SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 333-77633
CAPITAL ENVIRONMENTAL RESOURCE INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada Not Applicable
(Jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
1005 Skyview Drive
Burlington, Ontario, Canada L7P 5B1
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 319-1237
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 |_|
As of July 31, 1999, there were 7,165,855 common shares outstanding.
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
INDEX TO FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as at June 30, 1999
and December 31, 1998 ............................................. 2
Consolidated Statements of Operations for the three month and six
month periods ended June 30, 1999 and 1998 ........................ 4
Consolidated Statements of Comprehensive Income for the six month
period ended June 30, 1999 and 1998 ............................... 4
Consolidated Statements of Stockholders' Equity for the six month
periods ended June 30, 1999 and 1998 .............................. 5
Consolidated Statements of Cash Flows for the six month periods
ended June 30, 1999 and 1998 ...................................... 6
Notes to Consolidated Financial Statements ........................ 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 14
Item 3 Quantitative and Qualitative Disclosures about Market Risk ........ 24
PART II OTHER INFORMATION
Item 2 Changes in Securities ............................................. 25
Item 4 Submission of Matters to a Vote of Security Holders ............... 26
SIGNATURES ................................................................ 27
- 1 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
December 31 June 30
1998 1999
----------- -----------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,060 $ 321
Trade accounts receivable (net of allowance for
doubtful accounts of $209; December 31, 1998
- $761) 8,424 14,396
Prepaid expenses and other assets 1,266 2,226
Employee loans 190 462
-------- --------
Total current assets 10,940 17,405
-------- --------
Property and equipment, net 25,909 35,815
-------- --------
Other assets
Goodwill (net of accumulated amortization of
$2,388; December 31, 1998 - $1,568) 54,430 78,876
Other intangibles 3,082 3,258
Other non-current assets 149 937
Deferred income taxes 2,818 5,682
Deferred public offering costs 1,009 --
-------- --------
61,488 88,753
-------- --------
Total assets $ 98,337 $141,973
======== ========
The accompanying notes are an integral part of these statements
- 2 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
December 31 June 30
1998 1999
----------- -----------
(unaudited)
LIABILITIES
Current liabilities
Accounts payable $ 3,187 $ 5,459
Accrued liabilities 4,848 7,518
Accrued purchase liabilities 1,798 --
Current portion of long-term debt (Note 3) 2,101 11,529
--------- ---------
Total current liabilities 11,934 24,506
--------- ---------
Deferred items
Income taxes 4,376 4,825
Other 875 2,488
--------- ---------
Total deferred items 5,251 7,313
--------- ---------
Long-term debt (Note 3) 53,714 55,411
--------- ---------
Redeemable convertible preference stock:
unlimited shares authorized; none outstanding;
(December 31, 1998 - 8,000) (Note 5) 5,748 --
Redeemable convertible class "B" special stock:
400,000 shares authorized; none outstanding;
(December 31, 1998 - 400,000) (Note 5) 7,455 --
Redeemable common stock: unlimited shares
authorized; none outstanding; (December 31, 1998-
780,415) (Note 5) 8,743 --
--------- ---------
21,946 --
--------- ---------
Commitments and contingencies (Note 4)
STOCKHOLDERS' EQUITY
Common Shares; 6,976,030 issued and outstanding;
(December 31, 1998 - 1,993,758) (Note 5) 7,528 55,582
Accumulated other comprehensive loss (1,157) (1,102)
Retained earnings (deficit) (879) 263
--------- ---------
Total stockholders' equity 5,492 54,743
--------- ---------
Total liabilities and stockholders' equity $ 98,337 $ 141,973
========= =========
The accompanying notes are an integral part of these statements
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<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share data)
(unaudited)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 15,321 $ 22,927 $ 27,286 $ 40,803
Operating expenses:
Cost of operations 10,795 15,681 18,940 27,693
Selling, general and administrative
expenses 1,984 2,946 3,771 5,284
Depreciation and amortization expense 1,371 1,758 2,486 3,291
---------- ---------- ---------- ----------
Income from operations 1,171 2,542 2,089 4,535
Interest expense 764 1,501 1,315 2,751
---------- ---------- ---------- ----------
Income before income taxes 407 1,041 774 1,784
Income tax provision 156 375 296 642
---------- ---------- ---------- ----------
Net income for the period $ 251 $ 666 $ 478 $ 1,142
========== ========== ========== ==========
Basic net income per common share $ 0.12 $ 0.20 $ 0.24 $ 0.39
========== ========== ========== ==========
Diluted net income per common share $ 0.06 $ 0.14 $ 0.12 $ 0.25
========== ========== ========== ==========
Shares used in per share calculations
Basic 2,026,093 3,421,380 1,971,765 2,939,975
========== ========== ========== ==========
Diluted 3,892,997 4,884,081 3,822,439 4,592,533
========== ========== ========== ==========
</TABLE>
STATEMENTS OF COMPREHENSIVE INCOME
Six Months Ended
June 30
--------------------
1998 1999
------ ------
Net income for the period $ 478 $1,142
Other comprehensive income (loss) -
Foreign currency translation adjustments (324) 55
------ ------
Comprehensive income for the year $ 154 $1,197
====== ======
The accompanying notes are an integral part of these statements
- 4 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of U.S. dollars, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Common stock other Retained
--------------------- comprehensive earnings
Shares Amount loss (deficit) Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 1,993,758 $ 7,528 $ (1,157) $ (879) $ 5,492
Issuance of common shares, net of costs 2,998,725 30,077 -- -- 30,077
Issuance of common shares on acquisition 4,784 66 -- -- 66
Conversion of redeemable stock 1,978,763 17,911 -- -- 17,911
Foreign currency translation adjustments -- -- 55 -- 55
Net income for the period -- -- -- 1,142 1,142
--------- --------- --------- --------- ---------
Balances at June 30, 1999 6,976,030 $ 55,582 $ (1,102) $ 263 $ 54,743
========= ========= ========= ========= =========
</TABLE>
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<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
1998 1999
-------- --------
