR END JUNE 28, 2002 PRODUCTS PACKAGING OTHER TOTALS
---------------------- -------- --------- -------- --------
Revenues from external customers........... $235,494 $234,694 $107,561 $577,749
Interest expense........................... 31,851 24,703 14,380 70,934
Depreciation and amortization.............. 12,117 19,221 7,478 38,816
Segment income from operations............. 44,187 43,892 6,622 94,701
Segment assets............................. 334,710 222,798 130,050 687,558
Expenditures for segment fixed assets...... 5,023 7,390 4,473 16,886
======== ======== ======== ========
TUBING
YEAR END JUNE 29, 2001 PRODUCTS PACKAGING OTHER TOTALS
---------------------- -------- --------- -------- --------
Revenues from external customers........... $174,525 $236,622 $114,690 $525,837
Interest expense........................... 27,795 29,156 20,020 76,971
Depreciation and amortization.............. 10,502 19,359 7,531 37,392
Segment income from operations............. 30,430 39,857 7,333 77,620
Segment assets............................. 225,425 232,944 145,922 604,301
Expenditures for segment fixed assets...... 4,093 7,492 5,531 17,116
======== ======== ======== ========
TUBING
YEAR END JUNE 30, 2000 PRODUCTS PACKAGING OTHER TOTALS
---------------------- -------- --------- -------- --------
Revenues from external customers........... $177,582 $226,592 $120,643 $524,817
Interest expense........................... 13,551 14,541 10,355 38,447
Depreciation and amortization.............. 9,449 17,430 7,659 34,538
Segment income from operations............. 32,387 42,936 9,373 84,696
Segment assets............................. 182,619 235,310 135,953 553,882
Expenditures for segment fixed assets...... 2,002 8,040 6,216 16,258
======== ======== ======== ========
F-23
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 28, JUNE 29, JUNE 30,
2002 2001 2000
-------- -------- --------
PROFIT OR LOSS
Total operating profit for reportable segments before
income taxes....................................... $ 94,701 $ 77,620 $ 84,696
Corporate and eliminations........................... (16,853) (12,618) (12,702)
-------- -------- --------
$ 77,848 $ 65,002 $ 71,994
======== ======== ========
ASSETS
Total assets from reportable segments................ $687,558 $604,301 $553,882
Other unallocated amounts............................ 12,595 17,193 20,907
-------- -------- --------
Consolidated total.............................. $700,153 $621,494 $574,789
======== ======== ========
DEPRECIATION AND AMORTIZATION
Segment totals....................................... $ 38,816 $ 37,392 $ 34,538
Corporate............................................ 1,047 278 210
-------- -------- --------
Consolidated total.............................. $ 39,863 $ 37,670 $ 34,748
======== ======== ========
REVENUES
GEOGRAPHIC INFORMATION
United States........................................ $516,873 $466,804 $477,489
Foreign.............................................. 60,876 59,033 47,328
-------- -------- --------
Total.............................................. $577,749 $525,837 $524,817
======== ======== ========
LONG-LIVED ASSETS
GEOGRAPHIC INFORMATION
United States........................................ $360,929 $307,328 $323,691
Foreign.............................................. 44,250 42,308 29,250
-------- -------- --------
Total.............................................. $405,179 $349,636 $352,941
======== ======== ========
Income from operations is total net sales less cost of goods sold and
operating expenses of each segment before deductions for general corporate
expenses not directly related to an individual segment and interest.
Identifiable assets by industry are those assets that are used in the Company's
operation in each industry segment, including assigned value of goodwill.
Corporate identifiable assets consist primarily of cash, prepaid expenses,
deferred income taxes and fixed assets.
For the year ended June 28, 2002, no single customer represented at least
10% of sales nor did any customer represent at least 10% of accounts receivable
at June 28, 2002.
No customer represented 10% or more of total sales during the year ended
June 29, 2001 and one customer represented 10% of sales during the year ended
June 30, 2000.
Garden Hose products represented 33%, 24% and 23% of sales in fiscal years
2002, 2001 and 2000, respectively. Foam egg cartons represented 11%, 13% and 11%
of sales in fiscal year 2002, 2001 and 2000, respectively. It is impractical for
the Company to provide further product line information. However, no other
product lines represented 10% or more of revenues in any years presented.
F-24
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Tekni-Plex, Inc. issued 12 3/4% Senior Subordinated Notes in June 2000 and
May 2002. These notes are guaranteed by all domestic subsidiaries of Tekni-Plex.
