10-Q 1 y60427e10-q.txt TEKNI-PLEX, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 2002 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT --- For the transition period from to ------- ------- Commission file number 333-28157 --------- TEKNI-PLEX, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 22-3286312 --------------------------------------- ------------------------------------ (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 260 N. Denton Tap Road (972) 304-5077 --------------------------------------- ------------------------------------ Coppell, Texas 75022 (Registrant's telephone number) --------------------------------------- (Address of principal executive office) 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 / / TEKNI-PLEX, INC.

Page # PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 29, 2002 and June 29, 2001 (unaudited) 3 Consolidated Statements of Operations for the nine months and three months ended March 29, 2002 and March 30, 2001 (unaudited) 4 Consolidated Statements of Comprehensive Income (loss) for the nine months and three months ended March 29, 2002 and March 30, 2001 (unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended March 29, 2002 and March 30, 2001 (unaudited) 5 Notes to Consolidated Financial Statements 6-17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18-20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II. OTHER INFORMATION Item 1. Legal proceedings 21 Item 2. Changes in securities 21 Item 3. Defaults upon senior securities 21 Item 4. Submission of matters to a vote of securities holders 21 Item 5 Other information 21 Item 6 Exhibits and reports on Form 8-K 21

TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)

MARCH 29, 2002 June 29, 2001 (UNAUDITED) (Audited) -------------- ------------- ASSETS CURRENT: Cash and cash equivalents $ 8,620 $ 44,645 Accounts receivable, net of allowance for doubtful accounts $6,761 and $1,500 respectively 121,274 105,316 Inventories 143,823 106,258 Deferred income taxes 5,153 5,153 Prepaid expenses and other current assets 8,254 5,595 --------- --------- TOTAL CURRENT ASSETS 287,124 266,967 PROPERTY, PLANT AND EQUIPMENT, NET 152,212 137,008 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $74,357 AND $62,271 RESPECTIVELY 211,690 179,616 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $4,410 AND $2,549 RESPECTIVELY 14,866 16,607 DEFERRED INCOME TAXES 22,436 19,010 OTHER ASSETS 1,274 2,286 --------- --------- $ 689,602 $ 621,494 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 11,747 $ 8,072 Line of credit 33 -- Accounts payable - trade 32,976 34,076 Accrued payroll and benefits 6,508 5,222 Accrued interest 15,453 1,673 Accrued liabilities - other 23,518 15,446 Income taxes payable 1,152 3,349 --------- --------- TOTAL CURRENT LIABILITIES 91,387 67,838 LONG-TERM DEBT 672,802 670,078 OTHER LIABILITIES 21,529 18,275 --------- --------- TOTAL LIABILITIES 785,718 756,191 --------- --------- STOCKHOLDER'S EQUITY: Common stock -- -- Additional paid-in capital 170,176 120,176 Cumulative currency translation adjustment (11,316) (7,039) Retained earnings (34,454) (27,372) Less: treasury stock (220,522) (220,462) --------- --------- TOTAL STOCKHOLDER'S EQUITY (96,116) (134,697) --------- --------- $ 689,602 $ 621,494 ========= =========

See accompanying notes to consolidated financial statements. 3 TEKNI-PLEX, INC. AND SUBSIDIARIES (Unaudited -- in thousands) CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended MARCH 29, March 30, MARCH 29, March 30, 2002 2001 2002 2001 --------- --------- --------- --------- NET SALES $ 153,393 $ 140,681 $ 382,297 $ 358,461 COST OF SALES 111,385 103,896 285,591 275,131 --------- --------- --------- --------- GROSS PROFIT 42,008 36,785 96,706 83,330 OPERATING EXPENSES: Selling, general and administrative 18,529 15,658 50,314 45,137 --------- --------- --------- --------- INCOME FROM OPERATIONS 23,479 21,127 46,392 38,193 OTHER EXPENSES: Interest expense 19,014 19,824 53,389 57,686 Unrealized loss on derivative contracts 1,085 2,998 3,675 14,293 Other expense (105) 457 229 907 --------- --------- --------- --------- EARNINGS (LOSS) BEFORE INCOME TAXES 3,485 (2,152) (10,901) (34,693) PROVISION FOR INCOME TAXES 1,180 (679) (3,820) (15,345) --------- --------- --------- --------- NET INCOME (LOSS) $ 2,305 $ (1,473) $ (7,081) $ (19,348) ========= ========= ========= =========

