SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD __________ TO __________
COMMISSION FILE NUMBER 0-9278
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GEOWASTE INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
STATE OF INCORPORATION: DELAWARE I.R.S. EMPLOYER ID. NO. 36-2751684
SUITE 700, 100 WEST BAY STREET
JACKSONVILLE, FL 32202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(904) 353-5033
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.10 Par Value, 21,291,549 shares outstanding as of
August 6, 1998.
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets............................................2-3
Consolidated Statements of Operations....................................4
Consolidated Statements of Cash Flows....................................5
Notes to Consolidated Financial Statements.............................6-9
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................10-12
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS............................................12
ITEM 2: CHANGES IN SECURITIES........................................13
ITEM 3: DEFAULTS UPON SENIOR SECURITIES..............................13
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........13
ITEM 5: OTHER INFORMATION............................................13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.............................13
Signatures..............................................................14
<PAGE>
<TABLE>
<CAPTION>
GEOWASTE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,283,711 $ 738,790
Accounts receivable, net of 2,832,526 2,449,994
allowance of $390,000 in
1998 and $269,000 in 1997
Prepaid expenses 465,916 376,154
Prepaid income taxes 231,055 416,196
Deferred tax asset 259,000 140,000
--------- ---------
Total current assets 5,072,208 4,121,134
--------- ---------
Property and equipment:
Land, primarily disposal site 14,005,954 13,125,733
Buildings and improvements 494,957 605,441
Vehicles and equipment 12,664,758 11,910,630
Construction in progress 1,080,350 2,382,807
----------- -----------
28,246,019 28,024,611
Less: accumulated depreciation (13,068,655) (11,535,911)
----------- -----------
Net property and equipment 15,177,364 16,488,700
---------- ----------
Other Assets:
Cost in excess of net assets of
acquired businesses, net of
amortization 11,010,845 11,195,943
Funds held in escrow 236,328 236,328
Other 7,200 66,794
---------- ----------
Total other assets 11,254,373 11,499,065
---------- ----------
Total assets $31,503,945 $32,108,899
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
GEOWASTE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY ------------- -----------------
(UNAUDITED)
Current liabilities:
<S> <C> <C>
Current maturities of long-term obligations $ 1,151,761 $1,341,439
Current maturities of accrued royalties 231,139 231,139
Accounts payable 1,189,646 1,029,944
Accounts payable to related party - 306,037
Accrued payroll 163,744 134,457
Accrued fees 115,224 290,979
Accrued other 435,077 246,249
Deferred revenue 724,909 753,248
---------- ---------
Total current liabilities 4,011,500 4,333,492
---------- ---------
Long-term obligations, less current maturities 7,860,036 8,531,395
Accrued Royalties 382,957 499,783
Closure and post closure obligations 2,197,692 2,047,815
Deferred tax liability 895,000 791,000
---------- ----------
Total liabilities 15,347,185 16,203,485
---------- ----------
Stockholders' equity:
Preferred stock, authorized
5,000,000 shares, $.01 par
value; none issued or outstanding - -
Common stock, authorized
50,000,000 shares, $.10 par
value; issued and outstanding
21,291,549 shares in 1998 and
21,286,549 shares in 1997 2,129,155 2,128,655
Additional paid-in capital 13,233,203 13,231,202
Retained earnings 794,402 545,557
---------- ----------
Total stockholders' equity 16,156,760 15,905,414
---------- ----------
Total liabilities and stockholders' equity $31,503,945 $32,108,899
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
GEOWASTE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $5,768,526 $4,844,636 $11,889,237 $9,722,192
Cost and expenses:
Operating 4,151,180 3,517,325 8,423,745 6,724,452
Unusual charges - - - 1,083,000
Strategic Review Costs 315,133 - 365,133 -
Selling, general and administrative 1,050,943 1,071,588 2,029,930 1,963,753
Amortization of intangibles 92,681 91,708 185,098 162,714
------ ------ ------- -------
Income (loss) from operations 158,589 164,015 885,331 (211,727)
Other income (expense):
Other income 11,555 134,806 16,109 153,382
Interest expense (203,272) (193,184) (401,593) (330,535)
-------- -------- -------- --------
Income (loss) from operations
before income taxes (33,128) 105,637 499,847 (388,880)
Income tax provision 18,000 60,291 251,000 73,291
----------- ---------- ----------- -----------
Net income (loss) $ (51,128) $ 45,346 $ 248,847 $ (462,171)
=========== ========== =========== ===========
Basic earnings (losses)
per common share $ 0.00 $ 0.00 $ 0.01 $ (0.02)
=========== ========== =========== ==========
Diluted earnings
(losses) per common share $ 0.00 $ 0.00 $ 0.01 $ (0.02)
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
GEOWASTE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1997
---------- -----------
Cash Flows from operating activities:
<S> <C> <C>