<S> <C> <C>
Cash provided by (used in) operating activities:
Net income for the period $ 478 $ 1,142
Adjustments for non-cash items -
Depreciation and amortization 2,486 3,291
Deferred income taxes (216) 449
Net loss (gain) on disposal of property, plant
and equipment (40) 5
Other -- 136
Changes in assets and liabilities, net of effect
of acquisitions -
Trade accounts receivable (176) (3,476)
Prepaid expenses and other assets 1,207 (189)
Accounts payable (1,151) 556
Accrued liabilities (454) 1,162
Income and other taxes (134) (605)
-------- --------
2,000 2,471
-------- --------
Cash provided by (used in) investing activities:
Capital expenditures, net of proceeds (1,724) (1,875)
Acquisition of businesses, net of cash acquired (16,866) (24,488)
Loans and advances to employees and shareholders (60) (263)
Other assets (601) (1,591)
-------- --------
(19,251) (28,217)
-------- --------
Cash provided by (used in) financing activities:
Proceeds from issuance of long-term debt 14,794 39,373
Principal payments on long-term debt (1,349) (34,460)
Repayment of capital lease liability (10) (638)
Net proceeds from issuance of common shares 6,595 28,728
Redemption of preference stock -- (6,900)
Increase in deferred financing costs -- (1,135)
-------- --------
20,030 24,968
-------- --------
Effect of exchange rate changes on cash and cash
equivalents 106 39
-------- --------
Increase (decrease) in cash and cash equivalents 2,885 (739)
Cash and cash equivalents - beginning of period 2,473 1,060
-------- --------
Cash and cash equivalents - end of period $ 5,358 $ 321
======== ========
SUPPLEMENTARY INFORMATION ON NON-CASH
TRANSACTIONS:
Value of acquisitions partially effected by the issue of stock $ 5,273 $ 66
-------- --------
Common stock issued as additional purchase consideration -- $ 709
-------- --------
Assets acquired under capital lease -- $ 3,374
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements
- 6 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 1 - Basis of Presentation
The accompanying interim consolidated financial statements of Capital
Environmental Resource Inc. and its subsidiaries (the "Company") for the three
and six month periods ended June 30, 1998 and 1999 have been prepared in
accordance with generally accepted accounting principles in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Operating results for the six month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The Company's consolidated balance sheet as of June 30, 1999, and the interim
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows for the three and/or six month periods ended June 30, 1999
and 1998 are unaudited. In the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position, results
of operations, and cash flows for the periods presented. The consolidated
financial statements presented herein should be read in conjunction with the
Company's annual report included in the Company's Registration Statement.
Note 2 - Acquisitions
For the six months ended June 30, 1999, the Company acquired 16 solid waste
collection businesses that were accounted for using the purchase method of
accounting. The aggregate consideration for these acquisitions was approximately
$28 million, consisting primarily of $25 million in cash and $3 million in
assumed liabilities. The purchase prices have been allocated to the identified
intangible assets and tangible assets acquired based on fair values at the dates
of acquisition, with any residual amounts allocated to goodwill.
The following pro forma information shows the results of the Company's
operations as though the significant acquisitions that occurred during the six
months ended June 30, 1999, had occurred as of January 1, 1999:
Six Months Ended June 30 (unaudited) Actual Pro forma
- -------------------------------------------------------------------------------
Revenue $40,803 $46,943
Net income 1,142 1,366
Pro forma basic income per share of common stock $ 0.39 $ 0.46
Pro forma diluted income per share of common stock $ 0.25 $ 0.30
- -------------------------------------------------------------------------------
- 7 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 2 - Acquisitions (continued)
The pro forma results have been prepared for comparative purposes only and are
not necessarily indicative of the actual results of operations had the
acquisitions taken place as of January 1, 1999, or the results of future
operations of the Company. Furthermore, the pro forma results do not give effect
to all cost savings or incremental costs that may occur as a result of the
integration and consolidation of the acquisitions.
Note 3 - Long-term debt
On January 29, 1999, the Company amended and restated its Credit Facility to
increase its available credit to $65.0 million from C$67.5 million ($44.1
million at December 31, 1998). The Company used the proceeds of its amended
Credit Facility to redeem common shares issued to the sellers of Rubbish Removal
Inc., to make permitted acquisitions and for capital expenditures, stand by
letters of credit and for general corporate purposes. On March 5, 1999, the
Company increased its available credit under the amended and restated Credit
Facility to $70.0 million. The Company has pledged all of its assets, including
the stock of its subsidiaries, as collateral under the amended Credit Facility.
The amended Credit Facility matures in January 2002.
Long-term debt is comprised of the following:
December 31 June 30
1998 1999
----------- -----------
(unaudited)
Senior debt
Term loan payable under the credit facility bearing
interest at 7.37% at June 30, 1999 (December 31, 1998
- 7.44%), with no monthly payments, due January 2002 $41,701 $50,392
Subordinated debt
Promissory notes payable, bearing interest at 6.75%,
due June 6, 2000 11,528 10,680
Promissory notes payable, bearing interest at 9.5%,
varying annual principal payments, paid in full 479 --
Other
Obligations under capital leases for equipment 2,107 5,868
------- -------
55,815 66,940
Less: Current portion 2,101 11,529
------- -------
$53,714 $55,411
======= =======
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<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 4 - Commitments and Contingencies
(a) Environmental Risks
The Company is subject to liability for environmental damage that its solid
waste facilities may cause, including damage to neighbouring landowners or
residents, particularly as a result of the contamination of soil, groundwater or
surface water, and especially drinking water, including damage resulting from
conditions existing prior to the acquisition of such facilities by the Company.
