-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HmCzNVGJ9lj3HIszduoI4FDVWbJDJ4OlMnRhdBbTnObeRnzEQcYQTxxQ4IFHlEhU uj4KvRh9zhbN2oV+oDxB8A== 0000950123-99-008251.txt : 19990906 0000950123-99-008251.hdr.sgml : 19990906 ACCESSION NUMBER: 0000950123-99-008251 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990702 FILED AS OF DATE: 19990903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKNI PLEX INC CENTRAL INDEX KEY: 0001039542 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS FOAM PRODUCTS [3086] IRS NUMBER: 223286312 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-28157 FILM NUMBER: 99706128 BUSINESS ADDRESS: STREET 1: 201 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9087224800 MAIL ADDRESS: STREET 1: 201 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 10-K 1 TEKNI-PLEX.INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended July 2, 1999 [ ] 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 Tekni-Plex, Inc. (Exact name of registrant as specified in its charter) Delaware 22-3286312 (State of Incorporation) (I.R.S. Employer Identification No.) 201 Industrial Parkway, Somerville, New Jersey 08876 (Address of principal executive offices and zip code) (908) 722-4800 (Registrant's telephone number, including area code) 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 mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 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. 1 2 Item 1. BUSINESS INTRODUCTION Tekni-Plex, Inc. was founded as a Delaware corporation in 1967 to acquire the General Felt Products division of Standard Packaging Corporation. The Company, then located in Brooklyn, NY, built a reputation for solving difficult packaging problems and providing customers with high quality, advanced packaging materials. In 1970, the Company built an additional manufacturing facility in Somerville, New Jersey, diversifying into the business of producing polystyrene foam trays for the poultry processing industry. The Somerville facility serves as the current headquarters of the Company. As used herein, "Tekni-Plex" or the "Company" means Tekni-Plex, Inc. and its subsidiaries, unless the context otherwise requires. In March 1994, Tekni-Plex was acquired by its current controlling shareholder and Dr. F. Patrick Smith who was elected Chief Executive Officer. Mr. Kenneth W.R. Baker, the Company's President and Chief Operating Officer, was appointed in April 1994. At that time, the principal product lines consisted of: clear, high-barrier laminations for pharmaceutical blister packaging; foam processor trays, primarily for the poultry industry; and closure (bottle cap) liners, primarily for pharmaceutical end-uses. In December 1995, Tekni-Plex acquired the Flemington, NJ, plant and business of Hargro Flexible Packaging Corporation ("Hargro"). The Flemington plant produces packaging materials primarily for the pharmaceutical industry. In February 1996, Tekni-Plex completed its acquisition of Dolco Packaging Corporation ("Dolco"), a publicly-traded foam products company. With $81 million of annual sales, Dolco at the time 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. In August 1997, Dolco, which had been a wholly owned subsidiary of Tekni-Plex, was merged into Tekni-Plex. In March 1998, Tekni-Plex acquired PureTec Corporation ("PureTec"), a publicly-traded company with annual sales of $315 million. PureTec is a leading manufacturer of plastic packaging, products, and materials primarily for the healthcare and consumer markets. PureTec is a wholly-owned subsidiary of Tekni-Plex. In January 1999, a wholly-owned subsidiary of Tekni-Plex 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 Tekni-Plex's closure liner business. In April 1999, a wholly-owned subsidiary of Tekni-Plex acquired substantially all the assets of High Voltage Engineering Corporation's Natvar division, a producer of disposable medical tubing. As with Tri-Seal, the Natvar acquisition was intended to strengthen existing Tekni-Plex lines of business and expand product offerings. The Natvar operation has been integrated into the Company's medical tubing division. DESCRIPTION OF BUSINESS Tekni-Plex is a global, diversified manufacturer of packaging, products, and materials for the healthcare, consumer, and food packaging industries. The Company has built a leadership position in its core markets, and focuses on vertically integrated production of highly specialized products. The Company's operations are aligned under four primary business groups: Healthcare Packaging, Products, and Materials; Consumer Packaging and Products; Food Packaging; and Specialty Resins and Compounds. Representative product lines in each group are listed below:
- -------------------------------------------------------------------------------------------------------------- HEALTHCARE PACKAGING, CONSUMER PACKAGING FOOD PACKAGING SPECIALTY RESINS PRODUCTS, AND MATERIALS AND PRODUCTS AND COMPOUNDS - -------------------------------------------------------------------------------------------------------------- Pharmaceutical packaging Precision tubing and Foamed egg cartons Specialty PVC resins gaskets Medical tubing Garden and irrigation Poultry and meat Recycled PET resins hose products processor trays Medical device materials Pool hose products Agricultural foam General purpose PVC packaging compounds - --------------------------------------------------------------------------------------------------------------
2 3 This end market and product line diversity has the effect of reducing Tekni-Plex's overall risk related to any one product line or customer. For fiscal year 1999, Tekni-Plex's largest customer, Wal-Mart Stores Inc., accounted for approximately 11% of sales, with no other individual customer accounting for 10% or more of sales. The Company purchases raw materials from several sources that differ for each product line. This diversity of raw material suppliers, as well as the availability of alternative suppliers, has the effect of reducing Tekni-Plex's overall risk related to any one supplier. The single exception is a key raw material used in manufacturing the Company's clear, laminated PCTFE blister packaging materials. Allied Signal is currently the sole manufacturer and supplier of this proprietary raw material. There is no long-term supply contract with Allied Signal and any interruption in the supply of this material could disrupt production of the Company's clear, laminated blister packaging materials. To the extent that the Company's supply of this raw material is hindered, the Company would substitute coated or foil-based products. There has never been a significant disruption of the supply of this PCTFE material in the Company's 30 years of manufacturing this product line. The Company in the past has generally been able to pass on raw material price increases to customers on a relatively timely basis. The exception has been garden hose products, the prices for which are typically set in advance of each season. Raw material cost increases or decreases for garden hose products generally are not passed through during that season. The following sections provide further information regarding the four business groups, including descriptions of the major product lines within each group. Segment financial information for these groups is contained in the "Notes to Consolidated Financial Statements." HEALTHCARE PACKAGING, PRODUCTS, AND MATERIALS Pharmaceutical Packaging The Company's pharmaceutical packaging product line includes flexible, semi-rigid, and rigid packaging films, coated films, co-extrusions, and laminations. The Company believes that it is 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. The Company believes 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. From an environmental viewpoint, the flexible and semi-rigid segment leads the packaging industry in source reduction efforts. The term "source reduction" refers to the concept of accomplishing requisite packaging functions with a minimum of packaging materials. By using less material to perform the packaging function, the environmental impact is reduced: greater conservation of the Earth's resources, lower energy usage in both the production of packaging materials and product distribution costs, and fewer disposal issues. The Company believes that the resulting growth in the flexible and semi-rigid product line has come at the expense of the more mature non-plastic packaging materials. The Company's high-barrier, blister laminations are sold to major pharmaceutical companies (or their designated contract packagers). The Company has begun to market its full pharmaceutical product line directly on a 3 4 worldwide basis, has assembled a global network of sales and marketing personnel, and has established manufacturing liaisons in the United Kingdom, Switzerland, and the Philippines. In the clear pharmaceutical blister films market, Tekni-Plex has two principal competitors worldwide that have resources equal to or greater than those of the Company. However, the Company believes that neither of these competitors has the breadth of product offering to match that of the Company, 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 the FDA. 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. Tekni-Plex is also a leading producer of sophisticated extruded, co-extruded, and laminated cap-liners and seals, known as closure liners, for glass and plastic bottles. These products are sold primarily to packagers of pharmaceutical, health care, and food products. There are three other principal competitors in the United States, and several smaller companies having substantially smaller market shares. However, as a result of the acquisition of Tri-Seal, Tekni-Plex believes that it offers the widest range of liner materials in the industry. Medical Tubing Tekni-Plex is a leading supplier of medical tubing to the non-captive market in North America and Europe. Tekni-Plex specializes 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. Medical tubing is sold primarily to manufacturers of medical devices that are packaged specifically for such procedures and applications. Products are sold through direct salespeople. The Company manufactures medical tubing using proprietary plastic extrusion processes. The primary raw materials are proprietary compounds, which are produced by the Company. The industry is fragmented with no single competitor having a dominant market share. However, as a result of its Natvar acquisition, the Company believes that it is the largest non-captive supplier of disposable medical tubing in North America. New medical tubing products developed by the Company 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 Device Materials The Company believes that it is the leading non-captive producer of high-quality vinyl compounds for use in the medical industry. These medical-grade materials are sold to leading manufacturers of medical devices and equipment. They are also sold to producers of tubing and, to some extent, to producers of closures for the food and beverage industry. The Company sells these compounds in worldwide markets. Products are sold directly through the Company's salespeople. The market for medical-grade vinyl compounds is highly specialized, with three significant competitors. For more than 30 years, the Company has been supplying these specialized vinyl compounds for FDA-regulated applications. The Company believes it competes effectively based on product quality and performance and prompt delivery, and that price is a secondary consideration for its customers. The Company's chemists work closely with customers to develop compounds that address their specific requirements. Through this custom work, the Company has introduced a number of breakthroughs to the medical device industry by developing formulations with unique physical characteristics. For example, the Company has recently developed a new family of flexible vinyl compounds designed to replace silicone rubber in a variety of medical tubing and commercial applications. 4 5 CONSUMER PACKAGING AND PRODUCTS Precision Tubing and Gaskets Tekni-Plex's precision tubing and gaskets product line is sold 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 the Company's direct sales force. The Company believes that it is the leading precision tubing extruder in North America and is the leading supplier of aerosol valve and dispenser pump gaskets worldwide. Sales to the aerosol valve and dispenser pump industries consist primarily of dip tubes, which transmit the contents of a dispenser can to the nozzle, and specialized molded or punched rubber-based valve gaskets that serve to control the release of the product from the container. Writing instrument products include pen barrels and ink tubing as well as ink reservoirs for felt-tip pens. Tekni-Plex is the single-source supplier to much of the industry. The principal competitive pressure in this product line 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. The precision tubing products are manufactured at extremely high speeds while holding to precise tolerances. The process enhancements that allow simultaneous high speed and precision are proprietary to the Company. The precision gasket products, which the Company has 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, the Company has 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. Garden and Irrigation Hose Products Tekni-Plex believes that it is the leading producer of garden hose in the United States. The Company has produced garden hose products for fifty years, and produces its primary components internally, including proprietary material formulations and brass couplings. There are two other principal competitors in the United States, and several smaller companies having substantially smaller market shares. Garden hose products are sold primarily to home centers, hardware cooperatives, food, automotive, drug and mass merchandising chains and catalog companies throughout the United States and Canada. Customers include some of the fastest growing and most widely respected retail chains in North America. The Company's market strategy is to provide a complete line of innovative, high-quality products along with superior customer service. Innovations have included the patented Colorite(R) Evenflow(R) design and the "drinking water safe" product lines that utilize medical-grade plastics. Tekni-Plex also manufactures specialty hose products such as air hose and irrigator "soaker hose". 