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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 SEPTEMBER 30, 2002
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)
---------------
NEVADA 87-0404343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
---------------
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
September 30, 2002 is 64,426,416 shares.
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U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2002
and December 31, 2001............................................ 2
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2002 and 2001................... 3
Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 2002 and 2001.................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001......................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures.................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 20
Item 2. Changes in Securities and Use of Proceeds................. 20
Item 3. Defaults Upon Senior Securities........................... 21
Item 4. Submission of Matters to a Vote of Security
Holders.......................................................... 21
Item 6. Exhibits and Reports on Form 8-K.......................... 21
SIGNATURES......................................................... 22
Section 302 Certifications......................................... 23
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 risks associated with our credit facilities and
liquidity, the ability to obtain adequate financing on commercially acceptable
terms, economic conditions, demand for products and services of the Company,
newly developing technologies, the Company's ability to compete, regulatory
matters, protection of the Company's proprietary technology, the effects of
competition from entities with greater financial resources than that possessed
by the Company and shareholder dilution. Such factors, which are discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to 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."
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At September 30, 2002 and December 31, 2001
Dollar amounts in thousands except share data
Unaudited
2002 2001
---------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 106 $ 511
Accounts receivable, net of allowance for doubtful accounts of $3,409
and $5,171, respectively 7,622 7,303
Inventories 4,894 5,482
Prepaid expenses and other assets 3,667 1,336
Assets of discontinued operating segment -- 31,613
--------- ---------
Total current assets 16,289 46,245
Property, plant and equipment (net) 57,104 58,770
Assets held for sale 1,071 1,071
Goodwill (net) 12,650 13,031
Other intangibles 546 597
Other assets 1,853 2,885
Assets of discontinued operating segment -- 39,070
--------- ---------
Total assets $ 89,513 $ 161,669
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,508 $ 11,289
Notes and capital leases payable, current portion 11,807 49,404
Accrued expenses 6,609 6,195
Convertible subordinated debentures, net of unamortized discount -- 3,579
Convertible subordinated debentures - affiliates, net of unamortized discount -- 5,000
Restructuring accrual 76 1,275
Other current liabilities 3,001 4,527
Liabilities of discontinued operating segment -- 25,501
--------- ---------
Total current liabilities 31,001 106,770
Notes and capital leases payable, net of current portion 4,786 2,986
Other liabilities 2,107 324
Minority interest 165 165
Subordinated notes and convertible debentures 10,135 5,584
Liabilities of discontinued operating segment -- 2,655
--------- ---------
Total liabilities 48,194 118,484
--------- ---------
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $.001; authorized 5,000,000 shares;
Series "D" 15%, issued and outstanding 0 and 1,187,285 shares, respectively -- 1
Series "E" 10%, issued and outstanding 0 and 1,714,285 shares, respectively -- 2
Common stock par value $.0001, authorized 100,000,000 shares;
issued and outstanding 64,426,416 and 39,611,392 shares, respectively 6 4
Additional paid-in capital 111,913 104,177
Accumulated deficit (70,600) (60,999)
--------- ---------
Total stockholders' equity 41,319 43,185
--------- ---------
Total liabilities and stockholders' equity $ 89,513 $ 161,669
========= =========
See accompanying notes to condensed unaudited consolidated financial statements.
2
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollar amounts in thousands except share and per share data
Three Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
------------ ------------
Sales, net $ 10,646 $ 15,323
Cost of goods sold 11,028 13,835
------------ ------------
Gross (loss) profit (382) 1,488
Selling, general and administrative expenses 2,614 5,366
Restructuring and asset impairment charge 453 11,466
------------ ------------
Operating loss (3,449) (15,344)
Interest and other income 46 6
Interest expense 4,093 2,952
------------ ------------
Loss from continuing operations before income taxes (7,496) (18,290)
Income tax provision -- 610
------------ ------------
Loss from continuing operations (7,496) (18,900)
Discontinued Operations:
Income from operations of discontinued segment,
net of taxes of $0 and $100,000 2,920 2,472
Gain on disposal of discontinued environmental recycling segment 1,637 --
------------ ------------
Income from discontinued operations 4,557 2,472
------------ ------------
Net loss (2,939) (16,428)
Preferred stock dividend earned -- 233
------------ ------------
Net loss attributable to common stockholders $ (2,939) $ (16,661)
============ ============
Net loss per common share - Basic:
Loss from continuing operations $ (0.15) $ (0.50)
Income from discontinued operations $ 0.09 $ 0.06
------------ ------------
Net loss per common share $ (0.06) $ (0.44)
============ ============
Net loss per common share - Diluted:
Loss from continuing operations $ (0.15) $ (0.50)
Income from discontinued operations $ 0.09 $ 0.06
------------ ------------
Net loss per common share $ (0.06) $ (0.44)
============ ============
Weighted average common shares outstanding:
Basic 48,725,448 38,210,927
Diluted 48,725,448 38,210,927
See acompanying notes to condensed unaudited consolidated financial statements.
3
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollar amounts in thousands except share and per share data
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
------------ ------------
Sales, net $ 39,773 $ 47,533
Cost of goods sold 34,111 42,721
------------ ------------
Gross profit 5,662 4,812
Selling, general and administrative expenses 9,657 12,337
Restructuring and asset impairment charge 453 11,648
------------ ------------
Operating loss (4,448) (19,173)
Interest and other income 223 (20)
Interest expense 10,659 8,248
------------ ------------
Loss from continuing operations before income taxes (14,884) (27,441)
Income tax provision -- --
------------ ------------
Loss from continuing operations (14,884) (27,441)
Discontinued Operations:
Income from operations of discontinued segment 3,823 6,112
Gain on disposal of discontinued environmental recycling segment 1,637 --
------------ ------------
Income from discontinued operations 5,460 6,112
------------ ------------
Net loss (9,424) (21,329)
Preferred stock dividend earned 177 1,144
------------ ------------
Net loss attributable to common stockholders $ (9,601) $ (22,473)
============ ============
Net loss per common share - Basic:
Loss from continuing operations $ (0.34) $ (0.79)
Income from discontinued operations $ 0.13 $ 0.17
------------ ------------
Net loss per common share $ (0.21) $ (0.62)
============ ============
Net loss per common share - Diluted:
Loss from continuing operations $ (0.34) $ (0.79)
Income from discontinued operations $ 0.13 $ 0.17
------------ ------------
Net loss per common share $ (0.21) $ (0.62)
============ ============
Weighted average common shares outstanding:
Basic 44,720,499 36,189,481
Diluted 44,720,499 36,189,481
See acompanying notes to condensed unaudited consolidated financial statements.
