TEKNI PLEX INC
10-Q, 2000-02-10
PLASTICS FOAM PRODUCTS
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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 December 31, 1999

[ ] 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
(State or other jurisdiction of
incorporation or organization)		 22-3286312
(IRS Employer
Identification Number)
 
201 Industrial Parkway
Somerville, New Jersey
(Address of principal executive office)		 08876
(Zip Code)

(908) 722-4800

(Registrant’s telephone number)

     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.

[X]  Yes       [ ]  No

TEKNI-PLEX, INC.

               
Page #
PART I. FINANCIAL INFORMATION
Item  1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and July 2, 1999 3
Consolidated Statements of Operations for the six months and three months ended December 31, 1999 and January 1, 1999 4
Consolidated Statements of Comprehensive Income for the six months and three months ended December 31, 1999 and January 1, 1999 4
Consolidated Statements of Cash Flows for the six months ended December 31, 1999 and January 1, 1999 5
Notes to Consolidated Financial Statements 6-11
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12-14
Item  3. Quantitative and Qualitative Disclosures About Market Risk 14
 
PART II. OTHER INFORMATION
Item  1. Legal proceedings 15
Item  2. Changes in securities 15
Item  3. Defaults upon senior securities 15
Item  4. Submission of matters to a vote of securities holders 15
Item  5. Other information 15
Item  6. Exhibits and reports on Form 8-K 15

TEKNI-PLEX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)
                     
December 31, July 2,
1999 1999
(Unaudited)
ASSETS
Current:
Cash $ 23,345 $ 22,117
Accounts receivable, net of an allowance of $1,574 and $1,662 for possible losses 60,253 96,835
Inventories 90,251 63,190
Deferred income taxes 5,700 5,900
Prepaid expenses and other current assets 9,492 3,664
Total current assets 189,041 191,706
Property, plant and equipment, net 132,498 136,953
Intangible assets, net of accumulated amortization of $37,600 and $29,581 200,945 206,140
Deferred financing costs, net of accumulated amortization of $5,556 and $4,287 18,112 19,358
Deferred income taxes 1,054 1,346
Other assets 4,070 3,933
$ 545,720 $ 559,436
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current portion of long-term debt $ 6,173 $ 5,207
Line of credit 456 541
Accounts payable — trade 28,808 27,612
Accrued payroll and benefits 11,192 21,581
Accrued interest 9,099 7,965
Accrued liabilities — other 19,418 26,613
Income taxes payable 156 742
Total current liabilities 75,302 90,261
Long-term debt 411,474 410,646
Other liabilities 4,900 6,232
Total liabilities 491,676 507,139
Stockholder’s equity:
Common stock — —
Additional paid-in capital 41,075 41,075
Cumulative currency translation adjustment (3,373 ) (1,368 )
Retained earnings 16,342 12,590
Total stockholder’s equity 54,044 52,297
$ 545,720 $ 559,436

      See accompanying notes to consolidated financial statements.

3

TEKNI-PLEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited — in thousands)
                                     
Three Months Ended Six Months Ended
December 31, January 1, December 31, January 1,
1999 1999 1999 1999
Net sales $ 102,381 $ 94,004 $ 212,307 $ 202,073
Cost of sales 74,883 69,126 155,804 150,104
Gross profit 27,498 24,878 56,503 51,969
Operating expenses:
Selling, general and administrative 14,846 14,558 28,988 28,518
Income from Operations 12,652 10,320 27,515 23,451
Other expenses:
Interest, net 9,914 9,399 19,539 19,006
Other 441 122 623 497
Income before provision for income taxes 2,297 799 7,353 3,948
Provision for income taxes 1,100 294 3,600 1,900
Net income $ 1,197 $ 505 $ 3,753 $ 2,048
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income $ 1,197 $ 505 $ 3,753 $ 2,048
Other comprehensive income (loss), net of taxes
Foreign currency translation adjustment (1,362 ) (495 ) (2,005 ) 1,076
Comprehensive income (loss) $ (165 ) $ 10 $ 1,748 $ 3,124

      See accompanying notes to consolidated financial statements.

