<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q/A
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
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 34,763,324 shares.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
FORM 10-Q/A
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999...................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999.......................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999.......................... 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
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 MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
RESTATED
2000 1999
------------ ------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,685,154 $ 1,807,588
Accounts receivable, net of allowance for doubtful
accounts of $1,379,088 and $1,139,870 in 2000 and 1999,
respectively........................................... 33,127,687 32,915,420
Inventories............................................... 10,211,528 7,339,543
Prepaid expenses and other assets......................... 2,860,965 2,636,812
------------ ------------
Total current assets.............................. 47,885,334 44,699,363
Property, plant and equipment (net)......................... 93,154,534 80,423,952
Acquired intangibles (net).................................. 37,312,677 35,837,568
Other assets................................................ 4,987,125 5,350,549
------------ ------------
Total assets...................................... $183,339,670 $166,311,432
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 16,253,290 $ 20,180,807
Notes and capital leases payable, current portion......... 7,748,994 5,867,779
Accrued expenses.......................................... 4,204,532 4,111,309
Restructuring reserves.................................... 518,079 734,661
Other liabilities......................................... 1,275,102 1,615,800
------------ ------------
Total current liabilities......................... 29,999,997 32,510,356
Notes and capital leases payable, net of current portion.... 46,497,088 36,322,452
Notes payable, affiliates-long term......................... 7,000,000 6,000,000
Deferred income taxes and other liabilities................. 1,073,158 1,718,061
Minority interest........................................... 250,165 250,165
Convertible subordinated debentures, net of unamortized
discount.................................................. 9,459,009 6,500,000
------------ ------------
Total liabilities................................. 94,279,417 83,301,034
------------ ------------
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock, par value $.001;
authorized 5,000,000 shares; issued and outstanding
none................................................... -- --
Common stock par value $.0001, authorized 50,000,000
shares; issued and outstanding 33,823,545 and
32,077,632 shares, respectively........................ 3,382 3,208
Additional paid-in capital................................ 87,890,606 81,171,322
Retained earnings......................................... 1,166,265 1,835,868
------------ ------------
Total stockholders' equity........................ 89,060,253 83,010,398
------------ ------------
Total liabilities and stockholders' equity........ $183,339,670 $166,311,432
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED RESTATED
2000 1999
----------- -----------
<S> <C> <C>
Sales, net.................................................. $30,404,061 $24,971,430
Cost of goods sold.......................................... 24,886,713 18,096,582
Inventory revaluation charge................................ -- 2,025,000
----------- -----------
Gross profit.............................................. 5,517,348 4,849,848
Selling, general and administrative expenses................ 5,313,159 4,733,877
Restructuring and equipment revaluation charges............. -- 3,720,000
----------- -----------
Operating income (loss)................................... 204,189 (3,604,029)
Interest and other income................................... 3,852 72,952
Interest expense............................................ (1,288,046) (1,695,796)
----------- -----------
Loss before income taxes.................................. (1,080,005) (5,226,873)
Provision for (benefit from) income taxes................... (410,402) 118,495
----------- -----------
Net loss.................................................. (669,603) (5,345,368)
Preferred stock dividend earned............................. -- (169,612)
----------- -----------
Net loss attributable to common stockholders.............. $ (669,603) $(5,514,980)
=========== ===========
Net loss per share -- basic and diluted..................... $ (.02) $ (.23)
=========== ===========
Weighted average common shares outstanding -- basic and
diluted................................................... 33,150,849 23,480,377
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RESTATED RESTATED
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss.................................................. $ (669,603) $ (5,345,368)
------------ ------------
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation........................................... 1,026,207 918,354
Amortization........................................... 458,414 204,629
Amortization of deferred financing and debenture
discount costs........................................ 120,169 914,124
Restructuring charge-inventory revaluation............. -- 2,025,000
Restructuring charge above (below) payments-other...... (216,582) 3,226,623
Beneficial conversion feature of convertible
subordinated debentures............................... 270,946 --
