<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-23855
U.S PLASTIC LUMBER CORP.
(NAME OF ISSUER IN ITS CHARTER)
---------------------
<TABLE>
<S> <C>
NEVADA 87-0404343
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
---------------------
2300 W. GLADES ROAD, SUITE 440 W, BOCA RATON, FLORIDA 33431
(561) 394-3511
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PLACE OF
BUSINESS)
Check here whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
The number of shares outstanding of the registrant's common stock as of June 30,
2000 is 34,763,624 shares.
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<PAGE> 2
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. UNAUDITED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999...................................... 3
Consolidated Statements of Operations for the Three Months
Ended June 30, 2000 and 1999........................... 4
Consolidated Statements of Operations for the Six Months
Ended June 30, 2000 and 1999........................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999........................... 6
Notes to Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 14
Item 2. Changes in Securities and Use of Proceeds........... 14
Item 6. Exhibits and Reports on Form 8-K.................... 15
SIGNATURES.................................................. 15
</TABLE>
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "projected",
"intends to" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to economic conditions, changes in laws or
regulations, exposure on providing extended warranties on products, access to
capital, demand for products and services of the Company, dilution, expertise,
newly developing technologies, loss of permits, conflicts of interest in related
party transactions, regulatory matters, environmental liability, the occurrence
of events not covered by insurance, a substantial increase in interest rates,
protection of technology, lack of industry standards, raw material commodity
pricing, the ability to receive bid awards, the inability to implement our
growth strategy, operating hazards, seasonality, inability to retain key
employees, the effects of competition, the risks and costs associated with the
change in the year 2000 and the ability of the Company to obtain additional
financing. Such factors, which are discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the notes to
condensed consolidated financial statements, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
undue reliance on any such forward-looking statements, which speak only as of
the date made. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
2
<PAGE> 3
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 657,553 $ 1,807,588
Accounts receivable, net of allowance for doubtful accounts
of $1,066,446 and $1,139,870 in 2000 and 1999,
respectively.............................................. 40,873,786 32,915,420
Inventories................................................. 10,350,463 7,339,543
Prepaid expenses and other current assets................... 4,036,770 2,636,812
------------ ------------
Total current assets.............................. 55,918,572 44,699,363
Property, plant and equipment (net)......................... 98,140,731 80,423,952
Acquired intangibles (net).................................. 36,969,356 35,837,568
Other assets................................................ 3,728,872 5,350,549
------------ ------------
Total Assets...................................... $194,757,531 $166,311,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 19,958,941 $ 20,180,807
Notes and capital leases payable, current portion........... 16,905,541 5,867,779
Accrued expenses............................................ 2,925,687 4,111,309
Restructuring reserves...................................... 283,223 734,661
Other liabilities........................................... 1,212,370 1,615,800
------------ ------------
Total current liabilities......................... 41,285,762 32,510,356
Notes and capital leases payable, net of current portion.... 47,736,215 36,322,452
Notes payable, affiliates-long term......................... 5,000,000 6,000,000
Convertible subordinated debentures, net of unamortized
discount.................................................. 7,011,077 6,500,000
Deferred income taxes and other liabilities................. 1,471,083 1,718,061
Minority interest........................................... 248,627 250,165
------------ ------------
Total liabilities................................. 102,752,764 83,301,034
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock par value $.0001, authorized 50,000,000 shares;
issued and outstanding 34,763,624 and 32,077,632 shares in
2000 and 1999, respectively............................... 3,477 3,208
Additional paid-in capital.................................. 90,039,071 81,171,322
Retained earnings........................................... 1,962,219 1,835,868
------------ ------------
Total stockholders' equity........................ 92,004,767 83,010,398
------------ ------------
Total liabilities and stockholders' equity........ $194,757,531 $166,311,432
============ ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
2000 1999
----------- -----------
<S> <C> <C>
Sales, net.................................................. $44,260,376 $36,858,032
Cost of goods sold.......................................... 34,629,943 26,166,766
----------- -----------