The guarantor subsidiaries are 100% owned by the issuer. The guaranties are full
and unconditional and joint and several. There are no restrictions on the
transfer of funds from guarantor subsidiaries to the issuer. The following
condensed consolidating financial statements present separate information for
Tekni-Plex (the "Issuer") and its domestic subsidiaries (the "Guarantors") and
the foreign subsidiaries (the "Non-Guarantors").
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS --
FOR THE YEAR ENDED JUNE 28, 2002
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
-------- ---------- ---------- --------
Sales, net........................................ $160,252 $356,621 $60,876 $577,749
Cost of sales..................................... 116,130 270,380 43,947 430,457
-------- -------- ------- --------
Gross profit...................................... 44,122 86,241 16,929 147,292
Selling, general and administrative............... 39,610 23,464 6,370 69,444
-------- -------- ------- --------
Income from operations............................ 4,512 62,777 10,559 77,848
Interest expense, net............................. 70,881 (101) 154 70,934
Unrealized loss on derivative contract............ 7,830 -- -- 7,830
Other expense (income)............................ (756) (1,155) 1,905 (6)
-------- -------- ------- --------
Income (loss) before provision for income taxes... (73,443) 64,033 8,500 (910)
Provision (benefit) for income taxes.............. (25,979) 28,597 3,059 5,677
-------- -------- ------- --------
Net income (loss)................................. $(47,464) $ 35,436 $ 5,441 $ (6,587)
======== ======== ======= ========
CONDENSED CONSOLIDATING BALANCE SHEET --
AT JUNE 28, 2002
NON-
ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL
--------- ---------- ---------- ------------ ---------
CURRENT ASSETS....................... $ 44,828 $209,798 $51,458 $ -- $ 306,084
Property, plant and equipment, net... 41,704 95,366 21,048 -- 158,118
Intangible assets.................... 7,907 184,093 12,252 -- 204,252
Investment in subsidiaries........... 498,518 -- -- (498,518) --
Deferred financing costs, net........ 14,134 -- 209 -- 14,343
Deferred taxes....................... 20,177 -- (3,899) -- 16,278
Other long-term assets............... 74,008 236,444 12,094 (321,468) 1,078
--------- -------- ------- --------- ---------
TOTAL ASSETS....................... $ 701,276 $725,701 $93,162 $(819,986) $ 700,153
========= ======== ======= ========= =========
CURRENT LIABILITIES.................. $ 29,889 $ 42,563 $16,713 $ -- $ 89,165
Long-term debt....................... 675,253 -- 4,161 -- 679,414
Other long-term liabilities.......... 80,460 229,752 33,941 (321,468) 22,685
--------- -------- ------- --------- ---------
TOTAL LIABILITIES.................. 785,602 272,315 54,815 (321,468) 791,264
--------- -------- ------- --------- ---------
F-25
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NON-
ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL
--------- ---------- ---------- ------------ ---------
Additional paid-in capital........... 170,156 296,784 15,656 (312,420) 170,176
Retained earnings (accumulated
deficit)........................... (33,959) 159,960 26,138 (186,098) (33,959)
Accumulated other comprehensive
loss............................... -- (3,358) (3,447) -- (6,805)
Treasury stock....................... (220,523) -- -- -- (220,523)
--------- -------- ------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIT..... (84,326) 453,386 38,347 (498,518) (91,111)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT......... $ 701,276 $725,701 $93,162 $(819,986) $ 700,153
========= ======== ======= ========= =========
CONDENSED CONSOLIDATING CASH FLOWS --
FOR THE YEAR ENDED JUNE 28, 2002
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
-------- ---------- ---------- --------
Net cash provided by (used in) operating
activities:..................................... $(31,450) $ 35,167 $ 4,205 $ 7,922
-------- -------- ------- --------
Cash flows from investing activities:
Acquisitions.................................... -- (63,624) -- (63,624)
Capital expenditures............................ (11,147) (11,421) (2,085) (24,653)
Additions to intangibles........................ (169) -- -- (169)
-------- -------- ------- --------
Net cash used in investing activities............. (11,316) (75,045) (2,085) (88,446)
-------- -------- ------- --------
Cash flows from financing activities:
Net borrowings (repayment) under line of
credit....................................... (19,000) -- -- (19,000)
Proceeds from long-term debt.................... 40,600 -- 147 40,747
Repayment of long-term debt..................... (7,440) -- -- (7,440)
Proceeds from capital contribution.............. 50,000 -- -- 50,000
Deferred financing costs........................ (154) -- -- (154)
Purchase of Treasury Stock...................... (61) -- -- (61)