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) NET INCOME (LOSS) $ 2,305 $ (1,473) $ (7,081) $ (19,348) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Foreign currency translation adjustment (3,985) (1,216) (4,277) (1,776) --------- --------- --------- --------- COMPREHENSIVE INCOME (LOSS) $ (1,680) $ (2,689) $ (11,358) $ (21,124) ========= ========= ========= ========= See accompanying notes to consolidated financial statements. 4 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited -- in thousands)

Nine months ended MARCH 29, 2002 March 30, 2001 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income loss $ (7,081) $(19,348) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 29,011 27,855 Unrealized loss on derivative contracts 3,675 14,293 Deferred income taxes (3,465) (15,497) Changes in operating assets and liabilities: Accounts receivable (9,624) 641 Inventories (21,769) (34,217) Prepaid expenses and other current assets (2,703) (973) Income taxes (2,202) -- Accounts payable (5,003) 9,592 Accrued interest 13,763 16,478 Accrued expenses and other liabilities (10,033) (15,684) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (15,431) (16,860) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (12,317) (12,390) Acquisition costs (65,757) (8,869) Additions to intangibles 797 (95) Deposits and other assets 846 75 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (76,431) (21,279) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of long-term debt 6,000 38,419 Net borrowings (repayments) under line of credit 12 (123) Payment for treasury stock (60) -- Receipt of additional paid-in capital 50,000 6,000 Debt financing costs (120) (131) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 55,832 44,165 -------- -------- EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 5 (42) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (36,025) 5,984 CASH, AND CASH EQUIVALENTS BEGINNING OF PERIOD 44,645 12,525 -------- -------- CASH, AND CASH EQUIVALENTS END OF PERIOD $ 8,620 $ 18,509 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 38,290 $ 40,942 -------- -------- Income taxes 1,912 1,048 -------- --------

See accompanying notes to consolidated financial statements. 5 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 1 - GENERAL Tekni-Plex is a global, diversified manufacturer of packaging, products, and materials primarily for the healthcare, food and consumer 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 two business groups: Industrial Packaging, Products, and Materials and Consumer Packaging and Products. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. For further information please refer to the audited financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 29, 2001. NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS a) 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 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 the 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 purchasing method. As of March 29, 2002, the net carrying amount of goodwill is $211,166 and other intangible assets are $524. Amortization expense during the nine month period ended March 29, 2002 was $12,086. 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. 6 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) b) In August 2001, the FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). The new guidance resolves significant implementation issues related to FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS 144 supersedes SFAS 121, but it retains its fundamental provisions. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the exception to consolidate a subsidiary for which control is likely to be temporary. SFAS 144 retains the requirement of SFAS 121 to recognize an impairment loss only if the carrying amount of a long-lived asset within the scope of SFAS 144 is not recoverable from its undiscounted cash flows and exceeds its fair value. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of SFAS 144 generally are to be applied prospectively. The company believes that the adoption of SFAS 144 will not have a material impact on the Company's financial position or results of operations. NOTE 3 - INVENTORIES Inventories as of March 29, 2002 and June 29, 2001 are summarized as follows:

MARCH 29, 2002 June 29, 2001 -------------- ------------- Raw materials $ 38,372 $ 33,971 Work-in-process 7,950 7,812 Finished goods 97,501 64,475 ----------- ----------- $143,823 $106,258 =========== ===========

7 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 4 - LONG-TERM DEBT Long-term debt consists of the following:

MARCH 29, 2002 June 29, 2001 -------------- ------------- Senior Subordinated Notes issued June 21, 2000 at 12.75% due June 15, 2010. (Less unamortized discount of $3,108 and $3,391) $271,892 $271,609 Senior Secured Debt: Revolving line of credit, expiring June, 2006. At March 29, 2002, the interest rate ranged from 4.94% to 5.00% 77,000 65,000 Term notes due June, 2006 and June, 2008, with interest rates at March 29, 2002 of 4.81% and 5.31% 330,980 336,560 Other, primarily foreign term loans, with interest rates ranging from 4.44% to 5.44% and maturities from 2002 to 2010 4,677 4,981 -------- -------- 684,549 678,150 Less: Current maturities 11,747 8,072 -------- -------- $672,802 $670,078 ======== ========

8 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 5 - SEGMENT INFORMATION Tekni-Plex has organized its business into two industry segments: Industrial Packaging, Products, and Materials and Consumer Packaging and Products. The Industrial Packaging, Products, and Materials segment principally produces pharmaceutical packaging, medical tubing and medical device materials, foamed polystyrene packaging products for the poultry, meat and egg industries and vinyl resins and compounds. The Consumer Packaging and Products segment principally produces precision tubing and gaskets, and garden and irrigation hose products. Both segments have operations in the United States, Europe and Canada. Financial information concerning the Company's business segments and the geographic areas in which it operates are as follows:

INDUSTRIAL PACKAGING, CONSUMER PRODUCTS, PACKAGING AND MATERIALS AND PRODUCTS TOTAL ------------- ------------ ----- Three months ended March 29, 2002 Revenues from external Customers $ 79,817 $ 73,576 $153,393 Interest expense 12,972 6,042 19,014 Depreciation and amortization 6,919 2,776 9,695 Income from operations 14,271 14,576 28,847 Expenditures for segment Assets 2,498 422 2,920 -------- -------- -------- Three months ended March 30, 2001 Revenues from external Customers $ 82,440 $ 58,241 $140,681 Interest expense 13,755 6,069 19,824 Depreciation and Amortization 5,943 3,186 9,129 Income from operations 13,818 10,293 24,111 Expenditures for segment Assets 1,930 1,691 3,621 -------- -------- --------

9 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 5 - SEGMENT INFORMATION

INDUSTRIAL PACKAGING, CONSUMER PRODUCTS, PACKAGING AND MATERIALS AND PRODUCTS TOTAL ------------- ------------ ----- Nine months ended March 29, 2002 Revenues from external Customers $235,598 $146,699 $382,297 Interest expense 36,413 16,976 53,389 Depreciation and Amortization 18,802 9,435 28,237 Income from operations 34,138 25,198 59,336 Expenditures for segment Assets 7,026 4,745 11,771 -------- -------- -------- Nine months ended March 30, 2001 Revenues from external customers $242,491 $115,970 $358,461 Interest expense 39,466 18,220 57,686 Depreciation and amortization 18,003 9,084 27,087 Income from operations 30,827 17,406 48,233 Expenditures for segment Assets 6,371 5,525 11,896 -------- -------- --------

Three months ended Nine months ended MARCH 29, March 30, MARCH 29, March 30, 2002 2001 2002 2001 --------- --------- --------- --------- INCOME FROM OPERATIONS Total income from operations for reportable segments before income taxes $ 28,847 $ 24,111 $ 59,336 $ 48,233 Corporate and eliminations (5,368) (2,984) (12,944) (10,040) -------- -------- -------- -------- $ 23,479 $ 21,127 $ 46,392 $ 38,193 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION Segment totals $ 9,695 $ 9,129 $ 28,237 $ 27,087 Corporate 262 256 774 768 -------- -------- -------- -------- Consolidated total $ 9,957 $ 9,385 $ 29,011 $ 27,855 ======== ======== ======== ======== EXPENDITURES FOR SEGMENT ASSETS Total reportable-segment expenditures $ 2,920 $ 3,621 $ 11,771 $ 11,896 Other unallocated expenditures 255 90 546 494 -------- -------- -------- -------- Consolidated total $ 3,175 $ 3,711 $ 12,317 $ 12,390 ======== ======== ======== ========

