10-K 1 y53462e10-k.txt 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 June 29, 2001 [ ] 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.) 260 North Denton Tap Road, Coppell, Texas 75019 (Address of principal executive offices and zip code) (972) 304-5077 (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 We were founded as a Delaware corporation in 1967 to acquire the General Felt Products division of Standard Packaging Corporation. At that time, we were located in Brooklyn, NY, where we produced laminated closure (cap) liners primarily for the pharmaceutical and food industries. Over the years, we have built a reputation for solving difficult packaging problems and providing customers with high quality, advanced packaging materials. In 1970, we built an additional manufacturing facility in Somerville, New Jersey, diversifying into the business of producing polystyrene foam trays for the poultry processing industry. In March 1994, Tekni-Plex was acquired by Dr. F. Patrick Smith and other investors. Dr. Smith was elected Chief Executive Officer. In April 1994, Mr. Kenneth W.R. Baker was appointed Chief Operating Officer. At that time, the principal product lines consisted of clear, high-barrier laminations for pharmaceutical blister packaging (which we refer to as clear blister packaging); closure liners, primarily for pharmaceutical end-uses; and foam processor trays primarily for the poultry industry. In December 1995, Tekni-Plex acquired the Flemington, NJ, plant and business of Hargro Flexible Packaging Corporation. The Flemington plant utilizes lamination and coating technology to produce packaging materials primarily for pharmaceutical products such as transdermal patches, sutures, iodine and alcohol swabs, aspirin and other physician samples. We relocated the Brooklyn equipment and business into the Flemington facility during 1996. The synergistic result of having complementary technologies in one location created a combined operation with considerably higher efficiencies and lower costs than the sum of the stand-alone operations. In February 1996, we expanded our food packaging business by completing our acquisition of Dolco Packaging Corp., a publicly-traded $81 million foam products company that was nearly twice the size of Tekni-Plex. Dolco had been in the business of producing foam packaging products since the 1960s and had attained the leading share of foam egg carton sales in the United States. The Dolco acquisition also solidified our position as a leading supplier of foam processor trays. In August 1997, Dolco, which had been a wholly owned subsidiary of Tekni-Plex, was merged into Tekni-Plex. In July 1997, we acquired the business and operating facility of PurePlast Inc. of Cambridge, Ontario, Canada. PurePlast produced calendered polyvinyl chloride (vinyl) sheet primarily for food and electronics packaging applications. Following the acquisition, we developed proprietary formulations of vinyl sheet for vertical integration into our clear blister packaging business and for sale directly to our global pharmaceutical customers. In March 1998, Tekni-Plex acquired PureTec Corporation, a publicly-traded company with annual sales of $315 million. PureTec is a leading manufacturer of plastic packaging, products, and materials primarily for the healthcare and consumer markets. PureTec enjoys leading market positions in its core products, including garden and irrigation hose, precision tubing and gaskets primarily for the packaging industry, vinyl medical tubing, and vinyl compounds for the production of medical devices. PureTec is a wholly-owned subsidiary of Tekni-Plex. In January 1999, we acquired substantially all the assets of Tri-Seal International, Inc., a leader in sophisticated extruded and co-extruded capliners and seals. The Tri-Seal operations have been integrated with our closure liner business. In April 1999, we acquired substantially all the assets of Natvar, a producer of disposable medical tubing. As with Tri-Seal, the Natvar acquisition was intended to strengthen our existing core business and expand product offerings. The Natvar operation has been integrated into our medical tubing business. In June 2000, we completed a recapitalization of Tekni-Plex. As part of the recapitalization, existing investors other than management sold most of their interests, and a group of new investors contributed an aggregate of $167 million in new equity and agreed to contribute up to $103 million in additional equity over the next five years. All members of management maintained 100% of their interests in the Company. Also, Tekni-Plex entered into a new credit agreement, issued $275 million in new senior subordinated notes, and repaid the debt that existed prior to the recapitalization. 2 3 In October 2000, we acquired substantially all the assets of the Super Plastics division of RCR International Inc. Super Plastics is primarily a manufacturer of garden hose and has a manufacturing facility in Mississauga, Ontario Canada. The Super Plastics operations have been integrated with our garden hose business. DESCRIPTION OF BUSINESS We are a global, diversified manufacturer of packaging, products, and materials for the healthcare, consumer, and food packaging industries. We have built a leadership position in our core markets, and focus on vertically integrated production of highly specialized products. Our operations are aligned under four primary business groups: Healthcare Packaging, Products, and Materials; Consumer Packaging and Products; Food Packaging; and Specialty Resins and Compounds. Our end market and product line diversity has the effect of reducing overall risk related to any single product or customer. Representative product lines in each group are listed below:

HEALTHCARE PACKAGING, PRODUCTS, CONSUMER PACKAGING AND FOOD PACKAGING SPECIALTY RESINS AND AND MATERIALS PRODUCTS 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 Foamed Consumer Plates