4

TEKNI-PLEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited — in thousands)
                       
Six Months Ended
December 31, January
1999 1, 1999
Cash flows from Operating Activities:
Net income $ 3,753 $ 2,048
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 16,712 16,294
Deferred income taxes 478 —
Changes in operating assets and liabilities:
Accounts receivable 36,499 35,301
Inventories (27,168 ) (21,617 )
Prepaid expenses and other current assets (5,960 ) (593 )
Income taxes (486 ) (2,436 )
Accounts payable 912 (5,649 )
Accrued interest 1,102 332
Accrued expenses and other liabilities (19,556 ) (17,879 )
Net cash provided by Operating Activities 6,286 5,801
Cash flows from Investing Activities:
Capital expenditures (6,212 ) (4,838 )
Acquisition costs (144 ) (88 )
Deposits and other assets (145 ) 1,924
Net cash used in Investing Activities (6,501 ) (3,002 )
Cash flows from Financing Activities:
Borrowings (repayments) of long-term debt 1,551 (4,261 )
Net borrowings (repayments) under line of credit (85 ) 54
Debt financing costs (23 ) —
Net cash provided by (used in) Financing Activities 1,443 (4,207 )
 
Net increase (decrease) in Cash 1,228 (1,408 )
Cash, beginning of period 22,117 29,363
Cash, end of period $ 23,345 $ 27,955
Supplemental cash flow information:
Cash paid for:
Interest $ 19,978 $ 18,580
Income taxes 5,139 5,822

      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 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 July 2, 1999.

Note 2 — Inventories

      Inventories as of December 31, 1999 and July 2, 1999 are summarized as follows:

                 
December 31, July 2,
1999 1999
Raw materials $ 29,763 $ 26,663
Work-in-process 6,414 5,282
Finished goods 54,074 31,245
$ 90,251 $ 63,190

Note 3 — Long-Term Debt

      Long-term debt consists of the following:

                   
December 31, July 2,
1999 1999
Senior Subordinated Notes issued March 3, 1998 at 9 1/4% due March 1, 2008 $ 200,000 $ 200,000
Senior Subordinated Notes issued April 4, 1997 at 11 1/4% due April 1, 2007 75,000 75,000
Senior Debt:
Revolving line of credit, expiring March 31, 2004. At December 31, 1999, the interest rate was 9.25% 26,000 22,000
Term notes due March 31, 2004 and March 31, 2006, with interest rates at December 31, 1999 of 7.5625% and 8.0625% 109,488 111,063
Other, primarily foreign term loans, with interest rates ranging from 4 1/4% to 8.4% and maturities from 2000 to 2004 7,615 8,331
418,103 416,394
Less: Current maturities 6,629 5,748
$ 411,474 $ 410,646

Note 4 — Contingencies

  (a)  In January 1993 and 1994, the Company’s Belgian subsidiary received income tax assessments aggregating approximately $1,874 (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.

6

TEKNI-PLEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands)

  Additionally, in January 1995, the subsidiary received an income tax assessment of approximately $799 (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.

Note 5 — 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. Prior to 1998, the Company operated principally in the food packaging segment.

      Financial information concerning the Company’s business segments and the geographic areas in which it operates are as follows:

                                         
Healthcare
Packaging, Consumer Specialty
Products, Packaging Food Resins and
and Materials and Products Packaging Compounds Total
Three months ended December 31, 1999
Revenues from external customers $ 34,619 $ 28,376 $ 25,951 $ 13,435 $ 102,381
Interest expense 2,974 3,319 2,122 1,499 9,914
Depreciation and amortization 2,679 2,427 1,928 1,136 8,170
Income from operations 5,396 4,472 6,900 (370 ) 16,398
Expenditures for segment assets 202 759 1,586 374 2,921
Three months ended January 1, 1999
Revenues from external customers $ 28,666 $ 24,393 $ 24,422 $ 16,523 $ 94,004
Interest expense 2,717 3,339 1,858 1,485 9,399
Depreciation and amortization 1,819 4,302 875 1,261 8,257
Income from operations 5,100 2,268 4,149 2,367 13,884
Expenditures for segment assets 513 915 1,465 311 3,204