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. Products are sold primarily through the Company's direct salespeople and also through independent representatives. Both private label and brand-name products are sold to the retail market. FOOD PACKAGING The Food Packaging group produces primarily thermoformed foam polystyrene packaging products such as egg cartons and processor trays that are sold to the poultry and meat industries. The Company believes that it is 5 6 the leading manufacturer of foam egg cartons in the United States. The Company is also a leading supplier of processor trays to the poultry industry. Thermoformed foam polystyrene packaging has been the material of choice for food packaging cartons and trays 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 also offer greater dimensional consistency that enhances the high speed mechanical feeding of cartons and trays into automated package filling operations. The Company's customer base includes most of the domestic egg packagers (including those owned by egg retailers) and many prominent poultry processors. The Company believes it competes effectively based on product quality and performance and prompt delivery. Within the polystyrene foam processor tray market, the Company competes principally with two large competitors, both of which have significantly greater financial resources than the Company and who, together, control the largest share of this market. In the egg packaging market, the Company's primary competitor manufactures pulp-based egg cartons. SPECIALTY RESINS AND COMPOUNDS Specialty Vinyl Resins Tekni-Plex manufactures specialty vinyl resins, with an annual production capacity of 110 million pounds. The Company employs specialized technology to produce dispersion, blending, and copolymer suspension resins for a variety of industries, including floor covering, automotive sealants and adhesives, coil coatings, plastisol compounding and PVC packaging. The Company competes with a number of large chemical companies who offer a greater breadth of products. However, the Company believes that it has built a relatively unique position in the specialty resins market by offering customized products for niche markets that the larger commodity producers do not serve. The business strategy is built on individual customer service and the highest standards of quality. PATENTS AND TRADEMARKS The Company seeks to protect its proprietary know-how through the application of patent and trademark laws. However, in the opinion of management, none of its patents or trademarks are material to its operations. RESEARCH AND DEVELOPMENT The Company employs certain professionals who, along with other responsibilities, are engaged in research relating to the development of new products and to the improvement of existing products and processes. The Company works closely with certain clients to develop and improve certain products and product lines. Much of this product development is either funded by clients or its cost is absorbed in the Company's manufacturing cost of sales, and therefore is not reflected as research and development expense. EMPLOYEES As of July 2, 1999, the Company employed approximately 2,950 full-time employees. Approximately 28% of all employees are represented by various collective bargaining agreements that expire between September 30, 1999 and July 31, 2001. The Company believes it has good relations with its employees. ENVIRONMENTAL MATTERS The Company's operations are subject to federal and state environmental regulations in the ordinary course of business. Management is not aware of any environmental proceedings that are likely to have a material adverse effect on its consolidated financial position or results of operations. Additionally, in management's opinion, no such 6 7 proceedings nor compliance with Federal, state and local environmental laws and regulations are believed to require any material estimated capital expenditures for environmental control facilities in the foreseeable future. Item 2. PROPERTIES The Company believes that its facilities are suitable 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 FUNCTION SQUARE FEET - -------- -------- ----------- Somerville, New Jersey Corporate Headquarters; Manufactures 123,000 food and healthcare packaging Auburn, Maine (2) Specialty resins 24,000 Belfast, Northern Ireland Healthcare materials 55,000 Blauvelt, New York (8) Healthcare packaging 56,400 Burlington, New Jersey Specialty resins 107,000 Cambridge, Ontario Healthcare packaging 25,000 City of Industry, Healthcare products 110,000 California (6) Clayton, North Carolina Healthcare products 76,000 Clinton, Illinois Consumer packaging 62,500 Dallas, Texas (1) Food packaging 139,000 Dalton, Georgia Healthcare products 40,000 Decatur, Indiana Food packaging 187,000 Decatur, Indiana (1) Warehouse 3,750 East Farmingdale, New York (4) Specialty resins 50,000 Erembodegem Consumer packaging and 88,200 (Aalst), Belgium healthcare products Flemington, New Jersey Healthcare packaging 145,000 Lakewood, Colorado (3) Healthcare products 17,300 Lawrenceville, Georgia Food packaging 150,000 Lawrenceville, Georgia (1) Warehouse 31,700 Livonia, Michigan (3) Specialty resins 60,000 McKenzie, Tennessee Consumer products 20,000 Milan (Gaggiano), Italy (3) Consumer packaging 14,100
7 8 Milan (Gaggiano), Italy Consumer packaging 25,800 Milan (Rosate), Italy (5) Consumer packaging 24,000 Mississauga, Ontario (7) Consumer products 100,000 Piscataway, New Jersey (5) Compounds 150,000 Ridgefield, New Jersey Consumer products and 328,000 healthcare materials Ridgefield, New Jersey (5) Warehouse 70,000 Rockaway, New Jersey Consumer packaging 98,600 Schaumburg, Illinois (9) Consumer packaging 58,000 Schiller Park, Illinois Consumer packaging 20,000 Sparks, Nevada (5) Consumer products and 248,000 healthcare materials Tonawanda, New York (4) Consumer products 32,000 Waco, Texas Consumer products 104,600 Wenatchee, Washington Food packaging 97,000 Wenatchee, Washington (2) Warehouse 26,200
(Years relate to calendar years) (1) Leased on a month-to-month basis. (2) Lease expires in 1999. (3) Lease expires in 2000. (4) Lease expires in 2001. (5) Lease expires in 2002. (6) Lease expires in 2004. (7) Lease expires in 2005. (8) Lease expires in 2008. (9) Lease expires in 2019. Item 3. LEGAL PROCEEDINGS The Company is party to certain litigation in the ordinary course of business, none of which the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 9 PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Not Applicable. Item 6. SELECTED FINANCIAL DATA (Dollars in thousands) 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.
YEARS ENDED ----------- JUN. 30, JUN. 28, JUN. 27, JULY 3, JULY 2, 1995 1996 1997 1998 1999 -------- -------- -------- --------- --------- STATEMENT OF OPERATIONS DATA: Net sales $ 44,688 $ 80,917 $144,736 $ 309,597 $ 489,237 Cost of goods sold 34,941 62,335 107,007 232,499 358,293 Gross profit 9,747 18,582 37,729 77,098 130,944 Selling, general and administrative expenses 4,814 10,339 15,886 39,220 62,534 Income from operations 4,933 8,243 21,843 37,878 68,410 Interest expense 4,322 5,816 8,094 19,682 38,977 Other (income) expense 234 469 646 415 286 Pre-tax income before extraordinary item 377 1,958 13,103 17,781 29,147 Income tax provision 211 982 4,675 9,112 14,150 Income before extraordinary item 166 976 8,428 8,669 14,997 Extraordinary item (loss)(b) -- -- (20,666) -- -- Net income (loss) $ 166 $ 976 $(12,238) $ 8,669 $ 14,997 BALANCE SHEET DATA (at period end): Working capital $ 3,173 $ 11,660 $ 25,950 $ 84,897 $ 101,445 Total Assets 53,415 121,770 129,029 539,279 559,436 Total debt (including current portion) 35,004 70,436 75,000 401,905 416,394 Stockholders' equity 11,687 24,162 30,397 38,673 52,297 OTHER FINANCIAL DATA: EBITDA(a) $ 7,922 $ 14,157 $ 30,223 $ 54,479 $ 101,681 EBITDA margin(a) 17.7% 17.5% 20.9% 17.6% 20.8% Depreciation and amortization $ 3,462 $ 6,821 $ 9,551 $ 17,249 $ 35,343 Capital expenditures 614 2,275 3,934 7,283 12,950 Cash flows: From operations 2,354 6,568 19,537 29,009 38,794 From investing (614) (49,522) (6,273) (310,672) (58,089) From financing (1,451) 43,669 (3,217) 299,926 12,057
(a) EBITDA is defined as net income before interest, income taxes, depreciation and amortization. EBITDA is presented because it is a widely accepted financial indicator of the Company's ability to incur and service debt. However, 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 EBITDA may not be comparable to similar measures reported by other companies. EBITDA margin is calculated as the ratio of EBITDA to net sales for the period. For fiscal 1996, amortization included $522 related to the write off of prior unamortized debt costs. (b) Extraordinary loss is comprised of (i) a prepayment penalty of $1.2 million and the write-off of deferred financing costs and debt discount of $3.4 million, net of the combined tax benefit of $1.8 million, and (ii) a loss of $17.8 million on the repurchase of redeemable warrants. 9 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FOR THE YEAR ENDED JULY 2, 1999 COMPARED WITH THE YEAR ENDED JULY 3, 1998 Net Sales increased to $489.2 million for the year ended July 2, 1999 from $309.6 million for the year ended July 3, 1998. This represents an increase of $179.6 million or 58.0%. The increased sales are primarily attributable to the acquisition of PureTec in March 1998, and to a lesser extent the acquisition of Tri-Seal International in January 1999 and Natvar in April 1999. The year-over-year change related to the impact of these acquisitions amounted to $184.4 million. This increase was partially offset by the elimination in fiscal 1999 of certain low-margin sales related to the restructuring of acquired operations. The level of growth for the year ended July 2, 1999 may not be indicative of future operations. Cost of Goods Sold increased to $358.3 million for the year ended July 2, 1999, of which $121.3 million was due to the acquired operations discussed above, from $232.5 million for the year ended July 3, 1998. Expressed as a percentage of net sales, cost of goods sold decreased to 73.2% for the year ended July 2, 1999 from 75.1% for the same period in 1998. The decrease in cost of goods sold as a percentage of net sales was due primarily to efficiencies achieved in operations acquired with the purchase of PureTec, and lower raw material costs. Gross Profit as a result, increased to $130.9 million or 26.8% of net sales for the year ended July 2, 1999, from $77.1 million or 24.9% of net sales for the same period in 1998. Selling, general and administrative expenses increased to $62.5 million or 12.8% of net sales for the year ended July 2, 1999 from $39.2 million or 12.7% of net sales for the same period in 1998. Selling, general and administrative expenses increased in proportion to the increase in net sales resulting from acquired operations and related compensation increases. Operating profit increased to $68.4 million or 14.0% of net sales for the year ended July 2, 1999, from $37.9 million or 12.2% for the same period in 1998, for the reasons discussed above. Interest expense increased to $39.0 million or 8.0% of net sales for the year ended July 2, 1999, from $19.7 million or 6.4% of net sales for the same period in 1998 due primarily to an issuance of new bonds and notes to acquire PureTec. The Company also borrowed under its revolving line of credit in fiscal 1999 to fund the purchase of Tri-Seal and Natvar. Provision for income taxes increased to $14.2 million or 2.9% of net sales for the year ended July 2, 1999, from $9.1 million or 2.9% for the same period in 1998. The Company's effective tax rate was 48.5% for the year ended July 2, 1999 compared to 51.2% for the same period in 1998. The decrease between periods is due primarily to the use of tax carryover credits. Net income increased to $15.0 million or 3.1% of net sales for the year ended July 2, 1999, from $8.7 million or 2.8% of net sales for the same period in 1998, for the reasons discussed above. 