Change in intercompany accounts................... (45,034) 45,217 (183) --
-------- -------- ------- --------
Net cash provided by financing activities......... 18,911 45,217 (36) 64,092
-------- -------- ------- --------
Effect of exchange rate changes on cash........... -- -- (14) (14)
-------- -------- ------- --------
Net increase (decrease) in cash................... (23,855) 5,339 2,070 (16,446)
Cash, beginning of period......................... 32,890 5,321 6,434 44,645
-------- -------- ------- --------
Cash, end of period............................... $ 9,035 $ 10,660 $ 8,504 $ 28,199
======== ======== ======= ========
F-26
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS --
FOR THE YEAR ENDED JUNE 29, 2001
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
-------- ---------- ---------- --------
Sales, net........................................ $161,854 $304,950 $59,033 $525,837
Cost of sales..................................... 121,521 239,144 39,171 399,836
-------- -------- ------- --------
Gross profit...................................... 40,333 65,806 19,862 126,001
Selling, general and administrative............... 38,295 17,320 5,384 60,999
-------- -------- ------- --------
Income from operations............................ 2,038 48,486 14,478 65,002
Interest expense, net............................. 76,958 (318) (71) 76,569
Unrealized loss on derivative contract............ 13,891 -- -- 13,891
Other expense (income)............................ (1,119) 1,063 661 605
-------- -------- ------- --------
Income (loss) before provision (benefit) for
income taxes.................................... (87,692) 47,741 13,888 (26,063)
Provision (benefit) for income taxes.............. (16,574) 5,532 3,973 (7,069)
-------- -------- ------- --------
Net income (loss)................................. $(71,118) $ 42,209 $ 9,915 $(18,994)
======== ======== ======= ========
CONDENSED CONSOLIDATING BALANCE SHEET --
AT JUNE 29, 2001
NON-
ISSUER GUARANTORS GUARANTORS ELIMINATIONS TOTAL
--------- ---------- ---------- ------------ ---------
CURRENT ASSETS....................... $ 80,305 $146,839 $39,823 $ -- $ 266,967
Property, plant and equipment, net... 38,788 79,517 18,703 -- 137,008
Intangible assets.................... 13,208 153,960 12,448 -- 179,616
Investment in subsidiaries........... 457,641 -- -- (457,641) --
Deferred financing costs, net........ 16,607 -- -- -- 16,607
Deferred taxes....................... 19,022 (12) -- -- 19,010
Other long-term assets............... 28,577 261,520 12,510 (300,321) 2,286
--------- -------- ------- --------- ---------
TOTAL ASSETS....................... $ 654,148 $641,824 $83,484 $(757,962) $ 621,494
========= ======== ======= ========= =========
CURRENT LIABILITIES.................. $ 22,370 $ 26,923 $18,545 $ -- $ 67,838
Long-term debt....................... 665,729 -- 4,349 -- 670,078
Other long-term liabilities.......... 93,727 193,833 31,036 (300,321) 18,275
--------- -------- ------- --------- ---------
TOTAL LIABILITIES.................. 781,826 220,756 53,930 (300,321) 756,191
--------- -------- ------- --------- ---------
Additional paid-in capital........... 120,156 296,784 15,656 (312,420) 120,176
Retained earnings (accumulated
deficit)........................... (27,372) 124,524 20,697 (145,221) (27,372)
Accumulated other comprehensive
loss............................... -- 33 (7,072) -- (7,039)
Treasury stock....................... (220,462) -- -- -- (220,462)
--------- -------- ------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIT........ (127,678) 421,068 29,554 (457,641) (134,697)
--------- -------- ------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT......................... $ 654,148 $641,824 $83,484 $(757,962) $ 621,494
========= ======== ======= ========= =========
F-27
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS --
FOR THE YEAR ENDED JUNE 29, 2001
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
-------- ---------- ---------- --------
Net cash provided by (used in) operating
activities...................................... $(47,908) $ 36,694 $ 7,948 $ (3,266)
-------- -------- ------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired.............. -- (9,233) -- (9,233)
Capital expenditures............................ (2,710) (11,208) (3,198) (17,116)
Additions to intangibles........................ (322) (106) -- (428)
-------- -------- ------- --------
Net cash used in investing activities............. (3,032) (20,547) (3,198) (26,777)
-------- -------- ------- --------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit....................................... 35,000 -- -- 35,000
Repayments of long-term debt.................... (7,400) -- (1,420) (8,820)
Proceeds from capital contribution.............. 36,000 -- -- 36,000
Change in intercompany accounts................. 14,592 (14,592) -- --
-------- -------- ------- --------