COMPETITIVE STRENGTHS We believe that our competitive strengths include: - Strong customer relationships. We have long-standing relationships with many of our customers. We estimate the average tenure among our largest customers at more than 17 years. We attribute our long-term customer relationships to our ability to consistently manufacture high quality products and provide a superior level of customer service. We routinely win customer awards for our superior products and customer service and have recently been recognized for supplier excellence by 3M Pharmaceuticals, Pfizer, Eli Lilly, Boston Scientific, Kraft Foods and Perdue Farms, among others. - Strong market positions in core businesses. We have a strong market presence in our product lines. The following table shows what we believe to be our market position in the U.S. in each core product line: PRODUCT MARKET POSITION Medical device materials...................................... 1 Vinyl medical tubing.......................................... 1 Clear, high barrier blister packaging......................... 1 Closure liners................................................ 1 Garden and irrigation hose.................................... 1 Precision tubing and gaskets.................................. 1 Egg cartons................................................... 1 Foam processor trays.......................................... 2 - Experienced management team. Our management team has been successful in selecting and integrating strategic acquisitions as well as improving underlying business fundamentals. After 3 4 significantly improving the business of Tekni-Plex following our 1994 acquisition, management successfully integrated both the Flemington and Dolco operations during 1996, the latter being a public company then nearly twice our size. During the same period, the Brooklyn and Flemington operations were also successfully merged. In 1997, we acquired and integrated the PurePlast operations. In 1998, we acquired PureTec, a public company then more than twice our size. In 1999, we acquired and integrated the assets and business of Tri-Seal and Natvar. Management has substantially improved the operating margins of each of these acquisitions. Members of our management team have integrated acquisitions, effected turnarounds, provided strategic direction and leadership, increased sales and market share, improved manufacturing efficiencies and productivity, and developed new technologies to enhance the competitive strengths of the companies they have managed. - Cost efficient producer. We continually focus on improving underlying operations and reducing costs. Since the 1994 acquisition, current management has improved our cost structure from an EBITDA margin of 8.5% with EBITDA of $3.8 million on sales of $44.9 million for the 12 months ended December 31, 1993 to an EBITDA margin of 19.0% with EBITDA of $100.0 million on sales of $525.8 million for the trailing 12 months ended June 29, 2001. Our seven add-on acquisitions since 1995 have provided significant opportunities to realize cost savings and synergies in the combined businesses through the sharing of complementary technologies and manufacturing techniques, as well as economics of scale including the purchase of raw materials. - Producer of high quality, technically sophisticated products. We believe, based upon our knowledge and experience in the industry, that we have a long-standing reputation as a manufacturer of high quality, high performance products, materials and primary packaging (where the packaging material comes into direct contact with the end product). Our emphasis on quality is evidenced by our product lines which address the more technically sophisticated areas of their respective markets. - Strong equity sponsorship. We have obtained a strong equity commitment from co-investors in conjunction with the recapitalization. New investors agreed to contribute $269.6 million in the aggregate to Tekni-Plex Partners, of which $167.0 million was contributed to consummate the recapitalization in June 2000. An additional $5.0 million was contributed in conjunction with our acquisition of Super Plastics in October 2000, and $30.0 million was contributed in June 2001 in anticipation of our announced acquisition of Mark IV's Swan Division. The remainder ($67.6 million) is available for at least five years from the recapitalization to be used for our general corporate purposes, including acquisitions. We believe that these equity commitments will provide us with significant flexibility to take advantage of business opportunities as they arise. In connection with the recapitalization, all members of our current management maintained their entire equity investment, which had an implied aggregate value of approximately $96.0 million. BUSINESS STRATEGY We seek to maximize our profitability and growth and take advantage of our competitive strengths by pursuing the following business strategy: - Ongoing cost reduction through technical process improvement. We have an ongoing program to improve manufacturing and other processes in order to drive down costs. Examples of cost improvement programs include: - material and energy conservation through enhanced process controls and advanced product design. - reduction in machine set-up time through the use of proprietary technology. - continual product line rationalization; and 4 5 - development of backward and forward integration opportunities. - Internal growth through product line extension and improvement. We continually seek to improve and extend our product lines and leverage our existing technological capabilities in order to increase market share in existing markets, effectively penetrate new markets and improve profitability. Our strategy is to emphasize our expertise in providing packaging, products and materials with specific high performance characteristics through the development of various unique proprietary materials and proprietary manufacturing process techniques. - Growth through international expansion. We believe that there is significant opportunity to expand our international sales, which currently represent approximately 15% of our total revenues. At present, we have manufacturing operations in Canada, the United Kingdom, Belgium and Italy. We have recently added regional sales offices in Belgium, Germany, Argentina and Singapore to our existing offices in Canada, Italy and the United Kingdom. We have also recently entered into manufacturing liaisons in Italy, Japan, Argentina and Germany which supplement our existing liaisons in Switzerland and the Phillipines. In addition, we have recently added sales representatives in Peru and throughout Central America to our existing representatives in Australia, China (including Hong Kong), Italy, Malaysia, Thailand, Taiwan, South Africa, Argentina, Chile, Brazil and Mexico. We also have a licensee in Japan. We believe that our growing international presence will generate an increase in our sales. - Growth through acquisitions. We will continue to pursue acquisitions selectively when the opportunity arises. Our objective is to pursue acquisitions that provide us with the opportunity to gain economies of scale and reduce costs through, among other things, technology sharing and synergistic cost reduction. HEALTHCARE PACKAGING, PRODUCTS, AND MATERIALS The Healthcare Packaging, Products and Materials segment of our business had revenues of $148.4 million (28.2% total revenues) for the 12 months ended June 29, 2001. Pharmaceutical Packaging Our pharmaceutical packaging product line includes flexible, semi-rigid, and rigid packaging films, coated films, co-extrusions, and laminations. We believe that we are a market leader for clear, high-barrier laminations for pharmaceutical blister packaging. These packaging materials are used for fast-acting pharmaceuticals that are generally highly reactive to moisture. Transparent, high-barrier blister packaging is primarily used to protect drugs from moisture vapor infiltration or desiccation. Blister packaging is the preferred packaging form when dispenser handling can affect shelf life or drug efficacy, or when unit dose packaging is needed. Unit dose packaging is being used to improve patient compliance with regard to dosage regimen, and has been identified as the packaging form of choice in addressing child safety aspects of drug packaging. The advantages of transparent blisters, as opposed to opaque foil-based materials manufactured by various competitors, include the ability to visually inspect the contents of the blister and to present the product with maximum confidence. We believe the flexible and semi-rigid packaging segment of the pharmaceutical packaging industry is growing at a faster rate than the non-plastics segments because of the generally lower package cost and broader range of functional characteristics of plastic packaging. As a result, the technologies used to manufacture plastic packaging materials continue to develop at a faster pace than those used in the more mature paper, glass, and metal products. Our high-barrier, blister packaging is sold to major pharmaceutical companies (or their designated contract packagers). We market our full pharmaceutical product line directly on a worldwide basis, and have assembled a global network of sales and marketing personnel on six continents. 5 6 In the clear blister packaging market, we have two principal competitors worldwide with resources equal to or greater than ours. However, we believe that neither of these competitors has the breadth of product offering to match ours, and that this differentiation is significant as viewed by the pharmaceutical industry. Also, the high manufacturing and audit compliance standards imposed by the pharmaceutical companies on their suppliers provide a significant barrier to the entry of new competitors. Entry barriers also arise due to the lengthy and stringent approval process required by pharmaceutical companies. Since approval requires that the drug be tested while packaged in the same packaging materials intended for commercial use, changing materials after approval risks renewed scrutiny by the FDA. The packaging materials for pharmaceutical applications also require special documentation of material sources and uses within the manufacturing process as well as heightened quality assurance measures. Closure Liners Tekni-Plex is also the leading producer of sophisticated extruded, co-extruded and laminated cap-liners and seals, known as closure liners, for glass and plastic bottles. Closure liners perfect the seal between a container and its closure, for example, between a bottle and its cap. The liner material has become an integral part of the container/closure package. Without the gasketing effect of the liner, most container/closure packages would not be secure enough to protect the contents from contamination or loss of product efficacy. We sell these products through our direct sales force primarily to packagers of pharmaceutical, healthcare and food products. We have two principal competitors in North America but also compete with several smaller companies having substantially smaller market shares. However, as a result of the Tri-Seal acquisition, we believe that we offer the widest range of liner materials in the industry. We remain competitive by focusing on product quality and performance and prompt delivery. Medical Tubing We are the leading non-captive supplier of vinyl medical tubing in North America and Europe. We specialize in high-quality, close tolerance tubing for various surgical procedures and related medical applications. These applications include intravenous ("IV") therapy, hemodialysis therapy, cardio-vascular procedures such as coronary bypass surgery, suction and aspiration products, and urinary drainage and catheter products. New medical tubing products we have developed include microbore tubing and silicone substitute formulations. Microbore tubing can be used to regulate the delivery of critical intravenous fluids without the need for more expensive drip control devices. Medical professionals can precisely control the drug delivery speed simply by selecting the proper (color-coded) diameter tube, thereby improving accuracy and reducing cost. More importantly, as home healthcare trends continue, the use of microbore tubing will help eliminate critical dosage errors on the part of the non-professional caregiver or the patient. Medical tubing is sold primarily to manufacturers of medical devices that are packaged specifically for such procedures and applications. These products are sold through direct salespeople. We remain competitive by focusing on product quality and performance and prompt delivery. We manufacture medical tubing using proprietary plastic extrusion processes. The primary raw materials are proprietary compounds, which we produce. As a result of the Natvar acquisition, we believe that we are the largest third-party supplier of disposable medical tubing in North America. Medical Device Materials We believe that we are the leading non-captive producer of high quality vinyl compounds for use in the medical industry. Our chemists work closely with customers to develop compounds that address their specific requirements. Through this custom work, we have introduced a number of breakthroughs to the medical device industry by developing formulations with unique physical characteristics. For example, we recently developed a new family of flexible vinyl compounds designed to replace silicone rubber in a variety of medical tubing and commercial applications. 6 7 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. We sell these compounds in worldwide markets directly through our salespeople. The market for medical-grade vinyl compounds is highly specialized, and we have two smaller, but significant competitors. For more than 30 years, we have been supplying these specialized vinyl compounds for FDA-regulated applications. We believe that we compete effectively based on product quality, performance and prompt delivery. CONSUMER PACKAGING AND PRODUCTS The Consumer Packaging and Products segment of our business had revenues of $202.0 million (38.4% of total revenues) for the 12 months ended June 29, 2001. Precision Tubing and Gaskets 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 us. The precision gasket products, which we have manufactured for over fifty years, are produced using proprietary formulations. These formulations are designed to provide consistent functional performance throughout the entire shelf life of the product by incorporating chemical resistance characteristics appropriate to the fluid being packaged. For example, we have developed unique formulations that virtually eliminate contamination of the products packaged in spray dispensers. This has greatly expanded the use of these dispensers for personal hygiene products, foods, and fragrances. The Company has also developed proprietary methods for achieving extremely accurate thickness control, superior surface finish, and the elimination of internal imperfections prevalent in other processing methods. Our precision tubing and gaskets product line is sold primarily to manufacturers of aerosol valves, dispenser pumps, and writing instruments. 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. These products are sold throughout the United States and Europe, as well as selected worldwide markets. Sales are made through our direct sales force. We believe that it is the leading precision tubing extruder in North America and is the leading supplier of aerosol valve and dispenser pump gaskets worldwide. We are 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. Garden and Irrigation Hose Products We believe that we are the leading producer of garden hose in the United States. We have produced garden hose products for fifty years, and produce its primary components internally, including proprietary material formulations and brass couplings. Innovations have included the patented Colorite(R) Evenflow(R) design and ultra high quality product lines that utilize medical-grade plastics. We also manufacture specialty hose products such as air hose and irrigator "soaker hose". We sell these products primarily through our direct salespeople and also through independent representatives. Both private label and brand-name products are sold to the retail market, primarily to home centers, hardware cooperatives, food, automotive, drug and mass merchandising chains and catalog companies throughout the United States and Canada. Our customers include some of the fastest growing and the most widely respected retail chains in North America. Our market strategy is to provide a complete line of innovative, high-quality products along with superior customer service. 7 8 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 FOOD PACKAGING The Food Packaging segment of our business had revenues of $124.5 million (23.7% of total revenues) for the 12 months ended June 29, 2001. The Food Packaging group produces primarily thermoformed foam polystyrene packaging products such as egg cartons and processor trays for the poultry and meat industries. We believe that we are the leading manufacturer of egg cartons in the United States. We are 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. We sell these products through our direct sales force. Within the polystyrene foam processor tray market, we compete principally with two large competitors, both of which have significantly greater financial resources than ours and who, together, control the largest share of this market. In the egg packaging market, our primary competitor manufactures pulp-based egg cartons. We believe, that we compete effectively based on product quality and performance and prompt delivery. Our customer base includes most of the domestic egg packagers (including those owned by egg retailers) and many prominent poultry processors. SPECIALTY RESINS AND COMPOUNDS The Specialty Resins and Compounds segment of our business had revenues of $50.9 million (9.7% of total revenues) for the 12 months ended June 29, 2001. Specialty Vinyl Resins Tekni-Plex manufactures specialty vinyl resins, with an annual production capacity of 100 million pounds. We employ specialized technology to produce dispersion, blending, and copolymer suspension resins for use by suppliers to a variety of industries, including floor covering, automotive sealants and adhesives, coil coatings, plastisol compounding and vinyl packaging. We sell these products through our direct sales force as well as through independent sales representatives. We compete with a number of large chemical companies offering greater breadth of products. However, we believe that we are building a relatively unique position in the specialty resins market by offering customized products for niche markets that the larger producers do not serve. We provide 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 8 9 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. SALES, MARKETING AND CUSTOMERS Excluding customer service representatives, as of June 29, 2001, we had a total of 49 direct sales and marketing personnel covering both our domestic and international businesses. There were also commissioned independent sales representatives (not direct employees of Tekni-Plex) providing additional coverage. We estimate the average tenure among our ten largest customers at more than 17 years. Overall customer concentration is low with no customer accounting for more than 10% of total sales and the top ten customers generating less than 32% of sales for the 12 months ended June 29, 2001. MANUFACTURING As of June 29, 2001 we had strategically located manufacturing facilities throughout North America and Europe, totaling over 3,000,000 square feet of floor space. We utilize many proprietary material formulations throughout our operations. These formulations provide superior processing and end-product performance characteristics, giving us a competitive edge across many of our businesses. Typically, these proprietary material formulations are protected by trade secret, as opposed to patents which, we believe would be a less effective approach to maintaining our competitive edge. We utilize many proprietary, highly efficient manufacturing processes, developed by our own engineering staffs throughout our operations. These processes allow us to make products with superior dimensional tolerances at higher speeds with lower waste factors than our competitors. Our various business units routinely share technological information regarding process and material formulation improvements, and actively seek new synergistic applications for newly developed technologies throughout our company. RAW MATERIALS We purchase raw materials from several sources that differ for each product line. We use commodity petrochemicals, primarily polyvinyl chloride, polystyrene, vinyl chloride monomer, polypropylene and polyethylene. All of these materials are widely available from numerous sources and we currently purchase them from multiple suppliers. This diversity of raw material suppliers, as well as the availability of alternative suppliers, has the effect of reducing our overall risk related to any one supplier. In the past we have generally been able to pass on raw materials cost increases to customers on a relatively timely basis. The exception has been garden hose products, the prices for which are typically set annually in advance of each season. To the extent that raw material costs increase more than anticipated, these additional costs generally cannot be passed on during that season. Conversely, we benefit from any decrease in raw material costs after garden hose prices have been set for the upcoming selling season. INTELLECTUAL PROPERTY We primarily rely on confidentiality agreements contained in our employment applications and the restriction of access to our plants and confidential information to safeguard our proprietary technology. Although we also file and register patents and trademarks, we do not believe that any of our patents or trademarks is material to our operations. 9 10 EMPLOYEES As of June 29, 2001, the Company employed approximately 3,000 full-time employees. Approximately 28% of all employees are represented by various collective bargaining agreements that expire between June 2003 and June 2004. Item 2. FACILITIES 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 Food Packaging and Healthcare packaging 172,000 Auburn, Maine (5) 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 (5) Clayton, North Carolina Healthcare products 76,000 Clinton, Illinois Consumer packaging 62,500 Coppell, Texas (7) Executive Offices 3,125 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 (2) Specialty resins 50,000 Erembodegem Consumer packaging and 99,100 (Aalst), Belgium healthcare products Flemington, New Jersey Healthcare packaging 145,000 Lawrenceville, Georgia Food packaging 150,000 Lawrenceville, Georgia (1) Warehouse 31,700 Livonia, Michigan (4) Specialty resins 60,000 McKenzie, Tennessee Consumer products 20,000

10 11 Milan (Gaggiano), Italy (7) Consumer packaging 14,900 Milan (Gaggiano), Italy Consumer packaging 25,800 Milan (Rosate), Italy (3) Consumer packaging 24,000 Mississauga, Ontario (6) Consumer products 100,000 Mississauga, Ontario (5) Consumer Products 126,650 Piscataway, New Jersey (3) Compounds 150,000 Ridgefield, New Jersey Consumer products and 328,000 healthcare materials Ridgefield, New Jersey (3) 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 (3) Consumer products and 248,000 healthcare materials Tonawanda, New York (2) Consumer products 32,000 Waco, Texas Consumer products 104,600 Wenatchee, Washington Food packaging 97,000 Wenatchee, Washington (4) Warehouse 26,200 (Years relate to calendar years) (1) Leased on a month-to-month basis. (2) Lease expires in 2001. (3) Lease expires in 2002. (4) Lease expires in 2003. (5) Lease expires in 2004. (6) Lease expires in 2005. (7) Lease expires in 2006 (8) Lease expires in 2008. (9) Lease expires in 2019. ITEM 3. LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS We are regularly involved in legal proceedings arising in the ordinary course of business, none of which are currently expected to have a material adverse effect on our businesses, financial condition or results of operation. Like similar companies, our facilities, operations and properties are subject to foreign, federal, state, provincial and local laws and regulations relating to, among other things, emissions to air, discharges to water, the generation, handling, storage, transportation and disposal of hazardous and nonhazardous materials and wastes and 11 12 the health and safety of employees. We maintain a primary commitment to employee health and safety, and environmental responsibility. Our intention and policy are to be at all times a responsible corporate citizen. Our management includes a Director of Environmental Affairs who is responsible for compliance with all foreign, federal, state and local laws and regulations relating to the environment, and health and safety. This director performs internal auditing procedures and provides direction to all local facility managers in the compliance areas. The Director of Environmental Affairs and our President direct outside environmental counsel and outside environmental consulting firms to ensure that regulations are properly interpreted and reporting requirements are met. We are also subject to environmental laws requiring the investigation and cleanup of environmental contamination. Currently, we are remediating contamination resulting from past industrial activity at three of our New Jersey facilities which we acquired from PureTec in 1998. This remediation is being conducted pursuant to the requirements of New Jersey's Industrial Site Recovery Act which were triggered by the 1998 PureTec transaction. We believe that any costs ultimately borne by us in connection with this remediation would not be material. Although we believe that, based on historical experience, the costs of achieving and maintaining compliance with environmental laws and regulations are unlikely to have a material adverse effect on our business, financial condition or results of operations, it is possible that we could incur significant fines, penalties, capital costs or other liabilities associated with any confirmed noncompliance or remediation of contamination or natural resource damage liability at or related to any of our current or former facilities, the precise nature of which we cannot now predict. Furthermore, we cannot assure you that future environmental laws or regulations will not require substantial expenditures by us or significant modifications of our operations. 12 13 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, which appear elsewhere herein.