10 11 FOR THE YEAR ENDED JULY 3, 1998 COMPARED WITH THE YEAR ENDED JUNE 27, 1997 Net Sales increased to $309.6 million for the year ended July 3, 1998 from $144.7 million for the year ended June 27, 1997. This represents an increase of $164.9 million or 114.0%. The increased sales are primarily attributable to the acquisition of PureTec in March 1998, which amounted to $154.1 million, and to a lesser extent the increased demand for the Company's healthcare packaging products. The level of growth for the year ended July 3, 1998 may not be indicative of future operations. Cost of Goods Sold increased to $232.5 million for the year ended July 3, 1998, of which PureTec operations accounted for $118.4 million of the increase, from $107.0 million for the year ended June 27, 1997. Expressed as a percentage of net sales, cost of goods sold increased to 75.1% for the year ended July 3, 1998 from 73.9% for the same period in 1997. The increase in cost of goods sold as a percentage of net sales was due primarily to the different sales mix associated with the purchase of PureTec. This level of increase in costs and increase as a percent of sales may not be indicative of future operations. Gross Profit as a result, increased to $77.1 million or 24.9% of net sales for the year ended July 3, 1998, from $37.7 million or 26.1% of net sales for the same period in 1997. Selling, general and administrative expenses increased to $39.2 million or 12.7% of net sales for the year ended July 3, 1998 from $15.9 million or 11.0% of net sales for the same period in 1997. Selling, general and administrative expenses increased as a percentage of net sales due primarily to the acquisition of PureTec and related compensation increases, as well as increased administrative costs and higher selling expenses associated with the global expansion of the Company's healthcare packaging products. Operating profit increased to $37.9 million or 12.2% of net sales for the year ended July 3, 1998, from $21.8 million or 15.1% for the same period in 1997, for the reasons stated above. Interest expense increased to $19.7 million or 6.4% of net sales for the year ended July 3, 1998, from $8.1 million or 5.6% of net sales for the same period in 1997 due primarily to an issuance of new bonds and notes to acquire PureTec. Provision for income taxes increased to $9.1 million or 2.9% of net sales for the year ended July 3, 1998, from $4.7 million or 3.2% for the same period in 1997. The Company's effective tax rate was 51% for the year ended July 3, 1998 compared to 36% for the same period in 1997. The increase between periods is due primarily to non-deductible amortization. Net income before extraordinary loss increased to $8.7 million or 2.8% of net sales for the year ended July 3, 1998, from $8.4 million or 5.8% of net sales for the same period in 1997, for the reasons discussed above. 11 12 LIQUIDITY AND CAPITAL RESOURCES For the year ended July 2, 1999, net cash provided by operating activities was $38.8 million compared to $29.0 million for the same period in 1998. This was due primarily to the acquisition of PureTec and to increased earnings in 1999. Working capital at July 2, 1999 was $101.4 million compared to $84.9 million at the same period in 1998. The increase in working capital was due primarily to the acquisition of PureTec and to increased earnings in 1999. As of July 2, 1999, the Company had an outstanding balance of $22.0 million under the $90 million revolving credit line of the existing credit facility. The proceeds were used primarily to fund the purchase of assets from Tri-Seal International, Inc. and High Voltage Engineering Corporation. At July 3, 1998, there were no outstanding balances under this revolving credit line. The Company's capital expenditures for the year ended July 2, 1999 and July 3, 1998 were $13.0 million and $7.3 million, respectively. Management expects that annual capital expenditures will increase from historical levels during the next few years as the Company makes improvements in the recently acquired operations. Apart from acquisitions, the Company's principal uses of cash for the next several years will be debt service, capital expenditures and working capital requirements. Management believes that cash generated from operations plus funds from the credit facility will be sufficient to meet the Company's expected debt service requirements, planned capital expenditures, and operating needs. However, there can be no assurance that sufficient funds will be available from operations or borrowings under the credit facility to meet the Company's cash needs to the extent management anticipates. The credit facility will provide the Company with the increased flexibility to make capital expenditures and acquisitions that management believes will provide an attractive return on investment. To the extent the Company pursues future acquisitions, the Company may be required to obtain additional financing. There can be no assurance that it will be able to obtain such financing in amounts and on terms acceptable to it. INFLATION During the past fiscal year the Company's operations have benefited from relatively stable or declining prices for raw materials. In the event significant inflationary trends were to resume, management believes that the Company will generally be able to offset the effects thereof through continuing improvements in operating efficiencies and increasing prices, to the extent permitted by competitive factors. However, there can be no assurance that all such cost increases can be passed through to customers. YEAR 2000 ISSUES Definition: "Year 2000 issues" refer to possible events resulting directly or indirectly from the inability of digital computer equipment or software to accurately and without interruption handle dates both before and after January 1, 2000 and to process the year 2000 as a leap year. Assessment: Tekni-Plex has evaluated the potential impact and remediation costs of Year 2000 issues. The Company believes that, due to the nature of its manufacturing processes and procedures, the Year 2000 issues will not have a material impact on its business. Manufacturing Infrastructure: The Company's basic operations involve certain plastics converting processes. These processes involve primarily plastic extrusion and fabrication equipment of various forms. For the most part, this equipment is controlled either manually or by means of mechanical and analog devices. For equipment that does include microprocessors, the applications being controlled are mechanical and not date-sensitive, and can be controlled manually if necessary. In its investigations thus far, the Company has identified no significant manufacturing processes that will be disrupted by the Year 2000 issues. 12 13 Support Systems: The Company believes that it has identified the major computers, software applications, and other equipment utilized by support systems, primarily the accounting systems, that must be modified, upgraded, or replaced to minimize the possibility of any disruption of business. The Company has commenced the process of modifying, upgrading, and replacing major systems that may be adversely affected, and expects to complete this process before the occurrence of any significant disruption of business. However, to a large extent, this includes replacing systems of acquired businesses as part of the Company's normal integration strategy. As a result, additional costs that will be incurred solely due to Year 2000 issues are difficult to isolate. Nonetheless, the Company estimates such additional costs will be less than $250,000 in the aggregate. In addition, the Company does routine data backup of critical systems during the normal course of business. This backup provides the ability to recover data in the event of a catastrophic computer failure. It is the Company's belief that its customers and suppliers, for the most part, have similar data safeguards in place. Suppliers: The Company has contacted its suppliers to identify any potential disruption in the supply of raw materials. As a result, the Company believes that the supply of basic chemicals and other raw materials used in its vertically integrated manufacturing processes is unlikely to be significantly disrupted. In addition, the Company, in the normal course of business, maintains adequate inventories of such raw materials to protect against short-term delivery interruptions. Customers: Tekni-Plex is committed to providing uninterrupted service to its customers. In a few cases, the Company has direct interfaces with the computer systems of its customers, primarily for "vendor managed inventory" applications. The Company expects to resolve any significant Year 2000 issues with such customers before the occurrence of any business disruptions, although the Company has no control over the actions of these customers. The Company expects to maintain adequate finished goods inventories to protect customers against the possibility of temporary computer interface interruptions, if any. Conclusion: Tekni-Plex believes that it is taking adequate steps to address all significant internal Year 2000 issues that could adversely affect its business operations. Of course, it is not possible to identify, with complete certainty, all potential Year 2000 issues that may in some way affect the Company, its suppliers, or its customers. The Company expects that any disputes arising as the result of such unidentified Year 2000 issues will be resolved in the normal course of business. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable Item 8. FINANCIAL STATEMENTS The financial statements commence on Page F-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 13 14 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of Tekni-Plex 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 its by-laws, Tekni-Plex indemnifies its officers and directors to the fullest extent permitted by the General Corporation Law of the State of Delaware and Tekni-Plex's certificate of incorporation.
NAME AGE POSITION - ---- --- -------- Dr. F. Patrick Smith 51 Chairman of the Board and Chief Executive Officer Kenneth W.R. Baker 55 President, Chief Operating Officer and Principal Accounting and Financial Officer Arthur P. Witt 69 Corporate Secretary and Director J. Andrew McWethy 58 Director Barry A. Solomon 51 Director Stephen A. Tuttle 58 Director Michael F. Cronin 45 Director
Dr. F. Patrick Smith 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 Eastman Company, a wholly owned chemical and plastics subsidiary of Eastman 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, Dr. Smith 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 Howard Corporation in 1986, he became the Corporate Vice President of Fort Howard, responsible for the manufacturing and technical functions of the combined Sweetheart Products and Lily-Tulip operations. From 1987 to 1990, Dr. Smith was Chairman and Chief Executive Officer of WFP Corporation. Since 1990, Dr. Smith has been a principal of Brazos Financial Group, a business consulting firm. Dr. Smith is a limited partner of Tekni-Plex Partnership. Kenneth W.R. Baker has served as Tekni-Plex Chief Operating Officer since April 1994 and as President since July 1995. Mr. Baker served in various management roles including systems development, finance, industrial engineering, research and development, and manufacturing operations at Owens-Illinois, Inc. and Lily-Tulip, Inc. from 1965 to 1985. From 1986 to 1987, he served as Vice President, Operations at Fort Howard Cup Corporation. In 1987, Mr. Baker 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, Mr. Baker became Vice President, Research and Development at the Molded Products Division of Carlisle Plastics, Inc. until joining the Company. Mr. Baker is a limited partner of Tekni-Plex Partnership. Arthur P. Witt 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, Mr. Witt also served as a temporary chief financial officer for WFP Corporation and Flexible Technology. Prior to 1989, Mr. Witt served in a number of senior management positions for companies such as Lily-Tulip, Inc., BMC Industries and Fort Howard Paper Co. Mr. Witt is a limited partner of Tekni-Plex Partnership. J. Andrew McWethy has served as a director of Tekni-Plex since March 1994. He is a co-founder of MST Partners L.P. ("MST L.P.") and MST Offshore Partners, C.V. (together with MST L.P., the "MST Investment Partnerships"), each of which was formed in 1989, and is a general partner of MST Management, L.P., a general partner of MST Investment Partnerships. Prior to 1989, Mr. McWethy was employed by Irving Trust Company for twelve years. Barry A. Solomon has served as a director of Tekni-Plex since March 1994. He is a co-founder of the MST Investment Partnerships and is a general partner of MST Management, L.P. Prior to 1989, Mr. Solomon was employed by Irving Trust Company for ten years. 14 15 Stephen A. Tuttle has served as a director of Tekni-Plex since March 1994. He is a co-founder of the MST Investment Partnerships and is a general partner of MST Management, L.P. Prior to 1989, Mr. Tuttle was employed by Irving Trust Company for four years. Michael F. Cronin 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, Mr. Cronin 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, Tekni-Plex compensates outside directors for services provided in such capacity in the amount of $30,000 or less per fiscal year for each such director. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the remuneration paid by Tekni-Plex to the Chief Executive Officer and the next most highly compensated executive officer of Tekni-Plex whose salary and bonus exceeded $100,000 for the years indicated in connection with his position with Tekni-Plex: SUMMARY COMPENSATION TABLE
FISCAL STOCK OTHER ANNUAL NAME & PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(A) - ------------------------- ------ ------ ----- ------- --------------- Dr. F. Patrick Smith, 1999 $1,200,000 $8,981,000 -- $ 42,000 Chief Executive Officer 1998 770,577 5,072,134 9.15041 150,283 1997 490,385 1,921,291 -- 15,417 Mr. Kenneth W.R. Baker, 1999 $ 600,000 $4,490,000 -- $ 9,000 President, Chief Operating 1998 385,289 2,536,062 13.72562 6,315 Officer and Principal 1997 260,096 960,645 -- 32,136 Accounting Officer
(a) Includes amounts reimbursed during the fiscal year for payment of taxes, auto expense, membership fees, relocation expenses, etc. OPTION/SAR GRANTS IN LAST FISCAL YEAR
PERCENT OF POTENTIAL POTENTIAL TOTAL REALIZABLE REALIZABLE VALUE NUMBER OF OPTIONS/ VALUE AT AT ASSUMED SECURITIES SARS GRANTED EXERCISE ASSUMED ANNUAL ANNUAL RATES OF UNDERLYING TO EMPLOYEES OR BASE RATES OF STOCK STOCK PRICE OPTIONS/ IN FISCAL PRICE PRICE APPRECIATION FOR SARS GRANTED YEAR PER EXPIRATION APPRECIATION OPTION TERM 10% SHARE DATE FOR OPTION TERM ($000) NAME ($000) 5% ($000) Dr. F. Patrick Smith --- ---% --- --- --- --- Kenneth W.R. Baker --- ---% --- --- --- ---