The Company may also be subject to liability for any off-site environmental
contamination caused by pollutants or hazardous substances whose transportation,
treatment or disposal was arranged by the Company or its predecessors. Any
substantial liability for environmental damage incurred by the Company could
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. As at the date of these financial statements, the
Company is not aware of any such environmental liabilities.
(b) Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative proceedings
involving federal, state, provincial or local agencies. In these proceedings, an
agency may seek to impose fines on the Company or to revoke or deny renewal of
an operating permit held by the Company. From time to time the Company may also
be subject to actions brought by citizens' groups or adjacent landowners in
connection with the permitting and licensing of landfills and transfer stations,
or alleging environmental damage or violations of the permits and licenses
pursuant to which the Company operates.
In addition, the Company may become party to various claims and suits pending
for alleged damages to persons and property, alleged violations of certain laws
and alleged liabilities arising out of matters occurring during the normal
operation of the waste management business. However, as at June 30, 1999, there
was no current proceeding or litigation involving the Company that the Company
believes will have a material adverse impact on the Company's business,
financial condition, results of operations or cash flows.
- 9 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 5 - Capital Stock
(a) Material changes in Capital Stock since inception on May 23, 1997:
Common Stock
On April 27, 1999, the stockholders of the Company approved a split of the
Company's Common Stock whereby 1.3847 Common Shares were issued for each
one previously outstanding Common Share. All Common Shares and per Common
Share data in the financial statements has been restated to give
retroactive effect to this 1.3847 for 1 stock split.
(i) On May 23, 1997, the Company issued 1,353,924 Common Shares for
nominal cash consideration.
(ii) On October 31, 1997, the Company issued 73,850 Common Shares with a
value of $789 in exchange for certain business assets and cash of
$89.
(iii) On April 1, 1998, in connection with the acquisition of Muskoka
Containerized Services, the Company issued 6,923 Common Shares with
a value of $71 as partial consideration.
(iv) On June 15, 1998, the Company issued 553,869 Common Shares for net
proceeds of $6,595 cash in a private placement.
(v) On July 2, 1998, in connection with the acquisition of John's
Cartage Waste Management Services Ltd., the Company issued 5,192
Common Shares valued at $64.
(vi) On March 5, 1999, in connection with the acquisition of Ram-Pak
Compaction Services, the Company issued 4,784 Common Shares valued
at C$100.
(vii) On June 8, 1999, the Company completed an Initial Public Offering
("IPO") of 3,258,725, Common Shares at a price of $11.00 per share.
Of the 3,258,725 Common Shares sold in the offering, 2,998,725 were
sold by the Company and 260,000 were sold by certain selling
stockholders. The Company received approximately $30 million in net
proceeds from the IPO.
(viii) On June 8, 1999, the Convertible Preference Shares were converted
into 1,107,750 Common Shares.
(ix) On June 8, 1999, Class "B" Special Stock was converted into 484,645
Common Shares.
- 10 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 5 - Capital Stock (continued)
(x) On June 8, 1999, the Redeemable Common Shares were converted into
280,240 Common Shares.
(xi) On June 8, 1999, in connection with the October 1, 1998 acquisition
of GETS, the Company issued 106,128 additional Common Shares
resulting in additional purchase consideration of $709.
Convertible Preference Shares
On July 11, 1997, the Company issued 8,000 redeemable convertible
preference shares at a price of C$1,000 per share for net proceeds of
$5,748 cash in a private placement. On June 8, 1999, the convertible
preference shares were converted into 1,107,750 Common Shares. No
convertible preference shares remain outstanding as at June 30, 1999.
Class "B" Special Stock
On November 1, 1997, the Company issued 400,000 redeemable convertible
Class "B" Special Stock valued at $7,455 in exchange for the remaining
outstanding common stock of Western Waste. On June 8, 1999, the Class "B"
Special Stock was converted into 484,645 Common Shares. No Class "B"
Special Stock remains outstanding as at June 30, 1999.
Redeemable Common Shares
On January 2, 1998, in connection with the acquisition of Rubbish Removal
("Rubbish"), the Company issued 500,175 Redeemable Common Shares valued at
$5,202. During the six months ended June 30, 1999 the Company redeemed the
500,175 shares for cash of $6,900. The excess of the redemption price over
the value of the Redeemable Common Shares of $1,698 was accounted for as
additional purchase consideration in the prior fiscal year.
On October 1, 1998, in connection with the acquisition of GETS, the
Company issued 280,240 Redeemable Common Shares valued at $3,541. On June
8, 1999, the Redeemable Common Shares were converted into 280,240 Common
Shares. No Redeemable Common Shares remain outstanding as at June 30,
1999.
- 11 -
<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 5 - Capital Stock (continued)
(b) Stock Option and Option Grants
Under the 1997 Stock Option Plan, the Company may grant options to acquire
Common Shares up to a maximum of 10% of the then issued and outstanding
Common Shares on an as converted basis. All of the options issued under
the 1997 plan vested on completion of the initial public offering of the
Company's securities. No option will remain exercisable later than five
years after the grant date, unless the Board of Directors determines
otherwise.
Under the 1999 Stock Option Plan, the Company may grant options to acquire
Common Shares up to a maximum of 15% of the then issued and outstanding
shares of Common Stock and Common Stock equivalents, including stock
options issued under the 1997 Stock Option Plan. Options granted to
non-employee directors will generally vest one year from the date of
grant. Options granted to non-directors become exercisable only after the
second anniversary of the grant date unless otherwise determined by the
Compensation Committee. No option will remain exercisable later than five
years after the grant date, unless the Compensation Committee determines
otherwise. Upon a change of control event, options become immediately
exercisable.
At June 30, 1999, December 31, 1998, and June 30, 1998, the aggregate
options outstanding entitled holders to purchase 495,720, 509,568 and
357,251 Common Shares, respectively, at prices ranging from C$7.22 -
$18.05. During the six months ended June 30, 1999, no Common Shares were
issued under the plans.