Net cash provided by (used in) financing
activities...................................... 78,192 (14,592) (1,420) 62,180
-------- -------- ------- --------
Effect of exchange rate changes on cash........... -- -- (17) (17)
-------- -------- ------- --------
Net increase in cash.............................. 27,252 1,555 3,313 32,120
Cash, beginning of period......................... 5,638 3,766 3,121 12,525
-------- -------- ------- --------
Cash, end of period............................... $ 32,890 $ 5,321 $ 6,434 $ 44,645
======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS --
FOR THE YEAR ENDED JUNE 30, 2000
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
-------- ---------- ---------- --------
Sales, net........................................ $151,587 $325,902 $47,328 $524,817
Cost of sales..................................... 110,272 251,512 32,696 394,480
-------- -------- ------- --------
Gross profit...................................... 41,315 74,390 14,632 130,337
Selling, general and administrative............... 37,991 16,042 4,310 58,343
-------- -------- ------- --------
Income from operations............................ 3,324 58,348 10,322 71,994
Interest expense, net............................. 38,717 (280) 10 38,447
Other expense (income)............................ 4,272 (1,187) 1,620 4,705
-------- -------- ------- --------
Income (loss) before provision for income taxes
and extraordinary item.......................... (39,665) 59,815 8,692 28,842
Provision (benefit) for income taxes.............. (22,359) 33,211 3,584 14,436
-------- -------- ------- --------
Income (loss) before extraordinary item........... (17,306) 26,604 5,108 14,406
Extraordinary item................................ (35,374) -- -- (35,374)
-------- -------- ------- --------
Net income (loss)................................. $(52,680) $ 26,604 $ 5,108 $(20,968)
======== ======== ======= ========
F-28
TEKNI-PLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS --
FOR THE YEAR ENDED JUNE 30, 2000
NON-
ISSUER GUARANTORS GUARANTORS TOTAL
--------- ---------- ---------- ---------
Net cash provided by (used in) operating
activities.................................... $ (25,883) $ 29,834 $ 5,534 $ 9,485
--------- -------- -------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (7,224) (6,747) (2,287) (16,258)
Additions to intangible....................... (805) -- -- (805)
Cash proceeds from sale of assets............. -- -- 158 158
--------- -------- -------- ---------
Net cash used in investing activities........... (8,029) (6,747) (2,129) (16,905)
--------- -------- -------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under line of
credit..................................... (2,030) -- -- (2,030)
Proceeds from long-term debt.................. 645,232 -- -- 645,232
Repayments of long-term debt.................. (446,661) -- (1,970) (448,631)
Proceeds from capital contribution............ 43,101 -- -- 43,101
Debt financing costs.......................... (18,897) -- -- (18,897)
Purchase of treasury stock.................... (220,462) -- -- (220,462)
Change in intercompany accounts............... 34,880 (26,508) (8,372) --
--------- -------- -------- ---------
Net cash provided by (used in) financing
activities.................................... 35,163 (26,508) (10,342) (1,687)
--------- -------- -------- ---------
Effect of exchange rate changes on cash......... -- -- (485) (485)
--------- -------- -------- ---------
Net increase (decrease) in cash................. 1,251 (3,421) (7,422) (9,592)
Cash, beginning of period....................... 4,387 7,187 10,543 22,117
--------- -------- -------- ---------
Cash, end of period............................. $ 5,638 $ 3,766 $ 3,121 $ 12,525
========= ======== ======== =========
17. SUBSEQUENT EVENT
During July 2002, the Company acquired substantially all the net assets of
Elm Packaging Company for $16,400. Elm produces polystyrene foam packaging
products for the food and foodservice industries.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
Net sales.................................. $115,164 $113,740 $153,393 $195,452
Gross profit............................... 27,014 27,684 42,008 50,586
Income from operations..................... 11,838 11,075 23,479 31,456
Net income (loss).......................... (9,453) 67 2,305 494
2001
----
Net sales.................................. $111,907 $105,873 $140,681 $167,376
Gross profit............................... 22,422 24,123 36,785 42,671
Income from operations..................... 7,311 9,755 21,127 26,809
Net income (loss).......................... (5,739) (12,136) (1,473) 354
======== ======== ======== ========
Fluctuations in net sales are due primarily to seasonality in a number of
product lines, particularly garden hose and irrigation hose products.
F-29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
Board of Directors
Tekni-Plex, Inc.