7

TEKNI-PLEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands)
                                         
Healthcare
Packaging, Consumer Specialty
Products, Packaging Food Resins and
and Materials and Products Packaging Compounds Total
Six months ended December 31, 1999
Revenues from external customers $ 71,889 $ 60,802 $ 51,067 $ 28,549 $ 212,307
Interest expense 5,831 6,531 4,223 2,954 19,539
Depreciation and amortization 5,262 5,153 3,817 2,263 16,495
Income from operations 12,498 8,985 11,573 1,099 34,155
Expenditures for segment assets 1,081 1,663 2,764 554 6,062
Six months ended January 1, 1999
Revenues from external customers $ 60,932 $ 56,841 $ 48,154 $ 36,146 $ 202,073
Interest expense 5,495 6,752 3,757 3,002 19,006
Depreciation and amortization 3,229 6,676 3,647 2,596 16,148
Income from operations 10,381 8,455 6,940 4,277 30,053
Expenditures for segment assets 1,086 1,241 2,055 382 4,764
                                   
Three Months Ended Six Months Ended
December 31, January 1, December 31, January 1,
1999 1999 1999 1999
Profit or Loss
Total operating profit for reportable segments before income taxes $ 16,398 $ 13,884 $ 34,155 $ 30,053
Corporate and eliminations (3,746 ) (3,564 ) (6,640 ) (6,602 )
$ 12,652 $ 10,320 $ 27,515 $ 23,451
Depreciation and amortization
Segment totals $ 8,170 $ 8,257 $ 16,495 $ 16,148
Corporate 110 (202 ) 217 146
Consolidated total $ 8,280 $ 8,055 $ 16,712 $ 16,294
Expenditures for Segment Assets
Total reportable-segment expenditures $ 2,921 $ 3,204 $ 6,062 $ 4,764
Other unallocated expenditures 101 56 150 74
Consolidated total $ 3,022 $ 3,260 $ 6,212 $ 4,838

8

TEKNI-PLEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands)

Segment assets

                                         
Healthcare
Packaging, Consumer Specialty
Products, Packaging Food Resins and
and Materials and Products Packaging Compounds Total
December 31, 1999 166,742 214,467 71,984 82,594 535,787
July 2, 1999 173,704 216,067 73,351 83,601 546,723
                   
December 31, July 2,
1999 1999
Total Assets
Total assets from reportable segments $ 535,787 $ 546,723
Other unallocated amounts 9,933 12,713
Consolidated total $ 545,720 $ 559,436

Geographic information

                                   
Three Months Ended Six Months Ended
December 31, January 1, December 31, January 1,
1999 1999 1999 1999
Revenues
United States $ 91,904 $ 84,533 $ 191,943 $ 182,074
International 10,477 9,471 20,364 19,999
Total $ 102,381 $ 94,004 $ 212,307 $ 202,073
                   
December 31, July 2,
1999 1999
Long-lived Assets
United States $ 329,004 $ 339,409
International 27,675 28,321
Total $ 356,679 $ 367,730

9

TEKNI-PLEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands)

Note 6 — Supplemental Condensed Consolidating Financial Statements

CONSOLIDATED STATEMENT OF EARNINGS

(Unaudited)

FOR THE THREE MONTHS ENDED DECEMBER 31, 1999

                                   
Non-
Total Issuer Guarantors Guarantors
Net sales $ 102,381 $ 32,045 $ 59,859 $ 10,477
Cost of sales 74,883 23,523 43,951 7,409
Gross profit 27,498 8,522 15,908 3,068
Operating expenses:
Selling, General and administrative 14,846 11,693 1,828 1,325
Income from operations 12,652 (3,171 ) 14,080 1,743
Interest expense (income), net 9,914 9,951 120 (157 )
Other expense (income) 441 20 (294 ) 715
Income (loss) before provision for income taxes 2,297 (13,142 ) 14,254 1,185
Provision for income taxes 1,100 (6,465 ) 6,995 570
Net income (loss) $ 1,197 $ (6,677 ) $ 7,259 $ 615

