10-Q 1 y48734e10-q.txt TEKNI-PLEX INC 1 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 30, 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) 201 Industrial Parkway (908) 722-4800 -------------------------------------- ------------------------------- Somerville, New Jersey 08876 (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 / / 2 TEKNI-PLEX, INC.

Page # PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 30, 2001 and June 30, 2000 (unaudited)...................................... 3 Consolidated Statements of Operations for the nine months and three months ended March 30, 2001 and March 31, 2000 (unaudited)......... 4 Consolidated Statements of Comprehensive Income (loss) for the nine months And three months ended March 30, 2001 and March 31, 2000 (unaudited)......................................... 4 Consolidated Statements of Cash Flows for the nine months ended March 30, 2001 and March 31, 2000 (unaudited) ........................... 5 Notes to Consolidated Financial Statements .......................... 6-15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................... 16-18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .... 18 PART II. OTHER INFORMATION Item 1. Legal proceedings ............................................. 19 Item 2. Changes in securities ......................................... 19 Item 3. Defaults upon senior securities ............................... 19 Item 4. Submission of matters to a vote of securities holders ......... 19 Item 5. Other information ............................................. 19 Item 6. Exhibits and reports on Form 8-K .............................. 19

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

MARCH 30, 2001 June 30, 2000 (UNAUDITED) (AUDITED) -------------- ------------- ASSETS CURRENT: Cash and cash equivalents $ 18,509 $ 12,525 Accounts receivable, net of an allowance of $1,475 and $1,642 for possible losses 95,214 96,039 Inventories 125,151 91,233 Refundable income taxes 10,873 14,883 Deferred income taxes 4,997 4,997 Prepaid expenses and other current assets 7,144 2,171 --------- --------- TOTAL CURRENT ASSETS 261,888 221,848 Property, plant and equipment, net 137,891 135,926 intangible assets, net of accumulated amortization OF $57,470 AND $45,480 respectively 183,899 190,492 Deferred financing costs, net of accumulated amortization of $1,849 and $0 respectively 17,179 18,897 Deferred income taxes 22,890 5,398 Other assets 2,151 2,228 --------- --------- $ 625,898 $ 574,789 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 8,155 $ 8,401 Accounts payable - trade 39,673 30,026 Accrued payroll and benefits 5,713 11,662 Accrued interest 18,845 2,359 Accrued liabilities - other 14,915 23,521 --------- --------- TOTAL CURRENT LIABILITIES 87,301 75,969 Long-term debt 682,080 643,192 Other liabilities 18,789 4,778 --------- --------- TOTAL LIABILITIES 788,170 723,939 --------- --------- STOCKHOLDER'S EQUITY: Common stock -- -- Additional paid-in capital 90,176 84,176 Accumulated comprehensive loss (13,408) (4,486) Retained earnings (18,578) (8,378) Less: treasury stock (220,462) (220,462) --------- --------- TOTAL STOCKHOLDER'S EQUITY (162,272) (149,150) --------- --------- $ 625,898 $ 574,789 ========= =========

See accompanying notes to consolidated financial statements. 3 4 TEKNI-PLEX, INC. AND SUBSIDIARIES (Unaudited -- in thousands) CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended MARCH 30, March 31, MARCH 30, March 31, 2001 2000 2001 2000 --------- --------- --------- --------- NET SALES $ 140,681 $ 143,931 $ 358,461 $ 364,200 Cost of sales 103,896 105,937 275,131 269,703 --------- --------- --------- --------- Gross profit 36,785 37,994 83,330 94,497 OPERATING EXPENSES: Selling, general and administrative 15,658 14,006 45,137 42,994 --------- --------- --------- --------- Income from Operations 21,127 23,988 38,193 51,503 OTHER EXPENSES: Interest, net 19,824 10,184 57,686 29,723 Other 457 84 907 707 --------- --------- --------- --------- Income (loss) before provision for Income taxes 846 13,720 (20,400) 21,073 Provision (benefit) for income taxes 400 6,700 (10,200) 10,300 --------- --------- --------- --------- NET INCOME (Loss) $ 446 $ 7,020 $ (10,200) $ 10,773 ========= ========= ========= =========