Gross profit...................................... 9,630,433 10,691,266
Selling, general and administrative expenses................ 5,718,718 5,293,607
Merger costs................................................ -- 595,000
----------- -----------
Operating income.................................. 3,911,715 4,802,659
Interest and other income................................... 117,965 69,260
Interest expense............................................ 1,250,186 1,319,081
----------- -----------
Earnings before income taxes and extraordinary
item............................................ 2,779,494 3,552,838
Provision for income taxes.................................. 1,043,865 271,560
----------- -----------
Earnings before extraordinary item................ 1,735,629 3,281,278
Extraordinary loss on early extinguishment of debt, net of
taxes of $599,514......................................... 939,675 --
----------- -----------
Net earnings...................................... 795,954 3,281,278
Preferred stock dividend earned............................. -- 105,188
----------- -----------
Net earnings attributable to common
stockholders.................................... $ 795,954 $ 3,176,090
=========== ===========
Net earnings per common share -- Basic:
Earnings before extraordinary item................ $ 0.05 $ 0.12
Loss on early extinguishment of debt.............. $ (0.03) $ --
----------- -----------
Net earnings per common share..................... $ 0.02 $ 0.12
=========== ===========
Net earnings per common share -- Diluted:
Earnings before extraordinary item................ $ 0.05 $ 0.11
Loss on early extinguishment of debt.............. $ (0.03) $ --
----------- -----------
Net earnings per common share..................... $ 0.02 $ 0.11
=========== ===========
Weighted average common shares outstanding:
Basic............................................. 34,403,488 26,892,157
Diluted........................................... 35,095,655 28,983,983
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED
2000 1999
----------- -----------
<S> <C> <C>
Sales, net.................................................. $74,664,437 $61,829,462
Cost of goods sold.......................................... 59,516,656 44,263,348
Inventory revaluation charge................................ -- 2,025,000
----------- -----------
Gross profit......................................... 15,147,781 15,541,114
Selling, general and administrative expenses................ 11,031,877 10,027,484
Merger Costs................................................ -- 595,000
Restructuring and equipment revaluation charges............. -- 3,720,000
----------- -----------
Operating income..................................... 4,115,904 1,198,630
Interest and other income................................... 121,817 142,212
Interest expense............................................ 2,538,232 3,014,877
----------- -----------
Earnings (loss) before income taxes and extraordinary
item................................................ 1,699,489 (1,674,035)
Provision for income taxes.................................. 633,463 390,055
----------- -----------
Earnings (loss) before extraordinary item............ 1,066,026 (2,064,090)
Extraordinary loss on early extinguishment of debt, net of
taxes of $599,514......................................... 939,675 --
----------- -----------
Net earnings (loss).................................. 126,351 (2,064,090)
Preferred stock dividend earned............................. -- 274,800
----------- -----------
Net earnings (loss) attributable to common
stockholders........................................ $ 126,351 $(2,338,890)
=========== ===========
Net earnings per common share -- Basic:
Earnings before extraordinary item................... $ 0.03 $ (0.09)
Loss on early extinguishment of debt................. $ (0.03) $ --
----------- -----------
Net earnings per common share........................ $ 0.00 $ (0.09)
=========== ===========
Net earnings per common share -- Diluted:
Earnings before extraordinary item................... $ 0.03 $ (0.09)
Loss on early extinguishment of debt................. $ (0.03) $ --
----------- -----------
Net earnings per common share........................ $ 0.00 $ (0.09)
=========== ===========
Weighted average common shares outstanding:
Basic................................................ 33,772,863 25,195,059
Diluted.............................................. 34,992,873 25,195,059
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED RESTATED
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)......................................... $ 126,351 $(2,064,090)
------------ -----------
Adjustments to reconcile net cash used in operating
activities:
Depreciation........................................... 2,236,427 1,987,002
Amortization........................................... 915,883 437,643
Loss on early extinguishment of debt................... 1,539,189 --
Restructuring charge -- inventory revaluation.......... -- 4,697,997
Beneficial conversion feature of convertible
subordinated debentures............................... 270,946 --
Reduction of discounts on convertible subordinated
debentures............................................ 86,780 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................... (6,783,165) (9,111,485)
Inventories............................................ (2,618,990) (16,743)