YEARS ENDED ----------- JUNE 27, JULY 3, JULY 2, JUNE 30, JUNE 29, 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- INCOME STATEMENT DATA: Net sales $ 148,501 $ 316,332 $ 507,314 $ 524,817 $ 525,837 Cost of goods sold 110,772 239,234 376,370 394,480 399,836 Gross profit 37,729 77,098 130,944 130,337 126,001 Selling, general and administrative expenses 15,886 39,220 62,534 58,343 60,999 Income from operations 21,843 37,878 68,410 71,994 65,002 Interest expense, net 8,094 19,682 38,977 38,447 76,569 Unrealized loss on derivative contracts -- -- -- -- (13,891) Other expense 646 415 286 4,705 605 Pre-tax income (loss) before extraordinary item 13,103 17,781 29,147 28,842 (26,063) Income tax provision (benefit) 4,675 9,112 14,150 14,436 (7,069) Income before extraordinary item 8,428 8,669 14,997 14,406 (18,994) Extraordinary item (loss)(b) (20,666) -- -- (35,374) -- Net income (loss) $ (12,238) $ 8,669 $ 14,997 $ (20,968) $ (18,994) BALANCE SHEET DATA (at period end): Working capital $ 25,950 $ 84,897 $ 101,445 $ 145,879 $ 199,129 Total Assets 129,029 539,279 559,436 574,789 621,494 Total debt (including current portion) 75,000 401,905 416,394 651,593 678,150 Stockholders' equity (deficit) 30,397 38,673 52,297 (149,150) (134,697) OTHER FINANCIAL DATA: EBITDA(a) $ 30,223 $ 54,479 $ 101,681 $ 100,527 $ 100,064 EBITDA margin(a) 20.4% 17.2% 20.0% 19.2% 19.0% Depreciation and amortization $ 9,551 $ 17,249 $ 35,343 $ 34,748 $ 37,670 Capital expenditures 3,934 7,283 12,950 16,258 17,116 Cash flows: From operations 19,537 29,009 38,794 9,485 (3,266) From investing (6,273) (310,672) (58,089) (16,905) (26,777) From financing (3,217) 299,926 12,057 (1,687) 62,180

(a) EBITDA is defined as earnings before interest, unrealized loss on derivative contracts, 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. (b) Net loss for the year ended June 27, 1997 includes an 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. 13 14 (c) Net loss for the year ended June 30, 2000 includes an extraordinary loss of approximately $35,374. The extraordinary loss is comprised of prepayment penalties and other interest costs of $39,303, the write - off of deferred financing costs of $16,696 and other fees of $1,325, net of a tax benefit of $21,950. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with the "Selected Historical Financial Information" and the Financial Statements included elsewhere in this Annual Report. The table below sets forth, for the periods indicated, selected operating data as a percentage of net sales. SELECTED FINANCIAL INFORMATION (PERCENTAGE OF NET SALES)

YEAR ENDED JULY 2, 1999 JUNE 30, 2000 JUNE 29, 2001 ------------ ------------- ------------- Net sales .................................. 100.0% 100.0% 100.0% Cost of sales .............................. 74.2 75.2 76.0 Gross profit ............................... 25.8 24.8 24.0 Selling, general and administrative expenses 12.3 11.1 11.6 Income from operations ..................... 13.5 13.7 12.4 Interest expense ........................... 7.7 7.3 14.6 Provision (Benefit) for income taxes ....... 2.8 2.8 (1.3) Income (loss) before extraordinary item .... 3.0 2.7 (5.0) Extraordinary item (loss) .................. -- (6.7) -- Net income (loss) .......................... 3.0 (4.0) (3.6) Depreciation and amortization .............. 7.0 6.6 7.2 EBITDA ..................................... 20.0 19.2 19.0

EBITDA is defined as earnings before interest, unrealized loss on derivative contracts, income taxes, depreciation and amortization. EBITDA is presented because it is a widely accepted financial indicator of a 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 our 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. YEAR ENDED JUNE 29, 2001 COMPARED TO YEAR ENDED JUNE 30 2000 Net Sales, increased to $525.8 million for the year ended June 29, 2001 from $524.8 million for the year ended June 30, 2000, representing an increase of $1.0 million or 0.2%. Sales increases in our Food and Consumer businesses were generally offset by weaker sales in our Healthcare and Specialty Resins businesses. Healthcare sales were down because of generally soft economic conditions and inventory de-stocking by some of our customers. Sales of our Specialty Resins segment were down as we continue to reposition this business in both markets and products. Cost of Goods Sold, increased to $399.8 million for the year ended June 29, 2001 from $394.5 million for the year ended June 30, 2000. Expressed as a percentage of Net Sales, Cost of Goods Sold increased to 76.0% for the year ended June 29, 2001 compared to 75.2% for the year ended June 30, 2000. The increase in Cost of Goods Sold as a 14 15 percentage of Net Sales was due primarily to raw material costs, which rose rapidly in the early part of the year before trending down over the remainder of the year. Gross Profit, as a result, fell to $126.0 million for the year ended June 29, 2001 from $130.3 million for the year ended June 30, 2000. The ratio of Gross Profit to Net Sales decreased to 24.0% for the year ended June 29, 2001 from 24.8% for the year ended June 30, 2000. Selling, General and Administrative Expenses, increased to $61.0 million for the year ended June 29, 2001 from $58.3 million for the year ended June 30, 2000, an increase of $2.7 million or 4.6%. This increase reflects general cost of living increases for our salaried personal as well as the Selling, General and Administrative expenses associated with our Super Plastics acquisition. The resultant ratio to Net Sales increased to 11.6% for the year ended June 29, 2001 from 11.1% for the year ended June 30, 2000. Operating Profit, as a result of the above, decreased to $65.0 million or 12.4% for the year ended June 29, 2001 from $72.0 million or 13.7% for the year ended June 30, 2000. Other Expenses, decreased to $0.6 million for the year ended June 29, 2001 from $4.7 million for the year ended June 29, 2000 primarily due to non-recurring expenses associated with the recapitalization. The year ended June 30, 2000 included approximately $4.0 million of non-recurring expenses associated with the recapitalization. Interest Expense, increased to $76.6 million for the fiscal year ending June 29, 2001 from $38.4 million for the fiscal year ending June 30, 2000 primarily due to increased debt associated with the recapitalization. The Company has also incurred an unrealized loss of $13.9 million from derivative contracts for the year ended June 29, 2001. The Company had no similar gains or losses for the year ended June 30, 2000. The ratio of the provision (benefit) for income taxes to income (loss) before income taxes was 27.1% for the year ended June 29, 2001 compared to 50.1% for the year ending June 30, 2000. The decrease in the effective rate for the year ended June 29, 2001 is due to non-deductible goodwill and other permanent differences in foreign subsidiaries. Net Income (loss), as a result, was a loss of ($19) million or (3.6%) of net sales for the fiscal year ending June 29, 2001 compared to a loss of ($21.0) million or (4.0%) of net sales after an extraordinary charge of ($35.4) million for the year ending June 30, 2000. Depreciation and Amortization Expense, increased to 37.7 million or 7.2% of net sales for the fiscal year ending June 29, 2001 from $34.7 million or 6.6% of net sales for the fiscal year ending June 30, 2000 due to increased depreciation and amortization expense primarily associated with our Super Plastics acquisition. EBITDA, decreased slightly to $100.1 million or 19.0% for the year ended June 29, 2001 from $100.5 million or 19.2% for the fiscal year ending June 30, 2000 for the same reasons discussed above. YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JULY 2, 1999 Net Sales, increased to $524.8 million for the year ended June 30, 2000 from $507.3 million for the year ended July 2, 1999, representing an increase of $17.5 million or 3.5%. The increased sales occurred primarily in the Company's Food Packaging business segment and in the European operations, which are accounted for in the Consumer Packaging and Products business segment. These increases were partially offset by decreases in the compounding business units within the Healthcare Packaging, Products and Materials business segment and in the Specialty Resins and Compounding business segment. Compounding sales in the Healthcare Packaging, Products and Materials segment are down because of scattered customer resistance to rapidly rising resin cost increases throughout the year and to the completion of the Company's program over the last several years to eliminate low profit sales. Sales were down in the Specialty Resins and Compounding business segment because the Burlington business segment was completely repositioned in both markets and products. In addition, sales growth was delayed in several business units that were merged and repositioned to emphasize national sales and marketing strategies rather than regional ones in the Healthcare Packaging, Products and Materials segment. Thus, the level of growth for the year ended June 30, 1999 may not be indicative of future operations. Cost of Goods Sold, increased to $394.5 million for the year ended June 30, 2000 from $376.4 million for the year ended July 2, 1999. Expressed as a percentage of net sales, cost of goods sold increased to 75.2% for the year ended June 30, 2000 from 74.2% for the year ended July 2, 1999. The increase in cost of goods sold as a 15 16 percentage of net sales was due primarily to resin costs, which rose rapidly throughout the year ended June 30, 2000. Several of the Company's business units were unable to pass on all resin cost increases fully and quickly. Of these, the Garden Hose business unit in the Consumer Packaging and Products business segment suffered the most because it could not pass on any of the resin cost increases due to the industry practice of fixing prices with customers in the summer of each year for a full model year. Gross Profit, as a result, stayed virtually the same in the fiscal year ended June 30, 2000 at $130.3 million versus $130.9 million in the fiscal year ended July 2, 1999. The ratio of gross profit to net sales decreased from 25.8% in fiscal year ended July 2, 1999 to 24.8% for the fiscal year ended June 30, 2000. Selling, General and Administrative Expenses, decreased to $58.3 million in the fiscal year ended June 30, 2000 from $62.5 million in the fiscal year July 2, 1999. The resultant ratios to net sales decreased from 12.3% to 11.1% respectively. Primary reasons for the reduction were a decrease in incentive compensation expenses and completion of the Company programs to integrate the acquisitions made in the fiscal year ended July 2, 1999 into Tekni-Plex's culture and operations. Operating Profit, as a result of the above, increased to $72.0 million or 13.7% of sales in fiscal year ended June 30, 2000 from $68.4 million or 13.5% for the fiscal year ended July 2, 1999. Other Expenses, in the fiscal year ended June 30, 2000 included non-recurring expenses of about $4.0 million incurred as a result of the Company's recapitalization program completed near the end of June, 2000. Interest Expense, was $38.4 million for the fiscal year ended June 30, 2000. This was virtually unchanged from the fiscal year ended July 2, 1999 when interest expense was $39.0 million as average monthly usage and the interest rate remained about the same in both years. Interest expense as a ratio to net sales declined in the fiscal year ended June 30, 2000 to 7.3% from 7.7% in the fiscal year ended July 2, 1999. The large increase in total debt at the end of the year ended June 30, 2000 from the debt at the end of July 2, 1999, as shown on the Company's Consolidated Balance Sheet, was incurred in late June of 2000 as a result of the Company's recapitalization thereby having little or no impact on interest expense for the year ending June 30, 2000. Extraordinary Expense Net of Income Tax, of $35.4 million in the fiscal year ended June 30, 2000 represented the costs of calling in the old debt to be replaced by new debt in the Company's recapitalization program. Provision for Income Taxes increased to $14.4 million in the fiscal year ended June 30, 2000, from $14.2 million in the fiscal year ended July 2, 1999. The ratio of the provision for income taxes to net sales remained constant at 2.8%. The Company's effective tax was 50.1% for the fiscal year ended June 30, 2000 compared with 48.5% for the fiscal year ended July 2, 1999. The difference between the two years was primarily a function of tax carryover credits in the fiscal year ending July 2, 1999, and a greater contribution to pretax income by the Company's European operations in the fiscal year ending June 30, 2000 than in the fiscal year ending July 2, 1999. Net Income, for the fiscal year ending June 30, 2000 showed a loss of ($20.9) million or (4.0%) of net sales due to the non-recurring costs of the recapitalization program totaling about $39.1 million. The Company showed a profit in the fiscal year ending July 2, 1999 of $15.0 million or 3.0% of net sales. Depreciation and Amortization decreased to $34.7 million for the year ended June 30, 2000 from $35.3 million for the year ended July 2, 1999. Expressed as a percentage of net sales, depreciation and amortization decreased to 6.6% for the year ended June 30, 2000 from 7.0% for the same period in 1999. EBITDA decreased to $100.5 million or 19.2% of net sales for the year ended June 30, 2000, from $101.7 million or 20.0% of net sales for the same period in 1999 for the same reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES For the year ended June 29, 2001, net cash used by operating activities was ($3.3) million compared to $9.5 million of cash provided by operating activities for the same period in the prior year for an increased usage of $12.8 16 17 million. The increase was due to higher inventories and receivables in our Consumer Segment to accommodate a shift in the buying patterns of this segment's largest customer and a reduction in accrued expenses and liabilities. Various year-over-year changes in operating assets, accrued expenses, and liabilities are generally due to offsetting timing differences. Working capital at June 29, 2001 was $199.1 million compared to $145.9 million at June 30, 2000. The increase was primarily to increased borrowings of $35 million and the capital contribution of $30 million which were invested in increased inventory. The inventory increase resulted from a shift in the buying pattern of our Consumer Segment's largest customer. Approximately 75% of the annual sales in garden hose, which is the largest business unit in that segment, normally occur in the spring and early summer months. As of June 29, 2001, we had an outstanding balance of $65.0 million under the $100.0 million revolving credit line of the existing credit facility. This was an increase of $35.0 million from the outstanding balance as of June 30, 2000 and was due primarily to normal seasonal requirements of our Consumer Packaging and Products business segment. In addition, as of June 29, 2001 we had $44.6 million of cash compared to $12.5 million of cash as of June 30, 2000. The $32.1 million increase in cash was largely due to new capital contributions. As of June 29, 2001, there was $35.0 million undrawn and available under the new revolving credit facility to fund ongoing general corporate and working capital requirements. In addition, as part of the recapitalization, our new equity investors agreed to contribute to Tekni-Plex Partners $269.6 million in the aggregate, of which $167.0 million has been contributed and used to purchase interests of certain previous Tekni-Plex investors and an additional $35.0 million was used to finance acquisitions, including the announced acquisition of Swan Hose. Tekni-Plex Management, the managing member of Tekni-Plex Partners, may for at least five years from the recapitalization call upon the remainder of the commitment, $67.6 million, for our future use for general corporate purposes, including acquisitions. Apart from acquisitions, our principal uses of cash will be debt service, capital expenditures and working capital requirements. Our capital expenditures for the year ended June 29, 2001 and June 30, 2000 were $17.1 million and $16.3 million, respectively. We expect that annual capital expenditures will increase somewhat from historical levels during the next few years as we make improvements in the recently acquired operations. Management believes that cash generated from operations plus funds from the new credit facility will be sufficient to meet our expected debt service requirements, planned capital expenditures and operating needs. However, we cannot assure you that sufficient funds will be available from operations or borrowings under the new credit facility to meet our anticipated cash needs. To the extent we pursue future acquisitions, we may be required to obtain additional financing. We cannot assure you that you will be able to obtain such financing in amounts and on terms acceptable to us. The terms of the notes and the new credit facility each include various covenants that limit our ability to incur additional debt. NEW ACCOUNTING PRONOUNCEMENTS Effective July 1, 2000, Tekni-Plex adopted Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended and interpreted. FAS 133 requires that all derivative instruments, such as interest rate swaps, be recognized in the financial statements and measured at their fair market value. Changes in the fair market value of derivative instruments are recognized each period in current operations or stockholders equity (as a component of accumulated other comprehensive loss), depending on whether a derivative instrument qualifies as a hedge transaction. In the normal course of business, Tekni-Plex is exposed to changes in interest rates. The objective in managing its exposure to interest rates is to decrease the volatility that changes in interest rates might have on operations and cash flows. To achieve this objective, Tekni-Plex uses interest rate swaps and caps to hedge a portion of total long-term debt that is subject to variable interest rates. These derivative contracts are considered to be a hedge against changes in the amount of future cash flows associated with the interest payments on variable-rate debt obligations however, they do not qualify for hedge accounting under FASB 133. Accordingly, the interest rate swaps are reflected at fair value in the Consolidated Balance Sheet and the related gains or losses on these contracts are recorded as an unrealized loss from derivative instruments in the Consolidated Statements of Operations. Currently these are the only derivative instruments held by Tekni-Plex as of June 29, 2001. The fair value of derivative contracts are determined based on quoted market values obtained from a third party. At July 1, 2000, there was no cumulative effect adjustment required to reflect the accounting change. As of July 1, 2000, Tekni-Plex had interest rate swap contracts to pay variable rates of interest based on a basket of LIBOR Benchmarks and receive variable rates of interest based on 3 month dollar LIBOR on an aggregate of $344 million amount of indebtedness with maturity dates ranging from June 2006 through June 2008. In conjunction with these swap contracts, Tekni-Plex also purchased an interest rate cap. The aggregate fair market value of these interest rate swaps contracts was $(13,891) on June 29, 2001 and is included in other liabilities on the Consolidated Balance Sheet. For the year ended June 29, 2001, Tekni-Plex incurred realized losses of $1,806, which have been reflected in interest expense. In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of June 29, 2001, the net carrying amount of goodwill is $179,100 and other intangible assets is $516. Amortization expense during the period ended June 29, 2001 was $15,400. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. INFLATION During the first half of fiscal year 2001, we contended with rising raw material prices. We believe we have generally been able to offset the effects thereof through continuing improvements in operating efficiencies and by increasing prices to our customers to the extent permitted by competitive factors. However, we cannot assure you that such cost increases can be passed through to our customers in the future or that the effects can be offset by further improvements in operating efficiencies. 17 18 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in the Company's financial instruments and positions represents the potential loss arising from adverse changes in interest rates. At June 29, 2001 and June 30, 2000 the principal amount of the Company's aggregate outstanding variable rate indebtedness was $401,560 and $374,000 respectively. A hypothetical 1% adverse change in interest rates would have had an annualized unfavorable impact of approximately $4,000 and $3,700, respectively, on the Company's earnings and cash flows based upon these year-end debt levels. To ameliorate these risks, in June 2000, the Company entered into interest rate Swap and Cap Agreements with a notional amount of $344,000. The specific terms of the Swap and Cap Agreements are more fully discussed above in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 18 19 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Our current directors and executive officers are listed below. Each director is elected at the annual meeting of the stockholders of Tekni-Plex to serve a one year term until the next annual meeting or until a successor is elected and qualified, or until his earlier resignation. Each executive officer holds his office until a successor is chosen and qualified or until his earlier resignation or removal. Pursuant to our by-laws, we indemnify our officers and directors to the fullest extent permitted by the General Corporation Law of the State of Delaware and our certificate of incorporation. The board of directors is composed of six directors. A nominating committee composed of Dr. Smith and Mr. Cronin designated two directors, Dr. Smith designated three members of management as directors (Dr. Smith, Mr. Baker and Mr. Witt and the last director was designated by Mr. Cronin). Directors may only be removed for cause or at the request of the person entitled to designate that director.