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) NET INCOME (LOSS) $ 446 $ 7,020 $ (10,200) $ 10,773 Other comprehensive income (loss), net of taxes Unrealized loss on interest rate hedges (1,500) -- (7,146) -- Foreign currency translation adjustment (1,216) (1,051) (1,776) (3,056) --------- --------- --------- --------- Comprehensive income (loss) $ (2,270) $ 5,969 $ (19,122) $ 7,717 ========= ========= ========= ========= See accompanying notes to consolidated financial statements. 4 5 TEKNI-PLEX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited -- in thousands)

Nine months ended MARCH 30, 2001 March 31, 2000 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $(10,200) $ 10,773 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 27,855 24,735 Deferred income taxes (10,352) 386 Changes in operating assets and liabilities (Net of effects of acquisition): Accounts receivable 641 5,742 Inventories (34,217) (39,401) Prepaid expenses and other current assets (973) (5,277) Income taxes -- 3,426 Accounts payable 9,592 1,019 Accrued interest 16,478 (1,410) Accrued expenses and other liabilities (15,684) (20,544) -------- -------- NET CASH USED IN OPERATING ACTIVITIES (16,860) (20,551) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (12,390) (11,176) Acquisition costs (8,964) (193) Deposits and other assets 75 (336) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (21,279) (11,705) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of long-term debt 38,419 28,312 Net borrowings (repayments) under line of credit (123) (166) Receipt of additional paid-in capital 6,000 -- Debt financing costs (131) (42) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 44,165 28,104 -------- -------- EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (42) (5) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,984 (4,157) CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 12,525 22,117 -------- -------- CASH AND CASH EQUIVALENTS END OF PERIOD $ 18,509 $ 17,960 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for: Interest $ 40,942 $ 32,859 -------- -------- Income taxes 1,048 6,624 -------- --------

See accompanying notes to consolidated financial statements. 5 6 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 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. 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 30, 2000. NOTE 2 - 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 to hedge a portion of total long-term debt that is subject to variable interest rates and designates these instrument as cash flow hedges. These 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. 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 a component of accumulated other comprehensive loss. Tekni-Plex does not enter into such contracts for speculative purposes and currently these are the only derivative instruments held by Tekni-Plex as of March 30, 2001. The fair value of interest rate swap 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 charge. 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. These hedges are highly effective and there is no ineffective portion. The aggregate fair market value of all interest rate swap contracts was ($11,295) on December 29, 2000. The aggregate fair market value of these interest rate swaps contracts was ($14,293) on March 30, 2001 and is included in other liabilities on the Consolidated Balance Sheet. NOTE 3 - INVENTORIES Inventories as of March 30, 2001 and June 30, 2000 are summarized as follows:

MARCH 30, 2001 June 30, 2000 -------------- ------------- Raw materials $ 36,606 $ 44,002 Work-in-process 7,583 7,024 Finished goods 80,962 40,207 --------- -------- $ 125,151 $ 91,233 ========= ========

6 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 30, 2001 June 30, 2000 -------------- ------------- Senior Subordinated Notes issued June 21, 2000 at 12.75% due June 15, 2010. (Less unamortized discount of $3,485 and $3,768) $271,515 $271,232 Senior Secured Debt: Revolving line of credit, expiring June, 2006 At March 30, 2001, the interest rate ranged from 8.06% to 10.00% 75,000 30,000 Term notes due June, 2006 and June, 2008, with interest rates at March 30, 2001 of 7.94% and 8.44% 338,420 344,000 Other, primarily foreign term loans, with interest rates ranging from 4.25% to 8.40% and maturities from 2001 to 2004 5,300 6,361 -------- -------- 690,235 651,593 Less: Current maturities 8,155 8,401 -------- -------- $682,080 $643,192 ======== ========