Prepaid expenses and other current assets.............. (1,365,355) (12,223)
Other assets........................................... (398,031) 714,334
Accounts payable....................................... (450,867) 2,887,673
Other liabilities...................................... (1,103,384) 652,744
Accrued expenses....................................... (1,427,618) (218,238)
------------ -----------
Net cash used in operating activities................ (8,971,834) (45,386)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (17,369,385) (6,587,726)
Cash paid for acquisitions, net of cash received.......... (62,297) (14,592,277)
Proceeds from the sale of property, plant and equipment... 512,957 --
------------ -----------
Net cash used in investing activities............. (16,918,725) (21,180,003)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and options, net of
costs.................................................. 617,215 479,504
Proceeds from the issuance of common stock, net of
issuance costs......................................... -- 9,045,409
Proceeds from sale of convertible debentures.............. 7,500,000 2,500,000
Advances from (repayment to) affiliates................... (1,000,000) 6,154,729
Proceeds from notes payable............................... 47,936,350 11,706,867
Payments of notes payable................................. (30,313,041) (8,157,601)
------------ -----------
Net cash provided by financing activities......... 24,740,524 21,728,908
------------ -----------
Net change in cash and cash equivalents..................... (1,150,035) 503,519
Cash and cash equivalents, beginning of period.............. 1,807,588 3,052,518
------------ -----------
Cash and cash equivalents, end of period.................... $ 657,553 $ 3,556,037
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 2,216,597 $ 2,244,358
Income taxes.............................................. $ 47,426 $ 377,124
Capitalized interest as of June 30.......................... $ 1,184,318 $ --
Number of shares issued during the period for non-cash
transactions:
Acquisitions and Clean Earth merger (Note 3).............. 832,140 5,007,973
Compensation -- employees and directors................... 5,434 6,908
Litigation settlements.................................... 11,666 3,000
Conversion of debentures.................................. 1,693,085
Financing fees and other.................................. -- 55,450
Conversion of preferred stock............................. -- 2,008,881
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries (the "Company") are engaged in
the manufacturing of plastic lumber from recycled plastic waste and provide
environmental recycling services. The Company's Plastic Lumber Division
manufactures structural and non-structural plastic lumber and a variety of
accessory products such as park and site amenities, made from 100% recycled high
density polyethylene. The structural plastic lumber is manufactured under
patent-protected processes and is sold to customers located throughout the
world.
The Company's Environmental Recycling Division provides environmental recycling
services including environmental construction services, upland disposal of
dredge materials, beneficial re-use of industrial wastes and on-site recycling
services. The Division also operates four plants providing various methods to
remediate soil brought to the facilities by both third parties and other
operating units of the Company. The Division's operations and customers are
located primarily in the Northeastern United States.
BASIS OF PRESENTATION
The Company's consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and the regulations of the Securities and Exchange Commission (SEC) for
quarterly reporting. The interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-KSB as filed with the SEC for
the year ended December 31, 1999. Management acknowledges its responsibility for
the preparation of the accompanying interim consolidated financial statements
which reflect all adjustments considered necessary, in the opinion of
management, for a fair statement of the results of interim periods presented.
The results of operations for the interim periods are not necessarily indicative
of the results of operations for the entire year. Where appropriate, certain
amounts have been reclassified to conform with the 2000 presentation.
After June 30, 1999 the Company acquired three companies that were accounted for
under the pooling of interests accounting method. Accordingly, the 1999
financial statements have been restated to include the applicable amounts for
the pooled companies as if the acquisitions had taken place on January 1, 1999.
The Company restated its results for the three months ending March 31, 2000 to
increase interest expense by $306,000 in connection with the beneficial
conversion feature and accretion of discounts associated with the $7.5 million
convertible debentures issued in February 2000 (see Note 6).
2. ACQUISITION OF BARON ENTERPRISES, INC.
On February 10, 2000, the Company acquired certain assets and certain
liabilities of Baron Enterprises, Inc. ("Baron"), a manufacturer of plastic slip
and tier sheets used in handling freight. Baron operates facilities in Denver,
CO and Reidsville, NC. The acquisition was accounted for as a purchase.
Accordingly, the $1,635,147 excess of the purchase price over the value of the
net tangible assets acquired is included in acquired intangibles as of June 30,
2000 and is being amortized over 40 years.