Reduction of discounts on convertible subordinated
debentures............................................ 34,712 --
Income taxes paid (above) below provision in statement
of operations......................................... (299,362) --
Expense related to common shares issued to employees
and non-employees..................................... 25,827 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. 962,934 (1,484,830)
Inventories.......................................... (2,394,555) 413,461
Prepaid expenses and other current assets............ (407,368) (234,542)
Other assets......................................... 33,444 (8,338)
Accounts payable..................................... 72,485 1,630,143
Other liabilities.................................... (456,850) 609,959
Accrued expenses..................................... (299,562) (1,077,721)
------------ ------------
Net cash provided by (used in) operating
activities..................................... (1,738,744) 1,791,494
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (14,660,012) (2,368,082)
Cash paid for acquisitions, net of cash received.......... (38,940) (8,892,314)
Payments of deferred dredging costs....................... (420,304) --
------------ ------------
Net cash used in investing activities............. (15,119,256) (11,260,396)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants and options, net of
costs.................................................. 621,730 100,000
Proceeds from sale of debentures.......................... 7,500,000 2,500,000
Advances (repayment of) due to affiliates................. 1,000,000 6,330,999
Proceeds from notes payable............................... 12,476,069 7,561,731
Payment of deferred financing costs....................... (190,018) (413,363)
Payments of notes payable................................. (4,672,215) (6,226,937)
------------ ------------
Net cash provided by financing activities......... 16,735,566 9,852,430
------------ ------------
Net change in cash and cash equivalents..................... (122,434) 383,528
Cash and cash equivalents, beginning of period.............. 1,807,588 3,052,518
------------ ------------
Cash and cash equivalents, end of period.................... $ 1,685,154 $ 3,436,046
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 842,857 $ 958,081
Capitalized interest as of March 31....................... $ 476,951 --
Number of shares issued during the period for non-cash
transactions:
Acquisitions and Clean Earth merger (Note 3).............. 839,406 3,666,473
Conversion of Debentures and Preferred Stock.............. 762,465 340,690
Compensation - employees and directors.................... 4,434 5,808
Financing fees and other.................................. -- 55,450
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED 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 including the recycling of soils which have
been exposed to hydrocarbons. The Company's plastic lumber customers are located
throughout the United States. The Company's environmental recycling services'
customers are located primarily in the Northeastern United States.
BASIS OF PRESENTATION
The Company's condensed 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. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim condensed 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.
In the opinion of the Company, the interim statements include all
adjustments, consisting only of normal recurring adjustments, which are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. Operating results for the
three month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
After March 31, 1999 the Company acquired four 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 financial statements for the three months ending
March 31, 2000 to reflect the effects of the beneficial conversion feature,
discounts and accretion associated with the $7.5 million convertible debentures
issued in February 2000 (see Note 5).
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. Both plants manufacture tier and slip sheets that are
similar to products manufactured in the Company's Chicago facility. 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 March 31, 2000 and is being amortized
over 40 years.
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>
6
<PAGE> 7
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $76,000 in the first quarter of 2000 (none in the first
quarter of 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 Balance Sheet for
any pending or threatened litigation.
5. 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 the shares underlying
the debenture and warrant agreements. The Company has recognized a beneficial
7
<PAGE> 8
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 from January 1 2000 to March 1, 2000 were converted into 762,465
shares of common stock at the $5.29 conversion price. The $614,792 pro rata
portion of unamortized debenture issue costs was charged to additional paid-in-
capital on March 1, 2000. The conversion took place in accordance with the terms
of the debentures. (See note 8 Subsequent Event for additional conversion of
previously issued debentures.)
6. RESTRUCTURING RESERVES
As of December 31, 1999 the Company had approximately $378,000 in severance
reserves and $357,000 in exit costs reserves remaining from the $5,745,000
restructuring charge recorded in the first quarter of 1999. In the first quarter
of 2000 the Company paid approximately $154,000 of severance costs and $63,000
of exit costs. As of March 31, 2000 the Company has approximately $224,000 of
severance reserves and $294,000 of exit cost reserves remaining.