Net income (loss) $ 248,847 $ (462,171)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,022,977 1,760,559
Goodwill writeoff -- 436,000
Impairment of property -- 201,000
Non cash closure costs 149,877 135,429
Loss (gain) on sale of equipment 3,900 (1,663)
Gain on sale of business -- (124,639)
Deferred taxes (15,000) 139,936
Changes in assets and liabilities:
Accounts receivable (197,391) (229,945)
Prepaid expenses (89,762) (483,469)
Accounts payable and accrued liabilities (56,141) (1,132,639)
Deferred revenue (28,339) (292,219)
--------- ----------
Net cash provided by (used in) operating activities 2,038,968 (53,821)
--------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,300,660) (1,749,804)
Proceeds from the sale of equipment 781,976 16,300
Purchase of business -- (271,921)
Proceeds from the sale of business -- 204,761
----------- -----------
Net cash used in investing activities (518,684) (1,800,664)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,500 33,558
Proceeds from issuance of debt 100,000 --
Payment of debt and capital lease obligations (1,077,863) (719,023)
---------- ---------
Net cash used in financing activities (975,363) (685,465)
---------- ---------
Increase (decrease) in cash and cash equivalents 544,921 (2,539,950)
Cash and cash equivalents, beginning of period 738,790 3,058,067
----------- ------------
Cash and cash equivalents, end of period $ 1,283,711 $ 518,117
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
GEOWASTE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, including normally recurring
accruals, necessary to present fairly the financial condition and results of
operations of GeoWaste Incorporated (the "Company") for and as of the periods
and dates indicated. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with the
rules of the Securities and Exchange Commission. Operating reports for interim
periods are not necessarily indicative of the results that can be expected for a
full year. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2) EARNINGS (LOSSES) PER SHARE
The following is the reconciliation of the numerator and denominator
of the basic and diluted earnings (losses) per share for the three and six
months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic earnings (losses) per common share computation:
Income (loss) available to common shareholders $ (51,128) $ 45,346 $ 248,847 $ (462,171)
------------ ------------ ------------ ------------
Average common shares outstanding 21,288,857 21,270,725 21,287,709 21,206,351
========== ========== ========== ==========
Basic earnings (losses) per common share $ 0.00 $ 0.00 $ 0.01 $ (0.02)
------------ ------------ ------------ ------------
Dilutive earnings (losses) per common share computation:
Income (loss) available to common shareholders $ (51,128) $ 45,346 $ 248,847 $ (462,171)
------------ ------------ ------------ ------------
Average common shares outstanding 21,288,857 21,270,725 21,287,709 21,206,351
Effect of dilutive securities -- 2,141,036 1,899,070 --
------------ ----------- --------- -----------
Diluted average common shares outstanding 21,288,857 23,411,761 23,186,779 21,206,351
============ ========== ========== ==========
Diluted earnings (losses) per common share $ 0.00 $ 0.00 $ 0.01 $ (0.02)
============ ============ ============ ============
</TABLE>
Options and warrants to purchase 3,213,054 shares of common stock at
prices ranging from $0.50 to $2.75 were outstanding during the second quarter of
1998, but were not included in the computation of diluted earnings per share
since the Company incurred a net loss for the second quarter of 1998 and the
options and warrants were considered antidilutive. Options to purchase 200,000
shares of common stock at $2.75 per share were outstanding during the six months
ended June 30, 1998 but were not included in the computation of diluted
earnings per share since the exercise price was greater than the average stock
price during the six months ended June 30, 1998.
Options to purchase 200,000 shares of common stock at prices ranging
from $2.75 to $3.50 per share were outstanding during the second quarter of 1997
but were not included in the computation of diluted earnings per share since the
exercise price was greater than the average stock price during the second
quarter of 1997. Options and warrants to purchase 3,178,754 shares of common
stock at prices ranging from $0.50 to $3.50 were outstanding during the six
months ended June 30, 1997, but were not included in the computation of the
diluted earnings per share since the Company incurred a net loss for the six
months ended June 30, 1997 and the options and warrants were considered
antidilutive. The Company also had convertible subordinated debentures of
$3,604,265 convertible into common stock at $1.40 per share outstanding during
second quarter of 1997 and for the six months ended June 30, 1997. The
convertible debentures were not included in the computation of diluted earnings
per share for the second quarter of 1997 because they were considered
antidulitive. The convertible debentures were not included in the computation of
diluted earnings per share for the six months ended June 30, 1997 since the
Company incurred a net loss for the six months ended June 30, 1997 and the
convertible debentures were considered antidilutive.