As permitted by the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", the Company applies APB 25 in
accounting for options to acquire Common Shares. As a result, no
compensation cost has been recognized as options have been granted at
market value.
(c) Stock Warrants
The Company has issued 123,084 warrants to certain stockholders. These
warrants entitle the holder thereof to receive upon exercise, one common
share at C$0.007 per share. These warrants expire July 15, 2002.
At June 30, 1999, December 31, 1998, and June 30, 1998, the aggregate
warrants outstanding entitled holders to purchase 123,084 Common Shares.
During the six months ended June 30, 1999, no Common Shares were issued on
exercise of warrants.
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<PAGE>
CAPITAL ENVIRONMENTAL RESOURCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands of U.S. dollars, except share and per share data)
Note 6 - Earnings per Share Calculation
The following table sets forth the computation of earnings per Common Share:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Six Months Ended June 30 1998 1999
- ------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 478 $ 478 $ 1,142 $ 1,142
---------- ---------- ---------- ----------
Weighted average Common Shares
outstanding 1,971,765 1,971,765 2,939,975 2,939,975
Dilutive effect of stock options and
warrants outstanding -- 258,269 -- 253,705
Common Shares issuable upon
conversion of Preference Shares
and Class B Special Stock -- 1,592,405 -- 1,398,853
---------- ---------- ---------- ----------
1,971,765 3,822,439 2,939,975 4,592,533
---------- ---------- ---------- ----------
Net income per share $ 0.24 $ 0.12 $ 0.39 $ 0.25
- ------------------------------------------------------------------------------------------------
</TABLE>
Note 7 - Subsequent Events
On July 1, 1999, the Company completed the sale of 189,825 Common Shares to
cover over-allotments in connection with the initial public offering. The
Company received approximately $1.9 million in net proceeds from the exercise by
the underwriters of their over-allotment option. The proceeds from the sale of
the over-allotment shares were used to repay a portion of the Company's
outstanding indebtedness under its senior credit facility.
On July 30, 1999, the Company purchased Salish Disposal Ltd., a collection,
recycling and transfer station operation in Abbotsford, British Columbia.
- 13 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included elsewhere herein.
Forward Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q, including,
without limitation, information appearing under Part 1, Item 2, "Management's
Discussion and Analysis of financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934) that involve risks and uncertainties. Factors set forth under the
caption "Risk Factors" in the Company's Registration Statement could affect the
Company's actual results and could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company in this Report on Form 10-Q.
Overview
Capital Environmental Resource Inc. is a regional, integrated solid waste
services company that provides collection, transfer, disposal and recycling
services. The Company was founded in May 1997 in order to take advantage of
consolidation opportunities in the solid waste industry in markets other than
major urban centers in Canada and the northern United States. The Company began
operations in June 1997 when it acquired selected solid waste assets and
operations in Canada from Canadian Waste Services Inc. and its parent, USA Waste
Services, Inc.
From the time of commencing operations, to June 30, 1999, the Company acquired
35 solid waste services businesses in Canada and the United States, including 36
collection operations, 10 transfer stations, 6 recycling processing facilities
and a contract to operate two landfills.
- 14 -
<PAGE>
Results of Operations for the Three Months Ended June 30, 1998 and 1999
The following table sets forth items in the Consolidated Statement of Operations
as a percentage of revenues and the percentage changes in the dollar amounts of
these items compared to the same period in the previous year: ($ thousands)
<TABLE>
<CAPTION>
Percentage of Percentage
Revenue Increase
- ----------------------------------------------------------------------------------------------------------
1999 Over
Three months ended June 30 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $15,321 $22,927 100.0% 100.0% 49.6%
Cost of operations 10,795 15,681 70.5 68.4 45.3
Selling, general and administrative expenses 1,984 2,946 13.0 12.8 48.5
Depreciation and amortization expense 1,371 1,758 8.9 7.7 28.2
- -------------------------------------------------------------------------------------------
Income from operations 1,171 2,542 7.6 11.1 117.1
Interest expense 764 1,501 5.0 6.6 96.5
- -------------------------------------------------------------------------------------------
Income before income taxes 407 1,041 2.6 4.5 155.8
Income tax expense 156 375 1.0 1.6 140.4
- -------------------------------------------------------------------------------------------
Net income $ 251 $ 666 1.6% 2.9% 165.3%
===========================================================================================
EBITDA $ 2,542 $ 4,300 16.6% 18.8% 69.2%
===========================================================================================
</TABLE>
Revenue
The sources of revenue and growth rates are as follows: ($thousands)
<TABLE>
<CAPTION>
Growth
Three Months Ended June 30 1998 1999 Rates
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial collection $ 9,631 62.9% $12,870 56.1% 33.6%
Residential collection 2,724 17.8 5,094 22.2 87.0
Commercial and residential recycling 275 1.8 613 2.7 122.9
Transfer station 1,057 6.9 1,938 8.5 83.3
Contract management and other
specialized services 1,634 10.6 2,412 10.5 47.6
- --------------------------------------------------------------------------------------
$15,321 100.0% $22,927 100.0% 49.6%
======================================================================================
</TABLE>
The composition of revenue has changed, with a higher portion being generated
from residential business and from transfer stations. These components have
increased as a result of the revenue mix of recent acquisitions and increased
revenue from existing residential contracts.
- 15 -
<PAGE>
Management's estimates of the components of changes in the Company's
consolidated revenue are as follows:
Three Months Ended June 30 1999
- --------------------------------------------------------------------------------
Price 2.2%
Volume 3.0
Acquisitions, net of divestitures 45.6
Foreign currency translation (1.2)
- --------------------------------------------------------------------------------
Total 49.6%
================================================================================
Total revenues in the quarter were $22.9 million compared to $15.3 million in
the same quarter last year. The 49.6% increase was primarily as a result of
acquisitions made since the second quarter 1998 and 5.2% internal growth.