FOR THE SIX MONTHS ENDED DECEMBER 31, 1999

                                   
Non-
Total Issuer Guarantors Guarantors
Net sales $ 212,307 $ 72,659 $ 119,284 $ 20,364
Cost of sales 155,804 51,402 90,285 14,117
Gross profit 56,503 21,257 28,999 6,247
Operating expenses:
Selling, General and administrative 28,988 20,758 5,782 2,448
Income from operations 27,515 499 23,217 3,799
Interest expense (income), net 19,539 19,655 36 (152 )
Other expense (income) 623 114 (580 ) 1,089
Income (loss) before provision for income taxes 7,353 (19,270 ) 23,761 2,862
Provision for income taxes 3,600 (9,500 ) 11,700 1,400
Net income (loss) $ 3,753 $ (9,770 ) $ 12,061 $ 1,462

10

TEKNI-PLEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands)

CONDENSED CONSOLIDATED BALANCE SHEET — AT DECEMBER 31, 1999

(Unaudited)
                                           
Non-
Total Eliminations Issuer Guarantors Guarantors
Current assets $ 189,041 $ — $ 39,522 $ 119,192 $ 30,327
Property, plant and equipment, net 132,498 — 40,148 77,654 14,696
Intangible assets 200,945 — 45,395 154,147 1,403
Investment in subsidiaries — (380,690 ) 380,690 — —
Deferred financing costs, net 18,112 — 17,713 170 229
Other long-term assets 5,124 (116,796 ) 67,647 42,926 11,347
Total assets $ 545,720 $ (497,486 ) $ 591,115 $ 394,089 $ 58,002
Current liabilities $ 75,302 $ — $ 26,185 $ 35,784 $ 13,333
Long-term debt 411,474 — 405,463 — 6,011
Other long-term liabilities 4,900 (116,796 ) 98,021 4,487 19,188
Total liabilities 491,676 (116,796 ) 529,669 40,271 38,532
Additional paid-in capital 41,075 (312,408 ) 41,076 296,766 15,641
Retained earnings 16,342 (68,282 ) 20,370 57,052 7,202
Cumulative currency translation adjustment (3,373) — — — (3,373 )
Total equity 54,044 (380,690 ) 61,446 353,818 19,470
Total liabilities and equity $ 545,720 $ (497,486 ) $ 591,115 $ 394,089 $ 58,002

CONDENSED CONSOLIDATED BALANCE SHEET — AT JULY 2, 1999

                                           
Non-
Total Eliminations Issuer Guarantors Guarantors
Current assets $ 191,706 $ — $ 45,967 $ 117,689 $ 28,050
Property, plant and equipment, net 136,953 — 44,507 77,132 15,314
Intangible assets 206,140 — 68,073 136,639 1,428
Investment in subsidiaries — (367,167 ) 367,167 — —
Deferred financing costs, net 19,358 — 19,257 (128 ) 229
Deferred taxes 1,346 — 1,346 — —
Other long-term assets 3,933 (132,685 ) 89,222 36,046 11,350
Total assets $ 559,436 $ (499,852 ) $ 635,539 $ 367,378 $ 56,371
Current liabilities $ 90,261 $ — $ 52,551 $ 26,868 $ 10,842
Long-term debt 410,646 — 404,288 — 6,358
Other long-term liabilities 6,232 (132,685 ) 119,759 — 19,158
Total liabilities 507,139 (132,685 ) 576,598 26,868 36,358
Additional paid-in capital 41,075 (312,408 ) 41,095 296,747 15,641
Retained earnings 12,590 (54,759 ) 17,846 43,763 5,740
Cumulative currency translation adjustment (1,368 ) — — — (1,368 )
Total equity 52,297 (367,167 ) 58,941 340,510 20,013
Total liabilities and equity $ 559,436 $ (499,852 ) $ 635,539 $ 367,378 $ 56,371