4
U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
Dollar amounts in thousands except share data
(Unaudited)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,424) $ (21,329)
------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 2,859 3,018
Amortization 52 441
Gain on disposal of discontinued operating segment (1,637)
Income from discontinued operations (3,823) (6,112)
Write down of obsolete inventory 134 --
Amortization of deferred financing costs 1,686 1,090
Reduction of discounts on convertible subordinated debentures 560 725
Interest expense paid in kind 130 --
Beneficial conversion feature of convertible subordinated debentures 3,041 280
Non-cash restructuring and asset impairment charges 453 11,452
(Gain) loss on sale of property, plant & equipment 10 (2)
Changes in operating assets and liabilities, net of divestitures:
Accounts receivable (319) (354)
Inventories 453 2,170
Prepaid expenses and other current assets (2,330) (1,356)
Other assets 246 (2,617)
Accounts payable 662 3,662
Other liabilities (31) 649
Accrued expenses 2,370 1,069
------------ ------------
Net cash used in operating activities - continuing operations (4,908) (7,214)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (1,885) (1,215)
Proceeds from the sale of discontinued operations, net of cash retained
by the purchaser 41,118 --
Divestitures of property, plant and equipment 229 207
------------ ------------
Net cash provided by (used in) investing activities -
continuing operations 39,462 (1,008)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net of issuance costs 376 991
Proceeds from the sale of preferred stock, net of issuance costs -- 999
Proceeds from the sale of convertible subordinated debentures,
net of issuance costs -- 3,732
Net repayments on lines of credit (12,400) --
Proceeds from notes payable 1,092 1,200
Payments of notes payable (27,683) (6,712)
------------ ------------
Net cash (used in) provided by financing activities -
continuing operations (38,615) 210
------------ ------------
Net change in cash and cash equivalents - continuing operations (4,061) (8,012)
Cash from discontinued operations 3,255 6,836
Cash and cash equivalents, beginning of period, including cash
of discontinued operations 912 2,211
------------ ------------
Cash and cash equivalents, end of period $ 106 $ 1,035
============ ============
Supplemental disclosure of cash flow information - continuing operations:
Cash paid during the period for:
Interest $ 1,633 $ 5,259
Income taxes $ 4 $ 9
Number of shares issued (canceled) during the period for non-cash transactions:
Acquisitions, Clean Earth merger and other items (41,137) 8,075
Compensation - employees and directors 4,400 4,400
Litigation settlements 18,000 45,000
Conversion of debenture and preferred stock 23,839,302 2,134,742
Investment banking and commitment fees -- 235,000
Warrants issued in connection with professional services provided -- 181,250
Modification of convertible subordinated debt agreements (285,714)
Settlement of trade payables and professional services 480,173
See accompanying notes to condensed unaudited consolidated financial statements.
5
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
NATURE OF OPERATIONS
U.S. Plastic Lumber Corp. and its subsidiaries (collectively the "Company")
are engaged in the manufacturing of alternative wood and other specialty
products made primarily from recycled plastic. Prior to September 9, 2002, the
Company also provided environmental remediation services, including recycling of
soils that had been exposed to hydrocarbons and the beneficial reuse of dredge
materials. The Company's customers are located primarily throughout the United
States, however the Company does have a small number of international customers.
The Company's environmental remediation, dredge and soil recycling customers
were 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-K as filed with the SEC for
the year ended December 31, 2001. Management acknowledges its responsibility for
the preparation of the accompanying interim condensed 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 for 2001 have been reclassified to conform to the 2002 presentation.
As discussed in Note 2, the Company completed the sale of its environmental
recycling and remediation business on September 9, 2002 and the effects of the
sale are reflected in the Company's consolidated financial statements. The
results of operations of this business segment from January 1, 2002 through the
date of the sale is included in Income from Discontinued Operations in the
Company's Consolidated Statement of Operations for the nine months ended
September 30, 2002. Income from Discontinued Operations in the Company's
Consolidated Statement of Operations for the three months ended September 30,
2002 includes the results of the environmental recycling and remediation
business from July 1, 2002 through the date of the sale. All prior periods
presented in this Form 10-Q have been restated to reflect the environmental
recycling and remediation business as a discontinued operation.
2. AGREEMENT TO SELL CLEAN EARTH, INC.
On June 14, 2002 the Company entered into an amended and restated purchase
agreement with CEI Holding Corporation ("CEI Holding Corp."), a corporation
recently formed by Eos Partners, L.P. and Bank of America Capital Investors, two
private equity investment groups, to sell 100% of the capital stock of its
wholly-owned subsidiary, Clean Earth, Inc. ("Clean Earth") to CEI Holding Corp.,
subject to approval of the Company's shareholders. The transaction was approved
by the Company's shareholders on August 27, 2002, and the sale transaction was
completed on September 9, 2002.
Under the terms of the purchase agreement, the purchase price consisted of:
o $45.0 million, of which $44.0 million was paid at closing and $1.0
million will be held in escrow pending the completion of the audit of
the closing Clean Earth balance sheet and the resulting final purchase
price adjustments, pursuant to the terms of the purchase agreement;
and
o A 5% promissory note issued by CEI Holding Corp. in the original
principal amount of $3.5 million with a maturity date of September 9,
2012, subject to certain adjustments and rights of set-off as
described in the purchase agreement. The promissory note will be
subordinate to all of the senior debt of CEI Holding Corp. The Company
has valued the promissory note at approximately $921,000, based on the
characteristics and inherent risk of the note, and will accrete
interest periodically until the note's maturity date.
6
The purchase price was subject to adjustments pertaining to the working
capital of Clean Earth and the debt of Clean Earth to be retained by the
purchaser as of the date of closing. Based on the unaudited balance sheet of
Clean Earth as of the closing date, these adjustments resulted in a net increase
to the purchase price of approximately $384,000, which was included in the cash
payment made at closing. The final adjustments to the cash portion of the
purchase price will be based upon an audited balance sheet of Clean Earth to be
delivered within 90 days of the closing date. If the amount of outstanding debt
and other obligations and non-cash working capital set forth on the final
audited balance sheet differ from the amounts of such items set forth on the
unaudited balance sheet, the purchase price will be increased or decreased
depending on the results of the audit. Any adjustments for a reduction in the
purchase after the closing, if any, would first be paid to the purchaser out of
the $1.0 million placed in escrow. If the audited balance sheet results in
downward adjustments to the purchase price in excess of the $1.0 million that
was placed in escrow, the amount of the excess adjustment would be paid by the
Company to the purchaser, at the purchaser's option, in cash or in the form of a
principal reduction of the $3.5 million promissory note. If the audited balance
sheet results in upward adjustments to the purchase price, the amount of the
excess adjustment would be payable to the Company in cash within five business
days of the determination of the final purchase price adjustment. The Company
believes that the $1.0 million placed in escrow will be sufficient to cover any
downward adjustments to the purchase price.
The Company realized net cash proceeds, after the $1.0 million escrow
withholding and transaction expenses, of approximately $41.7 million, and
recorded a gain on the sale transaction of $1,637,000. The proceeds were used to
pay down the entire principal balance of the Company's Senior Credit Facility in
the amount of $37.9 million and to pay down certain other indebtedness.
In addition, the receivables pursuant to (i) the Company's ownership
interest in the joint venture between Interstate Industrial Corp. and the
Company; and (ii) the Quakertown Foundry Site Agreement between Integrated
Technical Services, a subsidiary of Clean Earth, and the Pennsylvania Department
of Environmental Protection were not included as part of the purchase agreement.
The net book value of these receivables was approximately $1,640,000 as of
September 30, 2002.
3. LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and ability to meet its financial obligations and
maintain its current operations in 2002 and beyond will be dependent on, among
other things, its ability to obtain a new senior credit facility, meet its
payment obligations under, achieve and maintain compliance with the financial
covenants in its debt agreements and provide financing for working capital.