7
<PAGE> 8
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the allocation of the $2,105,000 aggregate purchase price of the
Baron acquisition to the net assets acquired follows:
<TABLE>
<S> <C>
Working capital............................................. $ 1,540,072
Long-term assets.......................................... 3,096,778
Long-term debt............................................ (4,166,997)
Acquired intangibles...................................... 1,635,147
-----------
Aggregate purchase price............................... $ 2,105,000
===========
</TABLE>
The acquisition was financed primarily through the issuance of 206,573 shares of
the Company's common stock.
3. CAPITAL STOCK AND EARNOUT AGREEMENT
In January 2000, the Company issued 632,833 shares to certain shareholders who
accepted the Company's offer to settle certain earnout agreements related to the
Company's merger with Clean Earth, Inc. in 1996. The Company has included the
$5,166,005 value of the shares issued in acquired intangibles and additional
paid in capital on the balance sheet as of December 31, 1999. The Company is
amortizing the $5,166,005 over 17 years as additional cost of the merger of the
Company with Clean Earth, Inc. Amortization expense relating to the settlement
was approximately $152,000 in the first six months of 2000, with no such expense
in 1999.
4. CONTINGENCIES
A lawsuit was filed against the Company's former Chairman in a matter entitled,
Waste Management, Inc. vs. Paolino, et al, U.S. District Court, District of
Delaware. Mr. Paolino and others have filed a lawsuit against Waste Management,
Inc. The parties to these lawsuits have dismissed their pending claims without
prejudice in Federal court and agreed to submit all claims to non-binding
mediation. This dispute between Waste Management, Inc. and Mr. Paolino and
others may continue for a long period of time.
Although the Company was not a named party in either of these lawsuits, it is
not possible to predict the implications of these disputes upon the Company. The
effects of this dispute may have wide ranging implications on the Company which
may result in material adverse effects upon the business, financial condition
and/or operating results which cannot be reasonably foreseen at the current
time. The Company has not established reserves on its Consolidated balance sheet
for any pending or threatened litigation pertaining to this matter.
5. NOTES AND CAPITAL LEASES PAYABLE
In 1999 and the first six months of 2000, the Company had a line of credit with
a division of Southern Pacific Bank ("SPB") whereby borrowings would be
collateralized by specific equipment and/or inventory and eligible accounts
receivable. On June 30, 2000 the Company terminated the agreement with SPB and
entered into a new three-year credit agreement with three banks. The new
agreement provides for a $30,000,000 term loan and a $15,000,000 revolving
credit line. Under certain conditions, the Company can expand the revolving
credit line to $30,000,000. The facility allows the Company to select from two
interest rate options, one based on a spread over the prime rate and the other
based on a spread over the Eurodollar deposit rate. The spread above each
interest rate option is determined by the Company's ratio of consolidated debt
to Earnings Before Interest, Taxes, Depreciation and Amortization. The facility
requires the maintenance of defined levels of net worth, various financial
performance ratios and restrictions on capital expenditures, dividend payments,
acquisitions and additional indebtedness. At June 30, 2000, the Company had
available borrowings under this facility in the amount of $12,000,000.
8
<PAGE> 9
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In terminating the previously existing loan agreements, the Company incurred an
extraordinary loss for prepayment penalties and the write off of deferred loan
costs amounting to $939,675, net of taxes. Proceeds from the new credit facility
were used to pay down portions of the Company's existing indebtedness and for
general corporate purposes.
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Term loan under credit agreement......................... $30,000,000 --
Borrowings under revolving credit line................... 3,000,000 --
Receivables and Inventory, Equipment term and Real Estate
loans under loan agreements with SPB................... -- 27,202,588
Mortgage notes and capital leases payable collateralized
by certain facilities owned by the Company and its
subsidiaries........................................... 5,611,710 5,708,961
Other notes and capital leases payable collateralized by
various equipment of subsidiaries of the Company....... 23,788,421 6,785,320
Note payable assumed in acquisition of Brass Investment
Co..................................................... 800,000 800,000
Other notes payable...................................... 1,441,625 1,693,362
----------- -----------
Total notes payable and capital leases......... 64,641,756 42,190,231
Less current portion:............................... 16,905,541 5,867,779
----------- -----------
47,736,215 $36,322,452
=========== ===========
</TABLE>
During the six months ended June 30, 2000, the Company obtained $14,600,000 in
new equipment financing in order to finance the expansion of its plastic lumber
manufacturing facilities.
