10-Q 1 y54733e10-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 September 28, 2001 [ ] 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 North Denton Tap Road (972) 304-5077 Coppell, TX 75019 (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 September 28, 2001 and June 29, 2001................................................ 3 Consolidated Statements of Operations for the three months ended September 28, 2001 and September 29, 2000.................. 4 Consolidated Statements of Comprehensive Income for the three months ended September 28, 2001 and September 29, 2000........... 4 Consolidated Statements of Cash Flows for the three months ended September 28, 2001 and September 29, 2000........................ 5 Notes to Consolidated Financial Statements......................... 6-16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................... 15-16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 16 PART II. OTHER INFORMATION Item 1. Legal proceedings......................................... 17 Item 2. Changes in securities..................................... 17 Item 3. Defaults upon senior securities........................... 17 Item 4. Submission of matters to a vote of securities holders..... 17 Item 5. Subsequent events......................................... 17 Item 6. Exhibits and reports on Form 8-K.......................... 17

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

SEPTEMBER 28, June 29, 2001 2001 (UNAUDITED) (Audited) ------------ --------- ASSETS CURRENT: Cash $ 24,468 $ 44,645 Accounts receivable, net of an allowance for doubtful accounts of $1,619 and $1,500 respectively 78,775 105,316 Inventories 113,273 106,258 Deferred taxes 5,153 5,153 Prepaid expenses and other current assets 7,312 5,595 --------- --------- Total current assets 228,981 266,967 PROPERTY, PLANT AND EQUIPMENT, NET 137,165 137,008 INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $66,300 AND $62,271 RESPECTIVELY 176,019 179,616 DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $3,084 AND $2,549 RESPECTIVELY 16,095 16,607 DEFERRED INCOME TAXES 23,643 19,010 OTHER ASSETS 2,019 2,286 --------- --------- $ 583,922 $ 621,494 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 8,155 $ 8,072 Accounts payable - trade 26,548 34,076 Accrued payroll and benefits 5,792 5,222 Accrued interest 14,788 1,673 Accrued liabilities - other 10,400 15,446 Income taxes payable 3,349 3,349 --------- --------- TOTAL CURRENT LIABILITIES 69,032 67,838 LONG-TERM DEBT 632,483 670,078 OTHER LIABILITIES 25,916 18,275 --------- --------- TOTAL LIABILITIES 727,431 756,191 --------- --------- STOCKHOLDERS' EQUITY: Common stock -- -- Additional paid-in capital 120,176 120,176 Cumulative currency translation adjustment (6,338) (7,039) Retained earnings (36,825) (27,372) Less: Treasury stock (220,522) (220,462) --------- --------- TOTAL STOCKHOLDERS' EQUITY (143,509) (134,697) --------- --------- $ 583,922 $ 621,494 ========= =========

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

Three months ended September 28, 2001 September 29, 2000 ------------------ ------------------ NET SALES $ 115,164 $ 111,907 COST OF GOODS SOLD 88,150 89,485 --------- --------- GROSS PROFIT 27,014 22,422 OPERATING EXPENSES: Selling, general and administrative 15,176 15,111 --------- --------- Operating profit 11,838 7,311 Other expenses Interest expense 17,785 18,220 Unrealized loss on derivative contracts 8,314 -- Other expense 292 530 --------- --------- Earnings before income taxes (14,553) (11,439) Income tax benefit (5,100) (5,700) --------- --------- NET EARNINGS $ (9,453) $ (5,739) ========= ========= CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME NET INCOME $ (9,453) $ (5,739) OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES Foreign currency translation adjustment 701 (1,403) --------- --------- COMPREHENSIVE INCOME (LOSS) $ (8,752) $ (7,142) ========= =========

See accompanying notes to consolidated financial statements. 4 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)