7. SEGMENT REPORTING
The Company's sales generating operations are conducted through its Plastic
Lumber Division and its Environmental Recycling Division. A $4,365,000
restructuring charge was recorded by the Plastic division in the first quarter
of 1999 and a $1,380,000 restructuring charge was recorded by the Environmental
Recycling Division. The operating results of the two segments excluding the
aforementioned restructuring charges are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
2000 1999
-------- -------
<S> <C> <C>
Sales:
Environmental recycling................................... $ 13,763 $15,279
Plastic lumber............................................ 16,641 9,692
-------- -------
Total............................................. $ 30,404 $24,971
======== =======
Operating Income (Loss) by Segment:
Environmental recycling................................... $ (299) $ 1,560
Plastic lumber............................................ 1,188 1,046
Corporate................................................. (685) (465)
-------- -------
Total............................................. $ 204 $ 2,141
======== =======
Depreciation and amortization:
Environmental recycling................................... $ 664 $ 512
Plastic lumber............................................ 706 572
Corporate................................................. 114 47
-------- -------
Total............................................. $ 1,484 $ 1,131
======== =======
</TABLE>
8
<PAGE> 9
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The identifiable assets of the respective segments is set forth below (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
2000 1999
--------- --------
<S> <C> <C>
Identifiable assets:
Environmental recycling................................... $ 69,547 $ 72,334
Plastic lumber............................................ 110,350 90,181
Corporate................................................. 3,442 3,796
-------- --------
Total............................................. $183,339 $166,311
======== ========
</TABLE>
The capital expenditures of the respective segments are set forth below (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
2000 1999
------- ------
<S> <C> <C>
Capital Expenditures:
Environmental recycling................................... $ 1,316 $1,565
Plastic lumber............................................ 13,341 803
Corporate................................................. 3 --
------- ------
Total............................................. $14,660 $2,368
======= ======
</TABLE>
8. SUBSEQUENT EVENT
On May 5, 2000 $2,500,000 of previously issued debentures and $12,671 of
unpaid interest from April 1, 2000 through May 4, 2000 were converted into
930,620 shares of common stock at the conversion price of $2.70 per share. The
$373,000 of unamortized debenture issue costs related to the converted
debentures will be charged to additional paid-in-capital on May 5, 2000. The
conversion took place in accordance with the terms of the debentures.
9
<PAGE> 10
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations for each of the three
month periods ended March 31, 2000 and 1999. This discussion should be read in
conjunction with the condensed consolidated financial statements and notes
thereto which are included elsewhere herein, and reflects the restatement of the
results of operations for the three months ending March 31, 2000. The
restatement reflects the effects of the beneficial conversion feature, discounts
and accretion associated with the $7.5 million convertible debentures issued by
the Company on February 2, 2000.
BUSINESS
The Company has two distinct business lines-manufacturing plastic lumber
and environmental recycling. The 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 processes that are protected by
patents.
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. The Division also operates four plants providing various methods of
remediating soil brought to the plants by third parties as well as its sister
environmental service companies.
ACQUISITION COMPLETED DURING THE THREE MONTHS ENDED MARCH 31, 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 209,447 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 February and March 2000 results of operations of
Baron are included in the consolidated results of operations for the three
months ended March 31, 2000.
NON RECURRING RESTRUCTURING CHARGE IN 1999
In conjunction with the aforementioned significant acquisitions in each
division in the first quarter of 1999, the Company restructured and consolidated
its two operating divisions and facilities. A restructuring charge totaling
$5,745,000 was recorded in the first quarter of 1999 including $4,365,000 by the
plastic lumber division and $1,380,000 by the environmental recycling division.
In addition to consolidating several plants, the Company discontinued the
labor intensive flow mold process and converted entirely to a continuous
extrusion method of manufacturing plastic lumber. As a result, the Company
recorded the following charges during the first quarter of 1999:
<TABLE>
<S> <C>
Write-down of flow mold inventory to its raw material
value..................................................... $2,025,000
Write-down of flow mold equipment to its salvage value...... 1,315,000
Severance costs in connection with the restructuring........ 1,075,000
Exit costs in connection with the restructuring............. 1,330,000
----------
$5,745,000
==========
</TABLE>
10
<PAGE> 11
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (CONTINUED)
COMPARISON OF THE FIRST QUARTERS ENDED MARCH 31, 2000 AND 1999
The following table sets forth revenue, with percentages of total revenue,
and costs of sales, depreciation, selling, general and administrative expenses
and amortization, along with percentages of the applicable segment revenue, for
each of the Company's two business segments. The following amounts do not
include aforementioned non-recurring restructuring, inventory and equipment
revaluation charges. The amounts for 1999 have been restated to reflect the
pooled results of mergers subsequent to March 31, 1999 as if the mergers had
taken place on January 1, 1999 (see note 2 to Condensed Consolidated Financial
Statements).