NAME AGE POSITION ---- --- -------- Dr. F. Patrick Smith 53 Chairman of the Board and Chief Executive Officer Kenneth W.R. Baker 57 President, Chief Operating Officer and Director Arthur P. Witt 71 Corporate Secretary and Director John S. Geer 55 Director J. Andrew McWethy 60 Director Michael F. Cronin 47 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. 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 Tekni-Plex in 1994. 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. John S. Geer has served as a director of Tekni-Plex since June 2000. He is a partner of Mellon Ventures, Inc., having joined Mellon in 1997. Previously, Mr. Geer was senior vice president of Security Pacific Capital Corp. He has served on 20 boards of directors of emerging growth and middle market companies. Andrew McWethy has served as a director of Tekni-Plex since March 1994. He co-founded and managed MST Partners L.P., a private equity investment fund, from 1989 to 2000. In 2000, Mr. McWethy co-founded Eastport Operating Partners, L.P., a private equity investment fund that he continues to manage. Prior to 1989, Mr. McWethy was employed by Irving Trust Company for 12 years. 19 20 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, each director is paid an annual fee of $50,000. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the remuneration paid by Tekni-Plex to the Chief Executive Officer and the 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, 2001 $5,000,000 $ -- -- $16,000 Chief Executive Officer 2000 1,200,000 4,622,100 -- 16,000 1999 1,200,000 8,981,000 -- 42,000 Mr. Kenneth W.R. Baker, 2001 $2,500,000 $ -- -- $ 9,000 President and Chief Operating 2000 600,000 2,311,050 -- 9,000 Officer 1999 600,000 4,490,000 -- 9,000

(a) Includes amounts reimbursed during the fiscal year for payment of taxes, auto expense, membership fees, etc. In connection with the recapitalization, the employment agreements of Dr. Smith and Mr. Baker were amended and restated as described below. 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 UNDER-LYING 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 -- --% -- -- -- --

20 21 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 -- -- -- -- / -- Kenneth W.R. Baker -- -- -- -- / --

EMPLOYMENT AGREEMENTS As part of the recapitalization, Dr. Smith and Mr. Baker entered into amended and restated employment agreements that currently expire July 2, 2004 and contain renewal provisions. Each employment agreement provides that the executive may be terminated by us for cause or upon death or disability of the executive. Each of Dr. Smith and Mr. Baker is entitled to severance benefits if he is terminated due to death or disability. The employment agreements also contain certain non-compete provisions. The annual salaries of Dr. Smith and Mr. Baker are $5 million and $2.5 million, respectively, and each of these salaries will be increased by 10% annually. Neither Dr. Smith's nor Mr. Baker's amended and restated employment agreement provides for any mandatory bonus compensation. No other provisions of Dr. Smith's and Mr. Baker's employment agreements changed materially. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The board of directors maintains a three-member compensation committee comprised of Dr. Smith, Mr. Witt and Mr. Cronin. The compensation committee's duties include the annual review and approval of the compensation for each of our Chief Executive Officer and President, as well as the administration of our stock incentive plan. No member of the compensation committee is allowed to vote on issues pertaining to that member's compensation (including option grants). The board may also delegate additional duties to the compensation committee in the future. Compensation levels and bonus awards for all other employees are controlled by Dr. Smith and Mr. Baker. COMPENSATION COMMITTEE The board of directors maintains a three-member compensation committee comprised of Dr. Smith, Mr. Witt and Mr. Cronin. The compensation committee's duties include the annual review and approval of the compensation for each of our Chief Executive Officer and President, as well as the administration of our stock incentive plan. No member of the compensation committee is allowed to vote on issues pertaining to that member's compensation (including option grants). The board may also delegate additional duties to the compensation committee in the future. COMPENSATION 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). 21 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Tekni-Plex Partners LLC holds approximately 95.6% (approximately 93.0% on a fully diluted basis) and MST/TP Partners LLC holds approximately 4.4% (approximately 4.2% on a fully diluted basis) of Tekni-Plex's outstanding common stock. Tekni-Plex Management LLC, controlled by Dr. Smith, is the sole managing member of both Tekni-Plex Partners LLC and MST/TP Partners LLC. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CONSULTING ARRANGEMENTS We have an arrangement with Arthur P. Witt, one of our directors and our corporate secretary, under which Mr. Witt provides us with customary management consulting services. Mr. Witt's compensation for consulting services rendered on our behalf was approximately $50,400 and $66,500 for fiscal years 2001 and 2000, respectively. Our policy is not to enter into any significant transaction with one of our affiliates unless a majority of the disinterested directors of the board of directors determines that the terms of the transaction are at least as favorable as those we could obtain in a comparable transaction made on an arm's-length basis with unaffiliated parties. This determination is made in the board's sole discretion. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements and Schedules The financial statements listed in the Index to Financial Statements under Part II, Item 8 and the financial statement schedules listed under Exhibit 27 are filed as part of this annual report. (a)(2) Financial Statement Schedule - Schedule II - Valuation and Qualifying Accounts (a)(3) Exhibits The exhibits listed on the Index to Exhibits following the Signature Page herein are filed as part of this annual report or by incorporation by reference from the documents there listed. (b) Reports on Form 8-K None 22 23 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: October 4, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Registrant and in the capacities indicated, on October 1, 2001.