Upon the closing of sale of Clean Earth, the Company received a new
revolving credit facility from the same lending group that comprised its
previously existing Senior Credit Facility ("the Bank of America Lending
Group"), with a maximum availability of $3.0 million. Outstanding borrowings on
this facility were $1.0 million and $3.0 million as of September 30, 2002 and
November 14, 2002 respectively. Under certain conditions, the availability
under this facility could increase to $10.0 million. The Company is currently
negotiating a new $13 million credit facility with another financial institution
to replace the existing facility, and is also negotiating an amendment to its
Master Credit Facility to cure certain defaults in connection with that lending
agreement. The Company expects these negotiations to be completed in the very
near future.
In September of 2002 the $5 million convertible debenture payable to the
Stout Partnership was converted to equity in accordance with the terms of the
debenture agreement. In addition, the $4 million convertible subordinated
debenture payable to Halifax Fund, L.P. ("Halifax") that was due July 1, 2002
was retired as part of an Exchange and Repurchase Agreement. See notes 4 and 6
for further information on these transactions.
If the Company is not successful in completing the proposed amendment to
its Master Credit Facility as further described in note 5, it will be required
to seek other alternatives for financing its ongoing working capital needs,
which could include raising additional equity, selling some of its assets or
increasing the availability on its current credit facility. There can be no
assurances that this course of action will be successful. The Company's failure
to provide financing for its ongoing working capital needs would require the
Company to significantly curtail its operations.
7
4. CAPITAL STOCK
SERIES D CONVERTIBLE PREFERRED STOCK
In September of 2000 the Company issued 1,187,285 shares of its Series D
Preferred Stock and received net proceeds of $4.1 million. The Series D
Preferred Stock contained a quarterly cash dividend at an annual rate of 15%,
with the initial dividend payable on March 31, 2001. Each share of Series D
Preferred Stock was convertible into one share of the Company's common stock at
the option of the holder any time after March 31, 2001, and the Company had
certain rights to redeem or require conversion of the Series D Preferred Stock
prior to March 1, 2002. Otherwise, the Series D Preferred Stock would
automatically convert into common stock on March 1, 2002.
The Company did not pay any of the required cash dividends on the Series D
Preferred Stock due to a deterioration in the Company's financial condition.
Dividends in arrears on the Series D Preferred Stock amounted to approximately
$809,000 at December 31, 2001 and $911,000 immediately prior to the conversion
of the Series D Preferred Stock. Promissory Notes have been offered to all of
the former holders of the Series D Preferred Stock with the exception of
Halifax, (see note 6) at varying rates of interest and maturity dates. All but
one of the remaining former holders have accepted the terms and executed their
respective notes. The outstanding balance of these notes as of September 30,
2002 was approximately $753,000. On March 1, 2002 all 1,187,285 shares of
outstanding Series D Preferred Stock were converted into an equal number of
shares of common stock.
SERIES E CONVERTIBLE PREFERRED STOCK
Between November 2000 and March 2001, the Company issued a total 1,714,285
shares of its Series E Preferred Stock to the Stout Partnership in exchange for
payments to the Company in the aggregate of $3,000,000. The stock paid a monthly
cash dividend at an annual rate of 10%. Each share of Series E Preferred Stock
was convertible into one share of the Company's common stock at the option of
the holder at any time after December 31, 2001, subject to certain rights of the
Company to redeem or require conversion of the Series E Preferred Stock prior to
March 1, 2002. Otherwise, the Series E Preferred Stock was to have automatically
converted into common stock on March 1, 2002. On March 4, 2002 the Company's
Board of Directors extended the automatic conversion date of the Series E
Preferred Stock to March 31, 2002. On March 31, 2002 all 1,714,285 shares of
outstanding Series E Preferred Stock were converted into an equal number of
shares of common stock.
COMMON STOCK PRIVATE PLACEMENT
On February 19, 2002, the Company issued 800,000 shares of common stock at a
purchase price of $0.50 per share. This private placement transaction was not
registered under the Securities and Exchange Act of 1933 (the "Act") in reliance
upon the exemption from registration in Section 4(2) of the Act, as a
transaction not involving any public offering. Net proceeds after issuance costs
of $376,000 were used for general corporate purposes.
CONVERSION OF STOUT DEBENTURE
On May 29, 2002 the Stout Partnership signed an agreement to convert its
$5.0 million convertible subordinated debenture due July 1, 2003, plus accrued
interest of approximately $183,000, into 19,935,808 shares of the Company's
common stock. The conversion price of $0.26 per share is in accordance with the
conversion formula as stated in the terms of the debenture and is based on the
May 29, 2002 date of the agreement. Several members of the Company's board of
directors and Mark S. Alsentzer, the Company's Chief Executive Officer, are
affiliated with Stout Partnership. The transaction was approved by the Company's
shareholders at a Special Meeting of Shareholders on August 27, 2002. The
conversion took place on September 11, 2002 and the Company recognized as
interest expense a beneficial conversion feature of approximately $2,791,000
based on the September 9, 2002 commitment date.
5. NOTES AND CAPITAL LEASES PAYABLE
On September 9, 2002 the Company paid down the outstanding principal balance
on its Senior Credit Facility in the amount of $37.9 million, and also paid
approximately $1.1 million of accrued fees and penalties related to the Senior
Credit Facility. Also on September 9, 2002, the Company received a new credit
facility with this same lending group with a maximum availability of $3.0
million. The outstanding balance on this facility is $1.0 million and $3.0
million as of September 30, 2002 and November 14, 2002 respectively. If the
Company is able to obtain a forbearance agreement from the lending group which
comprises its Master Credit Facility ("the GE Lending Group") that is acceptable
to the Bank of America Lending Group, the availability on this facility will
increase to a maximum of $10.0 million. The financial covenants for this
facility do not take effect until March 31, 2003.
8
The Company has not made principal payments on its Master Credit Facility
with the GE Lending Group since December of 2001 and, as of September 30, and
December 31, 2001, was not in compliance with the tangible net worth covenant
under the Master Credit Facility. On February 28, 2002 the Company and the GE
Lending Group agreed to and signed a Forbearance and Modification Agreement
which restructures the Master Credit Facility by allowing the Company to defer
principal payments until April 1, 2002 while continuing to make interest
payments, and providing a waiver of the September 30, and December 31, covenant
violations. In accordance with the agreement, the Company was required to make a
$500,000 principal payment upon the completion of the sale of Clean Earth. The
forbearance and Modification Agreement was subsequently amended on May 30, 2002
and again on June 14, 2002 to, among other things, extend the forbearance period
until the date that is twenty four months following the date of the closing of
the sale of Clean Earth, provided that the transaction take place prior to
August 30, 2002 and subject to certain other conditions. The Company did not
complete the sale of Clean Earth until September 9, 2002, therefore the
forbearance period has terminated. In addition, the Company did not make the
required principal payment of $500,000 that was required upon the completion of
the sale of Clean Earth, nor was the Company in compliance with the financial
covenants of the agreement as of June 30, 2002 and September 30, 2002. The
Company is currently in negotiations with the GE Lending Group for a third
amendment to the Forbearance and Modification Agreement which would cure these
defaults, for which to date the GE Lending Group has taken no action against the
Company. The amendment would provide for the resumption of regular principal
payments on the facility, and will also modify the conditions under which the
Company will be required to make an additional $2,000,000 prepayment of
principal on the facility. This prepayment is currently due no later than July
31, 2003. In addition, the facility as currently amended gives the GE Lending
Group a first priority lien on the Company's option to purchase the land and
buildings in Chicago, Illinois ("the Chicago Property") currently leased by the
Company, and requires the Company to exercise this purchase option no later than
May 1, 2003. If the Company is unsuccessful in obtaining this new amendment or
otherwise obtaining waivers of its current defaults, the GE Lending Group can
demand immediate repayment from the Company of the outstanding balance of the
Master Credit Facility, which is $11,356,000 as of September 30, 2002. The
Company currently does not have the resources to pay these obligations if they
become currently due.