<TABLE>
<CAPTION>
FIRST QUARTER ENDED MARCH 31
------------------------------------
2000 % 1999 %
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales:
Plastic Lumber........................................ $16,641 54.7% $ 9,692 38.8%
Environmental Recycling............................... 13,763 45.3 15,279 61.2
------- ----- ------- -----
Total sales................................... 30,404 100.0 24,971 100.0
Cost of Sales (excluding depreciation):
Plastic Lumber........................................ 12,313 74.0 6,116 63.1
Environmental Recycling............................... 11,609 84.3 11,117 72.8
Depreciation:
Plastic Lumber........................................ 581 3.5 466 4.8
Environmental Recycling............................... 437 3.2 455 3.0
Corporate............................................. 8 0.0 8 0.0
Selling, General and Administrative (excluding
amortization):
Plastic Lumber........................................ 2,434 14.6 1,958 20.2
Environmental Recycling............................... 1,789 13.0 2,090 13.7
Corporate............................................. 571 1.9 418 1.7
Amortization:
Plastic Lumber........................................ 125 .8 106 1.1
Environmental Recycling............................... 227 1.6 57 .4
Corporate............................................. 106 .3 39 .2
------- ----- ------- -----
Total Operating Expenses...................... 30,200 99.3 22,830 91.4
------- ----- ------- -----
Total Operating Income........................ $ 204 .7% $ 2,141 8.6%
======= ===== ======= =====
Operating Income by Segment:
Plastic Lumber........................................ $ 1,188 7.1 1,046 10.8
Environmental Recycling............................... (299) (2.2) 1,560 10.2
Corporate............................................. (685) (2.3) (465) (1.9)
------- ----- ------- -----
Total Operating Income........................ $ 204 .7% $ 2,141 8.6%
======= ===== ======= =====
</TABLE>
CONSOLIDATED SALES AND OPERATING INCOME
Consolidated sales increased 22% to $30,404,000 for 2000 from $24,971,000
in 1999. The 72% increase in sales in the Plastic Lumber Division more than
offset the 10% decline in sales in the Environmental Recycling Division. Almost
all of the Plastic Lumber Division sales increase was from internal growth.
Consolidated operating income declined by $ 1,937,000 to $204,000 for 2000
compared to $ 2,141,000 in 1999. The decline in operating income was almost
entirely in the Environmental Recycling Division. The abnormally wet winter
weather in the northeastern states and delay in starting dredging contracts,
combined with lower profit margin replacement work, negatively impacted the
Environmental Recycling Division results. As the new Plastic
11
<PAGE> 12
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (CONTINUED)
Lumber Division equipment in Illinois, Florida and California comes on stream
and the large dredging contract starts up, the Company expects operating income
to improve in the remainder of 2000.
SALES BY SEGMENT
Plastic Lumber Division sales increased 72% to $16,641,000 in 2000 compared
to $9,692,000 in 1999. All but $2,027,000 of the $6,949,000 increase in sales
was attributable to internal growth.
Environmental Recycling Division sales for 2000 were $13,763,000, a decline
of $1,516,000 or 10% from the $15,279,000 for the first quarter of 1999. The
abnormally wet weather affected all of the soil recycling plants. Also, the Soil
Remediation of Philadelphia (SRP) facility was shutdown to retrofit it to
process additional waste streams under its expanded permit.
GROSS PROFIT (BEFORE DEPRECIATION) BY SEGMENT
Plastic Lumber Division gross profit increased by $752,000 with most of the
increase coming from the acquisition of the net assets of Baron on February 10,
2000. The gross profit margin declined from 37% of sales to 26% of Plastic
Lumber Division sales primarily due to the increase in raw material costs. The
new equipment coming on stream in Illinois, Florida and California produce
higher profit margin products. The gross profit margins should improve in the
remainder of 2000 as the mix of sales shifts to higher gross margin products and
more of the raw material cost increase is passed through to customers.
Environmental Recycling Division gross profit declined $2,008,000 from
$4,162,000 in 1999 to $2,154,000 in 2000. The gross margin as a percent of sales
declined from 27% in 1999 to 16% in 2000.The unusually wet winter reduced the
soil coming to the Clean Earth New Castle, Clean Rock and SRP facilities. Also
the SRP facility was down for an extended period to retrofit it for new waste
streams. The wet weather also impacted the Company's construction services
sales. The replacement revenues for the construction services were for lower
profit margin business. The Company expects improvement in profit margins when
new dredging work commences in the second quarter and all soil processing plants
operate near full capacity thereby spreading fixed costs over a much larger
revenue base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A")
Consolidated SG&A expenses excluding depreciation and amortization
increased $328,000 to $4,794,000 for 2000 from $4,466,000 in 1999. However, as a
percentage of consolidated sales, S,G&A expenses improved from 17.9% for 1999 to
15.8% in 2000 due to increased sales in the Plastic Lumber Division. The
Environmental Recycling Division S,G&A expenses improved slightly from 13.7% of
revenues in 1999 to 13.0% of revenues in 2000. The lower fixed S,G&A expenses in
2000, as a result of the 1999 restructuring, more than offset the effect of
reduced revenues in the Environmental Recycling Division in 2000.