During the quarter ended June 30, 1999, 11 acquisitions were completed (9 in
Canada and 2 in the United States) with annualized revenue of approximately $15
million. The most significant acquisitions in the current quarter include
Premier Waste Systems Ltd. ("Premier"), located in Hamilton, Ontario, and
Giglio's Disposal Service and certain related companies ("Giglio's"), located in
Brampton, Ontario. Both of these operations provide commercial, roll off and
transfer station services. In addition, Premier provides residential collection
and lugger services, while Giglio's provide wood recycling services. In the same
period of the prior year, 4 acquisitions were completed with annualized revenue
of approximately $10.0 million.
Revenue and growth in revenue from geographic components are as follows:
($thousands)
Three Months Ended June 30 1998 1999 Growth Rates
- --------------------------------------------------------------------------------
Canada $10,610 69.3% $16,503 72.0% 55.5%
United States 4,711 30.7 6,424 28.0 36.4
- -------------------------------------------------------------------
$15,321 100.0% $22,927 100.0% 49.6%
===================================================================
The growth in revenue in Canada exceeded the growth in revenue in the United
States as more acquisitions were completed in Canada.
Cost of operations
Cost of operations include labor, fuel, equipment maintenance, tipping fees paid
to third-party disposal facilities, worker's compensation and vehicle insurance,
the cost of materials purchased to be recycled, subcontractor expense and local,
state or provincial taxes. Cost of operations for the three months ended June
30, 1999 was $15,681 compared to $10,795 for the three months ended June 30,
1998. The 45.3% increase in cost of operations was attributable primarily to
increases in our revenues described above. Cost of operations as a percentage of
revenue for the three months ended June 30, 1999 was 68.4%, compared with 70.5%
in 1998. In the three months ended June 30, 1999, cost of operations decreased
as a percentage of revenue primarily as a result of the synergies achieved from
integrating acquisitions during the past 12 months, including further
internalization of waste streams with the increase in the number of transfer
stations.
- 16 -
<PAGE>
Selling, general and administrative expenses
Selling, general and administrative expenses include management, clerical,
financial, accounting and administrative compensation and overhead costs
associated with the marketing and sales force, professional services and
community relations expense. Selling, general and administrative expenses for
the three months ended June 30, 1999 were $2,946 compared to $1,984 for the
period ended June 30, 1998. The 48.5% increase primarily relates to additional
management, consulting and related costs to support the Company's level of
growth and additional requirements related to the change to a public company. As
a percentage of revenues, selling, general and administrative expenses decreased
slightly to 12.8% for the three months ended June 30, 1999 from 13.0% for the
period ended June 30, 1998 as a result of the larger revenue base. The Company
expects these costs to increase in absolute dollars going forward as its public
company costs and related infrastructure is established. This will include
additional audit, communication and printing costs associated with its quarterly
and annual filing requirements.
Depreciation and amortization expense
Depreciation and amortization expense includes depreciation of fixed assets over
the estimated useful life of the assets using the straight-line method, the
amortization of goodwill over 40 years and the amortization of other intangible
assets over appropriate time periods. Depreciation and amortization expense for
the three months ended June 30, 1999 was $1,758 compared to $1,371 for the three
months ended June 30, 1998. The 28.2% increase was primarily due to acquisition
activity over the past 12 months. As a percentage of revenues, depreciation and
amortization expense decreased to 7.7% for the three months ended June 30, 1999
from 8.9% for the period ended June 30, 1998. The decrease primarily relates to
the write-off of start-up and integration costs of $150 included in the prior
year.
Interest expense
In the three months ended June 30, 1999, interest expense increased 96.5% to
$1,501 from $764 for the period ended in 1998. The delays encountered in
completing the IPO cost an estimated $63 in additional interest expense during
the quarter. The overall increase in interest expense over the prior year, was
primarily a result of an increase in the average level of outstanding debt due
to borrowing to finance acquisition activity over the past 12 months.
- 17 -
<PAGE>
Results of Operations for the Six Months Ended June 30, 1998 and 1999
The following table sets forth items in the Consolidated Statement of Operations
as a percentage of revenues and the percentage changes in the dollar amounts of
these items compared to the same period in the previous year: ($ thousands)
<TABLE>
<CAPTION>
Percentage of Percentage
Revenue Increase
- ----------------------------------------------------------------------------------------------------------
1999 Over
Six months ended June 30 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $27,286 $40,803 100.0% 100.0% 49.5%
Cost of operations 18,940 27,693 69.4 67.9 46.2
Selling, general and administrative expenses 3,771 5,284 13.8 12.9 40.1
Depreciation and amortization expense 2,486 3,291 9.1 8.1 32.4
- --------------------------------------------------------------------------------------------
Income from operations 2,089 4,535 7.7 11.1 117.1
Interest expense 1,315 2,751 4.9 6.7 109.2
- --------------------------------------------------------------------------------------------
Income before income taxes 774 1,784 2.8 4.4 130.5
Income tax expense 296 642 1.0 1.6 116.9
- --------------------------------------------------------------------------------------------
Net income $ 478 $ 1,142 1.8% 2.8% 138.9%
============================================================================================
EBITDA $ 4,575 $ 7,826 16.8% 19.2% 71.1%
============================================================================================
</TABLE>
Revenue
The sources of revenue and growth rates are as follows: ($thousands)
<TABLE>
<CAPTION>
Growth
Six Months Ended June 30 1998 1999 Rates
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial collection $17,463 64.0% $23,171 56.8% 32.7%
Residential collection 4,338 15.9 9,493 23.3 118.8
Commercial and residential recycling 682 2.5 1,103 2.7 61.7
Transfer station 1,583 5.8 3,152 7.7 99.1
Contract management and other
specialized services 3,220 11.8 3,884 9.5 20.6
- --------------------------------------------------------------------------------------
$27,286 100.0% $40,803 100.0% 49.5%
======================================================================================
</TABLE>
- 18 -
<PAGE>
Management's estimates of the components of changes in the Company's
consolidated revenue are as follows:
Six Months Ended June 30 1999
- --------------------------------------------------------------------------------
Price 2.6%
Volume 2.5
Acquisitions, net of divestitures 46.9
Foreign currency translation (2.5)
- --------------------------------------------------------------------------------
Total 49.5%
================================================================================
During the six months ended June 30, 1999, 16 acquisitions were completed (12 in
Canada and 4 in the United States) with annualized revenue of approximately $21
million. Approximately $15 million relates to acquisition activity in Ontario,
with a focus primarily on tuck-in acquisitions, strengthening the Company's
position in its existing markets. In the same period last year, 6 acquisitions
were completed with annualized revenue of approximately $27.0 million.