The purchaser of Clean Earth assumed approximately $4.3 million of notes
and capital leases payable for which the Company was either the borrower or
guarantor.
Notes payable and capital leases consist of the following (in thousands):
September 30, 2002 December 31, 2001
------------------ -----------------
Term loan under the Senior Credit Facility -- $25,000
Revolving credit line under the Senior Credit Facility -- 12,400
Replacement credit facility with the Bank of America Lending Group 1,032 --
Equipment term loans under the Master Credit Facility 11,356 11,356
Mortgage notes and capital leases payable collateralized by
certain facilities and equipment owned by the Company and its
subsidiaries 451 634
Other notes payable 3,754 3,000
------- -------
Total notes payable and capital leases 16,593 52,390
Less current portion: 11,807 49,404
------- -------
$ 4,786 $ 2,986
======= =======
6. CONVERTIBLE SUBORDINATED DEBENTURES
On February 2, 2000 the Company issued a 5% $7,500,000 convertible
subordinated debenture (the "Fiscal 2000 Debenture") which is convertible into
the Company's common stock to Halifax. On February 20, 2001, Halifax exercised
its rights under the terms of the debenture to require the Company to (a)
repurchase the debenture for cash at 110% of the outstanding principal amount
plus all accrued, unpaid interest, or (b) have the Minimum Floating Conversion
Price permanently re-set to zero. The Company did not elect option (a),
therefore the Minimum Floating Conversion Price was permanently re-set to zero.
The effect of re-setting the Minimum Floating Conversion Price to zero is that
upon conversion of the Fiscal 2000 Debenture into common stock the price at
which the common stock of the Company will be issued to Halifax shall be equal
to the lowest trading price of the common stock on the principal trading market
for such common stock (which is currently The Nasdaq SmallCap Market) during the
four (4) trading days prior to but not including the holder's conversion date.
The right of the debenture holder to convert the debenture to common stock was
limited in that the holder could not convert the debenture if upon such
conversion the holder would become a beneficial owner of
9
more than 9.9% of the total issued and outstanding shares of the Company's
common stock. If the holder elected to convert and the entire debenture could
not be converted due to this limitation, the Company would have been required to
settle in cash that portion of the debenture which could not be converted to
stock when the debenture matured in February of 2005, at 110% of the sum of the
outstanding balance of the debenture that is in excess of the limitation and
accrued but unpaid interest and default payments.
On February 4, 2002 $349,000 of the previously issued convertible
subordinated debenture and approximately $2,000 of unpaid interest were
converted into 1,001,923 shares of common stock at a conversion price of $0.35
per share. As a result of this conversion, the Company recorded a beneficial
conversion feature benefit granted to the holder of approximately $250,000,
which was charged to interest expense during the nine months ended September 30,
2002. The terms of the debenture allowed for the quarterly interest payments to
be paid in kind by increasing the outstanding principal balance of the
debenture. During the first nine months of 2002 approximately $130,000 of
interest was paid in kind.
On June 15, 2001, the Company issued a convertible subordinated debenture in
the principal amount of $4.0 million (the "Fiscal 2001 Debenture") and a warrant
to purchase 250,000 shares of its common stock, at an initial purchase price of
$2.00 per share, to Halifax. Halifax paid the Company $4.0 million for these
securities. The principal amount of the Fiscal 2001 Debenture paid interest at
an annual rate of 25% and was due on July 1, 2002. The debenture was convertible
into shares of the Company's common stock at a conversion price per share equal
to the average of the lowest trading price of the common stock during any three
trading days during the twenty-two trading days immediately prior to the
conversion date. The Company did not make the required quarterly interest
payments on this debenture of $250,000 for the three-month periods ending
December 31, 2001, March 31, 2002 and June 30, 2002.
The Fiscal 2001 Debenture Purchase Agreement provided that the Company pay
in cash a default payment of 2.5% of the sum of the outstanding principal amount
of the Fiscal 2001 Debenture plus the accrued interest for each thirty day
period that the shares underlying the Fiscal 2000 and Fiscal 2001 debentures,
and the associated warrants issued in conjunction with them, were not
registered. As of June 30, 2002 the Company had not filed a registration
statement to register these shares and the Company had accrued $950,000 in
penalties due Halifax as a result of the Company's failure to register these
shares.
On September 24, 2002 the Company entered into an Exchange and Repurchase
Agreement with Halifax whereby:
o The Fiscal 2000 and Fiscal 2001 Halifax debentures, whose carrying
amounts net of discounts at the time of the exchange were $5,503,000
and $4,000,000 respectively, were terminated
o All unpaid default charges, fees, penalties preferred dividends in
arrears and accrued interest were waived by Halifax
o Halifax released the Company from any action Halifax had against the
Company relative to the Fiscal 2000 and Fiscal 2001 Halifax Debentures
o Halifax released its second lien on the Company's assets that were
sold in connection with the sale of Clean Earth while retaining its
second lien on the Company's remaining assets granted to Halifax under
the terms of the Fiscal 2001 Debenture
In exchange for the preceding, the Company:
o Paid $2.5 million in cash to Halifax
o Issued a 10% convertible subordinated debenture in the principal
amount of $2,831,558 due March 24, 2006, with interest being paid in
kind for the first two years and paid in cash for the third year.
Subject to certain adjustments as more fully described in the
debenture agreement, one third of the principal amount of the
debenture will be convertible into shares of the Company's common
stock at $0.75 per share, one third will be convertible at $1.00 per
share and one third will be convertible at $1.25 per share.
o Issued a 10% subordinated note with no conversion rights in the
principal amount of $5.6 million due March 24, 2006, with interest
being paid in kind for the first two years and paid in cash for the
third year
o Canceled 285,714 shares of common stock held by Halifax
o Agreed to file a registration statement to register the shares
underlying the new convertible debenture and the warrants previously
issued to Halifax no later than April 15, 2003
10
7. RESTRUCTURING CHARGES
In September of 2001 the Company announced the closing of three of its
manufacturing facilities and the leasing of two of its resin processing plants
to third parties in an effort to reduce fixed costs, improve customer service
and narrow management's focus to a smaller number of manufacturing facilities,
without reducing total manufacturing capacity. With the exception of activities
associated with exiting the facilities, the Fontana, California, Denton,
Maryland, and Trenton, Tennessee plants were closed on September 28, 2001 and
the equipment and manufacturing processes at these plants were transferred to
the Chicago, Illinois and Ocala, Florida manufacturing locations. The Company
has obtained a buyout or sublease for all but one of these closed facilities,
for which negotiations are ongoing. In addition, the Company discontinued raw
material processing at its Auburn, Massachusetts and Chino, California resin
plants and agreed to lease these operations to other raw material processors.