Three months ended September 28, 2001 September 29, 2000 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (9,453) $ (5,739) Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,303 9,141 Unrealized loss on derivative contracts 8,314 -- Deferred income taxes (4,623) (5,876) Changes in operating assets and liabilities: Accounts receivable 26,900 30,101 Inventories (6,968) (8,590) Prepaid expenses and other current assets (1,738) 2,051 Accounts payable (7,389) (3,656) Accrued interest 13,122 7,492 Accrued expenses and other liabilities (5,115) (16,446) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 22,353 8,478 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,723) (4,434) Additions to intangibles (501) (111) Deposits and other assets 315 72 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (4,909) (4,473) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments/borrowings of long-term debt (37,585) (4,088) Repayments/borrowings of line of credit -- (135) Payment for treasury stock (60) -- -------- -------- NET CASH USED IN FINANCING ACTIVITIES (37,645) (4,223) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 24 (11) -------- -------- Net decrease in Cash (20,177) (229) Cash, beginning of period 44,645 12,525 -------- -------- Cash, end of period $ 24,468 $ 12,296 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 4,785 $ 10,143 -------- -------- Income taxes -- 39 -------- --------

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 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 September 28, 2001, the net carrying amount of goodwill is $175,462 and other intangible assets are $557. Amortization expense during the period ended September 28, 2001 was $4,029. 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. 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 September 28, 2001 and June 29, 2001 are summarized as follows:

SEPTEMBER 28,2001 June 29, 2001 ----------------- ------------- Raw materials $ 34,969 $ 33,971 Work-in-process 8,002 7,812 Finished goods 70,302 64,475 --------- --------- $ 113,273 $ 106,258 --------- ---------

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

SEPTEMBER 28, 2001 June 29, 2001 ------------------ ------------- Senior Subordinated Notes issued June 21,2000 at 12 -3/4% due June 15, 2010. (less unamortized discount $271,703 $271,609 of $ 3,297 and $3,391) Senior Debt: Revolving line of credit, expiring June, 2006 At September 28, 2001, the interest rate ranged 29,000 65,000 from 5.6875% to 6.625% Term notes due June, 2006 and June, 2008, with interest rates at September 28, 2001 of 6.75% 334,700 336,560 and 7.25% Other, primarily foreign term loans, with interest rates ranging from 4.25% to 8.38% and maturities 5,235 4,981 from 2001 to 2004 -------- -------- 640,638 678,150 Less: Current maturities 8,155 8,072 -------- -------- $632,483 $670,078 ======== ========

TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 5 - CONTINGENCIES (a) The Company is a party to various 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. 7 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 6 - SEGMENT INFORMATION Anticipating the closing of our previously announced acquisition of the garden hose business of Mark IV Industries, Inc., Tekni-plex has reorganized 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, 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 they operate are as follows:

Industrial Packaging, CONSUMER Products, PACKAGING and Materials AND PRODUCTS TOTAL ------------- ------------- -------- September 28, 2001 Revenues from external customers $ 76,450 $ 38,714 $115,164 Interest expense 12,074 5,711 17,785 Depreciation and amortization 5,926 3,121 9,047 Segment income (loss) from operations 8,551 7,016 15,567 Expenditures for segment assets 1,586 2,967 4,553 Segment assets 305,473 249,613 555,086 -------- -------- -------- September 29, 2000 Revenues from external customers $ 78,718 $ 33,189 $111,907 Interest expense 12,281 5,939 18,220 Depreciation and amortization 6,006 2,880 8,886 Segment income from operations 6,959 3,837 10,796 Expenditures for segment assets 3,283 1,129 4,412 -------- -------- -------- June 29, 2001 Segment assets 333,570 270,731 604,301 -------- -------- --------

8 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands)