Revenue and growth in revenue from geographic components are as follows:
($thousands)
Six Months Ended June 30 1998 1999 Growth Rates
- --------------------------------------------------------------------------------
Canada $18,641 68.3% $28,619 70.1% 53.5%
United States 8,645 31.7 12,184 29.9 40.9
- ----------------------------------------------------------------
$27,286 100.0% $40,803 100.0% 49.5%
================================================================
Cost of operations
Cost of operations for the six months ended June 30, 1999 was $27,693 compared
to $18,940 for the six months ended June 30, 1998. The increase in cost of
operations was attributable primarily to increases in our revenues described
above. Cost of operations as a percentage of revenue for the six months ended
June 30, 1999 were 67.9%, compared with 69.4% for the six months ended June 30,
1998. In the six months ended June 30, 1999, cost of operations decreased as a
percentage of revenue primarily as a result of synergies achieved from
integrating acquisitions, including further internalization of waste steams with
the increase in the number of transfer stations. The number of transfer stations
has increased from 3 in June, 1998 to 10 at the end of June, 1999.
Selling, general and administrative expenses
Selling, general and administrative expenses for the six months ended June 30,
1999 were $5,284 compared to $3,771 for the period ended June 30, 1998. The
increase was attributable to the expansion of the Company's operations,
primarily through acquisition activity. As a percentage of revenues, selling,
general and administrative expenses decreased to 12.9% for the six months ended
June 30, 1999 from 13.8% for the period ended June 30, 1998. The decrease was
attributable to synergies achieved on integration of tuck-in acquisitions
combined with the larger revenue base.
- 19 -
<PAGE>
Depreciation and amortization expense
Depreciation and amortization expense for the six months ended June 30, 1999 was
$3,291 compared to $2,486 for the six months ended June 30, 1998. As a
percentage of revenues, depreciation and amortization expense decreased to 8.1%
for the six months ended June 30, 1999 from 9.1% for the period ended June 30,
1998. The decrease as a percentage of revenues relates to the write-off of
start-up and integration costs of $300 included in the prior year.
Interest expense
In the six months ended June 30, 1999, interest expense increased 109% to $2,751
from $1,315 for the period ended in 1998. This increase was a result of a 101%
increase in the average level of outstanding debt due to the acquisition
activity over the past 12 months, combined with a 1.6% increase in the average
cost of borrowing, with the balance related to amortization of deferred
financing costs.
Financial Condition
As of December 31, 1998 and June 30, 1999, the Company's capital consisted of:
($thousands)
December 31, 1998 June 30, 1999 Change
----------------- ------------- ------
Deferred items $ 5,251 5.9% $ 7,313 5.7% $ 2,062
Long-term debt 55,815 63.1 66,940 51.9 11,125
Redeemable stock 21,946 24.8 -- -- (21,946)
Shareholders' equity 5,492 6.2 54,743 42.4 49,251
-------- ----- -------- ----- --------
$ 88,504 100.0% $128,996 100.0% $ 40,492
======== ===== ======== ===== ========
The $11.1 million increase in long-term debt is primarily a result of the $39.0
million in borrowings since year end, including approximately $25.0 million to
finance acquisition activity, $6.9 million related to the redemption of
redeemable common stock. The remainder of the borrowings related to working
capital financing, capital expenditure requirements and repayments of
subordinated debt. In addition, capital lease obligations increased by $3.8
million since year end. These increases were partly offset by repayments of
$34.5 million, including $30.7 million of the net proceeds from the IPO, which
were used to repay a portion of the Company's outstanding indebtedness under its
Credit Facility. The remainder of the change relates to the effect of foreign
currency translation on long-term debt.
The decrease in the redeemable stock relates to the combination of stock
redeemed for cash with the remainder due to the conversion to Common Shares upon
the completion of the IPO.
Shareholders' equity increased by $49.2 million primarily as a result of $30.1
million in net after-tax proceeds from the IPO, $17.9 million on the conversion
of redeemable stock and net earnings of $1.1 million.
- 20 -
<PAGE>
Liquidity and Capital Resources
The Company's capital requirements include acquisitions, working capital
increases and fixed asset replacement. The Company plans to meet capital needs
through various financial sources, including internally generated funds, debt
and equity financing.
As of June 30, 1999, adjusted working capital was $4,428, excluding the current
portion of long-term debt. The Company generally applies the cash generated from
its operations that remains available after satisfying working capital and
capital expenditure requirements to reduce indebtedness under the Credit
Facility and to minimize cash balances. Working capital requirements are
financed from internally generated funds and bank borrowings.
For the six months ended June 30, 1999, net cash provided by operations was $2.5
million, compared to $2.0 million in the prior year. This increase was primarily
generated by higher net income, partly offset by additional working capital
requirements related to accounts receivable and income tax payments.
For the six months ended June 30, 1999, net cash used in investing activities
was $28.2 million. Most of this was used to fund the cash portion of the
acquisitions of approximately $25.0 million. The remainder of the cash spending
primarily relates to capital expenditures of $1.9 million (before capital lease
additions of $3.4 million) and other assets. Capital expenditures for 1999 are
expected to be approximately $8.0 million primarily for vehicle and equipment
additions and replacements. The Company intends to fund capital expenditures
principally through internally generated funds, capital leases and borrowings
under the Credit Facility. The net cash used in investing increased $9.0 million
from the $19.2 million used in investing activities in the prior year. This is
largely due to the increased level of acquisition activity in the current year
and deferred payments related to prior years' acquisitions.