Approximately 140 full time manufacturing and administrative positions were
eliminated in connection with the reduction in facilities. The plan of
restructure was adopted by management and the board of directors and
communicated to employees in late September of 2001. During the fourth quarter
of 2001, the Company recorded an acquired intangibles impairment charge related
to the environmental division of $13.5 million as a result of the proposed sale
of CEI (see note 2) and the requirement to reduce to fair value the carrying
value of CEI's long-lived assets. The following is a summary of the
restructuring and asset impairment charges recorded during the third and fourth
quarter of 2001:
Write-down for equipment impairment $ 8,694,000
Write-down for goodwill impairment 14,616,000
Lease termination, severance and other exit costs 1,656,000
-----------
Total restructuring and asset impairment charges $24,966,000
===========
During 2001 the Company paid approximately $761,000 in employee termination,
lease termination and other exit costs in connection with the restructuring and
approximately $895,000 remained in the accrual as of December 31, 2001,
primarily for lease termination expenses. During the nine months ended September
30, 2002 the Company paid approximately $892,000 in lease termination and
employee termination costs in connection with the restructuring and
approximately $3,000 remained in the accrual at September 30, 2002. In August of
2002 the party to the sublease agreement at the Auburn, Massachusetts plant
terminated their sublease agreement with the Company in accordance with its
terms. As a result, the company recorded an impairment charge on the fixed
assets at that location of approximately $453,000. The Company is currently
attempting to obtain a new sublease agreement or buyout of its lease obligation
with respect to this facility.
In the fourth quarter of 2000, the Company committed to a plan to
restructure and to consolidate some of its smaller plants within the plastic
lumber division. Specifically, the Company closed its Reidsville, North Carolina
facility in the fourth quarter of 2000, its Green Bay, Wisconsin and Vernon,
California facilities in January 2001 and its Sweetser, Indiana facility early
in the third quarter of 2001. As a result, the Company recorded a charge of
$3,417,000 in the fourth quarter of 2000 for equipment impairment and lease
termination costs in connection with the restructuring. As of December 31, 2000,
the Company had accrued $1,098,000 in connection with the lease termination
costs and anticipates making lease termination payments throughout 2001 and 2002
as it completes its restructuring plan. During 2001 the Company paid
approximately $564,000 in lease termination payments and charged this amount
against the accrual. Also during 2001, the Company reversed $154,000 of the
accrual for other exit costs due to a change in estimate. As of December 31,
2001 the Company had approximately $380,000 remaining in its 2000 restructuring
accrual for lease termination payments. During the nine months ended September
30, 2002 the Company paid approximately $307,000 in lease termination payments
and had approximately $73,000 remaining in its 2000 restructuring accrual as of
September 30, 2002.
8. LEGAL PROCEEDINGS
On February 28, 2002 a judgment in the amount of $1,760,000 plus
administrative fees, arbitrators' compensation and interest was awarded to
Southern Wood Services due to the Company's breach of a purchase contract. As a
result, the Company accrued $1,844,000 at December 31, 2001 in connection with
this ruling. On June 18, 2002 the Company entered into a settlement agreement
with Southern Wood Services whereby the Company agreed to pay $1,590,000 payable
in 53 equal monthly payments of $30,000, commencing with the date of the
settlement agreement. As a result, the Company reversed $254,000 of the amount
accrued at December 31, 2001 due to this change in the estimated amount of the
liability.
11
In December 1998, the Company purchased Clean Earth of North Jersey ("CENJ",
then known as S&W Waste, Inc.) in a stock purchase transaction. Pursuant to such
purchase, the Company could be responsible for liabilities resulting from
matters wherein CENJ has been named as a potentially responsible party ("PRP")
in matters involving the possible disposal of hazardous waste at certain
disposal sites. At September 30, 2002 the Company has accrued approximately
$316,000 for estimated liabilities related to these matters, and agreed to
retain all liability with respect to these matters after the sale of Clean
Earth. The Company believes the accrual is sufficient to cover the aggregate
liability that may be incurred in these matters; however, there can be no
assurances that the accrual will be sufficient.
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121.
The Company adopted the provisions of SFAS No. 141 during 2001 and
initially adopted the provisions of SFAS No. 142 on January 1, 2002. Goodwill
and intangible assets acquired in business combinations completed before
July 1, 2001 continued to be amortized prior to the initial adoption of SFAS No.
142.
SFAS No. 141 required that upon adoption of SFAS No. 142 the Company must
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and make any necessary reclassifications in
order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. SFAS No. 142 required the Company to reassess the useful lives
and residual values of all amortizable intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, the
Company was required to test the intangible asset for impairment in accordance
with the provisions of SFAS No. 142 within six months of adoption.
In connection with the transitional goodwill impairment evaluation, SFAS No.
142 required the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of January 1, 2002. To accomplish this,
the Company identified its reporting units to which goodwill is associated and
determined the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. Based on an independent third party
valuation of each of the Company's reporting units and a comparison to each
reporting unit's carrying amount as of January 1, 2002, the Company did not
record any goodwill impairment.
At December 31, 2001 the Company had approximately $13.0 million of
unamortized goodwill and unamortized patents of approximately $600,000
associated with the Company's continuing operations. The Company also had an
unamortized permit in the amount of approximately $8.1 million which was
acquired in a purchase business combination by its environmental recycling
division, which was sold on September 9, 2002. All of these assets were subject
to the transition provisions of SFAS No. 141 and 142. With the sale of the
environmental recycling division complete, the following table summarizes the
carrying value of the Company's amortizable intangible assets as of September
30, 2002 and December 31, 2001:
12
(Dollar amounts in thousands:)
2002 2001
------- -------
Patents 811 810
Accumulated amortization (265) (213)
------- -------
Carrying amount - Patents 546 597
------- -------
Total, net $ 546 $ 597
======= =======
During the nine months ended September 30, 2002, aggregate amortization
expense from continuing operations for the Company's intangible assets was
approximately $52,000. As of September 30, 2002, estimated aggregate annual
amortization expense for the Company's intangible assets are as follows (in
thousands):
Year Ending Amounts
- ----------- -------
2002........................................ $ 17
2003........................................ 69
2004........................................ 69
2005........................................ 69
2006........................................ 69
--------
$ 293
========
In connection with the initial adoption of SFAS No. 142, the Company ceased
amortization of goodwill. Had the adoption of SFAS 142 taken place as of January
1, 2001, net loss from continuing operations and loss per diluted common share
from continuing operations for the nine months ended September 30, 2001 would
have been reduced by approximately $390,000 and $.01 respectively.
On February 10, 2000 the Company acquired certain assets and liabilities of
Baron Enterprises, Inc. for 202,376 shares of the Company's common stock,
including 42,358 shares held in escrow pending the resolution of outstanding
issues within the purchase agreement. On June 30, 2002 the Company determined
that these issues had been resolved and that the Company would not be required
to release these shares. As such, the Company reduced its number of common
shares outstanding by 42,358 and reduced acquisition goodwill by approximately
$381,000, based on a market price of $9.00 per share as of February 10, 2000.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". That standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity will capitalize a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier adoption
permitted. The Company is currently evaluating the effect that the adoption of
SFAS No. 143 may have on its consolidated results of operations and financial
position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, it retains many of the fundamental
provisions of SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. However,
it retains the requirement in APB Opinion No. 30 to report separately
discontinued operations and extends that reporting to a
13
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Adoption of
the provisions of SFAS No. 144 on January 1, 2002 had no material effect on the
Company's consolidated results of operations and financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit (including restructuring) or disposal activities at
fair value when the related liability is incurred rather than at the date of a
commitment to an exit or disposal plan under current practice. Costs covered by
the standard include certain contract termination costs, certain employee
termination benefits and other costs to consolidate or close facilities and
relocate employees that are associated with an exit activity or disposal of
long-lived assets. The new requirements are effective prospectively for exit or
disposal activities initiated after December 31, 2002 and will be adopted by the
Company effective January 1, 2003. The adoption of SFAS No. 146 is expected to
impact the timing of recognition of costs associated with future exit and
disposal activities.