SEPTEMBER 28, 2001 September 29, 2000 ------------------ ------------------ PROFIT OR LOSS Total operating profit for reportable segments before income taxes $ 15,567 $ 10,796 Corporate and eliminations (3,729) (3,485) --------- --------- $ 11,838 $ 7,311 ========= ========= DEPRECIATION AND AMORTIZATION Segment totals $ 9,047 $ 8,886 Corporate 256 255 --------- --------- Consolidated total $ 9,303 $ 9,141 ========= ========= EXPENDITURES FOR SEGMENT ASSETS Total expenditures from reportable segments $ 4,553 $ 4,412 Other unallocated expenditures 170 22 --------- --------- Consolidated total $ 4,723 $ 4,434 ========= ========= SEPTEMBER 28, 2001 June 29, 2001 ------------------ --------------- ASSETS Total assets from reportable segments $ 555,086 $ 604,301 Other unallocated amounts 28,836 17,193 --------- --------- Consolidated total $ 583,922 $ 621,494 ========= ========= GEOGRAPHIC INFORMATION SEPTEMBER 28, 2001 September 29, 2000 ------------------ ------------------ REVENUES United States $ 102,032 $ 100,844 International 13,132 11,063 --------- --------- Total $ 115,164 $ 111,907 ========= ========= SEPTEMBER 28, 2001 June 29, 2001 ------------------ --------------- LONG-LIVED ASSETS United States $ 311,027 $ 310,866 International 43,914 43,661 --------- --------- Total $ 354,941 $ 354,527 ========= =========

9 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Consolidated Statement of Earnings (in thousands) (Unaudited) For the three months ended September 28, 2001

Non- TOTAL Issuer Guarantors Guarantors --------- --------- ---------- ---------- Net sales $ 115,164 $ 39,430 $ 62,602 $ 13,132 Cost of goods sold 88,150 29,901 48,143 10,106 --------- --------- ---------- ---------- Gross profit 27,014 9,529 14,459 3,026 Operating expenses: Selling, General and administrative 15,176 10,067 3,657 1,452 --------- --------- ---------- ---------- Operating profit (loss) 11,838 (538) 10,802 1,574 Interest expense, net 17,785 17,795 (46) 36 Unrealized loss on derivative contracts 8,314 8,314 -- -- Other expense (income) 292 53 (139) 378 --------- --------- ---------- ---------- Income (loss) before provision for income taxes (14,553) (26,700) 10,987 1,160 Provision (benefit) for income taxes (5,100) (8,644) 2,800 744 --------- --------- ---------- ---------- Net income (loss) $ (9,453) $ (18,056) $ 8,187 $ 416 ========= ========= ========== ==========

10 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) (unaudited) For the three months ended September 29, 2000

Non- TOTAL Issuer Guarantors Guarantors --------- -------- ---------- ---------- Net sales $ 111,907 $ 38,482 $ 62,362 $ 11,063 Cost of sales 89,485 29,026 52,557 7,902 --------- -------- -------- -------- Gross profit 22,422 9,456 9,805 3,161 Operating expenses: Selling, General and administrative 15,111 9,461 4,544 1,106 --------- -------- -------- -------- Operating profit (loss) 7,311 (5) 5,261 2,055 Interest expense, net 18,220 18,548 (107) (221) Other expense (income) 530 74 (63) 519 --------- -------- -------- -------- Income (loss) before provision for income taxes (11,439) (18,627) 5,431 1,757 Provision (benefit) for income taxes (5,700) (9,125) 2,700 725 --------- -------- -------- -------- Net income(loss) $ (5,739) $ (9,502) $ 2,731 $ 1,032 ========= ======== ======== ========

11 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Condensed Consolidated Balance Sheet - at September 28, 2001 (Unaudited)

Non- TOTAL Eliminations Issuer Guarantors Guarantors --------- ------------ --------- ---------- ---------- Current assets $ 228,981 $ -- $ 51,611 $ 138,496 $ 38,874 Property, plant and equipment, net 137,165 -- 38,700 79,295 19,170 Intangible assets 176,019 -- 18,975 144,446 12,598 Investment in subsidiaries -- (466,244) 466,244 -- -- Deferred charges 16,095 -- 16,024 -- 71 Other assets 25,662 (302,113) 42,039 273,661 12,075 --------- --------- --------- --------- -------- Total assets $ 583,922 $(768,357) $ 633,593 $ 635,898 $ 82,788 ========= ========= ========= ========= ======== Current liabilities $ 69,032 $ -- $ 33,881 $ 16,556 $ 18,595 Long-term debt 632,483 -- 627,963 -- 4,520 Other long-term liabilities 25,916 (302,113) 107,673 186,686 33,670 --------- --------- --------- --------- -------- Total liabilities 727,431 (302,113) 769,517 203,242 56,785 --------- --------- --------- --------- -------- Additional paid-in capital 120,176 (312,420) 120,156 296,784 15,656 Retained earnings (deficit) (36,825) (153,824) (35,558) 135,872 16,685 Cumulative currency translation adjustment (6,338) -- -- -- (6,338) Less: Treasury stock (220,522) -- (220,522) -- -- --------- --------- --------- --------- -------- Total equity (143,509) (466,244) (135,924) 432,656 26,003 --------- --------- --------- --------- -------- Total liabilities and equity $ 583,922 $(768,357) $ 633,593 $ 635,898 $ 82,788 ========= ========= ========= ========= ========