For the six months ended June 30, 1999, net cash provided by financing
activities was $25.0 million. This was provided primarily by net cash proceeds
from the IPO of $28.7 million, after deducting IPO costs paid to date, and net
borrowings of $4.9 million. This was partly offset by cash used for the
redemption of certain redeemable stock and other financing payments. This is a
$5.0 million increase from the $20.0 million provided by financing activities in
the prior year, primarily due to the increased requirements related to
acquisition activity.
The Company has a $70.0 million Credit Facility with a syndicate of banks led by
Bank of America National Trust and Savings Association, as United States agent,
Bank of America Canada as Canadian agent and Canadian Imperial Bank of Commerce
as co-agent. As of June 30, 1999 approximately $50.4 million of our Credit
Facility was outstanding. The Credit Facility is secured by all of the Company's
assets, including the interest in the equity securities of the Company's
subsidiaries. Of the $50.4 million outstanding, $21.2 million consisted of U.S.
dollar loans bearing interest at 7.562% and $29.2 million consisted of Canadian
dollar loans bearing interest at 7.227%. The Credit Facility will terminate in
January 2002 at which time its entire principal amount will become due. The
Credit Facility requires the Company to maintain fixed financial ratios and
satisfy other predetermined requirements, such as a minimum net worth, a minimum
interest coverage ratio, a maximum debt to EBITDA ratio and a maximum senior
debt to EBITDA ratio and imposes annual restrictions on capital expenditures.
The Credit Facility also restricts the Company's ability to incur or assume
other debt for borrowed money or capital leases to fixed amounts. In addition,
it requires the lenders' approval for acquisitions where the purchase price
exceeds the greater of $10.0 million or 10% of the Company's total consolidated
assets and for landfill acquisitions which expose the Company to liability for
environmental risks in excess of a fixed amount. As of June 30, 1999, an
aggregate of $17.3 million was unused and available under the Credit Facility,
after taking into account letters of credit of $2.3 million.
- 21 -
<PAGE>
Seasonality
The Company's results of operations vary seasonally, with revenues typically
lowest in the first quarter of the year, higher in the second and third
quarters, and lower in the fourth quarter than in the third quarter. The Company
believes this seasonality can be attributed to a number of factors. First, less
solid waste is generated during the late fall, winter and early spring because
of decreased construction and demolition. Second, some of the Company's
operating costs are higher in the winter months because winter weather
conditions slow waste collection activities, resulting in higher labor costs,
and rain and snow increase the weight of collected waste, resulting in higher
disposal costs, which are calculated on a per ton basis. Consequently, operating
income is generally lower during the winter months. Finally, during the summer
months, there are more tourists and part-time residents in some of the Company's
service areas in Ontario, resulting in more residential and commercial
collection business.
Impact of Year 2000
Some computer systems or software used by many companies may be unable to
distinguish 21st century dates from 20th century dates. As a result, beginning
on January 1, 2000, computer systems and software used by many companies in a
wide variety of industries will produce erroneous results or fail unless they
have been modified or upgraded to process date information correctly.
In late 1998, the Company conducted a preliminary inventory and issue assessment
of the Year 2000 issue as it pertains to its computer systems, communications
equipment and other potentially date-sensitive equipment to identify the systems
and equipment, if any, that could be affected by the Year 2000 issue. The
Company then retained an outside consultant to provide a review of this
preliminary inventory. Other than for businesses acquired in the quarter ended
June 30, 1999, the Company has identified non-compliant equipment and the
potential impact of such equipment on its operations. The Company expects to
complete any required systems conversions and replacement of currently owned
date sensitive equipment by the end of the third quarter of 1999. This will
consist primarily of office computer equipment.
In the Spring of 1999, the Company began a process to determine the Year 2000
compliance status of potentially date sensitive pieces of equipment or computer
systems by contacting vendors and manufacturers, and if necessary, having
equipment tested. These inquiries are now substantially complete. At the same
time, the Company began a process of identifying and contacting all key
suppliers and customers to determine the status of their Year 2000 compliance
programs. These inquiries are now substantially complete.
The Company has obtained Year 2000 compliance certifications from manufacturers
of its main computer systems and software. This includes the accounting, billing
and truck routing systems.
As the Company's operations rely primarily on mechanical systems such as trucks
to collect solid waste, the Company does not expect operations to be
significantly affected by the Year 2000 issue. In addition, the Company believes
that if their disposal vendors encounter Year 2000 problems, they will convert
to manual billing based on scale recordings until they resolve those issues.
- 22 -
<PAGE>
Management believes that its own computer systems and software currently are
Year 2000 ready. In assessing the Company's exposure to year 2000 issues,
management believes the biggest risks lie with its banks, utilities, fuel
suppliers, municipal customers and acquired businesses between the time acquired
and the time systems are implemented. If these third parties do not complete
their Year 2000 modifications on time, the Company could experience
unanticipated expenses and delays, including delays in payment for services and
delays in the Company's ability to conduct normal business operations.
Management believes, however, that in the most reasonably likely worst case
scenario, the effects of Year 2000 issues on the Company's operations would be
brief and small relative to the Company's overall operations, particularly given
the diversity of its supplier and customer bases.
Costs to date associated with the Year 2000 issue are estimated at $40 which
have been paid out of internally generated funds. The Company expects to expend
no more than $80 in the future for this issue based on the results of the
Company's Year 2000 review. The Company will utilize internally generated funds
or borrowings under its Credit Facility to pay these costs. If the Company
determines based on its inquiries that its vendors, banks and municipal
customers will not be Year 2000 compliant, it will put in place a contingency
plan to address operation and financial disruptions to the Company which could
be caused by their non-compliance. This contingency plan will be developed by
the end of the third quarter of 1999. The Company believes that it could revert
to the use of manual systems, which would not have a material effect on the
business in the short term.