11. SEGMENT REPORTING
On September 9, 2002 the Company completed the sale Clean Earth, whose
subsidiaries comprised the Company's Environmental recycling division. As a
result the Company has determined that it has only one operating segment. This
determination is based primarily on the similar nature of the Company's
remaining products and production processes utilized.
14
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and ability to meet its financial obligations and
maintain its current operations for the remainder of 2002 and beyond will be
dependent on, among other things, its ability to obtain a new senior credit
facility, meet its payment obligations under, achieve and maintain compliance
with the financial covenants in its debt agreements and provide financing for
working capital.
On September 9, 2002 we completed the sale of our environmental recycling
and remediation business, Clean Earth, Inc. ("Clean Earth"). See note 2 to the
consolidated financial statements for details of this transaction. We realized
net cash proceeds, after the $1.0 million escrow withholding and transaction
expenses, of approximately $41.7 million. We used the proceeds to pay down the
entire principal balance of our Senior Credit Facility in the amount of $37.9
million and to pay down certain other indebtedness, including approximately $1.1
million of accrued fees and penalties related to the Senior Credit Facility. In
addition, the purchaser of Clean Earth assumed $4.3 million of our outstanding
indebtedness in accordance with the terms of the transaction.
Also on September 9, 2002, we received a new credit facility with the same
lending group that comprised our previously existing Senior Credit Facility
("the Bank of America Lending Group") with a maximum availability of $3.0
million. The outstanding balance on this facility is $1.0 million and $3.0
million as of September 30, 2002 and November 14, 2002 respectively. If we are
able to obtain a forbearance agreement from the lending group which comprises
our Master Credit Facility ("the GE Lending Group") that is acceptable to the
Bank of America Lending Group, the availability on this facility will increase
to a maximum of $10.0 million. We are also in negotiations for a new $13 million
credit facility with another financial institution to replace the current
facility, and are also negotiating an amendment to our Master Credit Facility to
cure certain defaults in connection with that lending agreement. We expect these
negotiations to be completed in the very near future.
We have not made principal payments on our Master Credit Facility with the
GE Lending Group since December of 2001 and, as of September 30, and December
31, 2001, were not in compliance with the tangible net worth covenant under the
Master Credit Facility. On February 28, 2002 we signed a Forbearance and
Modification Agreement with the GE Lending Group which restructured the Master
Credit Facility by allowing the Company to defer principal payments until April
1, 2002 while continuing to make interest payments, and providing a waiver of
the September 30, and December 31, covenant violations. In accordance with the
agreement, we were required to make a $500,000 principal payment upon the
completion of the sale of Clean Earth. The forbearance and Modification
Agreement was subsequently amended on May 30, 2002 and again on June 14, 2002
to, among other things, extend the forbearance period until the date that is
twenty four months following the date of the closing of the sale of Clean Earth,
provided that the transaction take place prior to August 30, 2002 and subject to
certain other conditions. The Company did not complete the sale of Clean Earth
until September 9, 2002, therefore the forbearance period has terminated. In
addition, the Company did not make the required principal payment of $500,000
that was required upon the completion of the sale of Clean Earth, nor was the
Company in compliance with the financial covenants of the agreement as of June
30, 2002 and September 30, 2002. The Company is currently in negotiations with
the GE Lending Group for a third amendment to the Forbearance and Modification
Agreement which would cure these defaults. The amendment would provide for the
resumption of regular principal payments on the facility, and will also modify
the conditions under which the Company will be required to make an additional
$2,000,000 prepayment of principal on the facility. This prepayment is currently
due no later than July 31, 2003. If we are unsuccessful in obtaining this new
amendment or otherwise obtaining waivers of our current defaults, the GE Lending
Group can demand immediate repayment from us of the outstanding balance of the
Master Credit Facility, which is $11,356,000 as of September 30, 2002. We
currently do not have the resources to pay these obligations in the event they
should become immediately due.
15
In September of 2002 the $5 million convertible debenture payable to the
Stout Partnership was converted into 19,935,808 shares of our common stock in
accordance with the terms of the debenture agreement. Several members of our
board of directors and Mark S. Alsentzer, our Chief Executive Officer, are
affiliated with Stout Partnership. The transaction was approved by the Company's
shareholders at a Special Meeting of Shareholders on August 27, 2002. In
addition, the $4 million convertible subordinated debenture payable to Halifax
Fund, L.P. ("Halifax") that was due July 1, 2002 was retired as part of an
Exchange and Repurchase Agreement. See notes 4 and 6 to the consolidated
financial statements for further information on these transactions.
If we are not successful in obtaining a new senior credit facility or
obtaining increased availability on the existing facility, and completing the
proposed agreement to the Master Credit Facility, we will be required to seek
other alternatives for financing our ongoing working capital needs, which
continue to be significant notwithstanding the completion of the sale of Clean
Earth. Such alternatives could include raising additional equity, selling some
of our assets or increasing the borrowing availability on our current credit
facility. There can be no assurances that this course of action will be
successful. Our failure to provide financing for our ongoing working capital
needs would require us to significantly curtail our operations.
Our working capital deficit improved from $60.5 million to $14.7 million,
mainly due to the sale of Clean Earth and the application of the net proceeds to
pay down current indebtedness. Cash and cash equivalents totaled $106,000 at
September 30, 2002, a decrease of $405,000 from the $511,000 at December 31,
2001. Cash used in operating activities from continuing operations amounted to
$4,908,000 for the first nine months of 2002, as compared to $7,214,000 for the
comparable period in 2001. The following table summarizes the different
components of cash provided by operating activities from continuing operations
for the nine months ended September 30, 2002 and 2001.
Dollar amounts in thousands:
2002 2001
-------- --------
Loss from continuing operations $(14,884) $(27,441)
Non-cash charges 8,925 17,004
Increase in accounts receivable (319) (354)
Decrease in inventories 453 2,170
Increase in accounts payable 662 3,662
Changes in other working capital and other assets 255 (2,255)
-------- --------
Net cash used in operating activities $ (4,908) $ (7,214)
======== ========
Non cash charges consist primarily of depreciation expense, amortization of
goodwill and other intangibles, restructuring and asset impairment charges,
amortization of deferred financing costs and discounts on convertible
debentures, beneficial conversion features of convertible debentures and write
down of obsolete inventory.