3) CREDIT FACILITY
On June 1, 1998, the Company increased the amount available for
borrowing under its revolving credit facility (the "Credit Facility") with
BankBoston, N.A. (the "Bank") by $1 million, raising the Bank's total commitment
to $6 million. Borrowings under the Credit Facility may be used for working
capital, refinancing of outstanding debt, capital expenditures and other general
corporate purposes. Interest on borrowings under the Credit Facility is payable
at a rate of one-quarter of one percent plus the higher of (i) the Bank's base
rate or (ii) one percent above the overnight federal funds effective rate, as
published by the Board of Governors of the Federal Reserve System, as in effect
from time to time. At June 30, 1998, approximately $4.9 million was outstanding
under the Credit Facility bearing interest at a rate of 8.75% per annum.
Borrowings under the Credit Facility mature on October 9, 2000 and are
collateralized by the stock of the Company's subsidiaries. Under the terms of
the Credit Facility, the Company must maintain certain financial covenants on a
quarterly basis, including, but not limited to, the interest coverage ratio.
Such covenant requires the Company to maintain an interest coverage ratio of not
less than 2.25 to 1 through September 30, 1998 or less than 2.50 to 1
thereafter. At June 30, 1998, the Company was not in compliance with such
interest coverage ratio covenant or the covenant relating to the minimum
earnings test, which covenant requires net income to be not less than zero for
any quarter. Appropriate waivers for non-compliance with these two covenants
have been obtained from the Bank.
4) CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, the Company considers all
certificates of deposit and time deposits with original maturities of three
months or less to be cash equivalents.
The Company paid approximately $293,000 and $729,000 for income taxes
and $398,000 and $330,000 for interest during the six months ended June 30, 1998
and June 30, 1997, respectively.
SIX MONTHS ENDED JUNE 30,
SIGNIFICANT NON-CASH TRANSACTIONS 1998 1997
----- ----
Purchase of equipment and vehicles
financed by notes payable $ - $1,233,408
Assumption of debt associated with
purchase of business - 807,751
Capital expenditures included in
quarter end accounts payable but not yet paid 11,760 249,058
Conversion of debentures to stock - 280,000
Expenditures related to purchase
of business included in accounts payable but
not yet paid - 76,982
5) RELATED PARTY TRANSACTION
During the first quarter of 1998, the Company paid to Stephen F.
Mitchell, an employee of the Company and a former shareholder of T.F. Mitchell &
Sons, Inc. (d/b/a/ Mitchell Refuse) ("Mitchell"), $306,037, as part of the
purchase price paid by the Company in its purchase of Mitchell in November 1997.
6) SALE OF ASSETS
The Company sold the remainder of its street sweeping assets during
the first quarter of 1998. It also completed the sale of certain of its rolloff
collection assets in the first quarter. The losses resulting from these sales
had been accrued at December 31, 1997 in accordance with SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
7) NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement is effective for fiscal years beginning after
December 15, 1997 and is not required to be applied to interim periods in the
initial year of application. The Company has not yet determined the effect, if
any, of this statement on its financial statements.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. The adoption of SFAS No.
130 has no material impact on the Company's consolidated results of operations,
financial position or cash flows. Comprehensive income equals net income plus
other comprehensive income. Other comprehensive income refers to revenue,
expenses, gains and losses which are reflected in stockholders' equity but
excluded from net income. At June 30, 1998 and December 31, 1997 and for the
three months ended June 30, 1998 and 1997, the Company had no other
comprehensive income.
8) SUBSEQUENT EVENT
PENDING MERGER WITH SUPERIOR SERVICES, INC.
On July 2, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Superior Services, Inc., a Wisconsin
corporation ("Superior"), providing for, among other things, the merger (the
"Merger") of a wholly owned subsidiary of Superior, which has been organized
under the laws of the State of Delaware, with and into the Company. Pursuant to
the Merger Agreement, each share of the Company's common stock, par value $.10
per share ("Company Common Stock"), which is issued and outstanding immediately
prior to the Merger (other than shares of the Company Common Stock held as
treasury shares or owned by Superior or its subsidiaries) will be converted into
and represent the right to receive a number of validly issued, fully paid,
nonassessable (except as provided in Section 180.0622(2)(b) of the Wisconsin
Statutes) shares of Superior's common stock, par value $.01 per share, including
the common stock purchase rights associated therewith under the Rights Agreement
dated February 21, 1997, between Superior and LaSalle National Bank, as rights
agent ("Superior Common Stock"), equal to the Exchange Ratio. The "Exchange
Ratio" is the quotient obtained by dividing $2.65 by the average per share
closing price of Superior Common Stock quoted on the Nasdaq National Market, as
reported by Bloomberg L.P., for the ten consecutive trading days (on which
shares of Superior Common Stock are actually traded) immediately preceding the
fifth business day prior to the initially scheduled date of the meeting of the
stockholders of the Company, at which the approval of the Merger by the
Company's stockholders is sought (such average per share closing price is
hereinafter referred to as the "Final Superior Stock Price"); PROVIDED, HOWEVER,
that if the Final Superior Stock Price is (i) equal to or less than $27.50, then
the Exchange Ratio will be 0.0964 or (ii) equal to or greater than $32.50, then
the Exchange Ratio will be 0.0815. The Merger Agreement may be terminated by the
Company if the Final Superior Stock Price is less than $25.00.