12 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 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 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 Retained earnings (deficit) (27,372) (145,221) (26,105) 127,685 16,269 Cumulative currency translation adjustment (7,039) -- -- 33 (7,072) Less: 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 ========= ========= ========= ========= ========

13 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Condensed Consolidated Cash Flows (Unaudited) For the three months ended September 28,2001

Non- TOTAL Issuer Guarantors Guarantors -------- -------- ---------- ---------- Net cash provided by (used in) operating activities $ 22,353 $ (213) $ 19,541 $ 3,025 -------- -------- -------- -------- Cash flows from Investing activities: Capital expenditures (4,723) (1,647) (1,658) (1,418) Additions to intangibles (501) (140) -- (361) Deposits and other assets 315 (1,909) 2,751 (527) -------- -------- -------- -------- Net cash provided by (used in) provided by investing activities (4,909) (3,696) 1,093 (2,306) -------- -------- -------- -------- Cash flows from financing activities Repayment of long term debt (37,585) (37,860) -- 275 Payment for treasury stock (60) (60) -- -- Change in intercompany accounts -- 20,117 (20,117) -- -------- -------- -------- -------- Net cash flows provided by (used in) financing activities (37,645) (17,803) (20,117) 275 -------- -------- -------- -------- Effect of exchange rate changes on cash 24 -- -- 24 -------- -------- -------- -------- Net increase (decrease) in cash (20,177) (21,712) 517 1,018 Cash, beginning of period 44,645 32,890 5,321 6,434 -------- -------- -------- -------- Cash, end of period $ 24,468 $ 11,178 $ 5,838 $ 7,452 ======== ======== ======== ========

For the three months ended September 29, 2000

Non- TOTAL Issuer Guarantors Guarantors -------- -------- ---------- ---------- Net cash provided by (used in) operating activities $ 8,478 $(14,869) $ 19,982 $ 3,365 Cash flows from Investing activities: -------- -------- -------- --------- Capital expenditures (4,434) (1,237) (2,632) (565) Additions to intangibles (111) (111) -- -- Deposits and other assets 72 1,264 (1,201) 9 -------- -------- -------- -------- Net cash used in investing activities (4,473) (84) (3,833) (556) -------- -------- -------- -------- Cash flows from financing activities Repayment of long term debt (4,088) (3,705) -- (383) Repayment of line of credit (135) -- -- (135) Change in intercompany accounts -- 15,140 (15,140) -- -------- -------- -------- -------- Net cash flows provided by (used in) financing activities (4,223) 11,435 (15,140) (518) -------- -------- -------- -------- Effect of exchange rate changes on cash (11) -- -- (11) -------- -------- -------- -------- Net increase (decrease) in cash (229) (3,518) 1,009 2,280 Cash, beginning of period 12,525 5,638 3,766 3,121 -------- -------- -------- -------- Cash, end of period $ 12,296 $ 2,120 $ 4,775 $ 5,401 ======== ======== ======== ========