15 16 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE ($000) OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FY-END FY-END SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/ NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE Dr. F. Patrick Smith --- --- 3.05/6.10 --- /--- Kenneth W.R. Baker --- --- 26.31/9.15 $3,356 /---
EMPLOYMENT AGREEMENTS Dr. F. Patrick Smith and Mr. Kenneth W.R. Baker have employment agreements with Tekni-Plex. Both Dr. Smith and Mr. Baker's employment agreements expire June 28, 2002 and have renewal provisions. The employment agreements provide, among other things, for (i) payment of a base annual salary in the amount of $1,200,000 in the case of Dr. Smith and $600,000 in the case of Mr. Baker, and that these salaries may be increased (but not decreased) at the sole discretion of Tekni-Plex's Board of Directors, (ii) payment of bonuses based on Tekni-Plex's performance, and (iii) certain fringe benefits. Each employment agreement provides that the executive may be terminated by Tekni-Plex upon the following bases: (i) for cause or (ii) death or disability of the executive. Each of Dr. Smith and Mr. Baker are entitled to severance benefits if he is terminated due to the occurrence of an event specified in the preceding sentence. The employment agreements also contain certain non-compete provisions. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee for the Board of Directors of Tekni-Plex, Inc. consists of Michael F. Cronin and Arthur P. Witt. Their duties are to recommend to the Board of Directors excluding the Chief Executive Officer, salary changes and bonus awards for the Company's Chief Executive Officer. The Compensation Committee and the Chief Executive Officer together recommend salary changes and bonus awards for the Chief Operating Officer. The Board of Directors then votes on the recommendations (excluding the Chief Executive Officer in the case of his own compensation) with a simple majority required for approvals. The bonus awards for fiscal 1999 for Dr. Smith and Mr. Baker were based upon their respective employment contracts as amended in March of 1998, and are performance based. Compensation levels and bonus awards for all other employees are controlled by Dr. Smith and Mr. Baker. In fiscal 1999, Dr. Smith recommended, and the Board approved, stock options to four employees under a stock option plan approved by the Board of Directors effective December 31, 1997. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Witt, who is also the corporate Secretary of Tekni-Plex, serves as a member of the compensation committee of Tekni-Plex's board of directors. In addition, as Chief Executive Officer of Tekni-Plex, Dr. Smith participated in deliberations concerning the compensation of the Chief Operating Officer of Tekni-Plex (but not the compensation for himself or Mr. Witt). 16 17 SECURITY OWNERSHIP Tekni-Plex Partnership owns 100% of the outstanding shares of Tekni-Plex and 92.625% of Tekni-Plex on a fully diluted basis. Tekni-Plex Partnership has one general partner and six limited partners. Messrs. McWethy, Solomon and Tuttle are affiliated with the general partner of Tekni-Plex Partnership which owns an aggregate interest in the net profits of Tekni-Plex Partnership equal to approximately 55% and Dr. Smith owns an interest in the net profits of Tekni-Plex Partnership equal to approximately 18%, in each case, subject to certain conditions contained in Tekni-Plex Partnership's agreement of limited partnership. In 1994, Kenneth W.R. Baker was granted options on 2.5% of Tekni-Plex's common stock, with anti-dilution provisions. Mr. Baker's option has a term of fifteen years from the date of the grant. The option terminates immediately upon Mr. Baker's termination for cause from Tekni-Plex. If Mr. Baker for any other reason ceases to be employed by Tekni-Plex or is terminated by reason of a disability, the option may be exercised for a period of six months following Mr. Baker's cessation of employment. The option may be exercised by Mr. Baker's estate for a year following Mr. Baker's death. In April, 1997, Tekni-Plex, Tekni-Plex Partnership and Dr. F. Patrick Smith entered into an agreement pursuant to which: (i) so long as Tekni-Plex Partnership continues, Dr. Smith has an option to acquire an interest in Tekni-Plex Partnership representing up to 1.4% of the outstanding equity interest in Tekni-Plex Partnership; and (ii) if Tekni-Plex Partnership has been dissolved, Dr. Smith has an option to acquire shares of common stock of Tekni-Plex representing up to 1.4% (less any options exercised pursuant to clause (i) above) of the outstanding common stock. These options have a term of five years from the date of the grant. CERTAIN TRANSACTIONS Tekni-Plex has a management consulting agreement with MST Management Company and MST/TP Holding, Inc., both of whom are affiliated with Tekni-Plex's controlling shareholder. Pursuant to their respective agreements, MST Management Company and MST/TP Holding, Inc. provide regular and customary management consulting services to Tekni-Plex. The terms of each agreement require Tekni-Plex to pay a monthly management fee to MST Management Company and MST/TP Holding, Inc. for a period of ten years from March 18, 1994. Consulting service fees were in the aggregate approximately $400,000 for fiscal year 1999. The Company's policy is not to enter into any significant transaction with an affiliate of the Company unless a majority of the disinterested directors of the board of directors of the Company determines, in such majority's sole discretion (making such assumptions and determinations of fact as such majority sees fit), that the terms of such transaction are, in all material respects or taken as a whole, at least as favorable as the terms that could be obtained by the Company in a comparable transaction made on an arm's-length basis between unaffiliated parties. Tekni-Plex has an arrangement with Arthur P. Witt, a director and Secretary of Tekni-Plex, whereby Mr. Witt provides customary management consulting services to Tekni-Plex. Compensation to Mr. Witt for consulting services rendered on behalf of Tekni-Plex was approximately $95,000 for fiscal year 1999. 17 18 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. 18 19 TEKNI-PLEX, INC. - -------------------------------------------------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JULY 2, 1999, JULY 3, 1998 AND JUNE 27, 1997 F-1 20 TEKNI-PLEX, INC. CONTENTS
INDEPENDENT AUDITORS' REPORT F-3 CONSOLIDATED FINANCIAL STATEMENTS: Balance sheets F-4 Statements of operations F-5 Statements of comprehensive income (loss) F-6 Statements of stockholders' equity F-7 Statements of cash flows F-8 Notes to financial statements F-9 - F-39 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE F- 40 SUPPLEMENTAL SCHEDULE: Valuation and qualifying accounts and reserves F- 41
F-2 21 INDEPENDENT AUDITORS' REPORT The Board of Directors Tekni-Plex, Inc. Somerville, New Jersey We have audited the accompanying consolidated balance sheets of Tekni-Plex, Inc. and its wholly owned subsidiaries (the "Company") as of July 2, 1999 and July 3, 1998, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended July 2, 1999. 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 generally accepted auditing standards. 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 wholly owned subsidiaries as of July 2, 1999 and July 3, 1998, and the results of their operations and their cash flows for each of the three years in the period ended July 2, 1999, in conformity with generally accepted accounting principles. BDO Seidman, LLP Woodbridge, New Jersey July 30, 1999 F-3 22 TEKNI-PLEX, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
JULY 2, 1999 July 3, 1998 ------------ ------------ ASSETS (Note 5) CURRENT: Cash $22,117 $29,363 Accounts receivable, net of an allowance of $1,662 and $1,326 for possible losses 96,835 88,778 Inventories (Note 3) 63,190 57,929 Deferred income taxes (Note 6) 5,900 5,565 Prepaid expenses and other current assets 3,664 2,089 -------- -------- TOTAL CURRENT ASSETS 191,706 183,724 PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 4) 136,953 128,234 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $29,581 AND $15,030 206,140 193,849 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $4,287 AND $1,768 19,358 22,791 DEFERRED INCOME TAXES (NOTE 6) 1,346 7,065 OTHER ASSETS 3,933 3,616 -------- -------- $559,436 $539,279 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long term debt (Note 5) $5,207 $5,147 Line of credit (Note 5) 541 307 Accounts payable trade 27,612 32,986 Accrued payroll and benefits 21,581 12,074 Accrued interest 7,965 8,884 Accrued liabilities - other (Note 2) 26,613 36,986 Income taxes payable 742 2,443 -------- -------- TOTAL CURRENT LIABILITIES 90,261 98,827 LONG-TERM DEBT (NOTE 5) 410,646 396,451 OTHER LIABILITIES 6,232 5,328 -------- -------- TOTAL LIABILITIES 507,139 500,606 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTES 6, 7, 8 AND 10) STOCKHOLDERS' EQUITY: Common stock, $.01 par value, authorized 20,000 shares, issued and outstanding 848 at July 2, 1999 and July 3, 1998 - - Additional paid-in capital 41,075 41,075 Cumulative currency translation adjustment (1,368) 5 Retained earnings (deficit) 12,590 (2,407) -------- -------- TOTAL STOCKHOLDERS' EQUITY 52,297 38,673 -------- -------- $559,436 $539,279 ======== ========
See accompanying notes to consolidated financial statements. F-4 23 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
Years ended JULY 2, 1999 July 3, 1998 June 27, 1997 - ----------- ------------ ------------ ------------- NET SALES $489,237 $309,597 $144,736 COST OF SALES 358,293 232,499 107,007 ------- ------ -------- GROSS PROFIT 130,944 77,098 37,729 OPERATING EXPENSES: Selling, general and administrative 62,534 39,220 15,886 ------- ------ -------- INCOME FROM OPERATIONS 68,410 37,878 21,843 OTHER EXPENSES: Interest, net 38,977 19,682 8,094 Other 286 415 646 ------- ------ -------- INCOME BEFORE PROVISION FOR INCOME 29,147 17,781 13,103 TAXES AND EXTRAORDINARY ITEM PROVISION FOR INCOME TAXES (NOTE 6): Current 7,004 7,232 3,675 Deferred 7,146 1,880 1,000 ------- ------ -------- INCOME BEFORE EXTRAORDINARY ITEM 14,997 8,669 8,428 EXTRAORDINARY ITEM, NET OF INCOME TAXES - - (20,666) ------- ------ -------- NET INCOME (LOSS) $14,997 $8,669 $(12,238) ======= ====== ========
See accompanying notes to consolidated financial statements. F-5 24 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
JULY 2, 1999 July 3, 1998 June 27, 1997 ------------ ------------ ------------- NET INCOME (LOSS) $ 14,997 $ 8,669 $(12,238) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Foreign currency translation adjustment (1,373) 5 -- -------- -------- -------- COMPREHENSIVE INCOME (LOSS) $ 13,624 $ 8,674 $(12,238) ======== ======== ========
See accompanying notes to consolidated financial statements. F-6 25 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
Cumulative Additional Currency Common Paid-In Translation Retained Stock Capital Adjustment Earnings TOTAL ----- ------- ---------- -------- ----- BALANCE, JUNE 28, 1996 $ -- $ 23,000 $- $ 1,162 $ 24,162 Issuance of common stock -- 18,473 -- -- 18,473 Net loss -- -- -- (12,238) (12,238) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JUNE 27, 1997 -- 41,473 -- (11,076) 30,397 Repurchase and cancellation of shares -- (398) -- -- (398) Foreign currency translation -- -- 5 -- 5 Net income -- -- -- 8,669 8,669 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JULY 3, 1998 -- 41,075 5 (2,407) 38,673 Foreign currency translation -- -- (1,373) -- (1,373) Net income -- -- -- 14,997 14,997 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JULY 2, 1999 $ -- $ 41,075 $ (1,368) $ 12,590 $ 52,297 ====================================================================================================================================
See accompanying notes to consolidated financial statements. F-7 26 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 12) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - --------------------------------------------------------------------------------
Years ended JULY 2, 1999 July 3, 1998 June 27, 1997 - ----------- ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 14,997 $ 8,669 $ (12,238) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 16,930 8,856 6,051 Amortization 18,413 8,393 3,500 Provision for bad debts 370 705 200 Deferred income taxes 7,146 1,880 1,000 Amortization of redeemable warrants -- -- 556 Extraordinary loss on extinguishment of debt -- -- 20,666 Changes in assets and liabilities, net of acquisitions: Accounts receivable (5,709) (22,269) 67 Inventories (4,778) 24,730 (360) Prepaid expenses and other current assets (1,483) 1,918 (292) Other assets (532) 534 12 Accounts payable and other current liabilities (4,859) (4,335) 496 Income taxes (1,701) 4,262 (121) Other liabilities -- (4,334) -- --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 38,794 29,009 19,537 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of net assets including acquisition costs, net of cash acquired (45,139) (303,389) -- Capital expenditures (12,950) (7,283) (3,934) Increase in deposits -- -- (2,339) --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (58,089) (310,672) (6,273) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line of credit 22,234 7 (6,857) Proceeds from long-term debt -- 319,156 75,000 Repayments of long-term debt (10,177) (787) (64,551) Proceeds from capital contribution -- -- 18,473 Debt financing costs -- (18,052) (5,282) Redemption of capital -- (398) -- Redemption of warrants -- -- (20,000) NET CASH PROVIDED BY (USED IN) FINANCING --------- --------- --------- ACTIVITIES 12,057 299,926 (3,217) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (8) 5 -- --------- --------- --------- NET (DECREASE) INCREASE IN CASH (7,246) 18,268 10,047 CASH, BEGINNING OF PERIOD 29,363 11,095 1,048 --------- --------- --------- CASH, END OF PERIOD $ 22,117 $ 29,363 $ 11,095 ========= ========= =========