Cash provided by investing activities from continuing operations was
$39,462,000 in the first nine months of 2002, as net proceeds from the sale of
Clean Earth of $41,118,000, net of cash acquired by the purchaser, was partially
offset by $1,885,000 of capital expenditures pertaining to continuing
operations. Capital expenditures related to continuing operations in the first
nine months of 2001 amounted to $1,215,000. We expect to incur approximately
$500,000 in capital expenditures for the remainder of 2002
Cash used in financing activities from continuing operations totaled
$38,615,000 for the nine months ending September 30, 2002, as compared to cash
received from financing activities of $210,000 during the comparable period in
2001. The change is due primarily to $40.1 million in principal payments on debt
made in 2002 using the proceeds from the Clean Earth sale. During the first nine
months of 2001 we raised approximately $5.7 million through debt and stock
issuances, borrowed $1.2 million on our credit facility and made principal debt
repayments related to continuing operations of approximately $6.7 million.
Cash provided by discontinued operations in the first nine months of 2002
amounted to $3,255,000, as compared to $6,836,000 in 2001. The change was due
mainly to higher income from discontinued operations in 2001 and a larger
decrease in trade payables in 2002.
16
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting policies that we have identified as critical to our business
operations and to an understanding of our results of operations are described in
detail in our Annual Report on Form 10-K for the fiscal year ended December 31,
2001. In many cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States of America, with no need for management's judgement in their application.
In other cases, preparation of our unaudited condensed consolidated financial
statements for interim periods requires us to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. There
can be no assurance that the actual results will not differ from those
estimates.
On September 9, 2002 we completed the sale of our Clean Earth subsidiary,
thereby exiting the environmental recycling and remediation business. As such,
the results of Clean Earth have been accounted for as a discontinued operation
for all periods presented in this Form 10-Q. In addition, the discussion of our
results of operations below is confined to our continuing plastic lumber
operations.
INTERIM RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Net sales in the third quarter of 2002 were $10,646,000, as compared to
$15,323,000 in the third quarter of 2001, a decrease of $4,677,000, or 30.5%.
The decrease was mainly due to the decline in sales of our decking products. In
addition, the third quarter of 2001 included $974,000 of resin processing
revenues, with no comparable amount in 2002. We believe that our liquidity
issues and related customers' concerns about our long-term viability were a key
factor in the sales decline, and that the sale of Clean Earth and continuing
efforts to restructure our balance sheet and reorganize our capital structure
should alleviate those concerns. Also during the third quarter, we decided to
introduce a new formulation within some of our decking products which we believe
will result in an improved product that will result in fewer warranty claims,
and, with respect to our composite decking products, retain more of their
original color than those of our competitors. As a result, revenues were
negatively impacted by approximately $476,000 as we allowed some of our
customers to return product containing the older formulation.
Gross profit in the third quarter decreased from $1,488,000 in 2001 to
($382,000) in 2002, as significantly lower decking volume in the quarter
resulted in an underabsorption of fixed manufacturing overhead and a write down
of obsolete inventory in the amount of $134,000.
Selling, general and administrative expenses ("SG&A), excluding
restructuring and asset impairment charges, were $2,614,000 in 2002 as compared
to $5,366,000 in 2001, mainly due to significantly reduced sales commissions and
marketing expenses. SG&A was also favorably impacted by our adoption of
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002. In connection with the adoption of this
standard, we ceased amortization of goodwill effective January 1, 2002. The
third quarter of 2001 included $123,000 of goodwill amortization expense.
The third quarter of 2002 produced an operating loss of $3,449,000, as
compared to an operating loss of $15,344,000 for the same quarter in 2001. The
change is due mainly to the restructuring and asset impairment charge of
$11,466,000 taken in the third quarter of 2001 in connection with the closure of
some of our smaller manufacturing facilities and their consolidation into our
larger facilities and the reduction in SG&A in 2002, partially offset by the
decline in gross profit.
Interest expense in the third quarter of 2002 increased by $1,141,000 from
the third quarter of 2001, mainly due to a $2,791,000 interest charge due to a
beneficial conversion feature recognized in connection with the conversion of a
$5 million convertible debenture, partially offset by decreased amortization of
deferred financing costs and debt discounts as compared to 2001.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Net sales in the first nine months of 2002 were $39,773,000, as compared to
$47,533,000 in the first nine months of 2001, a decrease of $7,760,000, or
16.3%. The decrease was mainly due to resin processing revenues in 2001 that
were
17
not present in 2002, as well as the decline in sales of our decking products
resulting from the liquidity and customer confidence issues previously alluded
to, partially offset by increases in sales of our engineered plastics products.
Gross profit in the first nine months of 2002 increased by 17.7% to
$5,662,000, as compared to $4,812,000 in the first nine months of 2001. The
increase was due to the completion of the restructuring plan, which resulted in
improved gross profit margins a percent of net revenues. Gross profit margin as
a percent of revenues increased in the first nine months of 2002 to 14.2%, as
compared to 10.1% in the nine months of 2001 as we currently operate in three
facilities, whereas during the first nine months of 2001 we operated in eight
facilities.
Excluding a $453,000 asset impairment charge in 2002 and $11,648,000 in
restructuring and asset impairment charges in 2001, SG&A decreased by $2,680,000
to $9,657,000, due to reduced marketing and corporate overhead expenses, as well
as lower selling commissions. In addition, as a result of our adoption of
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002, we ceased amortization of goodwill
effective January 1, 2002. The first nine months of 2001 included $390,000 of
goodwill amortization expense which was not present in 2002.
The first nine months of 2002 produced an operating loss of $4,448,000, as
compared to an operating loss of $19,173,000 for the same period in 2001.
Excluding restructuring and asset impairment charges in both years, operating
loss in 2002 was $3,995,000 in 2002 and $7,525,000, with the improvement being
attributable to higher gross margins and lower SG&A.
Interest expense increased by $2,411,000 in the first nine months of 2002 as
compared to the comparable period of a year ago, mainly due to the recognition
of beneficial conversion features in 2002 of approximately $3,041,000 in
connection with the conversion of the $5 million convertible debenture and
partial conversion of the fiscal 2000 Halifax debenture (see note 6 to the
consolidated financial statements), partially offset by reduced amortization of
deferred financing costs and debt discounts as compared to 2001.
SEASONALITY
Sales of certain plastic lumber products tend to slow significantly in the
winter months, as adverse whether conditions negatively impact outdoor building
projects in most of the continental United States.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121.
The Company adopted the provisions of SFAS No. 141 during 2001 and adopted
the provisions of SFAS No. 142 on January 1, 2002. Adoption of SFAS No. 141 and
SFAS No. 142 did not have a material effect upon our results of operations or
financial condition.
Also, in July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". That standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity will
capitalize a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss upon settlement. The standard
is effective for fiscal years beginning after June
18
15, 2002, with earlier adoption permitted. The Company is currently evaluating
the effect that the adoption of SFAS No. 143 may have on its consolidated
results of operations and financial position.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, it retains many of the fundamental
provisions of SFAS No. 121. SFAS No. 144 also supersedes the accounting and
reporting provisions of Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. However,
it retains the requirement in APB Opinion No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. Adoption of SFAS No. 144 on January
1, 2002 had no material effect on the Company's consolidated results of
operations and financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit (including restructuring) or disposal activities at
fair value when the related liability is incurred rather than at the date of a
commitment to an exit or disposal plan under current practice. Costs covered by
the standard include certain contract termination costs, certain employee
termination benefits and other costs to consolidate or close facilities and
relocate employees that are associated with an exit activity or disposal of
long-lived assets. The new requirements are effective prospectively for exit or
disposal activities initiated after December 31, 2002 and will be adopted by the
Company effective January 1, 2003. The adoption of SFAS No. 146 is expected to
impact the timing of recognition of costs associated with future exit and
disposal activities.