7 8 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 5 - CONTINGENCIES (a) In January 1993 and 1994, the Company's Belgian subsidiary received income tax assessments aggregating approximately $1,639 (75,247 Belgian Francs) for the disallowance of certain foreign tax credits and investment losses claimed for the years ended July 31, 1990 and 1991. Additionally, in January 1995, the subsidiary received an income tax assessment of approximately $699 (32,083 Belgian Francs) for the year ended July 31, 1992. By Belgian law, these assessments are capped at the values above and do not continue to accrue additional penalties or interest. Although the future outcome of these matters is uncertain, the Company believes that its tax position was appropriate and that the assessments are without merit. Therefore, the Company has appealed the assessments. Based on advice of legal counsel in Belgium, the Company believes that the assessment appeals will be accepted by the tax authorities in Belgium, although there can be no assurance whether or when such appeals will be accepted. (b) The Company is a party to various other legal proceedings arising in the normal conduct of business. Management believes that the final outcome of these proceedings will not have a material adverse effect on the Company's financial position, results of operations and cash flows. 8 9 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - 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. The healthcare packaging, products, and materials and consumer packaging and products 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:

Healthcare Packaging, Consumer Specialty Products, Packaging Food Resins and and Materials and Products Packaging Compounds TOTAL ------------- ------------ --------- --------- ----- Three months ended March 30, 2001 Revenues from external Customers $ 37,038 $ 58,241 $ 32,402 $ 13,000 $140,681 Interest expense 6,261 6,069 4,789 2,705 19,824 Depreciation and amortization 2,724 3,186 2,115 1,104 9,129 Income from operations 6,876 10,293 6,928 14 24,111 Expenditures for segment Assets 498 1,691 862 570 3,621 -------- -------- -------- -------- -------- Three months ended March 31, 2000 Revenues from external Customers $ 42,813 $ 56,605 $ 29,336 $ 15,177 $143,931 Interest expense 2,864 3,608 2,160 1,552 10,184 Depreciation and Amortization 2,578 2,597 1,560 1,173 7,908 Income from operations 8,631 11,175 6,217 187 26,210 Expenditures for segment Assets 1,907 852 1,263 642 4,664 -------- -------- -------- -------- --------

9 10 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - SEGMENT INFORMATION

Healthcare Packaging, Consumer Specialty Products, Packaging Food Resins and and Materials and Products Packaging Compounds TOTAL ------------- ------------ --------- --------- ----- Nine months ended March 30, 2001 Revenues from external Customers $110,503 $115,970 $ 93,118 $ 38,870 $358,461 Interest expense 17,956 18,220 13,379 8,131 57,686 Depreciation and Amortization 8,199 9,084 6,431 3,373 27,087 Income from operations 14,547 17,406 18,511 (2,231) 48,233 Expenditures for segment Assets 2,035 5,525 2,326 2,010 11,896 -------- -------- -------- -------- -------- Nine months ended March 31, 2000 Revenues from external customers $116,069 $119,797 $ 83,677 $ 44,657 $364,200 Interest expense 8,695 10,139 6,383 4,506 29,723 Depreciation and amortization 7,840 7,750 5,377 3,436 24,403 Income from operations 21,129 20,160 17,790 1,286 60,365 Expenditures for segment Assets 2,988 2,515 4,027 1,196 10,726 -------- -------- -------- -------- --------

Three months ended Nine months ended MARCH 30, March 31, MARCH 30, March 31, 2001 2000 2001 2000 -------- -------- -------- -------- INCOME FROM OPERATIONS Total income from operations operating profit for reportable segments before income taxes $ 24,111 $ 26,210 $ 48,233 $ 60,365 Corporate and eliminations (2,984) (2,222) (10,040) (8,862) -------- -------- -------- -------- $ 21,127 $ 23,988 $ 38,193 $ 51,503 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION Segment totals $ 9,129 $ 7,908 $ 27,087 $ 24,403 Corporate 256 115 768 332 -------- -------- -------- -------- Consolidated total $ 9,385 $ 8,023 $ 27,855 $ 24,735 ======== ======== ======== ======== EXPENDITURES FOR SEGMENT ASSETS Total reportable-segment expenditures $ 3,621 $ 4,664 $ 11,896 $ 10,726 Other unallocated expenditures 90 300 494 450 -------- -------- -------- -------- Consolidated total $ 3,711 $ 4,964 $ 12,390 $ 11,176 ======== ======== ======== ========

10 11 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 6 - SEGMENT INFORMATION SEGMENT ASSETS