INTEREST EXPENSE
Interest expense was $1,288,000 in 2000 compared to $1,696,000 in 1999. The
three-month period ending March 31, 2000 includes a $306,000 charge for the
beneficial conversion feature and accretion of discounts associated with the
issuance of the $7.5 million convertible debentures issued in the first quarter
of 2000. Also, 1999 interest expense includes a $722,000 write off of discount
assigned to the $6,500,000 convertible subordinated debentures issued in
December 1998 and January 1999.
DEPRECIATION AND AMORTIZATION
Depreciation expense increased $97,000 or 10% in 2000 compared to 1999.
Most of the plant equipment purchases have not been placed in service as of
March 31, 2000. Amortization expense increased $256,000 in
12
<PAGE> 13
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS -- (CONTINUED)
2000 over 1999 due to non compete agreements on pooled companies, additional
goodwill from the historical shareholder settlement and permit amortization on
the Brass acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,685,000 at March 31, 2000, a decrease
of $122,000 from the $1,807,000 at December 31, 1999. Cash used in operating
activities was $1,739,000. The Company built inventories for the spring building
season during the first quarter of 2000 and used its revolving credit agreements
to finance the increase in inventories.
Cash used in investing activities was primarily for equipment in the
Plastic Lumber Division. The Environmental Recycling Division made capital
expenditures in 2000 for plant and equipment totaling $1,316,000 and incurred
deferred dredging costs totaling $420,000. The Plastic Lumber Division made
machinery and equipment purchases totaling $13,341,000 primarily to expand
capacity at the California, Illinois and Florida manufacturing facilities. The
Company also used $39,000 of cash to acquire certain net assets of Baron which
had plant and equipment valued at $3,097,000 and finance equipment leases
thereon totaling $4,166,000.
Cash provided by financing activities totaled $16,736,000 including
$10,000,000 of equipment financing through GE Capital, $7,500,000 of net
proceeds from the issuance of 5% convertible subordinated debentures (see Note 5
to Condensed Consolidated Financial Statements), $2,476,000 of additional bank
and equipment financing loans and $622,000 net proceeds from exercise of options
and warrants. In addition, the Company assumed the aforementioned $4,166,000 of
debt owed by Baron on equipment leases. The Company used proceeds of these
financings to make principal payments due on debt totaling $4,672,000 in the
first quarter of 2000.
The Company will require additional working capital for the environmental
recycling operations, especially for the dredging opportunities being pursued by
the Company. The Company anticipates it will need an additional $7,000,000 to
finish the expansion of its plastic lumber manufacturing facilities.
SEASONALITY
The Company experiences a seasonal slow down during the winter months
because its environmental operations are located in the Northeast United States
where adverse weather and normal ground freezing can impact the Company's
performance. Additionally, sales of certain plastic lumber products slow
significantly in the winter months.
13
<PAGE> 14
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
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 March 31, 2000 are
listed in the following paragraphs.
209,181 shares of Common Stock were issued as a result of acquisitions.
137,000 shares of Common Stock were issued as a result of the exercise of
stock options and warrants.
2,734 shares of Common Stock were issued as a result of bonuses and earn
outs achieved by employees.
1,700 shares of Common Stock were issued to outside directors as board
compensation for 1999.
632,833 shares were issued to the Historical Shareholders pursuant to the
Settlement Agreements discussed in note 3 of the Condensed Consolidated
Financial Statements.
762,465 shares of Common Stock were issued as a result of a conversion of
debentures into equity.
The Common Stock underlying the stock options was previously registered
with the SEC. Some of the stock issued as a result of the acquisitions was
previously registered on a Form 4 filed with the SEC that was declared effective
on September 3, 1999. 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.
14
<PAGE> 15
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PART II. OTHER INFORMATION -- (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 -- Financial Data Schedule for the three months ended March 31,
2000
(b) Reports on Form 8-K
On February 4, 2000 the Company filed an 8K to report a change in
Independent Certified Public Accountants.
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 17, 2000 /s/ MARK S. ALSENTZER
------------------------------------ -----------------------------------------------------
Date Mark S. Alsentzer,
Chairman, President and CEO
August 17, 2000 /s/ JOHN W. POLING
------------------------------------ -----------------------------------------------------
Date John Poling,
Chief Financial Officer
</TABLE>
15