See accompanying notes to consolidated financial statements. F-8 27 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- 1. SUMMARY OF Nature of Business ACCOUNTING POLICIES Tekni-Plex, Inc. is a global, diversified manufacturer of packaging, products, and materials for the healthcare, consumer, and food packaging industries. The Company has built a leadership position in its core markets, and focuses on vertically integrated production of highly specialized products. The Company's operations are aligned under four primary business groups: Healthcare Packaging, Products, and Materials; Consumer Packaging and Products; Food Packaging; and Specialty Resins and Compounds. Consolidation Policy The consolidated financial statements include the financial statements of Tekni-Plex, Inc. and its wholly-owned 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 by 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 and trademarks, over seventeen 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). F-9 28 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- 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. 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 year ended July 3, 1998 contained 53 weeks, the years ended July 2, 1999 and June 27, 1997 contained 52 weeks each. Reclassifications Certain items in the prior year financial statements have been reclassified to conform to the current year presentation. Significant Risks and Uncertainties 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-10 29 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Foreign Currency Translation Assets and liabilities of international subsidiaries are translated at current exchange rates and related translation adjustments are reported as a component of stockholders' equity. Income statement accounts are translated at the average rates during the period. Long-Lived Assets Long-lived assets, such as goodwill 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 July 2, 1999. 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. New Accounting Pronouncements In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS 133, as amended by SFAS 137, is effective for the Company's 2001 fiscal year. SFAS 133 is not applicable to the Company since the client does not currently have hedging activities. 2. ACQUISITIONS On April 24, 1999, the Company purchased certain assets and assumed certain liabilities of High Voltage Engineering Corp. - Natvar Division ("Natvar"), for approximately $26,000. The acquisition was recorded under the purchase method and Natvar's operations have been reflected in the statement of operations since that date. As a result of the acquisition, goodwill of approximately $17,100 has been recorded, which is being amortized over 15 years. F-11 30 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- On January 25, 1999, the Company purchased certain assets and assumed certain liabilities of Tri-Seal International, Inc. ("Tri-Seal") for approximately $21,000. The acquisition was recorded under the purchase method and Tri-Seal's operations have been reflected in the statement of operations since that date. As a result of the acquisition, goodwill of approximately $13,600 has been recorded, which is being amortized over 15 years. The following table presents the unaudited pro forma results of operations as though the acquisition of Tri-Seal and Natvar occurred on June 28, 1997:
Year ended JULY 2, 1999 July 3, 1998 - ---------- ------------ ------------ Net sales $510,050 $342,910 Income from operations 70,691 38,477 Income before provision for income taxes 31,211 18,731 ============================================================================
On March 3, 1998, Tekni-Plex acquired PureTec Corporation ("PureTec"), a publicly traded company with annual sales of $315,000, for $312,000. PureTec is a leading manufacturer of plastic packaging, products, and materials primarily for the healthcare and consumer markets. PureTec is a wholly-owned subsidiary of Tekni-Plex. This acquisition was financed by the issuance of $200,000 of Senior Subordinated Debt (Note 5(a)) and $115,000 of Senior Term Debt (Note 5(c)). The acquisition was recorded under the purchase method, whereby PureTec's net assets were recorded at their fair value and its operations have been reflected in the statement of operations since the acquisition date. As a result of the acquisition, goodwill of approximately $162,000 has been recorded, which is being amortized over 15 years. F-12 31 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- In connection with the acquisition of PureTec, a reserve of $24,000 was established. The reserve was comprised of the costs to close or sell incompatible and duplicate facilities, terminate employees and provide for existing litigation. At July 2, 1999, approximately $8,400 was remaining in this reserve, which is included in accrued expenses. The remaining reserve is primarily to cover pre-existing litigation and lease costs of facilities to be closed which extend for the next four years. The following table presents the unaudited pro forma results of operations as though the acquisition of PureTec occurred on June 29, 1996:
YEAR ENDED Year ended JULY 3, 1998 June 27, 1997 ------------ ------------- Net sales $507,482 $460,070 Income from operations 45,858 40,703 Income before provision for income taxes 3,494 (3,938) ==============================================================================
Proforma adjustments were made to the related historical results to reflect changes in interest expense and goodwill amortization. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. 3. INVENTORIES Inventories are summarized as follows:
JULY 2, 1999 July 3, 1998 ------------ ------------ Raw materials $26,663 $ 24,427 Work-in-process 5,282 5,136 Finished goods 31,245 28,366 - ------------------------------------------------------------------------------------- $63,190 $ 57,929 =====================================================================================
F-13 32 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 4. PROPERTY, PLANT AND Property, plant and equipment consists of the EQUIPMENT following:
Estimated JULY 2, 1999 July 3, 1998 useful lives - -------------------------------------------------------------------------------- Land $ 14,611 $ 14,764 Building and improvements 31,043 26,411 30 - 40 years Machinery and equipment 114,927 97,256 5 - 10 years Furniture and fixtures 2,691 2,256 5 - 10 years Construction in progress (primarily machinery and equipment) 8,768 6,885 - -------------------------------------------------------------------------------- 172,040 147,572 Less: Accumulated depreciation 35,087 19,338 - -------------------------------------------------------------------------------- $136,953 $128,234 ================================================================================
5. LONG-TERM DEBT Long-term debt consists of the following:
JULY 2, 1999 July 3, 1998 - -------------------------------------------------------------------------------- Senior Subordinated Notes issued March 3, 1998 at 9 1/4%, due March 1, 2008. Interest payable semi-annually. (a) $200,000 $200,000 Senior Subordinated Notes issued April 4, 1997 at 11 1/4%, due April 1, 2007. Interest payable semi-annually (b) 75,000 75,000 Senior Debt (c): Revolving line of credit 22,000 -- Term notes 111,063 114,213 Other, primarily foreign term loans, with interest rates ranging from 4 1/4% to 8.4% and maturities from 2000 to 2004 8,331 12,692 - -------------------------------------------------------------------------------- 416,394 401,905 Less: Current maturities 5,748 5,454 - -------------------------------------------------------------------------------- $410,646 $396,451 ================================================================================
F-14 33 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- (a) In February 1998, the Company issued $200,000 of 9 1/4%, ten year Senior Subordinated Notes, the net proceeds of which were used in connection with the PureTec acquisition (Note 2). Interest is payable semi-annually. The notes are uncollateralized and rank equally to the $75,000 Senior Subordinated Notes discussed below and will be subordinate to all current and future senior indebtedness of the Company. The notes are callable by the Company after March 1, 2003 at a premium of 4 5/8%, which decreases to par after March 2006. 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 sale of assets. (b) In April 1997, the Company issued $75,000 of 11 1/4% ten year notes. Interest on the notes is payable semi-annually. These notes are uncollateralized and rank equally with the $200,000 Senior Subordinated Notes discussed above and will be subordinate to all current and future senior indebtedness of the Company. The notes are callable by the Company after April 1, 2002 at a premium which decreases to par after April 2005. These notes also contain various covenants and change in control similar to those provisions discussed above. The net proceeds of these bonds along with a capital contribution of $18,473 were used to repay the balance of $36,800 on a prior credit facility, repay prior subordinated notes of $25,200, including a prepayment penalty of $1,200 and repurchase all outstanding redeemable warrants for $20,000 with the balance being used for general corporate purposes. These transactions resulted in an extraordinary loss of approximately $20,666. The extraordinary loss was comprised of (i) the prepayment penalty of $1,200 and the write- off of deferred financing costs and debt discount of $3,449 net of the combined tax benefit of $1,757, and (ii) the loss on the repurchase of the warrants of $17,773 and has been reflected in the 1997 statements of operations. F-15 34 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- (c) Senior Debt The Company has a Senior Debt agreement, which includes a $90,000 revolving credit agreement, and two term loans in the aggregate amount of $115,000. The proceeds of the term loans were used as part of the financing for the PureTec acquisition (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 a limitation on capital expenditures and compliance with customary financial ratios. At July 2, 1999, the Company is in compliance with these covenants. Revolving Credit Agreement Borrowings under the agreement may be used for general corporate purposes and at July 2, 1999, $68,000 is available for borrowing. Interest, at the Company's option, is charged at the Prime Rate, plus the Applicable Base Rate (initially 1.25%) or the Adjusted LIBOR Rate, as defined, plus the Applicable Euro-Dollar Margin (initially 2.25%). The Applicable Base Rate and Applicable Euro-Dollar Margin can be reduced by up to 1.25% based on the maintenance of certain leverage ratios. At July 2, 1999, the rate charged is 8.75%. This agreement matures on March 31, 2004. Term Loan A Borrowings under this loan in the amount of $50,000, were used solely in connection with the acquisition of PureTec. Interest is payable quarterly at the same rates discussed above under the Revolving Credit Agreement, 7.125% at July 2, 1999. Principal is payable $625 quarterly, increasing to $5,000 at June 30, 2003 through the maturity date of March 31, 2004. F-16 35 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- Term Loan B Borrowings under this loan in the amount of $65,000, were used solely in connection with the acquisition of PureTec. Interest is payable quarterly at the same rate discussed above, except the Applicable Base Rate is initially 1.75% and the Applicable Euro-Dollar Margin is initially 2.75%. The rate at July 2, 1999 is 7.625%. In addition, the Applicable Base Rate and Applicable Euro-Dollar Margin was reduced .5% based on the maintenance of certain leverage ratios. Principal is payable $162.5 quarterly, increasing to $7,150 on June 30, 2004 and to $8,125 on June 30, 2005 through the maturity date of March 31, 2006. (d) PureTec Senior Secured Notes In November 1993, PST, a subsidiary of PureTec, issued $125,000 11.25% Senior Secured Notes which were to mature in 2003. In connection with the acquisition of PureTec by the Company, $123,450 of these notes were redeemed. The balance of these notes were redeemed during 1999. Principal payments on long-term debt over the next five years and thereafter are as follows:
2000 $5,748 2001 7,021 2002 8,868 2003 17,319 2004 45,058 Thereafter 332,380 - -------------------------------------------------------------------------------- $416,394 ===============================================================================
The Company believes the recorded value of long-term debt approximates fair value based on current rates available to the Company for similar debt. F-17 36 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- 6. INCOME TAXES The provision for income taxes is summarized as follows:
JULY 2, July 3, June 27, Years ended 1999 1998 1997 - -------------------------------------------------------------------------------- Current: Federal $ 3,604 $ 4,492 $ 3,425 Foreign 2,900 1,345 -- State and local 500 1,395 250 - -------------------------------------------------------------------------------- 7,004 7,232 3,675 - -------------------------------------------------------------------------------- Deferred: Federal 5,918 1,656 932 Foreign 328 182 -- State and local 900 42 68 - -------------------------------------------------------------------------------- 7,146 1,880 1,000 - -------------------------------------------------------------------------------- Provision for income $14,150 $ 9,112 $ 4,675 taxes ================================================================================
The components of income before income taxes are as follows:
JULY 2, July 3, June 27, Years ended 1999 1998 1997 - -------------------------------------------------------------------------------- Domestic $21,198 $14,754 $13,103 Foreign 7,949 3,027 -- - -------------------------------------------------------------------------------- $29,147 $17,781 $13,103 ================================================================================
F-18 37 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- The provision for income taxes differs from the amounts computed by applying the applicable Federal statutory rates due to the following:
JULY 2, July 3, June 27, Years ended 1999 1998 1997 - -------------------------------------------------------------------------------- Provision for Federal income $ 9,910 $ 6,046 $ 4,455 taxes at statutory rate State and local income taxes, net of Federal benefit 330 921 165 Non-deductible goodwill amortization 3,765 1,838 -- Foreign tax rates in excess of Federal tax rate 465 328 -- Other, net (320) (21) 55 - -------------------------------------------------------------------------------- Provision for income taxes $ 14,150 $ 9,112 $ 4,675 ================================================================================
Significant components of the Company's deferred tax assets and liabilities are as follows:
JULY 2, July 3, 1999 1998 - -------------------------------------------------------------------------------- Current deferred taxes: Allowance for doubtful accounts $ 533 $ 565 Inventory 934 818 Accrued expenses 4,433 4,182 - -------------------------------------------------------------------------------- Total current deferred tax assets $ 5,900 $ 5,565 ================================================================================ Long-term deferred taxes: Net operating loss carryforwards $ 28,863 $ 29,359 Accrued pension and post-retirement 1,497 1,375 Accrued expenses 626 464 Difference in book vs. tax basis of assets (6,668) (6,114) Excellerated tax vs. book depreciation (17,972) (13,019) - -------------------------------------------------------------------------------- Total long-term net deferred tax assets 6,346 12,065 Valuation allowance (5,000) (5,000) - -------------------------------------------------------------------------------- Total long-term net deferred tax assets $ 1,346 $ 7,065 ================================================================================
F-19 38 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- The net long-term deferred tax assets have been subjected to a valuation allowance since management believes it is more likely than not that this portion of the net operating loss carryforward ("NOL") balance will not be realized as a result of the various limitations on their usage, discussed below. The domestic net operating losses are subject to matters discussed below and are subject to change due to the restructuring occurring at the subsidiary level, as well as adjustment for the timing of inclusion of expenses and losses in the federal returns as compared to amounts included for financial statement purposes. Net Operating Losses The Company and its U.S. subsidiaries file a consolidated tax return. The NOL carryforwards, as a result of the PureTec acquisition, involve complex issues of federal tax law and are subject to various limitations as follows: - $35,800 - Subject to IRC Section 382 change of ownership annual limitation of approximately $3,900; this includes $4,700 of losses incurred prior to 1992, which are subject to additional limitations; expire 2002-2010. - $19,500 - Subject to IRC Section 382 change of ownership annual limitation of approximately $3,100; expire 2001 - 2010. - $29,500 - Subject to IRC Section 382 change of ownership annual limitation of approximately $5,900; expires 2009. To the extent the amounts of NOL's reserved are subsequently recognized, they will cause changes in the goodwill arising from the transaction. In addition to the domestic NOL balances, the Company has incurred losses relating to a subsidiary, taxable in Northern Ireland. Fiscal 1998 and 1997 losses aggregated $1,818 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. F-20 39 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - -------------------------------------------------------------------------------- 7. EMPLOYEE BENEFIT PLANS (a) Savings Plans i The Company maintains a discretionary 401(k) plan covering all eligible employees, excluding those employed by its Dolco Division ("Dolco") and PureTec, with at least one year of service. Contributions to the plan are determined annually by the Board of Directors. There were no contributions for years ended July 2, 1999, July 3, 1998 and June 27, 1997. ii The Company has a defined contribution profit sharing plan for the benefit of all employees having completed one year of service with Dolco. The Company contributes 3% of compensation for each participant and a matching contribution of up to 1% when an employee contributes 3% compensation. Contributions totaled approximately $727, $653 and $475 for the years ended July 2, 1999, July 3, 1998 and June 27, 1997, respectively. iii Additionally, the Company has a savings plan for all employees of three wholly-owned subsidiaries who are not covered under a collective bargaining agreement. The three subsidiaries are Plastic Specialties & Technology, Inc. ("PST"); Burlington Resins, Inc. ("Burlington"); and PTI Plastics, Inc. ("PTI"). Under the savings plan, the Company matches each eligible employees' contribution up to 3% of the employees' earnings. Such contribution amounted to approximately $362 for the year ended July 2, 1999 and $215 for the period March 3 through July 3, 1998. F-21 40 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) (b) Pension Plans i 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, resulting in a curtailment gain of $576. The components of net periodic pension costs are as follows:
YEAR ENDED Period ended JULY 2, 1999 July 3, 1998 - -------------------------------------------------------------------- Service cost $ 253 $ 290 Interest cost on projected benefit obligations 674 202 Expected actual return on plan assets (938) (233) Amortization of unrecognized net gain (8) - Recognized curtailment gain (576) - - -------------------------------------------------------------------- Net pension cost $ (595) $ 259 ==================================================================== CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period $ 10,127 $ 9,759 Service cost 253 290 Interest cost 674 202 Curtailments (576) - Actuarial gain (512) (24) Benefits paid (411) (100) - -------------------------------------------------------------------- Projected benefit obligation, end of period $ 9,555 $ 10,127 ====================================================================
F-22 41 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
YEAR ENDED Period ended JULY 2, 1999 July 3, 1998 - -------------------------------------------------------------------- CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period $ 9,555 $ 8,852 Actual return on plan assets 827 334 Company contributions 1,142 172 Benefits paid (411) (100) - -------------------------------------------------------------------- Plan assets at fair value, end of period $ 11,113 $ 9,258 ====================================================================
The funded status of the Plan and amounts recorded in the Company's balance sheets are as follows:
JULY 2, 1999 July 3, 1998 - ------------------------------------------------------------------------ Funded status of the plan $ 1,558 $ (869) Unrecognized net gain (467) - - ------------------------------------------------------------------------ Prepaid (accrued) pension cost $ 1,091 $ (869) ========================================================================
The expected long-term rate of return on plan assets was 9% for the periods presented and the discount rate was 7 1/2% at July 2, 1999 and July 3, 1998. ii 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. F-23 42 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The components of net periodic pension costs are as follows:
YEAR ENDED Period ended JULY 2, 1999 July 3, 1998 - ------------------------------------------------------------------ Service cost $ 133 $ 40 Interest cost on projected benefit obligations 366 136 Expected return on plan assets (453) (140) - ------------------------------------------------------------------ Net pension cost $ 46 $ 36 ================================================================== CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period $ 4,974 $ 4,898 Service cost 133 40 Interest cost 366 136 Actuarial gain - (52) Benefits paid (181) (48) - ------------------------------------------------------------------ Projected benefit obligation, end of period $ 5,292 $ 4,974 ================================================================== CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period $ 4,978 $ 4,708 Actual return on plan assets 410 206 Company contributions 224 112 Benefits paid (181) (48) - ------------------------------------------------------------------ Plan assets at fair value, end of period $ 5,431 $ 4,978 ==================================================================
F-24 43 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The funded status of the Plan and amounts recorded in the Company's balance sheets are as follows:
JULY 2, 1999 July 3, 1998 - ------------------------------------------------------------------------ Funded status of the plan $ 139 $ 4 Unrecognized net loss 43 - - ------------------------------------------------------------------------ Prepaid pension cost $ 182 $ 4 ========================================================================
The expected long-term rate of return on plan assets was 9% for the periods presented and the discount rate was 7 1/2% at July 2, 1999 and July 3, 1998. 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 year ended July 2, 1999 and for the period March 3 through July 3, 1998 amounted to $84 and $139, respectively. F-25 44 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Net periodic post-retirement benefit costs are as follows:
YEAR ENDED Period ended JULY 2, 1999 July 3, 1998 - ----------------------------------------------------------------------- Service cost $ 42 $ 10 Interest cost 146 100 - ----------------------------------------------------------------------- Net post-retirement benefit cost $ 188 $ 110 ======================================================================= CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning $ 1,997 $ 1,936 of period Service cost 42 10 Interest cost 146 42 Actuarial loss (gain) - 37 Benefits paid (84) (28) - ----------------------------------------------------------------------- Projected benefit obligation, end of $ 2,101 $ 1,997 period ======================================================================= CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of $ - $ - period Company contributions 84 139 Benefits paid (84) (139) - ----------------------------------------------------------------------- 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:
JULY 2, 1999 July 3, 1998 - ----------------------------------------------------------------------- Funded status of the plan $(2,101) $(1,997) - ----------------------------------------------------------------------- Accrued post retirement cost $(2,101) $(1,997) - -----------------------------------------------------------------------
F-26 45 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The accumulated post-retirement benefit obligation was determined using a 7 1/2% discount rate for the periods presented. The healthcare cost trend rate for medical benefits was assumed to be 6%, gradually declining until it reaches a constant annual rate of 5% in 2002. 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 $239 and $214 and increase the service and interest components by $6 and $5 at July 2, 1999 and July 3, 1998. 8. RELATED PARTY The Company has a management consulting agreement TRANSACTIONS with an affiliate of a stockholder. The terms of the agreement require the Company to pay a fee of approximately $30 per month for a period of ten years. Consulting service fees were approximately $400, $400 and $390 for the years ending July 2, 1999, July 3, 1998 and June 27, 1997, respectively. 9. STOCK OPTIONS In April 1994, the Company granted options to an employee to acquire 2 1/2% of the outstanding common stock for $13.5 per share, with anti-dilution provisions. The options are exercisable as to 33 1/3% of the shares on the first, second and third anniversary dates of the original grant and expire fifteen years from the date of the grant. 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 granted at fair market value on the date of grant. During 1999 and 1998, options were granted to purchase 7.32 and 28.37 shares of common stock at an exercise price of $222.4 and $154.5 per share, respectively. The options are subject to vesting provisions, as determined by the Board of Directors, at date of grant and expire 10 years from date of grant. F-27 46 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) In addition, an option to purchase 2.288 shares of common stock was granted to a member of the Board of Directors, in April 1998, at an exercise price of $154.5 per share. The options are subject to vesting provisions, as determined by the Board of Directors, at date of grant and expire 10 years from date of grant. At July 2, 1999, options for 30.12 shares are exercisable and no options have been exercised or forfeited as of July 2, 1999. 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 net income would have been reduced to the pro forma amounts indicated below. The calculations were based on a risk free interest rate of 4.75%, 5.28% and 6 3/4% in 1999, 1998 and 1997, respectively, expected volatility of zero, a dividend yield of zero and expected lives of 8 years.