The Merger will be accounted for as a pooling of interests and is
intended to qualify as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended. Consummation of the Merger is subject
to various conditions, including: (i) approval of the Merger and the Merger
Agreement by the requisite vote of the Company's stockholders; (ii) receipt of
requisite regulatory approvals and third party consents; (iii) receipt of legal
opinions as to the tax-free nature of the Merger; (iv) listing on the Nasdaq
National Market of the shares of Superior Common Stock to be issued in the
Merger; and (iv) satisfaction of certain other customary closing conditions. The
Board of Directors of the Company will call a meeting of the stockholders of the
Company, expected to be held in September 1998, for the purpose of obtaining the
stockholders' approval of the Merger and the Merger Agreement. The Merger is
expected to be consummated late in the third fiscal quarter or early in the
fourth fiscal quarter of 1998.
<PAGE>
ITEM 2 GEOWASTE INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1997
Net revenues for the quarter ended June 30, 1998 consisted of
collection revenues of $3,467,000, disposal revenues of $821,000, transfer
revenues of $1,190,000, and recycling revenues of $291,000, compared to
collection revenues of $2,914,000, disposal revenues of $834,000, transfer
revenues of $367,000, sweeping revenues of $397,000 and recycling revenues of
$332,000 for the quarter ended June 30, 1997. Collection revenues increased 19%,
disposal revenues decreased 2%, transfer revenues increased 224% and recycling
revenues decreased 12% as compared to second quarter 1997 results. There were no
sweeping revenues for the second quarter of 1998. The remaining sweeping
accounts were sold in the first quarter of 1998. Of the 19% increase in
collection revenues, 14% is attributable to the operations of Mitchell Refuse, a
division of GeoWaste of GA, ("Mitchell"), which was acquired in the fourth
quarter of 1997, with the remainder primarily from new collection contracts
entered into during 1997. The increase in transfer revenues is attributable to a
new contract with USA Waste Services, Inc. which commenced February 1998 (the
"USA Waste Contract"). There was a decrease in tonnage at the Pecan Row Landfill
during the current quarter compared to the second quarter of 1997. Tons per day
("TPD") decreased to 765 TPD compared to 843 TPD in the second quarter of 1997.
Net sales for the six months ended June 30, 1998 consisted of collection
revenues of $7,015,000, disposal revenues of $2,247,000, transfer revenues of
$1,830,000, sweeping revenues of $119,000 and recycling revenues of $678,000.
This compares with net revenues for the six months ended June 30, 1997 of
$5,711,000, $1,682,000, $747,000, $862,000 and $720,000 for collection,
disposal, transfer, sweeping and recycling revenues, respectively. All
intercompany activity has been eliminated.
Operating expenses related to the collection, disposal, transfer,
sweeping and recycling activities for the quarter ended June 30, 1998 consisted
of collection expenses of $2,088,000, disposal expenses of $713,000, transfer
expenses of $1,049,000, sweeping expenses of $(8,000) and recycling expenses of
$309,000, as compared to collection expenses of $1,836,000, disposal expenses of
$720,000, transfer expenses of $199,000, sweeping expenses of $465,000 and
recycling expenses of $297,000 for the quarter ended June 30, 1997. Collection
expenses increased 14%, disposal expenses decreased 1%, transfer expenses
increased 427% and recycling expenses increased 4% as compared to the second
quarter of 1997. Negative sweeping expenses for the quarter reflect accrual
adjustments. The increase in collection expenses is attributable to the
operations of Mitchell purchased in November 1997. Disposal expenses decreased,
compared to the second quarter of 1997, due to reduced volumes entering the
landfill. The increase in transfer expenses was attributable to the USA Waste
Contract which commenced in the first quarter of 1998. Operating expenses for
the six months ended June 30, 1998 consisted of collection expenses of
$4,196,000, disposal expenses of $1,757,000, transfer expenses of $1,622,000,
sweeping expenses of $201,000 and recycling expenses of $648,000. This compares
with operating expenses for the six months ended June 30, 1997 that consisted of
$3,347,000, $1,491,000, $378,000, $923,000 and $585,000 for collection,
disposal, transfer, sweeping and recycling expenses, respectively.