SIGNATURE TITLE --------- ----- /s/ F. PATRICK SMITH Chairman of the Board and Chief Executive F. Patrick Smith Officer /s/ KENNETH W.R. BAKER President and Chief Operating Officer and Director Kenneth W.R. Baker /s/ ARTHUR P. WITT Corporate Secretary and Director Arthur P. Witt /s/ JOHN S. GEER Director John S. Geer /s/ J. ANDREW MCWETHY Director J. Andrew McWethy /s/ MICHAEL F. CRONIN Director Michael F. Cronin

24 TEKNI-PLEX, INC. CONTENTS ================================================================================ INDEPENDENT AUDITORS' REPORT F-2 CONSOLIDATED FINANCIAL STATEMENTS: Balance sheets F-3 Statements of operations F-4 Statements of comprehensive income (loss) F-5 Statements of stockholders' equity (deficit) F-6 Statements of cash flows F-7 Notes to financial statements F-8 - F-42 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE F-43 SUPPLEMENTAL SCHEDULE: Valuation and qualifying accounts and reserves F-44 F-1 25 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 June 29, 2001 and June 30, 2000, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 29, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tekni-Plex, Inc. and its wholly owned subsidiaries as of June 29, 2001 and June 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 29, 2001, in conformity with accounting principles generally accepted in the United States of America. BDO Seidman, LLP Woodbridge, New Jersey September 20, 2001, except for Note 6 for which the date is October 4, 2001 F-2 26 TEKNI-PLEX, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================

JUNE 29, 2001 June 30, 2000 --------------------------------------------------------------------------------------------- ASSETS CURRENT: Cash $ 44,645 $ 12,525 Accounts receivable, net of an allowance of $1,500 and $1,642 for possible losses 105,316 96,039 Inventories (Note 4) 106,258 91,233 Deferred income taxes (Note 7) 5,153 4,997 Refundable income taxes -- 14,883 Prepaid expenses and other current assets 5,595 2,171 --------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 266,967 221,848 PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 5) 137,008 135,926 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $62,271 AND $45,480 179,616 190,492 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $2,549 AND $0 16,607 18,897 DEFERRED INCOME TAXES (NOTE 7) 19,010 5,398 OTHER ASSETS 2,286 2,228 --------------------------------------------------------------------------------------------- $ 621,494 $ 574,789 ============================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long term debt (Note 6) $ 8,072 $ 8,401 Accounts payable trade 34,076 30,026 Accrued payroll and benefits 5,222 11,662 Accrued interest 1,673 2,359 Accrued liabilities - other 15,446 23,521 Income taxes payable 3,349 -- --------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 67,838 75,969 LONG-TERM DEBT (NOTE 6) 670,078 643,192 OTHER LIABILITIES 18,275 4,778 --------------------------------------------------------------------------------------------- TOTAL LIABILITIES 756,191 723,939 --------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTES 7, 8, 9 AND 11) STOCKHOLDERS' EQUITY (DEFICIT): Common stock, $.01 par value, authorized 20,000 shares, issued 848 at June 29, 2001 and June 30, 2000 -- -- Additional paid-in capital 120,176 84,176 Accumulated other comprehensive loss (7,039) (4,486) Accumulated deficit (27,372) (8,378) Less: Treasury stock at cost, 432 shares (Note 2) (220,462) (220,462) --------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (134,697) (149,150) --------------------------------------------------------------------------------------------- $ 621,494 $ 574,789 =============================================================================================

See accompanying notes to consolidated financial statements. F-3 27 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) ================================================================================

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ------------------------------------------------------------------------------------------ NET SALES $ 525,837 $ 524,817 $507,314 COST OF SALES 399,836 394,480 376,370 ------------------------------------------------------------------------------------------ GROSS PROFIT 126,001 130,337 130,944 OPERATING EXPENSES: Selling, general and administrative 60,999 58,343 62,534 ------------------------------------------------------------------------------------------ INCOME FROM OPERATIONS 65,002 71,994 68,410 OTHER EXPENSES: Interest, net 76,569 38,447 38,977 Unrealized loss on derivative contracts (Note 1) 13,891 -- -- Other (Note 9) 605 4,705 286 ------------------------------------------------------------------------------------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM (26,063) 28,842 29,147 PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 7): Current 4,098 12,333 7,004 Deferred (11,167) 2,103 7,146 ------------------------------------------------------------------------------------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (18,994) 14,406 14,997 EXTRAORDINARY ITEM, NET OF INCOME TAXES (NOTE 2) -- (35,374) -- ------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ (18,994) $ (20,968) $ 14,997 ==========================================================================================

See accompanying notes to consolidated financial statements. F-4 28 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (DOLLARS IN THOUSANDS) ================================================================================

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ---------------------------------------------------------------------------------- NET INCOME (LOSS) $(18,994) $(20,968) $ 14,997 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES: Foreign currency translation (2,553) (3,118) (1,373) ---------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $(21,547) $(24,086) $ 13,624 ==================================================================================

See accompanying notes to consolidated financial statements. F-5 29 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS) ================================================================================

Accumulated Additional Other Common Paid-In Comprehensive Accumulated Treasury stock Capital Loss deficit Stock TOTAL -------------------------------------------------------------------------------------------------------------- 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 Foreign currency translation -- -- (3,118) -- -- (3,118) Net loss -- -- -- (20,968) -- (20,968) Purchase of treasury stock -- -- -- -- (220,462) (220,462) Capital contribution -- 43,101 -- -- -- 43,101 -------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 2000 -- 84,176 (4,486) (8,378) (220,462) (149,150) Foreign currency translation -- -- (2,553) -- -- (2,553) Net loss -- -- -- (18,994) -- (18,994) Capital contributions -- 36,000 -- -- -- 36,000 -------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 29, 2001 $ -- $120,176 $(7,039) $(27,372) $(220,462) $(134,697) ==============================================================================================================

See accompanying notes to consolidated financial statements. F-6 30 TEKNI-PLEX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) ================================================================================

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(18,994) $ (20,968) $ 14,997 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 18,741 16,026 16,930 Amortization 18,929 18,722 18,413 Unrealized loss on derivative contracts 13,891 Provision for bad debts 250 310 370 Deferred income taxes (11,167) 2,103 7,146 Loss on sale of assets -- 62 -- Extraordinary loss on extinguishment of debt -- 35,374 -- Changes in assets and liabilities, net of acquisitions: Accounts receivable (9,527) 186 (5,709) Inventories (11,019) (29,243) (4,778) Prepaid expenses and other current assets 8,859 4,898 (1,483) Other assets (58) 205 (532) Accounts payable and other current liabilities 2,713 (15,994) (4,859) Income taxes payable 3,349 (742) (1,701) Other liabilities (19,233) (1,454) -- ------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,266) 9,485 38,794 ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of net assets including acquisition costs, net of cash acquired (9,233) -- (45,139) Capital expenditures (17,116) (16,258) (12,950) Additions to intangibles (428) (805) -- Cash proceeds from sale of assets -- 158 -- ------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (26,777) (16,905) (58,089) ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line of credit 35,000 (2,030) 22,234 Proceeds from long-term debt -- 645,232 -- Repayments of long-term debt (8,820) (448,631) (10,177) Proceeds from capital contributions 36,000 43,101 -- Debt financing costs -- (18,897) -- Purchase of treasury stock -- (220,462) -- ------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 62,180 (1,687) 12,057 ------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (17) (485) (8) ------------------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH 32,120 (9,592) (7,246) CASH, BEGINNING OF PERIOD 12,525 22,117 29,363 ------------------------------------------------------------------------------------------------------------- CASH, END OF PERIOD $ 44,645 $ 12,525 $ 22,117 =============================================================================================================

See accompanying notes to consolidated financial statements. F-7 31 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ 1. SUMMARY OF ACCOUNTING POLICIES Nature of Business Tekni-Plex, Inc. ("Tekni-Plex" or the "Company") 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 primarily on the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Repairs and maintenance are charged to expense as incurred. Intangible Assets The Company amortizes the excess of cost over the fair value of net assets acquired on a straight-line basis over 15 years, and the cost of acquiring certain patents and trademarks, over seventeen and ten years, respectively. Recoverability is evaluated periodically based on the expected undiscounted net cash flows of the related businesses. F-8 32 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ Deferred Financing Costs The Company amortizes the deferred financing costs incurred in connection with the Company's borrowings over the life of the related indebtedness (5-10 years). Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Deferred income tax assets and liabilities are recognized for differences between the financial statement and income tax basis of assets and liabilities based upon statutory rates enacted for future periods. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Revenue Recognition The Company recognizes revenue when goods are shipped to customers. The Company provides for returned goods and volume rebates on an estimated basis. Shipping and Handling Costs During fiscal year 2001, the Company adopted EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." Shipping and handling costs of $19,400 were charged to cost of sales for the year ended June 29, 2001. In prior years these costs were recorded as a reduction to sales. The 2000 and 1999 sales and cost of sales were reclassified by $18,000 and $18,100, respectively to reflect the adoption of EITF 00-10. Cash Equivalents The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Fiscal Year-End The Company utilizes a 52/53 week fiscal year ending on the Friday closest to June 30. The years ended June 29, 2001, June 30, 2000 and July 2, 1999 contained 52 weeks each. Reclassifications Certain items in the prior year financial statements have been reclassified to conform to the current year presentation. F-9 33 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 year end 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 June 29, 2001. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. F-10 34 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ Derivative Instruments Effective July 1, 2000, Tekni-Plex adopted Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. FAS 133 requires that all derivative instruments, such as interest rate swaps, be recognized in the financial statements and measured at their fair market value. Changes in the fair market value of derivative instruments are recognized each period in current operations or stockholders' equity (as a component of accumulated other comprehensive loss), depending on whether a derivative instrument qualifies as a hedge transaction. In the normal course of business, Tekni-Plex is exposed to changes in interest rates. The objective in managing its exposure to interest rates is to decrease the volatility that changes in interest rates might have on operations and cash flows. To achieve this objective, Tekni-Plex uses interest rate swaps and caps to hedge a portion of total long-term debt that is subject to variable interest rates. These derivative contracts are considered to be a hedge against changes in the amount of future cash flows associated with the interest payments on variable-rate debt obligations however, they do not qualify for hedge accounting under FASB 133. Accordingly, the interest rate swaps are reflected at fair value in the Consolidated Balance Sheet and the related gains or losses on these contracts are recorded as an unrealized loss from derivative instruments in the Consolidated Statements of Operations. Currently these are the only derivative instruments held by Tekni-Plex as of June 29, 2001. The fair value of derivative contracts are determined based on quoted market values obtained from a third party. At July 1, 2000, there was no cumulative effect adjustment required to reflect the accounting change. As of July 1, 2000, Tekni-Plex had interest swap contracts to pay variable rates of interest based on a basket of LIBOR Benchmarks and receive variable rates of interest based on a 3 month dollar LIBOR on an aggregate of $344 million amount of indebtedness with maturity dates ranging from June 2006 through June 2008. In conjunction with these swap contracts, Tekni-Plex also purchased an interest rate cap. The aggregate fair market value of these interest rate swap and cap contracts was $(13,891) on June 29, 2001 and is included in other liabilities on the Consolidated Balance Sheet. For the year ended June 29, 2001, Tekni-Plex incurred realized losses of $1,806, which have been reflected in interest expense. F-11 35 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of June 29, 2001, the net carrying amount of goodwill is $179,100 and other intangible assets is $6,516. Amortization expense during the period ended June 29, 2001 was $15,400. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SAFS 142 will impact its financial position and results of operations. 2. RECAPITALIZATION In June 2000, the Company entered into a Recapitalization (the "Recapitalization") with certain of its stockholders, whereby the Company purchased approximately 51% of the outstanding stock for approximately $220,500 including related transaction fees. This stock has been reflected as treasury stock in the accompanying balance sheet. As a result of provisions in the Company's Senior Debt and Subordinated Note Agreements, the Company redeemed it's $200,000 9-1/4% Senior Subordinated Notes, its $75,000 11-1/4% Senior Subordinated Notes and repaid its Senior Debt in the amount of approximately $153,000. These transactions resulted in an extraordinary loss on the extinguishment of debt of approximately $35,374. The extraordinary loss is comprised of prepayment penalties and other interest costs of $39,303, the write-off of deferred financing costs of $16,696 and other fees of $1,325, net of a tax benefit of $21,950. These transactions were funded by $43,101 of new equity, $275,000 12-3/4% Senior Subordinated Notes (see Note 6(b)) and initial borrowings of $374,000 on a $444,000 Senior Credit Facility (see Note 6(a)). F-12 36 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ 3. ACQUISITIONS In November 2000, the Company purchased certain assets of Super Plastics Division ("Super Plastics") of RCR International, Inc., for approximately $10,200. The acquisition was recorded under the purchase method, whereby Super Plastics' net assets were recorded at estimated fair value and its operations have been reflected in the statement of operations since that date. As a result of the acquisition, goodwill of approximately $5,500 has been recorded, which is being amortized over 15 years. In connection with the acquisition, the Company established a reserve of $2,600. The reserve was comprised of the costs to close a duplicate facility and terminate employees. There is no balance remaining in this reserve at June 29, 2001. Proforma results of operations, assuming Super Plastics was acquired on July 3, 1999, would not be materially different from the consolidated results of operations. In April 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, whereby Natvar's net assets were recorded at estimated fair value and its operations have been reflected in the statement of operations since that date. As a result of the acquisition, goodwill of approximately $19,786 has been recorded, which is being amortized over 15 years. In January 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 $13,848 has been recorded, which is being amortized over 15 years. F-13 37 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ The following table presents the unaudited pro forma results of operations as though the acquisition of Tri-Seal and Natvar occurred on July 4, 1998:

Years ended JULY 2, 1999 -------------------------------------------------------------------------------- Net sales $510,050 Income from operations 70,691 Income before provision for income taxes 31,211 ================================================================================

4. INVENTORIES Inventories are summarized as follows:

JUNE 29, 2001 June 30, 2000 -------------------------------------------------------------------------------- Raw materials $ 33,971 $44,002 Work-in-process 7,812 7,024 Finished goods 64,475 40,207 -------------------------------------------------------------------------------- $106,258 $91,233 ================================================================================

5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:

Estimated JUNE 29, 2001 June 30, 2000 useful lives -------------------------------------------------------------------------------- Land $ 15,390 $ 15,106 Building and improvements 34,886 32,016 30 - 40 years Machinery and equipment 139,591 124,549 5 - 10 years Furniture and fixtures 6,176 4,045 5 - 10 years Construction in progress 10,115 10,009 -------------------------------------------------------------------------------- 206,158 185,725 Less: Accumulated depreciation 69,150 49,799 -------------------------------------------------------------------------------- $137,008 $135,926 ================================================================================

F-14 38 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ================================================================================ 6. LONG-TERM DEBT Long-term debt consists of the following:

JUNE 29, 2001 June 30, 2000 -------------------------------------------------------------------------------- Senior Debt(a): Revolving line of credit $ 65,000 $ 30,000 Term notes 336,560 344,000 Senior Subordinated Notes issued June 21, 2000 at 12-3/4%, due June 15, 2010 (less unamortized discount of $3,391 and $3,768)(b). 271,609 271,232 Other, primarily foreign term loans, with interest rates ranging from 4.44% to 5.44% and maturities from 2000 to 2010. 4,981 6,361 -------------------------------------------------------------------------------- 678,150 651,593 Less: Current maturities 8,072 8,401 -------------------------------------------------------------------------------- $670,078 $643,192 ================================================================================

a) Senior Debt The Company has a Senior Debt agreement, which includes a $100,000 revolving credit agreement, and two term loans in the original amount of $344,000. The proceeds of the credit agreement were used as part of the Recapitalization. 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. On October 2, 2001, the Company's Senior Debt agreement was amended to retroactively modify certain financial covenants effective June 29, 2001 and thereafter. The Company is in compliance with all such financial covenants, as amended. F-15 39 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Revolving Credit Agreement Borrowings under the agreement may be used for general corporate purposes and $35,000 is available for borrowing at June 29, 2001. Interest, at the Company's option, is charged at the Prime Rate, plus the Applicable Base Rate (initially 2%) or the Adjusted LIBOR Rate, as defined, plus the Applicable Euro-Dollar Margin (initially 3%). 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 June 29, 2001 the balance of $65,000 outstanding was borrowed at various rates ranging from 6.75% to 8.75%. At June 30, 2000, the rates charged were 9.69% on $25,000 and 11.5% on $5,000. The Revolving Credit Agreement expires in June 2006. Term Loan A Borrowings under this loan, in the original amount of $100,000, were used in connection with the Recapitalization. Interest is payable quarterly at the same rates and margins discussed above under the Revolving Credit Agreement, 7.5% and 9.81% at June 29, 2001 and June 30, 2000, respectively. Principal is currently payable in quarterly installments of $1,250. The quarterly installments subsequently increase with payments totaling $70,000 due in the final two years in the period ending in June 2006. Term Loan B Borrowings under this loan in the original amount of $244,000 were used in connection with the Recapitalization. Interest is payable quarterly at the same rate discussed above, except the Applicable Base Rate is initially 2.5% and the Applicable Euro-Dollar Margin is initially 3.5%. Rates of 7.25% and 10.31% were charged at June 29, 2001 and June 30, 2000, respectively. In addition, the Applicable Base Rate and Applicable Euro-Dollar Margin can be reduced by .5% based on the maintenance of certain leverage ratios. Principal is currently payable in quarterly installments of $610. The quarterly installments subsequently increase with payments totaling $229,000 due in the final two years in the period ending in June 2008. F-16 40 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) b) Senior Subordinated Notes Issued June 2000 In June 2000, the Company issued $275,000 of 12 -3/4% ten year Senior Subordinated Notes less a discount of $3,768, the proceeds of which were used in connection with the Recapitalization. The discount is being amortized over the term of the notes on the interest method. Interest is payable semi-annually and the notes are unsecured obligations and rank subordinate to existing and future senior debt, including current term loans and revolving credit facilities. The notes are callable by the Company after June 15, 2005 at a premium of 6.375%, which decreases to par after June 2008. In addition, prior to June 15, 2003, the Company may call up to 35% of the principal amount of the notes outstanding with proceeds from one or more public offerings of the Company's Capital Stock at a premium of 12.75%. Upon a change in control, the Company is required to make an offer to repurchase the notes at 101% of the principal amount. These notes also contain various covenants including a limitation on future indebtedness; limitation of payments, including prohibiting the payment of dividends; and limitations on mergers, consolidations and the sale of assets. Principal payments on long-term debt over the next five years and thereafter are as follows:

------------------------------------------- 2002 $ 8,072 2003 12,913 2004 12,913 2005 37,913 2006 102,913 Thereafter 506,817 ===========================================

F-17 41 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The Company believes the recorded value of long-term debt approximates fair value based on current rates available to the Company for similar debt. 7. INCOME TAXES The provision for income taxes , excluding the income tax benefit associated with the extraordinary item in 2000, is summarized as follows:

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ------------------------------------------------------------------------------------ Current: Federal $ -- $ 7,763 $ 3,604 Foreign 3,984 3,554 2,900 State and local 114 1,016 500 ------------------------------------------------------------------------------------ 4,098 12,333 7,004 ------------------------------------------------------------------------------------ Deferred: Federal (9,945) 1,756 5,918 Foreign (370) 217 328 State and local (852) 130 900 ------------------------------------------------------------------------------------ (11,167) 2,103 7,146 ------------------------------------------------------------------------------------ Provision (benefit) for income taxes $ (7,069) $ 14,436 $ 14,150 ====================================================================================

The components of income (loss) before income taxes are as follows:

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 -------------------------------------------------------- Domestic $(38,116) $ 20,150 $ 21,198 Foreign 12,053 8,692 7,949 -------------------------------------------------------- $(26,063) $ 28,842 $ 29,147 ========================================================

F-18 42 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The provision (benefit) for income taxes differs from the amounts computed by applying the applicable Federal statutory rates due to the following:

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 -------------------------------------------------------------------------------------- Provision (benefit) for Federal income taxes at statutory rate $ (8,861) $ 9,806 $ 9,910 State and local income taxes, net of Federal benefit (677) 756 330 Non-deductible goodwill amortization 2,785 2,310 3,765 Foreign tax rates in excess of Federal tax rate (470) 785 465 Other, net 154 779 (320) -------------------------------------------------------------------------------------- Provision (benefit) for income taxes $ (7,069) $ 14,436 $ 14,150 ======================================================================================

Significant components of the Company's deferred tax assets and liabilities are as follows:

JUNE 29, 2001 June 30, 2000 -------------------------------------------------------------------------------- Current deferred taxes: Allowance for doubtful accounts $ 582 $ 637 Inventory 1,190 309 Net operating loss carryforwards 3,201 -- Accrued expenses 180 4,051 -------------------------------------------------------------------------------- Total current deferred tax assets $ 5,153 $ 4,997 ================================================================================ Long-term deferred taxes: Net operating loss carryforwards $ 39,593 $ 29,997 Accrued pension and post-retirement 1,457 1,434 Accrued expenses 620 1,108 Unrealized loss on derivative contracts 5,360 -- Difference in book vs. tax basis of assets (3,028) (4,556) Accelerated tax vs. book depreciation (19,292) (16,885) -------------------------------------------------------------------------------- Total long-term net deferred tax assets 24,710 11,098 Valuation allowance (5,700) (5,700) -------------------------------------------------------------------------------- Total long-term net deferred tax assets $ 19,010 $ 5,398 ================================================================================

F-19 43 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Net Operating Losses The Company and its U.S. subsidiaries file a consolidated tax return. The Company and its U.S. subsidiaries have net operating loss ("NOL") carryforwards of approximately $106,578. These NOL's expire at various dates from 2009 through 2021. $86,166 of the NOL's are as a result of the acquisition of PureTec in 1997 (the "PureTec NOL's"). The PureTec NOL's are subject to IRC Section 382 change of ownership annual limitation of approximately $5,900. In addition to the domestic NOL balances, the Company has incurred losses relating to a subsidiary, taxable in Northern Ireland. Through fiscal 2001 losses aggregated $2,500 which have no expiration date. The Company believes that it is more likely than not that this deferred tax asset will not be realized and has recorded a full valuation allowance on these amounts. In addition, the net long-term domestic deferred tax assets have been subjected to a valuation allowance since management believes it is more likely than not that a portion of the (NOL) balance will not be realized as a result of the various limitations on their usage, discussed above. The domestic net operating losses are subject to matters discussed above and are subject to change due to the restructuring 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. 8. EMPLOYEE BENEFIT PLANS (a) Savings Plans i. The Company had a defined contribution profit sharing plan for the benefit of all employees having completed one year of service with its Dolco Division ("Dolco"). The Company contributed 3% of compensation for each participant and a matching contribution of up to 1% when an employee contributed 3% compensation. Contributions totaled approximately $727 for the year ended July 2, 1999. F-20 44 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ii. Additionally, the Company had a savings plan for all employees of two wholly-owned subsidiaries who are not covered under a collective bargaining agreement. The two subsidiaries are Plastic Specialties & Technology, Inc. ("PST") and Burlington Resins, Inc. ("Burlington"). Under the savings plan, the Company matched each eligible employees' contribution up to 3% of the employees' earnings. Such contributions amounted to approximately $362 for the year ended July 2, 1999. iii. The Company maintains a discretionary 401(k) plan covering all eligible employees, excluding those employed by Dolco and PureTec, with at least one year of service. Contributions to the plan were determined annually by the Board of Directors. There were no contributions for year ended July 2, 1999. Effective December 1, 1999 the Dolco, PST and Burlington plans were merged into this plan. The Company will determine matching contributions to the plan each year not to exceed 2% of the employee's eligible compensation. Contributions for the fiscal years ended June 29, 2001 and June 30, 2000 amounted to approximately $863 and $996, respectively. F-21 45 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) (b) Pension Plans i. The Company's Burlington subsidiary has a non-contributory defined benefit pension plan that covers substantially all hourly compensated employees covered by a collective bargaining agreement, who have completed one year of service. The funding policy of the Company is to make contributions to this plan based on actuarial computations of the minimum required contribution for the plan year. The components of net periodic pension costs are as follows:

YEAR ENDED JUNE 29, Year ended June 30, 2001 2000 ------------------------------------------------------------------------------------------------------------ Service cost $ 105 $ 117 Interest cost on projected benefit obligation 393 390 Expected actual return on plan assets (494) (492) ------------------------------------------------------------------------------------------------------------ Net pension cost $ 4 $ 15 ============================================================================================================ CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period $ 5,334 $ 5,292 Service cost 105 117 Interest cost 393 390 Actuarial (gain) loss 38 (230) Benefits paid (270) (235) ------------------------------------------------------------------------------------------------------------ Projected benefit obligation, end of period $ 5,600 $ 5,334 ============================================================================================================ CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period $ 5,550 $ 5,431 Actual return on plan assets 3 158 Company contributions 157 196 Benefits paid (270) (235) ------------------------------------------------------------------------------------------------------------ Plan assets at fair value, end of period $ 5,440 $ 5,550 ============================================================================================================

F-22 46 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:

JUNE 29, 2001 June 30, 2000 -------------------------------------------------------- Funded status of the plan $(160) $ 216 Unrecognized net gain 676 147 -------------------------------------------------------- Prepaid pension cost $ 516 $ 363 ========================================================

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 June 29, 2001 and June 30, 2000. ii. The Company maintains a non-contributory defined benefit pension plan that covers substantially all non-collective bargaining unit employees of PST and Burlington, who have completed one year of service and are not participants in any other pension plan. The funding policy of the Company is to make contributions to the plan based on actuarial computations of the minimum required contribution for the plan year. On September 8, 1998, the Company approved a plan to freeze this defined benefit pension plan effective September 30, 1998, resulting in a curtailment gain of $576.