6. CONVERTIBLE SUBORDINATED DEBENTURES
On February 2, 2000 the Company issued $7,500,000 of 5% convertible subordinated
debentures. The principal terms of the debentures are as follows:
- The conversion price is the lower of $9.65 or the lowest trading price of the
Company's common stock during the four trading days prior to the conversion
date, but not less than $8.25 (the "minimum floating conversion price").
- If the market price stays below $8.25 for 10 consecutive trading days after
the first anniversary of the date of issuance, the holder has the right to a
put option. This put option enables the holder to require the Company (at the
Company's option) to either repurchase the debentures for cash or reset the
minimum floating conversion price of the debentures to zero. If the Company
elects to repurchase the debentures for cash, the repurchase price would be
equal to 110 percent of the outstanding balance of the debentures plus accrued
interest. If the Company elects to reset the minimum floating conversion price
of the debentures to zero, the conversion price for the debentures into common
stock shall be the lowest trading price between the effective date of the put
notice and the fourth trading day immediately following the Company's
notification to the holder of its election to reset the minimum floating
conversion price.
- The Company can force conversion of the debentures at $9.65 if the market
price stays above $16.84 for 20 consecutive trading days.
- The debentures are scheduled to mature on February 2, 2005.
- Under certain circumstances, the debentures can be redeemed for stock, cash or
a combination thereof.
In conjunction with the issuance of the debentures, the Company issued 200,000
warrants to purchase Common stock at $10.09 per share. The Company has filed a
Registration statement with the SEC to register
9
<PAGE> 10
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the shares underlying the debenture and warrant agreements. The Company has
recognized a beneficial conversion feature of $270,946 in the first quarter of
2000. The $575,703 value assigned to the warrants and the $750,000 discount
attributed to the put feature are reflected as discounts from the face value of
the debentures and are being accreted over the term of the debentures.
On March 1, 2000 $4,000,000 of previously issued debentures and $33,440 of
unpaid interest were converted into 762,465 shares of common stock at the $5.29
conversion price. On May 5, 2000 $2,500,000 of previously issued debentures and
$12,671 of unpaid interest were converted into 930,620 shares of common stock at
the conversion price of $2.70 per share. Both debentures were converted in
accordance with the terms of the debentures. Unamortized debenture issue costs
of $614,792 and $373,000 were charged to additional paid-in-capital on March 1
and May 5 respectively.
7. SEGMENT REPORTING
The Company has two reportable operating segments. The Plastic Lumber Division
manufactures structural and non-structural plastic lumber and a variety of
accessory products such as park and site amenities. The Environmental Recycling
Division provides environmental recycling services including environmental
construction services, upland disposal of dredge materials, beneficial re-use of
industrial wastes and on-site recycling services. In the first quarter of 1999 a
$4,365,000 restructuring charge (including $2,025,000 for inventory revaluation)
was recorded by the Plastic Lumber Division and a $1,380,000 restructuring
charge was recorded by the Environmental Recycling Division. In the second
quarter of 1999 the Environmental Recycling Division incurred merger costs in
the amount of $595,000 in connection with the Barbella transaction. The
operating results of the two segments excluding the aforementioned restructuring
and merger expenses are as follows (in thousands):
<TABLE>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales:
Environmental recycling................................. 21,130 21,978 34,893 37,257
Plastic Lumber.......................................... 23,130 14,880 39,771 24,572
------ ------ ------ ------
Total........................................... 44,260 36,858 74,664 61,829
====== ====== ====== ======
Operating Income (Loss):
Environmental recycling................................. 2,910 3,500 2,611 5,060
Plastic Lumber.......................................... 1,709 2,361 2,898 3,408
Corporate............................................... (707) (464) (1,393) (929)
------ ------ ------ ------
Total........................................... 3,912 5,398 4,116 7,539
====== ====== ====== ======
Depreciation and Amortization:
Environmental recycling................................. 798 514 1,463 1,026
Plastic Lumber.......................................... 760 747 1,465 1,310
Corporate............................................... 110 41 224 89
------ ------ ------ ------