Healthcare Packaging, Consumer Specialty Products, Packaging Food Resins and and Materials and Products Packaging Compounds TOTAL ------------- ------------ --------- --------- ----- March 30, 2001 $166,423 $271,557 $73,259 $82,671 $593,910 June 30, 2000 171,764 220,576 77,642 83,900 553,882 -------- -------- -------- -------- --------

MARCH 30, 2001 June 30, 2000 -------------- ------------- TOTAL ASSETS Total assets from reportable segments $ 593,910 $ 553,882 Other unallocated amounts 31,988 20,907 --------- --------- Consolidated total $ 625,898 $ 574,789 ========= =========

GEOGRAPHIC INFORMATION

Three months ended Nine months ended MARCH 30, March 31, MARCH 30, March 31, 2001 2000 2001 2000 -------- -------- -------- -------- REVENUES United States $123,569 $129,626 $318,319 $329,185 International 17,112 14,305 40,142 35,015 -------- -------- -------- -------- Total $140,681 $143,931 $358,461 $364,200 ======== ======== ======== ========

MARCH 30, 2001 June 30, 2000 -------------- ------------- LONG-LIVED ASSETS United States $ 319,219 $ 316,691 International 44,791 36,250 --------- --------- Total $ 364,010 $ 352,941 ========= =========

11 12 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 7 - 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 Other expense (income) 457 (624) (301) 1,382 -------- -------- -------- -------- Income (loss) before provision benefit for income taxes 846 (17,419) 15,421 2,844 Provision benefit for income taxes 400 (8,700) 7,217 1,883 -------- -------- -------- -------- Net income (loss) $ 446 $ (8,719) $ 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) Other expense (income) 907 (500) (666) 2,073 -------- -------- -------- -------- Income (loss) before provision benefit for income taxes (20,400) (55,193) 28,015 6,778 Provision benefit income taxes (10,200) (27,600) 14,000 3,400 -------- -------- -------- -------- Net income (loss) $(10,200) $(27,593) $ 14,015 $ 3,378 ======== ======== ======== ========

12 13 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Consolidated Statement of Earnings (Unaudited) For the three months ended March 31, 2000

Non- TOTAL Issuer Guarantors Guarantors -------- -------- ---------- ---------- Net sales $143,931 $ 40,121 $ 89,505 $ 14,305 Cost of sales 105,937 29,068 67,316 9,553 -------- -------- -------- -------- Gross profit 37,994 11,053 22,189 4,752 Operating expenses: Selling, general and administrative 14,006 7,589 5,294 1,123 -------- -------- -------- -------- Income from operations 23,988 3,464 16,895 3,629 Interest expense (income), net 10,184 10,269 8 (93) Other expense (income) 84 232 (288) 140 -------- -------- -------- -------- Income (loss) before provision for income taxes 13,720 (7,037) 17,175 3,582 Provision benefit for income taxes 6,700 (3,400) 8,300 1,800 -------- -------- -------- -------- Net income (loss) $ 7,020 $ (3,637) $ 8,875 $ 1,782 ======== ======== ======== ========

For the nine months ended March 31, 2000

Non- TOTAL Issuer Guarantors Guarantors -------- -------- ---------- ---------- Net sales $364,200 $116,284 $212,901 $ 35,015 Cost of sales 269,703 83,974 161,713 24,016 -------- -------- -------- -------- Gross profit 94,497 32,310 51,188 10,999 Operating expenses: Selling, general and administrative 42,994 28,347 11,076 3,571 -------- -------- -------- -------- Income from operations 51,503 3,963 40,112 7,428 Interest expense (income), net 29,723 29,924 44 (245) Other expense (income) 707 346 (868) 1,229 -------- -------- -------- -------- Income (loss) before provision for income taxes 21,073 (26,307) 40,936 6,444 Provision benefit for income taxes 10,300 (12,900) 20,000 3,200 -------- -------- -------- -------- Net income (loss) $ 10,773 $(13,407) $ 20,936 $ 3,244 ======== ======== ======== ========

13 14 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet - at March 30, 2001 (Unaudited)