YEAR ENDED JUNE 29, Year ended June 30, 2001 2000 ------------------------------------------------------------------------------- Service cost $ -- $ -- Interest cost on projected benefit obligation 750 704 Expected actual return on plan assets (978) (986) ------------------------------------------------------------------------------- Net pension cost $(228) $(282) ===============================================================================

F-23 47 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

YEAR ENDED Year ended JUNE 29, 2001 June 30, 2000 ---------------------------------------------------------------------------- CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period $ 9,978 $ 9,555 Interest cost 750 704 Actuarial (gain) loss 204 146 Benefits paid (431) (427) ---------------------------------------------------------------------------- Projected benefit obligation, end of period $ 10,501 $ 9,978 ============================================================================ CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period $ 11,055 $ 11,113 Actual return on plan assets (79) 369 Benefits paid (431) (427) ---------------------------------------------------------------------------- Plan assets at fair value, end of period $ 10,545 $ 11,055 ============================================================================

The funded status of the Plan and amounts recorded in the Company's balance sheets are as follows:

JUNE 29, 2001 June 30, 2000 -------------------------------------------------------------- Funded status of the plan $ 44 $1,077 Unrecognized net gain (loss) 1,557 296 -------------------------------------------------------------- Prepaid pension cost $1,601 $1,373 ==============================================================

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 June 29, 2001 and June 30, 2000. F-24 48 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) iii. The Company also has a defined benefit pension plan for the benefit of all employees having completed one year of service with Dolco. The Company's policy is to fund the minimum amounts required by applicable regulations. Dolco's Board of Directors approved a plan to freeze the pension plan on June 30, 1987, at which time benefits ceased to accrue. The Company has not been required to contribute to the plan since 1990. (c) Post-retirement Benefits In addition to providing pension benefits, the Company also sponsors the Burlington Retiree Welfare Plan, which provides certain healthcare benefits for retired employees of the Burlington division who were employed on an hourly basis, covered under a collective bargaining agreement and retired prior to July 31, 1997. Those employees and their families became eligible for these benefits after the employee completed five years of service, if retiring at age fifty-five, or at age sixty-five, the normal retirement age. Post retirement healthcare benefits paid for the years ended June 29, 2001 and June 30, 2000 amounted to $182 and $130, respectively. F-25 49 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 Year ended JUNE 29, 2001 June 30, 2000 --------------------------------------------------------------------------------- Service cost $ 45 $ 45 Interest cost 179 155 Transition obligation 4 -- --------------------------------------------------------------------------------- Net post-retirement benefit cost $ 228 $ 200 ================================================================================= CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, beginning of period $ 2,457 $ 2,101 Service cost 45 45 Interest cost 179 155 Actuarial (gain) loss 348 286 Benefits paid (182) (130) --------------------------------------------------------------------------------- Projected benefit obligation, end of period $ 2,847 $ 2,457 ================================================================================= CHANGE IN PLAN ASSETS Plan assets at fair value, beginning of period $ -- $ -- Company contributions 182 130 Benefits paid (182) (130) --------------------------------------------------------------------------------- Plan assets at fair value, end of period $ -- $ -- =================================================================================

F-26 50 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:

YEAR ENDED Year ended JUNE 29, 2001 June 30, 2000 ---------------------------------------------------------------- Funded status of the plan $(2,847) $(2,457) Unrecognized gain (loss) 630 286 ---------------------------------------------------------------- Accrued post retirement cost $(2,217) $(2,171) ================================================================

The accumulated post-retirement benefit obligation was deter-mined 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 $295 and $254 and increase the service and interest components by $27 and $26 at June 29, 2001 and June 30, 2000, respectively. 9. RELATED PARTY TRANSACTIONS The Company had a management consulting agreement with an affiliate of a stockholder. The terms of the agreement required the Company to pay a fee of approximately $30 per month for a period of ten years, with certain renewal provisions. Consulting service fees were approximately $400 for the year ending July 2, 1999. In June 2000 the Company agreed to terminate the management consulting agreement at a cost of $3,651 which has been included in other income/expense. F-27 51 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 10. STOCK OPTIONS In January 1998, the Company adopted an incentive stock plan (the "Stock Incentive Plan"). Under the Stock Incentive Plan, 41.72948 shares are available for awards to employees of the Company. Options will be granted at fair market value on the date of grant. During 2001, 2000, 1999 and 1998, options were granted to purchase 4.02, 1.26, 7.32 and 28.37 shares of common stock at an exercise price of $559, $507, $222 and $154 per share, respectively. The options are subject to vesting provisions, as determined by the Board of Directors, at date of grant and generally vest 100% five years from grant date and expire 10 years from date of grant. In connection with the Recapitalization 22.88 of the 1998 options were cancelled. At June 29, 2001, no options were exercisable and no options have been exercised or forfeited as of June 29, 2001. The Company applies APB Opinion 25 and related interpretations in accounting for these options. Accordingly, no compensation cost has been recognized. Had compensation cost been determined based on the fair value at the grant dates for these awards consistent with the method of SFAS Statement 123, the Company's income (loss) before extraordinary items would have been reduced (increased) to the pro forma amounts indicated below. The calculations were based on a risk free interest rate of 4.0%, 5.7% and 4.75% for the 2001, 2000 and 1999 options, respectively, expected volatility of zero, a dividend yield of zero and expected lives of 8 years.

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ---------------------------------------------------------------------------------------- Income (loss) before extraordinary item: As reported $(18,994) $ 14,406 $ 14,997 ======================================================================================== Pro forma $(19,154) $ 14,343 $ 14,868 ========================================================================================

F-28 52 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 11. COMMITMENTS AND CONTINGENCIES Commitments (a) The Company leases building space and certain equipment in approximately 20 locations throughout the United States, Canada and Europe. At June 29, 2001, the Company's future minimum lease payments are as follows:

----------------------------------------------------------------------------------- 2002 $ 4,423 2003 2,504 2004 1,796 2005 1,171 2006 782 Thereafter 5,900 ----------------------------------------------------------------------------------- $16,576 ===================================================================================

Rent expense, including escalation charges, amounted to approximately $4,308, $3,427 and $3,756 for the years ended June 29, 2001, June 30, 2000 and July 2, 1999, respectively. (b) The Company had employment contracts with two employees, which provided for combined minimum salaries of $1,800 and bonuses based on performance and was scheduled to expire in June 2002. Combined salaries and bonuses for the year ended July 2, 1999 under these contracts were $15,271. As part of the Recapitalization, the above employment agreements were amended and restated on June 21, 2000, providing minimum salaries of $7,500 with no mandatory bonuses. The salaries will increase 10% annually until the agreements expire on July 2, 2004. Salaries and bonuses for the year ended June 29, 2001 were $7,500 and for the year ended June 30, 2000 were $8,733. Contingencies (a) The Company is a party to various other legal proceedings arising in the normal conduct of business. Management believes that the final outcome of these proceedings will not have a material adverse effect on the Company's financial position. F-29 53 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 12. CONCENTRATIONS OF CREDIT RISKS Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposits and trade accounts receivable. The Company provides credit to customers on an unsecured basis after evaluating customer credit worthiness. Since the Company sells to a broad range of customers, concentrations of credit risk are limited. The Company provides an allowance for bad debts where there is a possibility for loss. The Company maintains demand deposits at several major banks throughout the United States. As part of its cash management process, the Company periodically reviews the credit standing of these banks. 13. SUPPLEMENTAL CASH FLOW INFORMATION (a) Cash Paid

Years ended JUNE 29, 2001 June 30, 2000 July 2, 1999 ------------------------------------------------------------------ Interest $ 74,568 $102,359 $ 37,376 ================================================================== Income taxes $ 1,661 $ 7,540 $ 10,185 ==================================================================

(b) Non-Cash Financing and Investing Activities The Company purchased certain assets of RCR International, Inc. effective November 2000, for approximately $10,226 in cash. In conjunction with the acquisition, liabilities were assumed as follows:

---------------------------------------------- Fair value of assets acquired $ 7,314 Goodwill 5,558 Purchase price (10,226) ---------------------------------------------- Liabilities assumed $ 2,646 ==============================================

F-30 54 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The Company purchased certain assets and assumed certain liabilities of High Voltage, effective April 1999, for approximately $26,169 in cash. In conjunction with the acquisition, liabilities were assumed as follows:

---------------------------------------------- Fair value of assets acquired $ 7,513 Goodwill 19,786 Cash paid (26,169) ---------------------------------------------- Liabilities assumed $ 1,130 ==============================================

The Company purchased certain assets and assumed certain liabilities of Tri-Seal, effective January 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 13,848 Cash paid (21,272) ---------------------------------------------- Liabilities assumed $ 3,976 ==============================================

14. 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. F-31 55 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Healthcare Packaging, Consumer Specialty Products and Packaging Food Resins and June 29, 2001 Materials and Products Packaging Compounds TOTALS ------------------------------------------------------------------------------------------------------ Revenues from external customers $148,363 $202,038 $124,526 $ 50,910 $525,837 Interest expense 24,029 23,644 18,215 10,681 76,569 Depreciation and amortization 10,962 13,501 8,385 4,544 37,392 Segment income (loss) from operations 21,227 36,914 22,465 (2,986) 77,620 Segment assets 169,410 270,731 75,266 88,894 604,301 Expenditures for segment fixed assets 2,710 8,047 3,245 3,114 17,116 ======================================================================================================

Healthcare Packaging, Consumer Specialty Products and Packaging Food Resins and June 30, 2000 Materials and Products Packaging Compounds TOTALS -------------------------------------------------------------------------------------------------------- Revenues from external customers $159,116 $195,936 $110,011 $ 59,754 $524,817 Interest expense 11,217 12,537 9,001 5,692 38,447 Depreciation and amortization 10,876 12,316 6,866 4,480 34,538 Segment income from operations 26,202 35,491 22,842 161 84,696 Segment assets 171,764 220,576 77,642 83,900 553,882 Expenditures for segment fixed assets 7,224 4,012 3,247 1,775 16,258 ========================================================================================================

F-32 56 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Healthcare Packaging, Consumer Specialty Products and Packaging Food Resins and July 2, 1999 Materials and Products Packaging Compounds TOTALS -------------------------------------------------------------------------------------------------------- Revenues from external customers $142,309 $191,584 $103,858 $ 69,563 $507,314 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 fixed assets 3,761 3,540 4,567 1,082 12,950 ========================================================================================================

F-33 57 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

JUNE 29, 2001 June 30, 2000 July 2, 1999 ----------------------------------------------------------------------------------------- PROFIT OR LOSS Total operating profit for reportable segments before income taxes $ 77,620 $ 84,696 $ 88,462 Corporate and eliminations (12,618) (12,702) (20,052) ----------------------------------------------------------------------------------------- $ 65,002 $ 71,994 $ 68,410 ========================================================================================= ASSETS Total assets from reportable segments $ 604,301 $ 553,882 $ 546,723 Other unallocated amounts 17,193 20,907 12,713 ----------------------------------------------------------------------------------------- Consolidated total $ 621,494 $ 574,789 $ 559,436 ========================================================================================= DEPRECIATION AND AMORTIZATION Segment totals $ 37,392 $ 34,538 $ 35,125 Corporate 278 210 218 ----------------------------------------------------------------------------------------- Consolidated total $ 37,670 $ 34,748 $ 35,343 ========================================================================================= REVENUES ----------------------------------------------------------------------------------------- GEOGRAPHIC INFORMATION United States $ 466,804 $ 477,489 $ 463,680 Canada 14,834 5,975 4,996 Europe 44,199 41,353 38,638 ----------------------------------------------------------------------------------------- Total $ 525,837 $ 524,817 $ 507,314 ========================================================================================= LONG-LIVED ASSETS ----------------------------------------------------------------------------------------- GEOGRAPHIC INFORMATION United States $ 307,328 $ 323,691 $ 339,409 Canada 10,035 2,580 2,549 Europe 32,273 26,670 25,779 ----------------------------------------------------------------------------------------- Total $ 349,636 $ 352,941 $ 367,737 =========================================================================================

F-34 58 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 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. No customer had sales of 10% or more of total sales during the year ended June 29, 2001. One customer represented 11% of accounts receivable at June 29, 2001. For the year ended June 30, 2000, one customer represented 10% of sales and another customer represented 11% of accounts receivable at June 30, 2000. For the year ended July 2, 1999, one customer represented 11% of sales and two customers each represented 10% of accounts receivable at July 2, 1999. F-35 59 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Tekni-Plex, Inc. issued 12 -3/4 % Senior Subordinated Notes in June 2000. These notes are guaranteed by all domestic subsidiaries of Tekni-Plex. The following condensed consolidating financial statements present separate information for Tekni-Plex (the "Issuer") and its domestic subsidiaries (the "Guarantors") and the foreign subsidiaries (the "Non-Guarantors"). Condensed Consolidating Statement of Operations - For the year ended June 29, 2001