10 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 5 - SEGMENT INFORMATION SEGMENT ASSETS

INDUSTRIAL PACKAGING, CONSUMER PRODUCTS, PACKAGING AND MATERIALS AND PRODUCTS TOTAL ------------- ------------ ----- MARCH 29, 2002 $293,860 $369,538 $663,398 June 30, 2001 333,570 270,731 604,301 -------- -------- --------

MARCH 29, 2002 June 29, 2001 -------------- ------------- TOTAL ASSETS Total assets from reportable segments $663,398 $604,301 Other unallocated amounts 26,204 17,193 -------- -------- Consolidated total $689,602 $621,494 ======== ========

GEOGRAPHIC INFORMATION

Three months ended Nine months ended MARCH 29, March 30, MARCH 29, March 30, 2002 2001 2002 2001 --------- --------- --------- --------- REVENUES United States $137,685 $123,569 $341,366 $318,319 International 15,708 17,112 40,931 40,142 -------- -------- -------- -------- Total $153,393 $140,681 $382,297 $358,461 ======== ======== ======== ========

MARCH 29, 2002 June 29, 2001 -------------- ------------- LONG-LIVED ASSETS United States $359,206 $310,866 International 43,272 43,661 -------- -------- Total $402,478 $354,527 ======== ========

11 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Consolidated Statement of Earnings (Unaudited) For the three months ended March 29, 2002

Non- TOTAL Issuer Guarantors Guarantors ---------- ---------- ---------- ---------- Net sales $ 153,393 $ 40,360 $ 97,325 $ 15,708 Cost of sales 111,385 27,869 72,885 10,631 --------- --------- --------- --------- Gross profit 42,008 12,491 24,440 5,077 Operating expenses: Selling, general and administrative 18,529 10,854 6,123 1,552 --------- --------- --------- --------- Income from operations 23,479 1,637 18,317 3,525 Interest expense (income), net 19,014 19,002 (10) 22 Unrealized loss on derivative contracts 1,085 1,085 -- -- Other expense (income) (105) (222) (366) 483 --------- --------- --------- --------- Income (loss) before provision for income taxes 3,485 (18,228) 18,693 3,020 Provision benefit for income taxes 1,180 (6,450) 6,700 930 --------- --------- --------- --------- Net income (loss) $ 2,305 $ (11,778) $ 11,993 $ 2,090 ========= ========= ========= =========

For the nine months ended March 29, 2002

Non- TOTAL Issuer Guarantors Guarantors ---------- ---------- ---------- ---------- Net sales $ 382,297 $ 121,666 $ 219,700 $ 40,931 Cost of sales 285,591 87,956 167,882 29,753 --------- --------- --------- --------- Gross profit 96,706 33,710 51,818 11,178 Operating expenses: Selling, general and administrative 50,314 29,737 16,000 4,577 --------- --------- --------- --------- Income from operations 46,392 3,973 35,818 6,601 Interest expense (income), net 53,389 53,356 (86) 119 Unrealized loss on derivative contracts 3,675 3,675 -- -- Other expense (income) 229 (712) (630) 1,571 --------- --------- --------- --------- Income (loss) before provision for income taxes (10,901) (52,346) 36,534 4,911 Provision benefit for income taxes (3,820) (18,360) 12,950 1,590 --------- --------- --------- --------- Net income (loss) $ (7,081) $ (33,986) $ 23,584 $ 3,321 ========= ========= ========= =========

12 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Consolidated Statement of Earnings (Unaudited) For the three months ended March 30, 2001