Somerville, New Jersey
The audits referred to in our report dated September 13, 2002 relating to
the consolidated financial statements of Tekni-Plex, Inc. and its subsidiaries
(the "Company"), included the audits of the financial statement schedule for the
years ended June 28, 2002, June 29, 2001 and June 30, 2000 listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO XXXXXXX, LLP
Woodbridge, New Jersey
September 13, 2002
F-30
TEKNI-PLEX, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES(1) DEDUCTIONS(2) PERIOD
---------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
YEAR ENDED JUNE 30, 2000
Accounts receivable allowance................ $1,662 $310 $330 $1,642
====== ==== ==== ======
YEAR ENDED JUNE 29, 2001
Accounts receivable allowance................ $1,642 $250 $392 $1,500
====== ==== ==== ======
YEAR ENDED JUNE 28, 2002
Accounts receivable allowance................ $1,500 $484 $313 $1,671
====== ==== ==== ======
---------------
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
F-31
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
3.1 Restated Certificate of Incorporation of Tekni-Plex,
Inc.*.......................................................
3.2 Amended and Restated By-laws of Tekni-Plex, Inc.*...........
3.3 Certificate of Incorporation of PureTec Corporation.*.......
3.4 By-laws of PureTec Corporation.*............................
3.5 Certificate of Incorporation of Tri-Seal Holdings, Inc.*....
3.6 By-laws of Tri Seal Holdings, Inc.*.........................
3.7 Certificate of Incorporation of Xxxxxx Holdings, Inc.*......
3.8 By-laws of Xxxxxx Holdings.*................................
3.9 Certificate of Incorporation of Plastic Specialities and
Technologies, Inc.*.........................................
3.10 By-laws of Plastic Specialities and Technologies, Inc.*.....
3.11 Certificate of Incorporation of Plastic Specialities and
Technologies Investments, Inc.*.............................
3.12 By-laws of Plastic Specialities and Technologies
Investments, Inc.*..........................................
3.13 Certificate of Incorporation of Burlington Resins, Inc.*....
3.14 By-laws of Burlington Resins, Inc.*.........................
3.15 Certificate of Incorporation of Pure Tech APR, Inc.*........
3.16 By-laws of Pure Tech APR, Inc.*.............................
3.17 Certificate of Incorporation of TPI Acquisition Subsidiary,
Inc.*.......................................................
3.18 By-laws of TPI Acquisition Subsidiary, Inc.*................
3.19 Certificate of Incorporation of Coast Recycling North,
Inc.*.......................................................
3.20 By-laws of Coast Recycling North, Inc.*.....................
3.21 Certificate of Incorporation of Distributors Recycling,
Inc.*.......................................................
3.22 By-laws of Distributors Recycling, Inc.*....................
3.23 Certificate of Incorporation of REI Distributors, Inc.*.....
3.24 By-laws of REI Distributors, Inc.*..........................
3.25 Certificate of Incorporation of Pure Tech Recycling of
California.*................................................
3.26 By-laws of Pure Tech Recycling of California.*..............
3.27 Certificate of Incorporation of Alumet Smelting Corp.*......
3.28 By-laws of Alumet Smelting Corp.*...........................
3.29 Certificate of Incorporation of TP/Elm Acquisition
Subsidiary, Inc.*...........................................
3.30 By-laws of TP/Elm Acquisition Subsidiary, Inc.*.............
4.1 Indenture, dated as of June 21, 2000 among Tekni-Plex, Inc.,
the Guarantors listed therein and HSBC Bank USA, as
Trustee.*...................................................
4.2 First Supplemental Indenture, dated as of May 6, 2002 among
Tekni-Plex, Inc., TPI Acquisition Subsidiary, Inc. and HSBC
Bank USA, as Trustee*.......................................
4.3 Second Supplemental Indenture, dated as of August 22, 2002
among Tekni-Plex, Inc., TP/ Elm Acquisition Subsidiary, Inc.
and HSBC Bank USA, as Trustee*..............................
4.4 Senior Subordinated Note and Guarantee (original not
included; form of Note and Guarantee included in Exhibit
4.1)........................................................
4.5 Purchase Agreement, dated as of May 1, 2002 among
Tekni-Plex, Inc., the Guarantors listed therein, and Xxxxxx
Brothers Inc.*..............................................
4.6 Registration Right Agreement, dated as of May 6, 2002 among
Tekni-Plex, Inc., the Guarantors listed therein and Xxxxxx
Brothers Inc.*..............................................
---------------
* Filed previously as an Exhibit to the Form S-4 (File No. 333-43800) filed on
August 15, 2000.
** Filed herewith.
F-32