The Company incurred an additional $315,000 in expenses in the second
quarter of 1998 which were associated with the Company's review of its strategic
alternatives as described under "--Liquidity and Capital Resources." Total year
to date (through June 30, 1998) strategic review costs amount to $365,000.
For a discussion of the unusual charge of $1,083,000 incurred in the
first quarter of 1997, please refer to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Selling, general and administrative expenses for collection, disposal,
transfer and recycling activities in the second quarter ended June 30, 1998,
were $457,000, $81,000, $84,000, and $42,000, respectively, as compared to
$510,000, $75,000, $13,000 and $36,000, respectively, for the second quarter of
1997. There were no selling, general and administrative expenses for sweeping
activities during the second quarter of 1998; however, these expenses were
$93,000 during the second quarter of 1997. Corporate overhead for the second
quarter of 1998 was $387,000, as compared to $345,000 in the second quarter of
1997. Selling, general and administrative expenses for collection, disposal,
transfer, sweeping and recycling activities for the six months ended June 30,
1998 were $960,000, $167,000, $123,000, $53,000 and $80,000, respectively, as
compared to $918,000, $147,000, $27,000, $196,000 and $83,000 for the six months
ended June 30, 1997. Corporate overhead for the six months ended June 30, 1998
and June 30, 1997 were $647,000 and $593,000, respectively.
The Company incurred a net loss for the quarter ended June 30, 1998 of
$51,000, as compared to net income of $45,000 in the second quarter of 1997. The
decrease was due primarily to expenses related to the strategic review process
discussed under "--Liquidity and Capital Resources." There was net income for
the six months ended June 30, 1998 of $249,000, as compared with a net loss of
$462,000 for the same period in 1997. The increase was principally due to the
absence of the unusual charges that occurred in the first quarter of 1997,
offset by the strategic review costs occurring in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company is in a service industry and has neither significant
inventory nor seasonal variations in receivables. At June 30, 1998, the Company
had working capital of $1,060,708, compared with a negative working capital of
$212,358 at December 31, 1997. The increase in working capital was due to the
Company's improved financial performance during the quarter.
Historically, the Company has relied primarily on the private
placement of debt and equity securities, bank borrowings and cash generated from
operating activities in order to provide it with the cash required for capital
expenditures, acquisitions and operating activities.
The Company's operating performance was sufficient to support
corporate overhead and other expenses during the second quarter of 1998.
Management believes that current working capital and internally generated funds
will be sufficient to meet the Company's working capital requirements for the
next twelve months.
The Company expects to make capital expenditures on an ongoing basis
for improvements to, and expansion of, its landfill and for equipment purchases.
The Company estimates that the capital expenditures required for its existing
operations will amount to approximately $3,200,000, of which approximately
$1,700,000 will be used to construct a new four-acre disposal cell at the
Company's Pecan Row Landfill. The Company expects that it will fund such
estimated capital expenditures from existing cash, cash generated from
operations, equipment lease financing and other financing.
The development and permitting of new disposal facilities requires
significant capital expenditures over an extended period. Any growth of the
Company through the permitting of new disposal facilities or the lateral
expansion of its existing disposal facility would require substantial capital
expenditures. The Company intends to pursue further expansion of the Pecan Row
Landfill.
On June 1, 1998, the Company increased the amount available for
borrowing under its revolving credit facility (the "Credit Facility") with
BankBoston, N.A. (the "Bank") by $1 million, raising the Bank's total commitment
to $6 million. Borrowings under the Credit Facility may be used for working
capital, refinancing of outstanding debt, capital expenditures and other general
corporate purposes. Interest on borrowings under the Credit Facility is payable
at a rate of one-quarter of one percent plus the higher of (i) the Bank's base
rate or (ii) one percent above the overnight federal funds effective rate, as
published by the Board of Governors of the Federal Reserve System, as in effect
from time to time. At June 30, 1998, approximately $4.9 million was outstanding
under the Credit Facility bearing interest at a rate of 8.75% per annum.
Borrowings under the Credit Facility mature on October 9, 2000 and are
collateralized by the stock of the Company's subsidiaries. Under the terms of
the Credit Facility, the Company must maintain certain financial covenants on a
quarterly basis, including, but not limited to, the interest coverage ratio.