Non- TOTAL Eliminations Issuer Guarantors Guarantors --------- ------------ --------- ---------- ---------- Current assets $ 261,888 $ -- $ 62,135 $163,692 $ 36,061 Property, plant and equipment, net 137,891 -- 38,939 79,648 19,304 Intangible assets 183,899 -- 16,854 154,059 12,986 Investment in subsidiaries -- (416,284) 416,284 -- -- Deferred financing costs, net 17,179 -- 17,179 -- -- Other long-term assets 25,041 (299,517) 91,480 220,577 12,501 --------- --------- --------- -------- -------- Total assets $ 625,898 $(715,801) $ 642,871 $617,976 $ 80,852 ========= ========= ========= ======== ======== Current liabilities $ 87,301 $ -- $ 41,798 $ 25,826 $ 19,677 Long-term debt 682,080 -- 677,495 -- 4,585 Other long-term liabilities 18,789 (299,517) 75,581 209,752 32,973 --------- --------- --------- -------- -------- Total liabilities 788,170 (299,517) 794,874 235,578 57,235 --------- --------- --------- -------- -------- Additional paid-in capital 90,176 (312,420) 90,156 296,787 15,653 Accumulated comprehensive loss (13,408) -- (7,146) -- (6,262) Retained earnings (18,578) (103,864) (14,551) 85,611 14,226 Less: Treasury stock (220,462) -- (220,462) -- -- --------- --------- --------- -------- -------- Total equity (162,292) (416,284) (152,003) 382,398 23,617 --------- --------- --------- -------- -------- Total liabilities and equity $ 625,898 $(715,801) $ 642,871 $617,976 $ 80,852 ========= ========= ========= ======== ========