11

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

  Second quarter of Fiscal 2000 Compared with the second quarter of Fiscal 1999

      Net Sales increased to $102.4 million for the three months ended December 31, 1999 from $94.0 million for the three months ended January 1, 1999. This represents an increase of $8.4 million or 8.9%. The increase in sales over the same period in the prior year is due primarily to the acquisition of Tri-Seal International in January 1999 and Natvar in April 1999, increases in selling prices, and growth in the Healthcare Packaging, Products, and Materials and the Consumer Packaging and Products segments, offset by factors related to the restructuring of acquired operations. These factors include primarily the elimination in fiscal 2000 of low-margin sales in certain acquired businesses, and to a lesser extent the elimination of sales to Natvar, which became intercompany transfers after the acquisition. The level of growth for the second quarter of fiscal 2000 may not be indicative of future operations.

      Cost of Sales increased to $74.9 million for the three months ended December 31, 1999 from $69.1 million for the three months ended January 1, 1999. Expressed as a percentage of net sales, cost of sales decreased to 73.1% for the three months ended December 31, 1999 from 73.5% for the three months ended January 1, 1999. The decrease in cost of sales as a percentage of net sales was due primarily to efficiencies achieved in operations acquired with the purchase of PureTec, partially offset by higher raw material costs.

      Gross Profit as a result, increased to $27.5 million or 26.9% of net sales for the three months ended December 31, 1999, from $24.9 million or 26.5% of net sales for the three months ended January 1, 1999.

      Selling, general and administrative expense increased slightly to $14.8 million or 14.5% of net sales for the three months ended December 31, 1999, from $14.6 million or 15.5% of net sales for the three months ended January 1, 1999. The decrease in selling, general and administrative expense as a percentage of net sales was due primarily to higher net sales for the current quarter.

      Operating profit increased to $12.7 million or 12.4% of net sales for the three months ended December 31, 1999, from $10.3 million or 11.0% of net sales for the three months ended January 1, 1999, for the reasons discussed above.

      Interest expense increased to $9.9 million or 9.7% of net sales for the three months ended December 31, 1999, from $9.4 million or 10.0% of net sales for the same period in the prior year. This is due primarily to an increase in the revolving line of credit incurred to acquire Tri-Seal International and Natvar, as well as higher interest rates.

      Provision for income taxes increased to $1.1 million or 1.1% of net sales for the three months ended December 31, 1999, from $0.3 million or 0.3% of net sales for the same period in the prior year. The Company’s effective tax rate was 47.9% for the three months ended December 31, 1999 compared to 36.8% for the same period in the prior year. The increase in the effective tax rate between periods is due primarily to adjustments made in the prior year’s quarter that were intended to more accurately reflect the annualized rate of income tax.

      Net income increased to $1.2 million or 1.2% of net sales for the three months ended December 31, 1999, from $0.5 million or 0.5% of net sales for the same period in the prior year, for the reasons discussed above.

  First six months of Fiscal 2000 Compared with the first six months of Fiscal 1999

      Net Sales increased to $212.3 million for the six months ended December 31, 1999 from $202.1 million for the six months ended January 1, 1999. This represents an increase of $10.2 million or 5.1%. The increase in sales over the same period in the prior year is due primarily to the acquisition of Tri-Seal International in January 1999 and Natvar in April 1999, increases in selling prices, and growth in the Healthcare Packaging, Products, and Materials and the Consumer Packaging and Products segments, offset by factors related to the restructuring of acquired operations. These factors include primarily the elimination in fiscal 2000 of low-margin sales in certain acquired businesses, and to a lesser extent the elimination of sales to Natvar, which became intercompany transfers after the acquisition. The level of growth for the first six months of fiscal 2000 may not be indicative of future operations.

12

      Cost of Sales increased to $155.8 million for the six months ended December 31, 1999 from $150.1 million for the six months ended January 1, 1999. Expressed as a percentage of net sales, cost of sales decreased to 73.4% for the six months ended December 31, 1999 from 74.3% for the six months ended January 1, 1999. The decrease in cost of sales as a percentage of net sales was due primarily to efficiencies achieved in operations acquired with the purchase of PureTec, partially offset by higher raw material costs.