Non- TOTAL Issuer Guarantors Guarantors ---------- ---------- ---------- ---------- Net sales $ 140,681 $ 42,021 $ 81,548 $ 17,112 Cost of sales 103,896 30,801 61,764 11,331 --------- --------- --------- --------- Gross profit 36,785 11,220 19,784 5,781 Operating expenses: Selling, general and administrative 15,658 9,428 4,720 1,510 --------- --------- --------- --------- Income from operations 21,127 1,792 15,064 4,271 Interest expense (income), net 19,824 19,835 (56) 45 Unrealized loss on derivative contracts 2,998 2,998 -- -- Other expense (income) 457 (624) (301) 1,382 --------- --------- --------- --------- Income (loss) before provision for income taxes (2,152) (20,417) 15,421 2,844 Provision benefit for income taxes (679) (9,779) 7,217 1,883 --------- --------- --------- --------- Net income (loss) $ (1,473) $ (10,638) $ 8,204 $ 961 ========= ========= ========= =========

For the nine months ended March 30, 2001

Non- TOTAL Issuer Guarantors Guarantors ---------- ---------- ---------- ---------- Net sales $ 358,461 $ 121,009 $ 197,310 $ 40,142 Cost of sales 275,131 90,713 156,851 27,567 --------- --------- --------- --------- Gross profit 83,330 30,296 40,459 12,575 Operating expenses: Selling, general and administrative 45,137 27,911 13,376 3,850 --------- --------- --------- --------- Income from operations 38,193 2,385 27,083 8,725 Interest expense (income), net 57,686 58,078 (266) (126) Unrealized loss on derivative contracts 14,293 14,293 -- -- Other expense (income) 907 (500) (666) 2,073 --------- --------- --------- --------- Income (loss) before provision for income taxes (34,693) (69,486) 28,015 6,778 Provision benefit for income taxes (15,345) (32,745) 14,000 3,400 --------- --------- --------- --------- Net income (loss) $ (19,348) $ (36,741) $ 14,015 $ 3,378 ========= ========= ========= =========

13 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet - at March 29, 2002 (Unaudited)

Non- TOTAL Eliminations Issuer Guarantors Guarantors ----- ------------ ------ ---------- ---------- Current assets $ 287,124 $ -- $ 37,006 $ 207,740 $ 42,378 Property, plant and equipment, net 152,212 -- 38,463 94,495 19,254 Intangible assets 211,690 -- 11,704 188,151 11,835 Investment in subsidiaries -- (484,546) 484,546 -- -- Deferred financing costs, net 14,866 -- 14,664 99 103 Other long-term assets 23,710 (308,635) 132,152 188,113 12,080 --------- --------- --------- --------- --------- Total assets $ 689,602 $(793,181) $ 718,535 $ 678,598 $ 85,650 ========= ========= ========= ========= ========= Current liabilities $ 91,387 $ -- $ 39,706 $ 33,852 $ 17,829 Long-term debt 672,802 -- 668,682 -- 4,120 Other long-term liabilities 21,529 (308,635) 93,699 196,669 39,796 --------- --------- --------- --------- --------- Total liabilities 785,718 (308,635) 802,087 230,521 61,745 --------- --------- --------- --------- --------- Additional paid-in capital 170,176 (312,420) 170,156 296,784 15,656 Accumulated currency translation adjustment (11,316) -- -- 25 (11,341) Retained earnings (deficit) (34,454) (172,126) (33,186) 151,268 19,590 Less: Treasury stock (220,522) -- (220,522) -- -- --------- --------- --------- --------- --------- Total equity (96,116) (484,546) (83,552) 448,077 23,905 --------- --------- --------- --------- --------- Total liabilities and equity $ 689,602 $(793,181) $ 718,535 $ 678,598 $ 85,650 ========= ========= ========= ========= =========

Condensed Consolidated Balance Sheet - at June 29, 2001

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

14 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Condensed Consolidated Cash Flows (Unaudited) For the nine months ended March 29,2002