Condensed Consolidated Balance Sheet - at June 30, 2000

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

14 15 TEKNI-PLEX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) NOTE 8 - ACQUISITION The Company purchased certain assets and assumed certain liabilities of a division of RCR International on October 25, 2000, for approximately $9,284 in cash. In connection with the acquisition, liabilities were assumed as follows: Fair value of assets assumed $ 7,314 Goodwill 5,544 Cash paid (9,284) --------- Liabilities assumed $ 3,574 ========= 15 16 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER OF FISCAL 2001 COMPARED WITH THE THIRD QUARTER OF FISCAL 2000 Net Sales decreased to $140.7 million for the three months ended March 30, 2001 from $143.9 million for the three months ended March 31, 2000. This represents a decrease of $3.3 million or 2.3%. The decrease was due primarily to the loss of some lower margin business at our healthcare unit as well as the ongoing impact of our garden hose customers continuing to minimize their second tier inventory levels throughout the garden hose selling season. Cost of Sales decreased to $103.9 million for the three months ended March 30, 2001 from $105.9 million for the three months ended March 30, 2000. Expressed as a percentage of net sales, cost of sales increased slightly to 73.9% for the three months ended March 30, 2001 from 73.6% for the three months ended March 31, 2000. The primary cause of the increase was higher depreciation expense. Gross Profit, as a result, decreased to $36.8 million for the three months ended March 30, 2001 from $38.0 million for the three months ended March 31, 2000. Expressed as a ratio to net sales, gross profit declined slightly from 26.4% in the three months ended March 31, 2000 to 26.1% in the three months ended March 30, 2001. Selling, general, and administrative expense increased to $15.7 million or 11.1% of net sales for the three months ended March 30, 2001 from $14.0 million or 9.7% of net sales for the three months ended March 31, 2000 due to changes in employee benefits. Operating profit decreased to $21.1 million or 15.0% of net sales for the three months ended March 30, 2001 from $24.0 million or 16.7% of net sales for the three months ended March 31, 2000, for the reasons discussed above. Interest expense increased to $19.8 million or 14.1% of net sales for the three months ended March 30, 2001 from $10.2 million or 7.1% of net sales for the three months ending March 31, 2000 as a result of the Company's recapitalization program completed in June of 2000. The ratio of the provision for income taxes to income (loss) before income taxes was 47.3% for the three months ended March 30, 2001 versus 48.8% for the three months ending March 31, 2000. Net income decreased to $0.4 million for the three months ended March 30, 2001 from $7.0 million or 4.9% of net sales for the three months ending March 31, 2000. 16 17 FIRST NINE MONTHS OF FISCAL 2001 COMPARED WITH THE FIRST NINE MONTHS OF FISCAL 2000 Net Sales decreased to $358.5 million for the nine months ended March 30, 2001 from $364.2 million for the nine months ended March 31, 2000. This represented a decrease of $5.7 million or 1.6%. The major reason for the decrease was a shift in the seasonal ordering pattern of garden hose by one of the Company's major customers. Cost of Sales increased to $275.1 million for the nine months ended March 30, 2001 from $269.7 million for the nine months ended March 31, 2000. Expressed as a percentage of net sales, cost of sales increased to 76.8% for the nine months ended March 30, 2001 versus 74.1% for the first nine months ended March 31, 2000. The primary cause of the increase was higher raw materials costs in the nine months ended March 30, 2001 from the nine months ended March 31, 2000. Gross Profit, as a result, decreased to $83.3 million for the nine months ended March 30, 2001 from $94.5 million for the nine months ended March 31, 2000, and the ratio of gross profit to net sales decreased to 23.2% of net sales for the nine months ended March 30, 2001 compared with 25.9% for the nine months ended March 31, 2000. Selling, general, and administrative expense increased to $45.1 million for the nine months ended March 30, 2001 from $43.0 million for the nine months ended March 31, 2000. As a ratio to net sales, selling, general, and administrative expense increased to 12.6% for the nine months ended March 30, 2001 from 11.8% for the nine months ended March 31, 2000 due to lower sales for the current period and a change in employee benefits as discussed above in Management's Discussion and Analysis of the current quarter. Operating profit decreased to $38.2 million or 10.7% of net sales for the nine months ended March 30, 2001 from $51.5 million or 14.1% for the nine months ended March 31, 2000 for the reasons discussed above. Interest expense increased to $57.7 million or 16.1% of net sales for the nine months ended March 30, 2001 from $29.7 million or 8.2% of net sales for the same period in the prior year as a result of the Company's recapitalization program completed in June, 2000 The ratio of the provision for income taxes to income (loss) before income taxes was 50.0% for the nine months ended March 30, 2001 versus 48.9% for the nine months ending March 31, 2000. Net income (loss), as a result, was a loss of $(10.2) million for the nine months ended March 30, 2001 versus income of $10.8 million for the nine months ending March 31, 2000. 17 18 LIQUIDITY AND CAPITAL RESOURCES For the nine months ended March 30, 2001, net cash used by operating activities was $16.9 million compared to $20.5 million for the same period in the prior year for a decreased usage of $3.7 million. Various year-over-year changes in operating assets, accrued expenses, and liabilities are generally due to offsetting timing differences. Working capital at March 30, 2001 was $174.6 million compared to $145.9 million at June 30, 2000. The increase was due primarily to higher inventories in Consumer Packaging and Products to support the increased level of sales and the highly seasonal nature of that business segment. Approximately 75% of the annual sales in garden hose, which is the largest business unit in that segment, occur in the spring and early summer months. As of March 30, 2001, the Company had an outstanding balance of $75.0 million under the $100 million revolving credit line of the existing credit facility. This was an increase of $45.0 million from the outstanding balance as of June 30, 2000, and was due primarily to normal seasonal requirements of the Consumer Packaging and Products business segment. The Company's capital expenditures for the nine months ended March 30, 2001 and March 31, 2000 were $12.4 million, and $11.2 million, respectively. The increase was the result of making improvements in the recently acquired operations. Apart from acquisitions, the Company's principal uses of cash will be debt service, capital expenditures and working capital requirements. Management believes that cash generated from operations plus funds from the credit facility will be sufficient to meet the Company's expected debt service requirements, planned capital expenditures, and operating needs. However, there can be no assurance that sufficient funds will be available from operations or borrowings under the credit facility to meet the Company's cash needs to the extent management anticipates. The credit facility will provide the Company with the increased flexibility to make capital expenditures and acquisitions that management believes will provide an attractive return on investment. To the extent the Company pursues future acquisitions, the Company may be required to obtain additional financing. There can be no assurance that it will be able to obtain such financing in amounts and on terms acceptable to it. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk inherent in certain debt instruments. At March 30, 2001, the principal amount of the Company's aggregate outstanding variable rate indebtedness was $413.4 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. 18 19 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. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 19 20 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 14, 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 Chief Financial Officer 20