Total........................................... 1,668 1,302 3,152 2,425
====== ====== ====== ======
Capital Expenditures:
Environmental recycling................................. 1,150 1,716 2,466 3,281
Plastic Lumber.......................................... 1,559 2,424 14,900 3,227
Corporate............................................... -- 80 3 80
------ ------ ------ ------
Total........................................... 2,709 4,220 17,369 6,588
====== ====== ====== ======
</TABLE>
10
<PAGE> 11
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The identifiable assets of the respective segments is set forth below (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DEC. 31
2000 1999
-------- --------
<S> <C> <C>
Identifiable assets:
Environmental recycling................................... $ 74,593 $ 72,334
Plastic lumber............................................ 117,806 90,181
Corporate................................................. 2,359 3,796
-------- --------
Total............................................. $194,758 $166,311
======== ========
</TABLE>
The following table reconciles the measure of profit used in segment reporting
to the Company's consolidated Earnings before income taxes and extraordinary
item for the periods ended June 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
---------------- -----------------
2000 1999 2000 1999
------ ------ ------ -------
<S> <C> <C> <C> <C>
Operating income......................................... $3,912 $5,398 $4,116 $ 7,539
Restructuring and revaluation charges.................... -- -- -- 5,745
Merger costs............................................. -- 595 -- 595
Interest and other income................................ 118 69 122 142
Interest expense......................................... 1,250 1,319 2,538 3,015
------ ------ ------ -------
Earnings (loss) before income taxes and extraordinary
item................................................... $2,780 $3,553 $1,700 $(1,674)
====== ====== ====== =======
</TABLE>
11
<PAGE> 12
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $657,000 at June 30, 2000, a decrease of
$1,150,000 from the $1,807,000 at December 31, 1999. Cash used in operating
activities amounted to $8,972,000 for the first six months of 2000 as compared
to $45,000 in 1999. The increase is primarily due to increased receivables,
lower earnings excluding restructuring charges and the inventory build up to
accommodate the spring building season.
Cash used in investing activities was $16,919,000 in the first six months of
2000, a decrease of $4,261,000 from the prior year. The decrease is primarily
due to acquisitions completed in the first half of 1999, partially offset by
purchases of new equipment in the Plastic Lumber Division in 2000.
Cash provided by financing activities totaled $24,741,000, including $14,600,000
of financing for new equipment and $7,500,000 of net proceeds from the issuance
of 5% convertible subordinated debentures (see Note 6 to the Consolidated
Financial Statements). In addition, the Company entered into a new lending
agreement with three banks, consisting of both a term loan and a revolving
credit line (see Note 5 to the Consolidated Financial Statements). Proceeds from
the new credit agreement were used to make principal payments on debt totaling
$30,300,000, and for general corporate purposes.
Capital expenditures in the first six months of 2000 amounted to $17,369,000,
primarily for machinery and equipment to expand capacity at the Plastic Lumber
Division's California, Illinois and Florida manufacturing facilities.
The Company will require additional working capital for dredging opportunities
being pursued for its environmental recycling operations and to complete the
expansion of its plastic lumber manufacturing facilities. In addition, the
Company experiences a seasonal slow down at each of its divisions during the
winter months, when adverse weather and normal ground freezing can impact the
Company's environmental recycling operations, and sales of certain plastic
lumber products slow significantly. Lower revenues during this period result in
increased working capital requirements, which will be funded by borrowings from
lines of credit.
INTERIM RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Net sales in the second quarter of 2000 were $44,260,000, an increase of
$7,402,000, or 20%, over the second quarter of 1999. Sales of plastic lumber
products increased by 55% in the quarter to $23,130,000, as the aforementioned
new equipment at the Plastic Lumber Division's facilities began to come on line.
Environmental recycling revenues declined by 4% in the quarter as adverse
weather in the northeastern United States continued to delay the beginning of
work on certain projects. This work has now begun and the Company expects to see
the effects of newly awarded environmental service contracts reflected in its
third and fourth quarter operating results.