Non- TOTAL Issuer Guarantors Guarantors ----- ------ ---------- ---------- Net cash provided by (used in) operating activities $(15,431) $(13,346) $ (154) $ (1,931) -------- -------- -------- -------- Cash flows from investing activities: Capital expenditures (12,317) (5,209) (4,779) (2,329) Acquisition costs (65,757) -- (65,757) -- Additions to intangibles 797 (191) 1,206 (218) Deposits and other assets 846 117 299 430 -------- -------- -------- -------- Net cash used in investing activities (76,431) (5,283) (69,031) (2,117) -------- -------- -------- -------- Cash flows from financing activities Repayment of long term debt 6,000 6,298 -- (298) Repayment/borrowings of line of credit 12 -- -- 12 Receipt of additional paid-in capital 50,000 50,000 -- -- Payment for treasury stock (60) (60) -- -- Debt financing (120) (120) -- -- Change in intercompany accounts -- (68,272) 64,148 4,124 -------- -------- -------- -------- Net cash flows provided by (used in) financing activities 55,832 (12,154) 64,148 3,838 -------- -------- -------- -------- Effect of exchange rate changes on cash 5 -- -- 5 -------- -------- -------- -------- Net decrease in cash (36,025) (30,783) (5,037) (205) Cash, beginning of period 44,645 32,890 5,321 6,434 -------- -------- -------- -------- Cash, end of period $ 8,620 $ 2,107 $ 284 $ 6,229 ======== ======== ======== ========

15 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Condensed Consolidated Cash Flows (Unaudited)

For the nine months ended March 30, 2001 Non- TOTAL Issuer Guarantors Guarantors ----- ------ ---------- ---------- Net cash provided by (used in) operating activities $(16,860) $(26,261) $ 8,950 $ 451 -------- -------- -------- -------- Cash flows from Investing activities: Capital expenditures (12,390) (2,870) (7,107) (2,413) Acquisition costs (8,869) -- -- (8,869) Additions to intangibles (95) (95) -- -- Deposits and other assets 75 1,276 (1,336) 135 -------- -------- -------- -------- Net cash used in investing activities (21,279) (1,689) (8,443) (11,147) -------- -------- -------- -------- Cash flows from financing activities Repayment of long term debt 38,419 39,371 -- (952) Repayment of line of credit (123) -- -- (123) Receipt of additional paid in capital 6,000 6,000 -- -- Debt financing costs (131) (131) -- -- Change in intercompany accounts -- (12,663) 67 12,596 -------- -------- -------- -------- Net cash flows provided by (used in) financing activities 44,165 32,577 67 11,521 -------- -------- -------- -------- Effect of exchange rate changes on cash (42) -- -- (42) -------- -------- -------- -------- Net increase in cash 5,984 4,627 574 783 Cash, beginning of period 12,525 5,522 3,766 3,237 -------- -------- -------- -------- Cash, end of period $ 18,509 $ 10,149 $ 4,340 $ 4,020 ======== ======== ======== ========