JULY 2, July 3, June 27, Years ended 1999 1998 1997 - ---------------------------------------------------------------------------- Income before extraordinary item: As reported $ 14,997 $ 8,669 $ 8,428 ============================================================================ Pro forma $ 14,868 $ 8,618 $ 8,324 ============================================================================
10. COMMITMENTS AND CONTINGENCIES Commitments (a) The Company leases building space and certain equipment in 20 locations throughout the United States, Canada and Europe. At July 2, 1999, the Company's future minimum lease payments are as follows: - -------------------------------------------------------------------------------- 2000 $ 4,141 2001 3,933 2002 3,710 2003 2,198 2004 1,491 Thereafter 7,852 - -------------------------------------------------------------------------------- $23,325 ================================================================================
F-28 47 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Rent expense, including escalation charges, amounted to approximately $3,756, $2,802 and $676 for the years ended July 2, 1999, July 3, 1998 and June 27, 1997, respectively. (b) The Company has employment contracts with two employees, which provide for minimum salaries of $1,800 and bonuses based on performance and expire in June 2002. Salaries and bonuses for the years ended July 2, 1999 and July 3, 1998 under these contracts were $1,800 and $13,471, and $1,157 and $7,608, respectively. These contracts provide aggregate minimum annual compensation of $1,800 for each of the fiscal years in the period ended 2002. Contingencies (a) In January 1993 and 1994, the Company's Belgian subsidiary received income tax assessments aggregating approximately $2,114 (75,247 Belgian Francs) for the disallowance of certain foreign tax credits and investment losses claimed for the years ended July 31, 1990 and 1991. Additionally, in January 1995, the subsidiary received an income tax assessment of approximately $902 (32,083 Belgian francs) for the year ended July 31, 1992. By Belgian law, these assessments are capped at the values above and do not continue to accrue additional penalties or interest. Although the future outcome of these matters are uncertain, the Company believes that its tax position was appropriate and that the assessments are without merit. Therefore, the Company has appealed the assessments. Based on advice of legal counsel in Belgium, the Company believes that the assessment appeals will be accepted by the tax authorities in Belgium, although there can be no assurance whether or when such appeals will be accepted. (b) The Company is a party to various other legal proceedings arising in the normal conduct of business. Management believes that the final outcome of these proceedings will not have a material adverse effect on the Company's financial position. F-29 48 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 11. CONCENTRATIONS OF Financial instruments that potentially subject the CREDIT RISKS 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. As part of its cash management process, the Company periodically reviews the credit standing of these banks. 12. SUPPLEMENTAL CASH (a) Cash Paid FLOW INFORMATION
JULY 2, July 3, June 27, Years ended 1999 1998 1997 - --------------------------------------------------------------------------------- Interest $ 37,376 $ 15,776 $ 5,317 ================================================================================= Income taxes $ 10,185 $ 5,832 $ 3,747 =================================================================================
(b) Non-Cash Financing and Investing Activities The Company purchased certain assets and assumed certain liabilities of Natvar, effective April 24, 1999, for approximately $26,169 in cash. In conjunction with the acquisition, liabilities were assumed as follows: - --------------------------------------------------------------------------------- Fair value of assets acquired $ 10,192 Goodwill 17,107 Cash paid (26,169) - --------------------------------------------------------------------------------- Liabilities assumed $ 1,130 =================================================================================
F-30 49 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The Company purchased certain assets and assumed certain liabilities of Tri-Seal, effective January 25, 1999, for approximately $21,272 in cash. In conjunction with the acquisition, liabilities were assumed as follows: - --------------------------------------------------------------------------------- Fair value of assets acquired $ 11,400 Goodwill 13,584 Cash paid (21,272) - --------------------------------------------------------------------------------- Liabilities assumed $ 3,712 =================================================================================
The Company purchased the outstanding stock of PureTec Corporation on March 3, 1998 for approximately $312,047. In conjunction with the acquisition, liabilities were assumed as follows: - --------------------------------------------------------------------------------- Fair value of assets acquired $ 246,160 Goodwill 161,722 Cash paid (312,047) - --------------------------------------------------------------------------------- Liabilities assumed $ 95,835 =================================================================================
The Company purchased certain assets and assumed certain liabilities of PurePlast, Inc., effective July 3, 1997, for approximately $2,292 in cash. In conjunction with the acquisition, liabilities were assumed as follows: - --------------------------------------------------------------------------------- Fair value of assets acquired $ 1,802 Goodwill 1,734 Cash paid (2,292) - --------------------------------------------------------------------------------- Liabilities assumed $ 1,244 =================================================================================
F-31 50 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 13. SEGMENT INFORMATION The Company operates in four industry segments: healthcare packaging, products, and materials; consumer packaging and products; food packaging; and specialty resins and compounds. The healthcare packaging, products, and materials segment principally produces pharmaceutical packaging, medical tubing and medical device materials. The consumer packaging and products segment principally produces precision tubing and gaskets, and garden and irrigation hose products. The food packaging segment produces foamed polystyrene packaging products for the poultry, meat and egg industries. The specialty resins and compounds segment produces specialty PVC resins, recycled PET resins, and general purpose PVC compounds. The healthcare packaging, products, and materials and consumer packaging and products segments have operations in the United States, Europe and Canada. Prior to 1998, the Company operated principally in the food packaging segment. Financial information concerning the Company's business segments and the geographic areas in which it operates are as follows:
Healthcare Packaging, Consumer Products Packaging Specialty and and Food Resins and July 2, 1999 Materials Products Packaging Compounds TOTALS - ----------------------------------------------------------------------------------------- Revenues from external customers $137,309 $184,684 $100,258 $66,986 $489,237 Interest expense 11,818 13,254 8,014 5,891 38,977 Depreciation and amortization 7,327 13,072 9,640 5,086 35,125 Segment income from operations 25,027 37,848 18,777 6,810 88,462 Segment assets 173,704 216,067 73,351 83,601 546,723 Expenditures for segment assets 3,761 3,540 4,567 1,082 12,950 =========================================================================================
F-32 51 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Healthcare Packaging, Consumer Products Packaging Specialty and and Food Resins and July 3, 1998 Materials Products Packaging Compounds TOTALS - ----------------------------------------------------------------------------------------- Revenues from external customers $90,708 $103,744 $ 99,336 $15,809 $309,597 Interest expense 4,844 6,395 6,346 2,097 19,682 Depreciation and amortization 1,705 3,854 9,320 1,952 16,831 Segment income from operations 13,563 14,866 18,321 2,955 49,705 Segment assets 134,053 224,754 73,261 87,105 519,173 Expenditures for segment assets 1,347 1,387 4,316 233 7,283 - -----------------------------------------------------------------------------------------
JULY 2, 1999 July 3, 1998 - ---------------------------------------------------------------------------------- PROFIT OR LOSS Total operating profit for reportable segments $ 88,462 $ 49,705 before income taxes Corporate and eliminations (20,052) (11,827) - ---------------------------------------------------------------------------------- $ 68,410 $ 37,878 ================================================================================== ASSETS Total assets from reportable segments $ 546,723 $ 519,173 Other unallocated amounts 12,713 20,106 - ---------------------------------------------------------------------------------- Consolidated total $ 559,436 $ 539,279 ================================================================================== DEPRECIATION AND AMORTIZATION Segment totals $ 35,125 $ 16,831 Corporate 218 418 - ---------------------------------------------------------------------------------- Consolidated total $ 35,343 $ 17,249 ==================================================================================
F-33 52 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LONG-LIVED July 2, 1999 REVENUES ASSETS - ----------------------------------------------------------------------------------------- GEOGRAPHIC INFORMATION United States $445,603 $339,409 Canada 4,996 2,542 Europe 38,638 25,779 - ----------------------------------------------------------------------------------------- Total $489,237 $367,730 =========================================================================================
Long-lived July 3, 1998 Revenues assets - ----------------------------------------------------------------------------------------- GEOGRAPHIC INFORMATION United States $288,520 $325,292 Canada 5,868 2,302 Europe 15,209 27,961 - ----------------------------------------------------------------------------------------- Total $309,597 $355,555 =========================================================================================
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 July 2, 1999, one customer represented 11% of sales and two customers each represented 10% of accounts receivable at July 3, 1999. For the year ended July 3, 1998, one customer represented 10% of sales and two customers each represented 11% of accounts receivable at July 3, 1998. F-34 53 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 14. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Tekni-Plex, Inc. issued 11 1/4% Senior Subordinated Notes in April 1997 and 9 1/4% Series B Senior Subordinated Notes in February 1998. These notes are guaranteed by all domestic subsidiaries of Tekni-Plex. At June 27, 1997, there were no non-guarantor subsidiaries. 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 July 2, 1999
Non- Issuer Guarantors Guarantors TOTAL - ----------------------------------------------------------------------------------------- Sales, net $150,564 $295,039 $43,634 $489,237 Cost of sales 110,057 218,428 29,808 358,293 - ----------------------------------------------------------------------------------------- Gross profit 40,507 76,611 13,826 130,944 Selling, general and administrative 44,815 13,243 4,476 62,534 - ----------------------------------------------------------------------------------------- Income from operations (4,308) 63,368 9,350 68,410 Interest expense, net 39,487 (739) 229 38,977 Other expense (income) 294 (1,180) 1,172 286 - ----------------------------------------------------------------------------------------- Income (loss) before provi- sion for income taxes (44,089) 65,287 7,949 29,147 Provision for income taxes (23,682) 34,604 3,228 14,150 - ----------------------------------------------------------------------------------------- Net income (loss) $(20,407) $ 30,683 $ 4,721 $ 14,997 - -----------------------------------------------------------------------------------------
F-35 54 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Balance Sheet - at July 2, 1999:
Non- Issuer Guarantors Guarantors Eliminations TOTAL - ---------------------------------------------------------------------------------------------------------- CURRENT ASSETS $ 45,967 117,689 $ 28,050 - $ 191,706 Property, plant and equipment, net 44,507 77,132 15,314 - 136,953 Intangible assets 68,073 136,639 1,428 - 206,140 Investment in subsidiaries 367,167 - - (367,167) - Deferred financing costs, net 19,257 (128) 229 - 19,358 Deferred taxes 1,346 - - - 1,346 Other long-term assets 89,222 36,046 11,350 (132,685) 3,933 - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 635,539 $ 367,378 $ 56,371 $(499,852) $ 559,436 ========================================================================================================== CURRENT LIABILITIES $ 52,551 $ 26,868 $ 10,842 - $ 90,261 Long-term debt 404,288 - 6,358 - 410,646 Other long-term liabilities 119,759 - 19,158 (132,685) 6,232 - ---------------------------------------------------------------------------------------------------------- Total liabilities 576,598 26,868 36,358 (132,685) 507,139 ========================================================================================================== Additional paid-in capital 41,095 296,747 15,641 (312,408) 41,075 Retained earnings (deficit) 17,846 43,763 5,740 (54,759) 12,590 Cumulative currency translation adjustment - - (1,368) - (1,368) - ---------------------------------------------------------------------------------------------------------- Total equity 58,941 340,510 20,013 (367,167) 52,297 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 635,539 $ 367,378 $ 56,371 $(499,852) $ 559,436 ==========================================================================================================
F-36 55 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Statement of Operations - For the year ended July 3, 1998
Non- Issuer Guarantors Guarantors Total - ---------------------------------------------------------------------------------------- Sales, net $151,507 $137,013 $21,077 $309,597 Cost of sales 110,886 106,543 15,070 232,499 - ---------------------------------------------------------------------------------------- Gross profit 40,621 30,470 6,007 77,098 Selling, general and administrative 24,218 12,581 2,421 39,220 - ---------------------------------------------------------------------------------------- Income from operations 16,403 17,889 3,586 37,878 Interest expense, net 18,996 477 209 19,682 Other expense (income) 346 (281) 350 415 - ---------------------------------------------------------------------------------------- Income (loss) before provi- sion for income taxes (2,939) 17,693 3,027 17,781 Provision for income taxes (1,447) 9,023 1,536 9,112 - ---------------------------------------------------------------------------------------- Net income (loss) $ (1,492) $ 8,670 $ 1,491 $ 8,669 ========================================================================================
F-37 56 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Balance Sheet - at July 3, 1998:
Non- Issuer Guarantors Guarantors Eliminations Total - ---------------------------------------------------------------------------------------------------------- Current assets $ 18,510 $ 100,147 $ 24,621 $ 40,446 $ 183,724 Property, plant and equipment, net 40,535 71,304 16,395 - 128,234 Goodwill 30,624 151,055 12,170 - 193,849 Investment in subsidiaries 333,498 - - (333,498) - Deferred financing costs, net 22,277 396 118 - 22,791 Other long-term assets 7,041 2,060 1,580 - 10,681 - ---------------------------------------------------------------------------------------------------------- Total assets $ 452,485 $ 324,962 $ 54,884 $(293,052) $ 539,279 ========================================================================================================== Current liabilities $ 28,855 $ 57,395 $ 12,577 $ - $ 98,827 Long-term debt 386,063 6,755 3,633 - 396,451 Other long-term liabilities (6,377) (48,273) 21,266 38,712 5,328 - ---------------------------------------------------------------------------------------------------------- Total liabilities 408,541 15,877 37,476 38,712 500,606 ========================================================================================================== Additional paid-in capital 41,095 296,747 15,641 (312,408) 41,075 Retained earnings (deficit) 2,849 12,611 1,489 (19,356) (2,407) Cumulative currency translation adjustment - (273) 278 - 5 - ---------------------------------------------------------------------------------------------------------- Total equity 43,944 309,085 17,408 (331,764) 38,673 - ---------------------------------------------------------------------------------------------------------- Total liabilities and equity $ 452,485 $ 324,962 $ 54,884 $(293,052) $ 539,279 ==========================================================================================================
F-38 57 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------- Net sales $108,069 $94,004 $129,754 $157,410 Gross profit 27,091 24,878 37,680 41,295 Income from operations 13,131 10,320 21,273 23,686 Net income 1,543 505 5,849 7,100 ========================================================================================
First Second Third Fourth 1998 Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------- Net sales $37,791 $37,831 $68,388 $165,587 Gross profit 9,934 10,464 17,152 39,548 Income from operations 5,886 6,257 7,438 18,297 Net income 2,305 2,436 1,635 2,293 ========================================================================================
First Second Third Fourth 1997 Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------- Net sales $35,167 $36,428 $38,233 $ 34,908 Gross profit 8,621 9,514 10,454 9,140 Income from operations 4,207 6,778 5,609 5,249 Income before extraordinary item 1,277 2,884 2,266 2,001 Loss on extinguishment of debt - - - (20,666) - ---------------------------------------------------------------------------------------- Net income (loss) $ 1,277 $ 2,884 $ 2,266 $(18,665) ========================================================================================
Fluctuations in net sales are due primarily to seasonality in a number of product lines, particularly garden hose and irrigation hose products. F-39 58 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE Board of Directors Tekni-Plex, Inc. Somerville, New Jersey The audits referred to in our report dated July 30, 1999 relating to the consolidated financial statements of Tekni-Plex, Inc. and Subsidiaries, which are contained in this Form 10-K, included the audits of the financial statement schedule for the years ended July 2, 1999, July 3, 1998 and June 27, 1997 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. Woodbridge, New Jersey July 30, 1999 F-40 59 TEKNI-PLEX, INC. AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Period Expenses (1) Accounts Deductions (2) Period - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED JUNE 28, 1997 Accounts receivable allowance $ 565 $ 200 $ - $ 452 $ 313 =================================================================================================================================== YEAR ENDED JULY 3, 1998 Accounts receivable allowance $ 313 $ 705 $ 1,592 (3) $ 1,284 $ 1,326 =================================================================================================================================== YEAR ENDED JULY 2, 1999 Accounts receivable allowance $ 1,326 $ 370 $ 68 (3) $ 102 $ 1,662 ===================================================================================================================================
(1) To increase accounts receivable allowance. (2) Uncollectible accounts written off, net of recoveries. (3) Balances related to acquisitions. F-41 60 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. PATRICK SMITH F. Patrick Smith Chairman of the Board and Chief Executive Officer Dated: September 3, 1999 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 September 3, 1999.