Gross profit decreased by $1,061,000, or 9.9%, as compared with the second
quarter of 1999. Most of the decrease was at the Environmental Recycling
Division, and was mainly the result of lower gross margins and, to a lesser
extent, lower revenues. Gross margin as a percent of revenues in the
Environmental Recycling Division decreased to 23% in 2000 from 26.0% in 1999.
Gross profit was also negatively impacted by the decline in gross margin at the
Plastic Lumber Division, from 33.5% in 1999 to 20.6% in 2000. The decrease is
primarily due to higher start up costs at the division's Ocala, FL, Chicago, IL
and Fontana, CA facilities and higher material and direct labor costs. Gross
margins are expected to improve as these plants move to full operating capacity.
12
<PAGE> 13
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (CONTINUED)
Selling, general and administrative expenses ("SG&A) increased by $425,000, or
8% in 2000, primarily due to higher amortization expense for intangibles. As a
percentage of net sales, SG&A decreased to 12.9% in 2000 from 14.4% in 1999.
Operating income for the quarter decreased by $891,000, due primarily to the
decrease in gross profit and higher amortization expenses. Operating income in
the second quarter of 1999 was negatively impacted by $595,000 of merger related
expenses in connection with the Barbella acquisition. Operating income decreased
by $652,000 at the Plastic Lumber Division and by $590,000 at the Environmental
Recycling Division, excluding the impact of the 1999 merger expenses. Both
decreases are due to the lower gross margins.
Interest expense decreased by $69,000 for the quarter, mainly due to lower
amortization of deferred financing and debenture issuance costs.
The provision for income taxes in the second quarter was $1,044,000 in 2000
compared to $272,000 in 1999 as certain tax benefits that were recognized in the
second quarter of 1999 were not available in 2000.
On June 30, 2000 the Company terminated its existing borrowing agreement in
favor of a new credit facility. In connection with the early termination, the
Company incurred an extraordinary loss of $939,675, net of taxes, for prepayment
penalties and the write off of deferred loan costs.
INTERIM RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net sales for the first six months of 2000 were $74,664,000, an increase of
$12,835,000, or 21% over the comparable period of the prior year. Plastic Lumber
Division sales increased by 62% to $39,771,000, more than offsetting the 6%
decline in environmental recycling revenues. The decrease in environmental
recycling revenues was due to the abnormally wet weather in the northeastern
United States in the first quarter of 2000, which affected all of the soil
recycling plants. In addition, revenues were negatively impacted by the three-
month shut down of the Soil Remediation of Philadelphia (SRP) facility, which
was retrofitted to process additional waste streams under its newly expanded
permit.
Consolidated gross profit was essentially unchanged for the first six months of
2000, however excluding the $2,025,000 inventory revaluation charge at the
Plastic Lumber Division in the first quarter of 1999, gross profit decreased by
$2,418,000, or 13%. Most of the decrease is a result of lower revenues and gross
margins at the Environmental Recycling Division. Gross margins on environmental
recycling revenues declined from 25.4% of sales in 1999 to 18.9% in 2000.
Reduced soil coming to the Clean Earth New Castle, Clean Rock and SRP
facilities, the shut down of the SRP facility and lower margin replacement
revenues for construction services all contributed to this decline. New dredging
projects commenced late in the second quarter and the Company expects to see
improved margins the second half of the year as all soil processing plants
approach full operating capacity.
Excluding the 1999 inventory write-down, gross profit at the Plastic Lumber
Division increased by $508,000, or 6.3%. Gross margins declined from 33% in 1999
to 21.5% in 2000, primarily due to the increase in raw material and direct labor
costs and start up costs at certain facilities. The gross margins should improve
in the remainder of 2000 as the mix of sales shifts to products with higher
average gross margins and the new equipment and facilities become fully
operational.
Consolidated SG&A expenses increased 10% to $11,032,000 for the first six months
of 2000, largely due to increased amortization expense. However, as a percentage
of net sales, SG&A expenses improved from 16.2% in 1999 to 14.8% in 2000. The
improvement is primarily due to increased sales in the Plastic Lumber Division
and, to a lesser extent, the consolidation of facilities and restructuring of
operations initiated in 1999.