16 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 7 - ACQUISITION The Company purchased certain assets and assumed certain liabilities of the Swan garden hose division of Mark IV Industries, Inc. "Swan" on October 16, 2001, for approximately $65,757 in cash. The Company utilized preliminary estimates and assumptions in determining the allocation of purchase price to assets acquired and liabilities assumed of Swan. While management believes such estimates and assumptions are reasonable, the final allocation of the purchase price may differ from that reflected in the unaudited March 29, 2002 consolidated balance sheet after a more extensive review of fair values of the assets and liabilities is completed. In connection with the acquisition, a reserve of $11,000 has been established for the costs to integrate Swan's operations with the company. The reserve is comprised of the costs to close duplicate facilities, terminate employees and other related costs. The plans to close the facilities have been put in place, however, certain related lease costs will extend beyond one year. The reserve is included in accrued expenses. The following table represents the unaudited pro forma results of operations as though the acquisition of Swan occurred on July 01, 2000. Since Swan was purchased subsequent to July 01, 2001, no amortization of goodwill has been reflected for the periods ended June 29, 2001 or March 29, 2002 in accordance with SFAS 142. Year Ended Nine Months Ended June 29, 2001 March 29, 2002 ------------- ----------------- Net Sales $602,593 $393,593 Income from Operations 73,305 44,407 Earnings (loss) before income taxes (17,760) (12,886) -------- -------- In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 42,269 Goodwill 45,070 Cash paid (65,757) --------- Liabilities assumed $ 21,582 ========= 17 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER OF FISCAL 2002 COMPARED WITH THE THIRD QUARTER OF FISCAL 2001 Net Sales increased to $153.4 million for the three months ended March 29, 2002 from $140.7 million for the three months ended March 30, 2001, representing a $12.7 million or 9.0% increase. Increases in the Consumer Segment more than offset declines in our Industrial Segment. Our Consumer Segment net sales increased $15.3 million or 26.3% primarily due to our Swan acquisition. Our Industrial Segment reported a $2.6 million or 3.1% decline in sales. Cost of Sales increased to $111.4 million for the three months ended March 29, 2002 from $103.9 million for the three months ended March 30, 2001, an increase of $7.5 million. Expressed as a percentage of net sales, cost of sales decreased to 72.6% for the three months ended March 29, 2002 from 73.9% for the three months ended March 30, 2001. Lower resin costs and improved operating efficiencies accounted for the improvement in this ratio. Gross Profit, as a result, increased to $42.0 million or 27.4% of net sales for the three months ended March 29, 2002 from $36.8 million or 26.1% of net sales for the three months ended March 30, 2001. Selling, general and administrative expense increased to $18.5 million in the three months ended March 29, 2002 compared to $15.7 million in the three months ended March 30, 2001, primarily due to our Swan acquisition. The ratio of selling, general and administrative expense to net sales increased to 12.1% for the three months ending March 29, 2002 from 11.1% in the comparable period of last year. Operating profit, as a result of the foregoing, increased to $23.5 million or 15.3% of net sales for the three months ended March 29, 2002 from $21.1 million or 15.0% of net sales for the three months ended March 30, 2001. Interest expense decreased to $19.0 million or 12.4% of net sales in the three months ended March 29, 2002 from $19.8 million or 14.1% of net sales in the three months ended March 30, 2001. The decrease was due to lower debt levels and lower interest rates. Income (loss) before income taxes, as a result, was $3.5 million for the three months ended March 29, 2002 compared to a loss of ($2.2) million for the three months ended March 30, 2001. Income tax (benefit) was $1.2 million for the three months ended March 29, 2002, compared to a credit of ($0.7) million for the three months ended March 30, 2001. The Company's effective tax rate was 33.9% for the three months ended March 29, 2002 compared to 31.6% for the three months ending March 30, 2001. Net income (loss), as a result, was $2.3 million for the three months ended March 29, 2002 compared with a loss of ($1.5) million for the three months ended March 30, 2001. 