14 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER OF FISCAL 2002 COMPARED WITH THE FIRST QUARTER OF FISCAL 2001 Net Sales increased to $115.2 million for the three months ended September 28, 2001 from $111.9 million for the three months ended September 29, 2000. This represents an increase of $3.3 million or 2.9%. Increases in the Consumer Segment more than offset declines in our Industrial Segment. Our Consumer Segment sales increased $5.5 million or 16.6% primarily due to the extension of our garden hose selling season resulting from a change in the buying pattern of one of this segment's major customers. Favorable weather conditions, particularly on the West Coast, also contributed to strong garden hose sales in the quarter. Our Industrial Segment reported a $2.3 million decline in sales or 2.9%. Within the segment, sales increases to our food packaging customers were offset by declining sales of specialty resins and somewhat softer sales to our healthcare customers. Cost of Sales declined to $88.2 million for the three months ended September 28, 2001 from $89.5 million for the three months ended September 29, 2000, a decrease of $1.3 million. Expressed as a percentage of net sales, cost of sales decreased to 76.5% for the three months ended September 28, 2001 from 80.0% for the three months ended September 29, 2000. Lower resin costs, improved operating efficiencies and higher selling prices for many of our products accounted for the improvement in this ratio. Gross Profit, as a result, increased to $27.0 million or 23.5% of net sales for the three months ended September 28, 2001 from $22.4 million or 20.0% of net sales for the three months ended September 29, 2000. Selling, general and administrative expense was virtually unchanged at $15.2 million in the three months ended September 28, 2001 compared to $15.1 million in the three months ended September 29, 2000. The ratio of selling, general and administrative expense to net sales decreased to 13.2% for the three months ending September 28, 2001 from 13.5% in the comparable period of last year. Operating profit, as a result of the foregoing, increased to $11.8 million or 10.3% of net sales for the three months ended September 28, 2001 from $7.3 million or 6.5% of net sales for the three months ended September 29, 2000. Interest expense decreased to $17.8 million or 15.4% of net sales in the three months ended September 28, 2001 from $18.2 million or 16.3% of net sales in the three months ended September 29, 2000. The decrease was due to lower debt levels and lower interest rates. Income (loss) before income taxes, as a result, was a loss of ($14.6) million for the three months ended September 28, 2001 compared to a loss of ($11.4) million for the three months ended September 29, 2000. Benefit for income taxes was a credit of $5.1 million for the three months ended September 28, 2001, compared to a credit of $5.7 million for the three months ended September 29, 2000. The Company's effective tax rate was 35.0% for the three months ended September 28, 2001 compared to 49.8% for the three months ending September 29, 2000. Net income (loss), as a result, was a loss of ($9.5) million for the three months ended September 28, 2001 compared with a loss of ($5.7) million for the three months ended September 29, 2000. 15 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the three months ended September 28, 2001 was $22.4 million compared with $8.5 million in the same period of the prior year. The increase of $13.9 million was due primarily to non-cash interest expense associated with our interest rate hedges in the current period as well as improvements in accrued expenses and other liabilities and prepaid expenses and other current assets. Working capital on September 28, 2001 was $159.9 million compared to $199.1 million on June 29, 2001. The decrease was due primarily to a seasonal reduction in accounts receivable offset by a normal seasonal increase in inventories. As of September 28, 2001, the Company had an outstanding balance of $29.0 million under the $100.0 million revolving credit line. This represents a reduction of $36.0 million from the outstanding balance as of June 29, 2001. The Company's capital expenditures for the three months ended September 28, 2001 and September 29, 2000 were $4.7 million and $4.4 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 might 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. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk inherent in certain debt instruments. At September 28, 2001, the principal amount of the Company's aggregate outstanding variable rate indebtedness was $363.7 million. A hypothetical 10% adverse change in interest rates would have an annualized unfavorable impact of approximately $1.7 million on the Company's after-tax earnings and cash flows, assuming the Company's current effective tax rate and assuming no change in the principal amount. Conversely, a reduction in interest rates would favorably impact the Company's after-tax earnings and cash flows in a similar proportion. 16 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 On October 16, 2001, the Company acquired the garden hose business of Mark IV Industries, Inc. for $64.2 million. The transaction was structured as an acquisition of substantially all of the assets of Mark IV's Swan Hose Division by a wholly-owned subsidiary of Tekni-Plex. Swan Hose manufactures garden hose and air hose primarily for the U.S. and Canadian markets from its Bucyrus Ohio facility. Swan will become part of the Company's Consumer Packaging and Products business segment. Item 6. Exhibits and Reports on Form 8-K (a) Reports on Form 8-K None 17 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. November 13, 2001 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 18