Such covenant requires the Company to maintain an interest coverage ratio of not
less than 2.25 to 1 through September 30, 1998 or less than 2.50 to 1
thereafter. At June 30, 1998, the Company was not in compliance with such
interest coverage ratio covenant or the covenant relating to the minimum
earnings test, which covenant requires net income to be not less than zero for
any quarter. Appropriate waivers for non-compliance with these two covenants
have been obtained from the Bank.
In March 1998, the Company retained an investment banking firm to
assist in evaluating a broad range of strategic alternatives available to the
Company in order to maximize shareholder value. On July 2, 1998, the Company
signed a definitive merger agreement with Superior Services, Inc. ("Superior").
In connection with this transaction, Superior will acquire all of the
outstanding stock of the Company. It is expected that the transaction will be
consummated late in the third fiscal quarter or early in the fourth fiscal
quarter of 1998. See Note 8 - Subsequent Event - PENDING MERGER WITH SUPERIOR
SERVICES, INC.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. The Company is currently in the process of evaluating its
information technology infrastructure for Year 2000 compliance. The Company does
not expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company's Year 2000 issues relate not only to its own systems, but also to those
of its customers and suppliers. The Company does not currently have any
information concerning Year 2000 compliance status of its customers and
suppliers. In the event that any of the Company's significant customers or
suppliers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement is effective for fiscal years beginning after
December 15, 1997 and is not required to be applied to interim periods in the
initial year of application. The Company has not yet determined the effect, if
any, of this statement on its financial statements.
INFLATION
The Company does not consider inflation to have a material impact on
its results of operations.
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings:
Not applicable.
ITEM 2. Changes in Securities:
Not applicable.
ITEM 3. Defaults upon Senior Securities:
Not applicable.
ITEM 4. Submission of matters to a Vote of Security Holders:
Not applicable.
ITEM 5. Other Information:
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Amendment Agreement dated as of
March 31, 1998, by and among GeoWaste
Incorporated, its subsidiaries
listed on Schedule 1 thereto and
BankBoston, N.A. Exhibit 10.1
Financial Data Schedule Exhibit 27.1
(b) Reports on Form 8-K:
None during the quarter
ended June 30, 1998. The
Company filed a Form 8-K
with the Commission on each
of July 7, 1998 and July 9,
1998 relating to its pending
merger with Superior. See
Note 8 - Subsequent Event -
Merger with Superior Services, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEOWASTE INCORPORATED
----------------------
(Registrant)
By: /S/ RAYMOND F. CHASE
-----------------------------------------
Raymond F. Chase
Vice President and Chief Financial Officer
Dated: August 14, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
10.1 Amendment Agreement dated as of March 31, 1998, by and among
GeoWaste Incorporated, its subsidiaries listed on Schedule 1
thereto and BankBoston, N.A.
27.1 Financial Data Schedule for the six months ended June 30, 1998
Exhibit 10.1
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT is made as of March 31, 1998 (this "Amendment
Agreement") by and among GEOWASTE INCORPORATED (the "Parent"), a Delaware
corporation, its Subsidiaries listed on SCHEDULE 1 hereto (the Parent and such
Subsidiaries herein collectively referred to as the "Borrowers" and,
individually, as a "Borrower") and BANKBOSTON, N.A. (the "Lender"), a national
banking association, amending or modifying (i) the Revolving Credit Agreement
dated as of October 9, 1997 (as amended and in effect from time to time, the
"Credit Agreement"), among the Parent, its Subsidiaries (as defined therein) and
the Lender, (ii) the Security Agreement dated as of October 9, 1997 (the
"Security Agreement"), among the Parent, its Subsidiaries (as defined therein)
and the Lender and (iii) the Pledge Agreement dated as of October 9, 1997 (the
"Pledge Agreement") among the Parent, GeoWaste Acquisition Corp. and the Lender.
WHEREAS, GeoWaste Transfer, Inc. (the "New Borrower") is a newly
created Subsidiary of the Parent;
WHEREAS, it is a condition precedent to the Lender continuing to
extend credit to the Borrowers under the Credit Agreement that the New Borrower
become a party to the Credit Agreement, the Security Agreement and other Loan
Documents;
WHEREAS, the New Borrower desires to become a Borrower under the
Credit Agreement and grant to the Lender security interests in favor of the
Lender as set forth in the Security Agreement;
WHEREAS, the parties hereto desire that the Total Commitment under the
Credit Agreement shall increase by $1,000,000 to $6,000,000.
WHEREAS, the parties hereto have agreed to modify certain terms and
conditions of the Credit Agreement, as specifically set forth in this Amendment
Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Borrowers and the Lender hereby agree as follows:
Section 1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein have the meanings given to such terms in the Credit
Agreement.