18 NINE MONTHS OF FISCAL 2002 COMPARED WITH THE NINE MONTHS OF FISCAL 2001 Net Sales increased to $382.3 million for the nine months ended March 29, 2002 from $358.5 million for the nine months ended March 30, 2001, representing a $23.8 million or 6.6% increase. The Swan acquisition was the primary factor contributing to this gain. Cost of Sales increased to $285.6 million for the nine months ended March 29, 2002 from $275.1 million for the nine months ended March 30, 2001, an increase of $10.5 million. Expressed as a percentage of net sales, cost of sales decreased to 74.7% for the nine months ended March 29, 2002 from 76.8% for the nine months ended March 30, 2001. Lower resin costs and improved operating efficiencies accounted for the improvement in this ratio. Gross Profit, as a result, increased to $96.7 million or 25.3% of net sales for the nine months ended March 29, 2002 from $83.3 million or 23.2% of net sales for the nine months ended March 30, 2001. Selling, general and administrative expense increased to $50.3 million in the nine months ended March 29, 2002 compared to $45.1 million in the nine months ended March 30, 2001 primarily due to our Swan acquisition. The ratio of selling, general and administrative expense to net sales increased to 13.2% for the nine months ending March 29, 2002 from 12.6% in the comparable period of last year. Operating profit, as a result of the foregoing, increased to $46.4 million or 12.1% of net sales for the nine months ended March 29, 2002 from $38.2 million or 10.7% of net sales for the nine months ended March 30, 2001. Interest expense decreased to $53.4 million or 14.0% of net sales in the nine months ended March 29, 2002 from $57.7 million or 16.1% of net sales in the nine months ended March 30, 2001. The decrease was due to lower debt levels and lower interest rates. Income (loss) before income taxes, as a result, was a loss of ($10.9) million for the nine months ended March 29, 2002 compared to a loss of ($34.7) million for the nine months ended March 30, 2001. Income tax (benefit) was a credit of ($3.8) million for the nine months ended March 29, 2002, compared to a credit of ($15.3) million for the nine months ended March 30, 2001. The Company's effective tax rate was 35.0% for the nine months ended March 29, 2002 compared to 44.2% for the nine months ending March 30, 2001. Net income (loss), as a result, was a loss of ($7.1) million for the nine months ended March 29, 2002 compared with a loss of ($19.3) million for the nine months ended March 30, 2001. 19 LIQUIDITY AND CAPITAL RESOURCES Net cash used by operations for the nine months ended March 29, 2002 was $15.4 million compared with $16.9 million in the same period of the prior year. The increase of $1.5 million was primarily due to a normal seasonal inventory build-up at our Swan unit, partially offset by a lower seasonal inventory build-up at the rest of our garden hose unit compared to last year. Working capital on March 29, 2002 was $195.7 million compared to $199.1 million on June 29, 2001. As of March 29, 2002, the Company had an outstanding balance of $77.0 million under the $100.0 million revolving credit line. This represents an increase of $12.0 million from the outstanding balance as of June 29, 2001. On May 01, 2002, the company issued $40,000,000 12-3/4% Senior Subordinated Notes due 2010. The Company's capital expenditures for the nine months ended March 29, 2002 and March 30, 2001 were $12.3 million and $12.4 million respectively. The Company continues to expect that its principal uses of cash for the next several years will be acquisitions, debt service, capital expenditures and working capital requirements. Management believes that cash generated from operations plus funds available in the Company's credit facility will be sufficient to meet its needs and to provide it with the flexibility to make capital expenditures and acquisitions which management believes will provide an attractive return on investment. However, the probability exists that the Company may need additional financing to take advantage of all the acquisition opportunities that may arise in the next several quarters. There can be no assurance that such financing will be available in the amounts and terms acceptable to the Company. SEASONALITY 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. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk inherent in the Company's financial instruments and positions represents the potential loss arising from adverse changes in interest rates. At March 29, 2002 and June 29, 2001 the principal amount of the Company's aggregate outstanding variable rate indebtedness was $407,980 and $401,560 respectively. A hypothetical 1% adverse change in interest rates would have an annualized unfavorable impact of approximately $4,100 and $4,000 respectively on the Company's earnings and cash flows based upon these 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 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is party to certain litigation in the ordinary course of business, none of which the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Securities holders Not applicable Item 5. Subsequent Events Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K None 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEKNI-PLEX, INC. May 13, 2002 By: /s/ F. Patrick Smith ------------------------------------------ F. Patrick Smith Chairman of the Board and Chief Executive Officer By: /s/ Kenneth W.R. Baker ------------------------------------------ Kenneth W. R. Baker President and Chief Operating Officer By: /s/ James E.Condon ------------------------------------------ James E.Condon Vice President and Chief Financial Officer 22