NASDAQ DELISTING NOTICE
Our common stock currently trades on the Nasdaq SmallCap Market under the
trading symbol "USPL." In May 2002, we were notified by Nasdaq that we did not
meet the Nasdaq maintenance criteria for continued listing on the Nasdaq
National Market due to the decline in our stock price and that our common stock
would be delisted on May 24, 2002. As a result, we filed an application with
Nasdaq to transfer our securities to The Nasdaq SmallCap Market, and the
initiation of the delisting proceedings was stayed pending Nasdaq's review of
our application. On June 21, 2002, we were notified by Nasdaq that our
application for listing on The Nasdaq SmallCap Market was approved and effective
June 25, 2002, our common stock began trading on The Nasdaq SmallCap Market. As
a result of our listing on the Nasdaq SmallCap Market, we had until August 13,
2002 to regain compliance with the $1.00 bid price requirement.
By a letter dated August 14, 2002 Nasdaq notified us that we had failed to
regain compliance with the $1.00 minimum bid price requirement. However, we meet
certain other initial listing requirements for The Nasdaq SmallCap Market,
including the $5.0 million stockholders' equity requirement, thus we were
provided an additional 180 calendar days, or until February 10, 2003, to regain
compliance. If we do not comply with this bid price requirement by February 10,
2003 or fail to meet any other of the maintenance requirements applicable to
companies listed on Nasdaq SmallCap Market, our common stock will be delisted
from The Nasdaq SmallCap Market. At that time, we may appeal Nasdaq's
determination to a Listing Qualifications Panel.
The Nasdaq Stock Market recently announced that it has proposed corporate
governance requirements in light of the requirements of the Sarbanes-Oxley Act
of 2002. These corporate governance requirements are subject to the SEC
approval. No assurance can be given as to whether we will be able to achieve or
maintain compliance with these new requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A discussion of the Company's market risks is contained in Part I Item 7A
"Quantitative and Qualitative Disclosures About Market Risks" in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001. There
have been no significant developments with respect to exposure to market risk.
19
ITEM 4. DISCLOSURES AND CONTROLS
(a) Within 90 days of filing this report on Form 10-Q ("the Evaluation
Date"), our Chief Financial Officer and Chief Executive Officer
evaluated our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")). Based on that evaluation,
these officers have concluded that as of the Evaluation Date, our
disclosure controls and procedures were effective in timely alerting
them to material information relating to our company (including our
consolidated subsidiaries) required to be included in our reports filed
or submitted by us under the Exchange Act.
(b) There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 28, 2002 a judgment in the amount of $1,760,000 plus
administrative fees, arbitrators' compensation and interest was awarded to
Southern Wood Services due to the Company's breach of a purchase contract. As a
result, the Company accrued $1,844,000 at December 31, 2001 in connection with
this ruling. On June 18, 2002 the Company entered into a settlement agreement
with Southern Wood Services whereby the Company agreed to pay $1,590,000 payable
in 53 equal monthly payments of $30,000, commencing with the date of the
settlement agreement.
In December 1998, the Company purchased Clean Earth of North Jersey ("CENJ",
then known as S&W Waste, Inc.) in a stock purchase transaction. Pursuant to such
purchase, the Company could be responsible for liabilities resulting from
matters wherein CENJ has been named as a potentially responsible party ("PRP")
in matters involving the possible disposal of hazardous waste at certain
disposal sites. At September 30, 2002 the Company has accrued approximately
$316,000 for estimated liabilities related to these matters. The Company
believes the accrual is sufficient to cover the aggregate liability that may be
incurred in these matters; however, there can be no assurances that the accrual
will be sufficient.
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 4, 2002, Halifax Fund, L.P. converted $349,000 of its 5%
convertible subordinated debenture due February 2, 2005 and approximately $2,000
of unpaid interest into 1,001,923 shares of common stock at a conversion price
of $0.35 per share.
On March 1, 2002 all 1,187,285 shares of outstanding Series D Preferred
Stock was converted into an equal number of shares of common stock.
On March 31, 2002 all 1,714,285 shares of outstanding Series E Preferred
Stock was converted into an equal number of shares of common stock.
On February 19, 2002, the Company issued 800,000 shares of common stock at a
purchase price of $0.50 per share. This private placement transaction was not
registered under the Securities and Exchange Act of 1933 (the "Act") in reliance
upon the exemption from registration in Section 4(2) of the Act, as a
transaction not involving any public offering. Net proceeds after issuance costs
of $376,000 were used for general corporate purposes.
20
On September 11, 2002 the Stout Partnership converted its $5.0 million
convertible subordinated debenture plus accrued interest of approximately
$183,000, into 19,935,808 shares of the Company's common stock. Several members
of the Company's board of directors and Mark S. Alsentzer, the Company's Chief
Executive Officer, are affiliated with Stout Partnership. The transaction was
approved by the Company's shareholders at a Special Meeting of Shareholders on
August 27, 2002.
During the first nine months of 2002 4,400 shares of common stock were
issued as annual compensation to the Company's non-employee directors, and
18,000 shares were issued to settle employment related litigation, 420,173
shares were issued in settlement of trade payables, and 60,000 shares were
issued in exchange for professional services.
On September 24, 2002 285,714 shares of common stock were canceled as part
of an exchange and repurchase agreement of the Company's convertible
subordinated debentures.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Events of default are discussed in Notes 3 and 5 to the Condensed Unaudited
Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 19, 2002 the shareholders approved the sale of the Company's
wholly-owned subsidiary, Clean Earth Inc., under the terms described in the
Purchase Agreement between the Company and New CEI, Inc. The sale was not
completed due to the inability of New CEI, Inc. to obtain the necessary
financing. On August 27, 2002 a Special Meeting of Stockholders was held whereby
the Company's common shareholders ratified the purchase agreement between the
Company and CEI Holding Corp. to sell Clean Earth, Inc., and the conversion of
the convertible subordinated debenture held by the Stout Partnership into
19,935,808 shares of common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On August 28, 2002 the Company filed a Report on Form 8-K to report
that the Company had received shareholder approval to sell its Clean
Earth, Inc. subsidiary in accordance with the terms described in a
signed purchase agreement between the Company and the purchaser, and
that the Company also received shareholder approval to for conversion of
a $5 million convertible debenture plus $183,000 of accrued interest
into 19,935,808 shares of the Company's common stock.
On September 24, 2002 the Company filed a Report on Form 8-K to
report that the Company had completed the sale of its Clean Earth, Inc.
subsidiary and converted the aforementioned debenture into common stock.
On October 3, 2002 the Company filed a Report on Form 8-K to report
that the Company had executed an Exchange and Repurchase Agreement with
respect to the convertible subordinated debentures held by Halifax Fund,
L.P.
21
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.
November 14, 2002 /s/ MICHAEL D. SCHMIDT
-----------------------------------------
Date Michael D. Schmidt,
Chief Financial Officer
22
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark S. Alsentzer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Plastic Lumber
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ MARK S. ALSENTZER
- -------------------------
Mark S. Alsentzer
Chief Executive Officer
23
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael D. Schmidt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Plastic Lumber
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ MICHAEL D. SCHMIDT
- --------------------------
Michael D. Schmidt
Chief Financial Officer
24
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.