13
<PAGE> 14
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (CONTINUED)
Operating income increased by $2,917,000 to $4,116,000 in 2000 as compared to
$1,199,000 in the comparable period for 1999. 1999 operating income was
negatively impacted by the aforementioned $2,025,000 inventory revaluation
charge, a $3,720,000 restructuring and equipment revaluation charge and 595,000
in merger expenses. Excluding these charges, operating income decreased by
$3,423,000. The decline is primarily due to the lower gross margins at both
divisions.
Interest expense decreased by $477,000 in 2000 as compared to 1999, primarily
due to lower expenses relating to discounts on convertible subordinated
debentures. For the six-month period of 2000 interest expense includes a
$358,000 charge for the beneficial conversion feature and accretion of discounts
associated with the issuance of the $7.5 million convertible debentures during
the first quarter.
Income tax expense increased to $633,000 in 2000 from $390,000 in 1999,
primarily due to higher pre-tax earnings and the presence of certain tax
benefits in 1999 that were not available in 2000.
ACQUISITION COMPLETED DURING THE SIX MONTHS ENDED JUNE 30, 2000
On February 10, 2000, the Company acquired certain assets and assumed certain
liabilities of Baron Enterprises, Inc. ("Baron"), a manufacturer of plastic slip
and tier sheets, for 206,573 shares of common stock. Baron operates facilities
in Denver, CO and Reidsville, NC. Both plants manufacture tier and slip sheets
that are used in handling freight. The Company manufactures similar products in
its Chicago facility. The acquisition was accounted for as a purchase.
Accordingly, the operating results of the acquired business are included in the
consolidated results of operations from the date of acquisition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved as plaintiff or defendant in various
legal proceedings arising in the normal course of its business. While the
ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's financial position,
results of operations or liquidity.
In December 1999 a lawsuit was filed against the Company's former Chairman in a
matter entitled, Waste Management, Inc. vs. Paolino, et al, U.S. District Court,
District of Delaware. Mr. Paolino and others have filed a lawsuit against Waste
Management, Inc. All parties to these lawsuits have dismissed their pending
claims without prejudice in Federal court and agreed to submit all claims to
non-binding mediation. This dispute between Waste Management, Inc. and Mr.
Paolino and others may continue for a long period of time. The effects of this
dispute may have wide ranging implications on the Company which may result in
material adverse effects upon the business, financial condition and/or operating
results which cannot be reasonably foreseen at the current time. Although the
Company was not a named party in either of these lawsuits, it is not possible to
predict the implications of these disputes upon the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Issuances of common shares during the three months ended June 30, 2000 are
listed in the following paragraphs.
9,874 shares of Common Stock were canceled due to a prior acquisition
adjustment.
6,667 shares of Common Stock were issued as a result of the exercise of stock
options and warrants.
12,666 shares of Common Stock were issued as a result of litigation settlements
or employee bonuses.
930,620 shares of Common Stock were issued as a result of a conversion of
debentures into equity.
14
<PAGE> 15
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PART II. OTHER INFORMATION -- (CONTINUED)
The Common Stock underlying the stock options was previously registered with the
SEC. The Common Stock issued pursuant to the conversion of debentures has been
registered through the filing of a Form S-3 that was deemed effective by the SEC
on May 14, 1999.
All of the other transactions were not registered under the Securities Act of
1933 in reliance on the exemption from registration in Section 4(2) of the Act,
as transactions not involving any public offering. These offerings were
completed without any general or public solicitation. In each case the offering
was made to a very limited number of officers, directors and shareholders of the
companies being acquired or to independent consultants or employees of the
Company. The independent consultants, officers, directors and shareholders who
participated in the private placements had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment. The securities issued in all of
the foregoing transactions were issued as restricted securities and the
certificates were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption from registration.
The cash proceeds from the exercise of stock options and warrants were used for
general corporate purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.46 Master Credit Agreement with Bank of America
27.1 Financial Data Schedule for the three months ended June 30, 2000
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for this period.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C>
August 14, 2000 /s/ MARK S. ALSENTZER
------------------------------------ -----------------------------------------------------
Date Mark S. Alsentzer,
Chairman, President and CEO
August 14, 2000 /s/ JOHN W. POLING
------------------------------------ -----------------------------------------------------
Date John W. Poling,
Chief Financial Officer
</TABLE>
15