SIGNATURE TITLE --------- ----- /s/ F. PATRICK SMITH Chairman of the Board and Chief Executive F. Patrick Smith Officer /s/ KENNETH W.R. BAKER President and Chief Operating Officer Kenneth W.R. Baker Principal Accounting and Financial Officer /s/ ARTHUR P. WITT Arthur P. Witt Corporate Secretary and Director /s/ J. ANDREW MCWETHY J. Andrew McWethy Director Barry A. Solomon Director /s/ STEPHEN A. TUTTLE Stephen A. Tuttle Director /s/ MICHAEL F. CRONIN Michael F. Cronin Director
61 Exhibit Index
Exhibit Number Document Description - ------- -------------------- 3.1 Restated Certificate of Incorporation of Tekni-Plex, Inc. (Filed as Exhibit 3.1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference.) 3.2 Amended and Restated By-laws of Tekni-Plex, Inc. (Filed as Exhibit 3.3 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference.) 10.1 Credit Agreement, dated as of March 3, 1998, among Tekni-Plex, Inc., the Guarantors party thereto, the Lenders party thereto, the LC Issuing Banks referred to therein and Morgan Guaranty Trust Company of New York, as Agent. (Filed as Exhibit 10.1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference.) 10.2 Note (original not included; form of Note included in Exhibit 10.1). 10.3 Security Agreement, dated as of March 3, 1998, among Tekni-Plex, Inc., the Guarantors listed therein and Morgan Guaranty Trust Company of New York, as Collateral Agent (original not included; form of Security Agreement included in Exhibit 10.1). 10.4 Pledge Agreement, dated as of March 3, 1998, between Tekni-Plex, Inc. and Morgan Guaranty Trust Company of New York, as Agent (original not included; form of Pledge Agreement included in Exhibit 10.1). 10.5 Form of Mortgage, dated as of March 3, 1998, made by Tekni-Plex, Inc., or the Guarantors listed therein. in favor of Morgan Guaranty Trust Company, as Agent (original not included; form of Mortgage included in Exhibit 10.1). 10.6 Employment Agreement, dated as of January 30, 1997, between Dr. F. Patrick Smith and Tekni-Plex, Inc. (Filed as Exhibit 10.6 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.6.1 Amendment No. 1 to Employment Agreement, dated as of January 30, 1997, between Dr. F. Patrick Smith and Tekni-Plex, Inc., made effective as of March 2, 1998.* 10.7 Employment Agreement, dated as of April 4, 1997, between Mr. Kenneth W.R. Baker and Tekni-Plex, Inc. (Filed as Exhibit 10.7 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.7.1 Amendment No. 1 to Employment Agreement, dated as of April 4, 1997, between Mr. Kenneth W.R. Baker and Tekni-Plex, Inc., made effective as of March 2, 1998.* 10.8 Form of Amended and Restated Option Agreement, dated as of April 4, 1997, among Tekni-Plex, Inc., Tekni-Plex Partners L.P. and F. Patrick Smith (Filed as Exhibit 10.8 to Registrant's Amendment No. 2 to Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.9 Form of Amended and Restated Stock Option Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc. and Kenneth W.R. Baker (Filed as Exhibit 10.9 to Registrant's Amendment No. 1 to Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference).
62 10.10 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc. and MST Management Company, Inc. (Filed as Exhibit 10.10 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.11 Management Fee Agreement, dated as of April 4, 1997, between Tekni-Plex, Inc. and MST/TP Holding, Inc. (Filed as Exhibit 10.11 to Registrant's Amendment No. 2 to Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.12 Indenture, dated as of April 1, 1997 among Tekni-Plex, Inc., Dolco Packaging, Corp. and Marine Midland Bank, as Trustee (Filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference). 10.13 Senior Subordinated Note and Guarantee (original not included; form of Note and Guarantee included in Exhibit 10.12). 10.14 Agreement and Plan of Merger, dated as of November 11, 1997 among Tekni-Plex, Inc., P.T. Holding, Inc., PureTec Corporation and Plastic Specialties and Technologies, Inc. (Filed as Exhibit 2.1 to PureTec Corporation's Annual Report on Form 10-K, Commission File No. 0-26508 and incorporated herein by reference). 10.15 Indenture, dated as of March 1, 1998 among Tekni-Plex, Inc., the Guarantors listed therein and Marine Midland Bank, as Trustee. (Filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-28157, and incorporated herein by reference.) 10.16 Senior Subordinated Note and Guarantee (original not included; form of Note and Guarantee included in Exhibit 4.1). 10.17 Tekni-Plex, Inc. Stock Incentive Plan. (Filed as Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the fiscal year ended July 3, 1998, and incorporated herein by reference.) 21.0 List of Subsidiaries.* 27.0 Financial Data Schedule.*
* Filed herewith. EX-10.6.1 2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 Exhibit 10.6.1 AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT DATED JANUARY 30, 1997 This Amendment No. 1 to the Employment Agreement (the "Amendment") made effective as of the 2nd of March, 1998 (the "Effective Date") by and between Tekni-Plex, Inc., a Delaware Corporation (the Employer"), having its principal offices at 201 Industrial Parkway, Somerville, NJ 08876, and F. Patrick Smith, an individual (the "Executive"), residing at 3615 Brannon Drive, Waco, Texas 76710. WITNESSETH: WHEREAS, reference is made to that certain Employment Agreement dated effective January 30, 1997, between Employer and Executive (the "Agreement"). Capitalized terms not defined herein refer to definition in the Agreement. WHEREAS, Employer has consummated the acquisition of PureTec Corporation, a Delaware corporation with principal offices located at 65 Railroad Avenue, Ridgefield, NJ 07657, effective March 3, 1998, and Employer wishes for Executive to continue in his capacity as Chairman of the Board and Chief Executive Officer of Employer, and Executive wishes to continue in such capacity with Employer. WHEREAS, Employer and Executive wish to amend the Agreement to change the base salary of Executive as defined in Section 4 of the Agreement. WHEREAS, Employer and Executive wish to amend Exhibit A of the Agreement with respect to Targeted EBITDA and Targeted Cap-Ex for the Fiscal Years Ended July 2, 1999, and June 30, 2000, only. WHEREAS, Employer and Executive wish for all other provisions of the Agreement to remain in full force and effect and remain unchanged. WHEREAS, the Board of Directors of Employer have authorized the Secretary of Employer to execute this Amendment No. 1 to the Employment Agreement, NOW THEREFORE, in consideration of the foregoing and of mutual covenants contained in this Amendment No. 1 and the Employment Agreement, Employer and Executive, intending to be legally bound hereby, agree as follows: 1. Executive's Base Salary is hereby increased to One Million Two Hundred Thousand Dollars ($1,200,000.00) annually, as of the Effective Date. 2. Targeted Performance criteria listed in Exhibit A of the Agreement are hereby amended as follows: 2 TARGETED PERFORMANCE ($000)
Fiscal Year Targeted Targeted Ended EBITDA Cap-Ex ----------- -------- -------- July 2, 1999 80,000 36,100 June 30, 2000 88,000 24,800
3. Binding Effect. All other terms and conditions of the Employment Agreement shall remain in full force and effect. 4. Applicable Law. This Amendment No. 1 and the rights, obligations and relations of the parties hereto shall be governed by and construed in accordance with the State of New York without giving effect to the principles of conflicts of law thereof. 5. Execution in Counterparts. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. Tekni-Plex, Inc. By: /s/ Arthur P. Witt /s/ F. Patrick Smith ---------------------------- ---------------------------- Name: Arthur P. Witt F. Patrick Smith Title: Secretary EX-10.7.1 3 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 Exhibit 10.7.1 AMENDMENT NO. 1 TO THE EMPLOYMENT AGREEMENT DATED APRIL 4, 1997 This Amendment No. 1 to the Employment Agreement (the "Amendment") made effective as of the 2nd of March, 1998 (the "Effective Date") by and between Tekni-Plex, Inc., a Delaware Corporation (the Employer"), having its principal offices at 201 Industrial Parkway, Somerville, NJ 08876, and Kenneth W. R. Baker, an individual (the "Executive"), residing at 25 Sutton Farm Road, Flemington, NJ 08822. WITNESSETH: WHEREAS, reference is made to that certain Employment Agreement dated effective April 4, 1997, between Employer and Executive (the "Agreement"). Capitalized terms not defined herein refer to definition in the Agreement. WHEREAS, Employer has consummated the acquisition of PureTec Corporation, a Delaware corporation with principal offices located at 65 Railroad Avenue, Ridgefield, NJ 07657, effective March 3, 1998, and Employer wishes for Executive to continue in his capacity as President and Chief Operating Officer of Employer, and Executive wishes to continue in such capacity with Employer. WHEREAS, Employer and Executive wish to amend the Agreement to change the base salary of Executive as defined in Section 4 of the Agreement. WHEREAS, Employer and Executive wish to amend Exhibit A of the Agreement with respect to Targeted EBITDA and Targeted Cap-Ex for the Fiscal Years Ended July 2, 1999, and June 30, 2000, only. WHEREAS, Employer and Executive wish for all other provisions of the Agreement to remain in full force and effect and remain unchanged. WHEREAS, the Board of Directors of Employer have authorized the Secretary of Employer to execute this Amendment No. 1 to the Employment Agreement, NOW THEREFORE, in consideration of the foregoing and of mutual covenants contained in this Amendment No. 1 and the Employment Agreement, Employer and Executive, intending to be legally bound hereby, agree as follows: 1. Executive's Base Salary is hereby increased to Six Hundred Thousand Dollars ($600,000.00) annually, as of the Effective Date. 2. Targeted Performance criteria listed in Exhibit A of the Agreement are hereby amended as follows: 2 TARGETED PERFORMANCE ($000)
Fiscal Year Targeted Targeted Ended EBITDA Cap-Ex ----------- -------- -------- July 2, 1999 80,000 36,100 June 30, 2000 88,000 24,800
3. Binding Effect. All other terms and conditions of the Employment Agreement shall remain in full force and effect. 4. Applicable Law. This Amendment No. 1 and the rights, obligations and relations of the parties hereto shall be governed by and construed in accordance with the State of New York without giving effect to the principles of conflicts of law thereof. 5. Execution in Counterparts. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. Tekni-Plex, Inc. By: /s/ Arthur P. Witt /s/ Kenneth W. R. Baker ---------------------------- ---------------------------- Name: Arthur P. Witt Kenneth W. R. Baker Title: Secretary EX-21.0 4 LIST OF SUBSIDIARIES 1 Exhibit 21 List of Subsidiaries
Name of Subsidiary Place of Organization - ------------------ --------------------- Burlington Resins, Inc. Delaware Natvar Holdings, Inc. Delaware Plastic Specialties & Technologies, Inc. Delaware PureTec Corporation Delaware Tri-Seal Holdings, Inc. Delaware PurePlast, Inc. Ontario Colorite Europe, Ltd. No. Ireland Action Technology Belgium Belgium Action Technology Italia, SpA Italy
EX-27.0 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX, INC. STATEMENT OF EARNINGS FOR THE YEAR ENDED JULY 2, 1999 AND BALANCE SHEET AS AT JULY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUL-02-1999 JUL-04-1998 JUL-02-1999 22,117 0 98,497 1,662 63,190 191,706 172,040 35,087 559,436 90,261 275,000 0 0 0 0 559,436 489,237 489,237 358,293 358,293 62,534 0 38,977 29,147 14,150 14,997 0 0 0 14,997 0 0
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