      Gross Profit as a result, increased to $56.5 million or 26.6% of net sales for the six months ended December 31, 1999, from $52.0 million or 25.7% of net sales for the six months ended January 1, 1999.

      Selling, general and administrative expense increased slightly to $29.0 million or 13.7% of net sales for the six months ended December 31, 1999, from $28.5 million or 14.1% of net sales for the six months ended January 1, 1999. The decrease in selling, general and administrative expense as a percentage of net sales was due primarily to higher net sales for the current period.

      Operating profit increased to $27.5 million or 13.0% of net sales for the six months ended December 31, 1999, from $23.5 million or 11.6% of net sales for the six months ended January 1, 1999, for the reasons discussed above.

      Interest expense increased to $19.5 million or 9.2% of net sales for the six months ended December 31, 1999, from $19.0 million or 9.4% of net sales for the same period in the prior year. This is due primarily to an increase in the revolving line of credit incurred to acquire Tri-Seal International and Natvar, as well as higher interest rates.

      Provision for income taxes increased to $3.6 million or 1.7% of net sales for the six months ended December 31, 1999, from $1.9 million or 0.9% of net sales for the same period in the prior year. The Company’s effective tax rate was 49.0% for the six months ended December 31, 1999 compared to 48.1% for the same period in the prior year.

      Net income increased to $3.8 million or 1.8% of net sales for the six months ended December 31, 1999, from $2.0 million or 1.0% of net sales for the same period in the prior year, for the reasons discussed above.

Liquidity and Capital Resources

      For the six months ended December 31, 1999, net cash provided by operating activities was $6.3 million compared to $5.8 million for the same period in the prior year. This was due primarily to an increase in net income. Various year-over-year changes in operating assets and liabilities are due to generally offsetting timing differences.

      Working capital at December 31, 1999 was $113.7 million compared to $101.4 million at July 2, 1999. The increase in working capital was due primarily to decreases in accrued expenses. Offsetting changes in accounts receivable and inventories are normal seasonal differences related primarily to the Consumer Packaging and Products segment.

      As of December 31, 1999 the Company had an outstanding balance of $26.0 million under the $90 million revolving credit line of the existing credit facility. This is an increase of $4.0 million from the outstanding balance as of July 2, 1999, due primarily to normal seasonal requirements of the Consumer Packaging and Products segment.

      The Company’s capital expenditures for the six months ended December 31, 1999 and January 1, 1999 were $6.2 million, and $4.8 million respectively. Management expects that annual capital expenditures will increase from historical levels during the next few years as the Company makes improvements in the recently acquired operations.

      Apart from acquisitions, the Company’s principal uses of cash for the next several years will be debt service, capital expenditures and working capital requirements. Management believes that cash generated from operations plus funds from the credit facility will be sufficient to meet the Company’s expected debt service requirements, planned capital expenditures, and operating needs. However, there can be no assurance that sufficient funds will be available from operations or borrowings under the credit facility to meet the

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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 December 31, 1999, the principal amount of the Company’s aggregate outstanding variable rate indebtedness was $136.0 million. A hypothetical 10% adverse change in interest rates would have an annualized unfavorable impact of approximately $0.6 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.

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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

      In order to provide liquidity to certain investors in the Company’s sole stockholder, the Company has decided to pursue a recapitalization of the Company. The Company currently anticipates completing the recapitalization before the end of fiscal year 2000. The recapitalization is subject to various contingencies, including the availability of sufficient debt and equity financing on terms acceptable to the Company and certain of its principal investors, and approval by various investors in the Company. Although there can be no assurance that the proposed recapitalization will be consummated at all or without delay, the Company currently contemplates that substantially all of the Company’s current outstanding indebtedness will be refinanced as part of the proposed recapitalization of the Company.

Item 6. Exhibits and Reports on Form 8-K

      (a)  Exhibit 27 — Financial Data Schedule

      (b)  Reports on Form 8-K

           None

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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.

February 9, 2000

  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
  and Principal Accounting and Financial Officer

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