Non- Issuer Guarantors Guarantors TOTAL ------------------------------------------------------------------------------------- Sales, net $ 161,854 $ 304,950 $ 59,033 $ 525,837 Cost of sales 121,521 236,723 41,592 399,836 ------------------------------------------------------------------------------------- Gross profit 40,333 68,227 17,441 126,001 Selling, general and administrative 38,295 17,320 5,384 60,999 ------------------------------------------------------------------------------------- Income from operations 2,038 50,907 12,057 65,002 Interest expense, net 76,958 (318) (71) 76,569 Unrealized loss on derivative contract 13,891 - - 13,891 Other expense (income) (1,119) 1,063 661 605 ------------------------------------------------------------------------------------- Income (loss) before provision for income taxes (87,692) 50,162 11,467 (26,063) Provision (benefit) for income taxes (16,574) 6,626 2,879 (7,069) ------------------------------------------------------------------------------------- Net income (loss) $ (71,118) $ 43,536 $ 8,588 $ (18,994) ======================================================================================

F-36 60 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Balance Sheet - at June 29, 2001

Non- Issuer Guarantors Guarantors Eliminations TOTAL ------------------------------------------------------------------------------------------------- CURRENT ASSETS $ 80,305 $ 146,839 $ 39,823 $ - $ 266,967 Property, plant and equipment, net 38,788 79,517 18,703 - 137,008 Intangible assets 13,208 153,960 12,448 - 179,616 Investment in subsidiaries 457,641 - - (457,641) - Deferred financing costs, net 16,607 - - - 16,607 Deferred taxes 19,022 (12) - - 19,010 Other long-term assets 28,577 261,520 12,510 (300,321) 2,286 ------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 654,148 $ 641,824 $ 83,484 $(757,962) $ 621,494 ================================================================================================= CURRENT LIABILITIES $ 22,370 $ 26,923 $ 18,545 $ - $ 67,838 Long-term debt 665,729 - 4,349 - 670,078 Other long-term liabilities 92,460 190,399 35,737 (300,321) 18,275 ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 780,559 217,322 58,631 (300,321) 756,191 ------------------------------------------------------------------------------------------------- Additional paid-in capital 120,156 296,784 15,656 (312,420) 120,176 Retained earnings (deficit) (26,105) 127,685 16,269 (145,221) (27,372) Cumulative currency translation adjustment - 33 (7,072) - (7,039) Treasury stock (220,462) - - - (220,462) ------------------------------------------------------------------------------------------------- TOTAL EQUITY (126,411) 424,502 24,853 (457,523) (134,697) ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 654,148 $ 641,824 $ 83,484 $(757,844) $ 621,494 =================================================================================================

Condensed Consolidating Statement of Cash Flows-For the year ended June 29, 2001

Issuer Guarantors Non-Guarantors Consolidate ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities: $(47,908) $ 36,694 $ 7,948 $ (3,266) ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisitions, net of cash acquired -- (9,233) -- (9,233) Capital expenditures (2,710) (11,208) (3,198) (17,116) Additions to intangibles (322) (106) -- (428) Cash proceeds from sale of assets -- -- -- -- ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,032) (20,547) (3,198) (26,777) ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (repayment) under line of credit 35,000 -- -- 35,000 Repayments of long-term debt (7,400) -- (1,420) (8,820) Proceeds from capital contribution 36,000 -- -- 36,000 Change in intercompany accounts 14,592 (14,592) -- -- ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 78,192 (14,592) (1,420) 62,180 ------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash -- -- (17) (17) ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 27,252 1,555 3,313 32,120 Cash, beginning of period 5,638 3,766 3,121 12,525 ------------------------------------------------------------------------------------------------------------- CASH, END OF PERIOD $ 32,890 $ 5,321 $ 6,434 $ 44,645 =============================================================================================================

F-37 61 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Statement of Operations - For the year ended June 30, 2000

Non- Issuer Guarantors Guarantors TOTAL ------------------------------------------------------------------------------------- Sales, net $ 151,587 $ 325,902 $ 47,328 $ 524,817 Cost of sales 110,272 251,512 32,696 394,480 ------------------------------------------------------------------------------------- Gross profit 41,315 74,390 14,632 130,337 Selling, general and administrative 37,991 16,042 4,310 58,343 ------------------------------------------------------------------------------------- Income from operations 3,324 58,348 10,322 71,994 Interest expense, net 38,717 (280) 10 38,447 Other expense (income) 4,272 (1,187) 1,620 4,705 ------------------------------------------------------------------------------------- Income (loss) before provision for income taxes and extraordinary item (39,665) 59,815 8,692 28,842 Provision (benefit) for income taxes (22,359) 33,211 3,584 14,436 ------------------------------------------------------------------------------------- Income (loss) before extraordinary item (17,306) 26,604 5,108 14,406 Extraordinary item (35,374) - - (35,374) ------------------------------------------------------------------------------------- Net income (loss) $ (52,680) $ 26,604 $ 5,108 $ (20,968) =====================================================================================

F-38 62 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Balance Sheet - At June 30, 2000

Non- Issuer Guarantors Guarantors Eliminations TOTAL ------------------------------------------------------------------------------------------------- CURRENT ASSETS $ 61,275 $ 134,456 $ 26,117 $ - $ 221,848 Property, plant and equipment, net 41,852 78,957 15,117 - 135,926 Intangible assets 31,519 150,476 8,497 - 190,492 Investment in subsidiaries 398,879 - - (398,879) - Deferred financing costs, net 18,897 - - - 18,897 Deferred taxes 5,398 - - - 5,398 Other long-term assets 50,471 240,823 12,636 (301,702) 2,228 ------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 608,291 $ 604,712 $ 62,367 $(700,581) $ 574,789 ================================================================================================= CURRENT LIABILITIES $ 37,296 $ 24,390 $ 14,283 $ - $ 75,969 Long-term debt 637,793 - 5,399 - 643,192 Other long-term liabilities 72,660 211,846 20,682 (300,410) 4,778 ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 747,749 236,236 40,364 (300,410) 723,939 ------------------------------------------------------------------------------------------------- Additional paid-in capital 85,355 296,880 15,641 (313,700) 84,176 Retained earnings (deficit) (4,351) 71,596 10,848 (86,471) (8,378) Cumulative currency translation adjustment - - (4,486) - (4,486) Treasury stock (220,462) - - - (220,462) ------------------------------------------------------------------------------------------------- TOTAL EQUITY (139,458) 368,476 22,003 (400,171) (149,150) ------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 608,291 $ 604,712 $ 62,367 $(700,581) $ 574,789 =================================================================================================

Condensed Consolidating Statement of Cash Flows-For the year ended June 30, 2000

Issuer Guarantors Non-Guarantors Total --------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities: $ (25,883) $ 29,834 $ 5,534 $ 9,485 --------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisitions, net of cash acquired -- -- -- -- Capital expenditures (7,224) (6,747) (2,287) (16,258) Additions to intangibles (805) -- -- (805) Cash proceeds from sale of assets -- -- 158 158 --------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (8,029) (6,747) (2,129) (16,905) --------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (repayments) under line of credit (2,030) -- -- (2,030) Proceeds from long-term debt 645,232 -- -- 645,232 Repayments of long-term debt (446,661) -- (1,970) (448,631) Proceeds from capital contribution 43,101 -- -- 43,101 Debt financing costs (18,897) -- -- (18,897) Purchase of treasury stock (220,462) -- -- (220,462) Change in intercompany accounts 34,880 (26,508) (8,372) -- --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 35,163 (26,508) (10,342) (1,687) --------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash -- -- (485) (485) --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 1,251 (3,421) (7,422) (9,592) Cash, beginning of period 4,387 7,187 10,543 22,117 --------------------------------------------------------------------------------------------------------------- Cash, end of period $ 5,638 $ 3,766 $ 3,121 $ 12,525 ===============================================================================================================

F-39 63 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Condensed Consolidating Statement of Operations - For the year ended July 2, 1999

Non- Issuer Guarantors Guarantors TOTAL ------------------------------------------------------------------------------------- Sales, net $ 155,141 $ 308,539 $ 43,634 $ 507,314 Cost of sales 114,634 231,928 29,808 376,370 ------------------------------------------------------------------------------------- Gross profit 40,507 76,611 13,826 130,944 Selling, general and administrative 44,815 13,243 4,476 62,534 ------------------------------------------------------------------------------------- Income (loss) from operations (4,308) 63,368 9,350 68,410 Interest expense (income), net 39,487 (739) 229 38,977 Other expense (income) 294 (1,180) 1,172 286 ------------------------------------------------------------------------------------- Income (loss) before provision for income taxes (44,089) 65,287 7,949 29,147 Provision (benefit) for income taxes (23,682) 34,604 3,228 14,150 ------------------------------------------------------------------------------------- Net income (loss) $ (20,407) $ 30,683 $ 4,721 $ 14,997 =====================================================================================

F-40 64 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 50,965 153,747 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 106,330 18,938 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 =================================================================================================

Condensed Consolidating Statement of Cash Flows-For the year ended July 2, 1999

Issuer Guarantors Non-Guarantors Total ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities: $(23,064) $ 52,896 $ 8,962 $ 38,794 ----------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisitions, net of cash acquired -- (45,139) -- (45,139) Capital expenditures (3,761) (8,673) (516) (12,950) Additions to intangibles -- -- -- -- Cash proceeds from sale of assets -- -- -- -- ----------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,761) (53,812) (516) (58,089) ----------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net borrowings (repayments) under line of credit 22,234 -- -- 22,234 Repayments of long-term debt (5,816) -- (4,361) (10,177) Change in intercompany accounts 4,592 (4,592) -- -- ----------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 21,010 (4,592) (4,361) 12,057 ----------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash -- -- (8) (8) ----------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (5,815) (5,508) 4,077 (7,246) Cash, beginning of period 10,202 12,695 6,466 29,363 ----------------------------------------------------------------------------------------------------------- Cash, end of period $ 4,387 $ 7,187 $ 10,543 $ 22,117 ===========================================================================================================

F-41 65 TEKNI-PLEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

First Second* Third* Fourth 2001 Quarter Quarter Quarter Quarter ------------------------------------------------------------------------------ Net sales $ 111,907 $ 105,873 $ 140,681 $ 167,376 Gross profit 26,712 24,123 36,785 38,381 Income from operations 7,311 9,755 21,127 26,809 Net income (loss) (5,739) (12,136) (1,473) 354 2000 ------------------------------------------------------------------------------ Net sales $ 114,424 $ 106,879 $ 143,370 $ 160,144 Gross profit 29,005 27,498 37,994 35,840 Income from operations 14,863 12,652 23,988 20,491 Extraordinary item - net of taxes - - - (35,374) Net income (loss) 2,556 1,197 7,020 (31,741) 1999 ------------------------------------------------------------------------------ Net sales $ 112,589 $ 98,524 $ 134,274 $ 161,927 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 ==============================================================================

*The second and third quarters reflect adjustments of $(7,229) and $(1,919), respectively to net income (loss) from previously issued financial statements related to unrealized losses on derivative instruments. The related 10-Q's are in the process of being amended. Fluctuations in net sales are due primarily to seasonality in a number of product lines, particularly garden hose and irrigation hose products. The extraordinary loss in the fourth quarter of fiscal 2000 was the result of the Recapitalization (Note 2). F-42 66 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE Board of Directors Tekni-Plex, Inc. Somerville, New Jersey The audits referred to in our report dated September 10, 2001 relating to the consolidated financial statements of Tekni-Plex, Inc. and its wholly owned subsidiaries (the "Company"), included the audits of the financial statement schedule for the years ended June 29, 2001, June 30, 2000 and July 2, 1999 listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits. In our opinion, such financial statement schedule presents fairly, in all material respects, the information set forth therein. BDO Seidman, LLP Woodbridge, New Jersey September 20, 2001 F-43 67 TEKNI-PLEX, INC. 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 Deductions END Period Expenses (1) Accounts (2) OF PERIOD ==================================================================================================== YEAR ENDED JULY 2, 1999 Accounts receivable allowance $1,326 $ 370 $ 68(3) $ 102 $1,662 ==================================================================================================== YEAR ENDED JUNE 30, 2000 Accounts receivable allowance $1,662 $ 310 $ - $ 330 $1,642 ==================================================================================================== YEAR ENDED JUNE 29, 2001 Accounts receivable allowance $1,642 $ 250 $ - $ 392 $1,500 ====================================================================================================

(1) To increase accounts receivable allowance. (2) Uncollectible accounts written off, net of recoveries. (3) Balances related to acquisitions. F-44