Although the Company has taken, and will continue to take, reasonable efforts to
gather information to determine the readiness of our equipment and dependencies,
there can be no assurance that reliable information will be offered or otherwise
available. In addition, verification methods may not be reliable or fully
implemented. Accordingly, not withstanding the foregoing efforts, there are no
assurances that the Company is correct in its determination or belief that a
product or a business dependency is Year 2000 ready.
Other legal proceedings
See Note 4 of Notes to Consolidated Financial Statements.
Subsequent Events
On July 1, 1999, the Company completed the sale of 189,825 Common Shares to
cover over-allotments in connection with the Initial Public Offering. The
Company received approximately $1.9 million in net proceeds from the exercise by
the underwriters of their over-allotment option. The proceeds from the sale of
the over-allotment shares were used to repay a portion of the Company's
outstanding indebtedness under its Senior Credit Facility.
On July 30, 1999, the Company purchased Salish Disposal Ltd., a collection,
recycling and transfer operation in Abbotsford, British Columbia.
- 23 -
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
There were no material changes in information that would be provided in this
section during the six months ended June 30, 1999.
- 24 -
<PAGE>
ITEM 2. CHANGES IN SECURITIES
- --------------------------------------------------------------------------------
By Certificate and Articles of Amendment dated May 25, 1999, each 1 issued
common share was split into 1.3847 common shares.
The net proceeds to us from the sale of 2,998,725 shares of common stock in our
initial public offering (Registration Statement No. 333-77633), effective May
26, 1999, totalled approximately $30.7 million after deducting underwriting
discounts and commissions. Capital Environmental paid the expenses of the
offering, other than underwriting discounts and commissions, for the selling
shareholders who sold 260,000 common shares in the initial public offering.
The underwriters for the initial public offering were Credit Suisse First Boston
Corporation, Raymond James & Associates, Inc. and Sanders Morne Mundy Inc.
During the period covered by this report, we applied all of the net proceeds
from the initial public offering to repay a portion of our outstanding
indebtedness under our secured credit facility.
Effective on and coincident with the completion of the initial public offering
of our common shares, on June 8, 1999 all of the 800,000 issued Convertible
Preference Shares were automatically converted into 1,107,750 common shares.
Effective on and coincident with the completion of the initial public offering
of our common shares, on June 8, 1999 all of the 400,000 issued Class "B"
Special Stock were automatically converted into 484,645 common shares.
By Certificate and Articles of Amendment dated June 8, 1999 all of the rights,
privileges and restrictions attaching to the Convertible Preference Shares and
Class "B" Special Stock were deleted and a new class of Preferred Shares
issuable in series was created.
We restated our Articles of Incorporation by Certificate of Restated Articles of
Incorporation on June 8, 1999, to incorporate the amendments described above.
- 25 -
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
By unanimous written consent, dated April 27, 1999, as amended by unanimous
written consent dated May 26, 1999 in lieu of a meeting, our shareholders
approved the following matters:
1. The amendment of our Articles of Incorporation, as amended, to
change each one (1) issued common share into 1.3847 common shares;
2. The 1999 Stock Option Plan;
3. Coincident with and conditional upon the completion of an initial
public offering of our common shares at an issue price to the public
of not less than $11.00:
(i) the amendment of our Articles of Incorporation, as
amended, to delete the rights, privileges and conditions
attaching to each of the Convertible Preference Shares
and the Class "B" Special Shares, to create a class of
Preferred Shares issuable in series, and to change the
minimum and maximum number of directors to a minimum of
3 and a maximum of 9;
(j) The empowerment of the directors to determine the number
of directors within the minimum and maximum number
specified in the Articles of Incorporation, as amended;
(k) The amendment and restatement of our By-law No. 1; and
(l) The election of the following as directors for the
following terms:
Name of Director Term
Tony Busseri until the annual meeting of the
shareholders for the fiscal year ended
December 31, 2000
Allard Loopstra until the annual meeting of the
shareholders for the fiscal year ended
December 31, 1999
Kenneth Ch'uan-K'ai Leung until the annual meeting of the
shareholders for the fiscal year ended
December 31, 2000
David Lowenstein until the annual meeting of the
shareholders for the fiscal year ended
December 31, 1999
- 26 -
<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.
CAPITAL ENVIRONMENTAL RESOURCE INC.
August 13, 1999 /s/ Tony Busseri
----------------------------------------------
Tony Busseri
Chairman of the Board, Chief Executive Officer
August 13, 1999 /s/ George Boothe
----------------------------------------------
George Boothe
Executive Vice President, Chief Financial
Officer
- 27 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 321
<SECURITIES> 0
<RECEIVABLES> 14,605
<ALLOWANCES> 209
<INVENTORY> 0
<CURRENT-ASSETS> 17,405
<PP&E> 41,605
<DEPRECIATION> 5,790
<TOTAL-ASSETS> 141,973
<CURRENT-LIABILITIES> 24,506
<BONDS> 0
0
0
<COMMON> 55,282
<OTHER-SE> (839)
<TOTAL-LIABILITY-AND-EQUITY> 141,973
<SALES> 0
<TOTAL-REVENUES> 40,803
<CGS> 0
<TOTAL-COSTS> 27,693<F1>
<OTHER-EXPENSES> 8,575<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,751
<INCOME-PRETAX> 1,784
<INCOME-TAX> 642
<INCOME-CONTINUING> 1,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.25
<FN>
<F1>
EXCLUSIVE OF DEPRECIATION AND AMORTIZATION EXPENSE
<F2>
DEPRECIATION, AMORTIZATION, SELLING, GENERAL AND ADMIN EXPENSES
</FN>
</TABLE>