Section 2. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is
hereby amended as follows:
Section 2.1. AMENDMENT TO SCHEDULE 1 OF THE CREDIT AGREEMENT. SCHEDULE
1 of the Credit Agreement is hereby amended by deleting SCHEDULE 1 in its
entirety and replacing it with the SCHEDULE 1 attached hereto, adding the New
Borrower as a Subsidiary of the Parent. And, the New Borrower hereby agrees to
be bound by the terms of the Credit Agreement as if an original signatory.
Section 2.2. AMENDMENT TO SS.2.1 OF THE CREDIT AGREEMENT. ss.2.1 of
the Credit Agreement is hereby amended by deleting the amount "$5,000,000" and
substituting in lieu thereof the amount "$6,000,000".
Section 3. AMENDMENT TO THE SECURITY AGREEMENT. The Security Agreement
is amended by including the New Borrower as a Borrower under the Security
Agreement, thereby granting to the Lender, to secure the payment and performance
in full of all of the Obligations, a security interest in and so pledging and
assigning to the Lender all of the Collateral (as defined in the Security
Agreement) of the New Borrower, and becoming legally bound to each of the terms
and provisions of the Security Agreement as if an original signatory.
Section 4. JOINDER TO THE PLEDGE AGREEMENT. The New Borrower hereby
joins the Pledge Agreement for the sole purpose of consenting to being bound by
the provisions of ss.ss.4, 6 and 7 thereof and to cooperate fully and in good
faith with the Parent and the Lender in carrying out such provisions as if an
original signatory.
Section 5. CONDITIONS TO EFFECTIVENESS. This Amendment Agreement shall
be effective as of the date hereof, subject to the satisfaction of each of the
following conditions precedent:
(a) This Amendment Agreement shall have been duly executed and
delivered by each of the Borrowers and the Lender;
(b) The Lender shall have received an amended and restated Revolving
Credit Note, duly and properly authorized, executed and delivered by the
Borrowers in favor of the Lender, in form and substance satisfactory to the
Lender;
(c) The Lender shall have received a perfection certificate, duly and
properly authorized, executed and delivered by the New Borrower, in form and
substance satisfactory to the Lender;
(d) The Lender shall have received UCC-1 financing statements, to be
filed in appropriate jurisdictions, duly and properly authorized, executed and
delivered by the New Borrower, in form and substance satisfactory to the Lender.
(e) The Security Documents and this Amendment Agreement shall be
effective to create in favor of the Lender a legal, valid and enforceable first
security interest in and lien upon the Collateral of the New Borrower, subject
only to Permitted Liens. All filings, recordings, deliveries of instruments and
other actions necessary or desirable in the opinion of the Lender to protect and
preserve such security interests shall have been duly effected. The Lender shall
have received evidence thereof in form and substance satisfactory to the Lender.
(f) The Lender shall have received stock certificates, with stock
powers endorsed in blank thereto, representing all of the shares of capital
stock of the New Borrower, in form and substance satisfactory to the Lender;
(g) The Lender shall have received the Articles of Incorporation of
the New Borrower, certified of recent date by the Secretary of State of the
State of Delaware;
(h) The Lender shall have received the Certificate of the New
Borrower's Foreign Qualification of recent date for the State of New York;
(i) The Lender shall have received a copy, certified by a duly
authorized officer of the New Borrower to be true and complete, of its by-laws
as in effect on such date;
(j) The Lender shall have received authorizing resolutions and
incumbency certificates from each of the Borrowers, authorizing such company's
execution and delivery of, and the performance of its obligations under this
Amendment Agreement, certified by the Secretary of such company; and
(k) The Lender shall have received a favorable legal opinion, dated as
of the date hereof, addressed to the Lender from counsel to the Borrowers, in
form and substance satisfactory to the Lender.
Section 6. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; AUTHORIZATION.
The Borrowers hereby represent and warrant to the Lender as follows:
(a) Each of the representations and warranties of each of the
Borrowers contained in the Credit Agreement, the other Loan Documents or in any
document or instrument delivered pursuant to or in connection with the Credit
Agreement, the other Loan Documents or this Amendment Agreement was true as of
the date as of which it was made, and no Default or Event of Default has
occurred and is continuing as of the date of this Amendment Agreement; and
(b) This Amendment Agreement has been duly authorized, executed and
delivered by each of the Borrowers to the Lender and shall be in force and
effect upon the satisfaction of the conditions set forth in ss.3 hereof, and the
agreements of the Borrowers in the Credit Agreement, as amended, or in the other
Loan Documents, as amended, respectively constitute the legal, valid and binding
obligations of each of the Borrowers, enforceable against each of the Borrowers
in accordance with their respective terms.
Section 7. RATIFICATION, ETC. Except as otherwise expressly set forth
herein, all terms and conditions of the Credit Agreement and the other Loan
Documents are hereby ratified and confirmed and shall remain in full force and
effect. Without limiting the generality of the foregoing, each of the Borrowers
expressly affirms all of its obligations under each of the Loan Documents to
which it is a party, including, without limitation, the Credit Agreement, as
amended hereby, and confirms that its obligations thereunder are secured under
and in accordance with the Security Documents. Nothing herein shall be construed
to be an Amendment Agreement or a waiver of any requirements of the Credit
Agreement or of any of the other Loan Documents except as expressly set forth
herein.
Section 8.COUNTERPARTS. This Amendment Agreement may be executed in
any number of counterparts, which together shall constitute one instrument.
Section 9. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL BE A CONTRACT
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, SHALL FOR ALL PURPOSES BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID
COMMONWEALTH, WITHOUT REFERENCE TO CONFLICTS OF LAW, AND IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT.
Section 10. EFFECTIVE DATE. Subject to the satisfaction of the
conditions precedent set forth in ss.5 hereof, this Amendment Agreement shall be
deemed to be effective as of the date hereof, PROVIDED, HOWEVER, the amendment
set forth in ss.2.2 hereof shall be effective as of June 1, 1998.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
Agreement as a sealed instrument as of the date first set forth above.
THE BORROWERS:
GEOWASTE INCORPORATED
By: /S/ AMY C. MACF. BURBOTT
-------------------------------
Title: President
GEOWASTE ACQUISITION CORP.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
GEOWASTE OF FL, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
GEOWASTE OF GA, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
GEOWASTE TRANSFER, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
LOW BROOK DEVELOPMENT, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
NORTH FLORIDA SWEEPING, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
SPECTRUM GROUP, INC.
By: /S/ AMY C. MACF. BURBOTT
--------------------------------
Title: President
THE LENDER:
BANKBOSTON, N.A.,
By: /S/ LINDSAY W. MCSWEENEY
--------------------------------
Title: Vice President
<PAGE>
<TABLE>
<CAPTION>
ITEM 1, SCHEDULE 1
SUBSIDIARIES OF THE PARENT
STATE AND DATE
OF QUALIFIED SHARES
NAME AND ADDRESS EIN # INCORPORATION IN SUBSIDIAIRES ISSUED
- -------------------- ----- -------------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
GeoWaste of FL, Inc. 59-3444607 DE - 2/6/97 Florida None 100
2005 County Road 210, West
Jacksonville, FL 32259
Low Brook Development, Inc. 06-1377362 DE - 12/7/92 NA None 1000
[f/k/a GeoWaste of PA,Inc.]
Suite 700
100 West Bay Street
Jacksonville, FL 32202
Spectrum Group, Inc. 59-1843470 FL - 8/25/78 NA None 100
[f/k/a Spectrum
Entertainment Group, Inc.;
All American Recycling, Inc.;
Ocala Recycling Center, Inc.]
[d/b/a United Sanitation]
511 South Pine Avenue
Ocala, FL 34480
GeoWaste Acquisition Corp. 36-6966582 DE - 7/1/91 Georgia GeoWaste of 100
[f/k/a Utah Acquisition GA, Inc.
Subsidiary, Inc.]
Suite 700
100 West Bay Street
Jacksonville, FL 32202
GeoWaste of GA, Inc. 58-1731687 GA - 5/28/85 Florida NA 100
[f/k/a Big Bin Services, Inc.]
1101 Hawkins Street
Valdosta, GA 32610
[d/b/a Pecan Row Landfill]
2995 Wetherington Lane
Valdosta, GA 32601
[d/b/a St. Augustine Transfer]
501 Riberia
St. Augustine, FL 32084
GeoWaste Transfer, Inc. 13-3984787 DE - 1/13/98 Florida NA 100
Suite 700 New York
100 West Bay Street
Jacksonville, FL 32202
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,283,711
<SECURITIES> 0
<RECEIVABLES> 2,832,526
<ALLOWANCES> 390,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,072,208
<PP&E> 28,246,019
<DEPRECIATION> 13,068,655
<TOTAL-ASSETS> 31,503,945
<CURRENT-LIABILITIES> 4,011,500
<BONDS> 0
0
0
<COMMON> 2,129,155
<OTHER-SE> 14,027,605
<TOTAL-LIABILITY-AND-EQUITY> 31,503,945
<SALES> 11,889,237
<TOTAL-REVENUES> 11,889,237
<CGS> 8,423,745
<TOTAL-COSTS> 8,423,745
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401,593
<INCOME-PRETAX> 499,847
<INCOME-TAX> 251,000
<INCOME-CONTINUING> 248,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,847
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
