UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______ to _______).
WASTE SYSTEMS INTERRNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(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 ___
The number of shares of the Registrant's common stock, par value $.01
per share, outstanding as of November 12, 1998 was 11,718,323.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997. 1
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997. 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997. 3-4
Notes to Consolidated Financial Statements. 5-10
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 11-24
PART II. Other Information
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults on Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<C> <C> <C>
September 30,
1998 December 31,
Assets (Unaudited) 1997
------------------- -------------------
Current assets:
Cash and cash equivalents 2,950,445 2,964,274
Accounts receivable, net 3,935,324 944,793
Prepaid expenses and other current assets 2,746,646 1,366,092
------------------- -------------------
Total current assets 9,632,415 5,275,159
Restricted cash and securities 39,412 254,000
Property and equipment, net (Notes 2 and 4) 41,597,650 12,487,183
Intangible assets, net (Notes 2 and 5) 36,057,438 96,832
Other assets 3,354,705 447,080
------------------- -------------------
Total assets 90,681,620 18,560,254
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 6) 970,667 843,831
Accounts payable 3,562,271 353,937
Accrued expenses 3,828,054 2,544,995
Deferred revenue 536,846 -
-----------------------------------------
Total current liabilities
8,897,838 3,742,763
Long-term debt and notes payable (Note 6) 74,839,966 7,201,262
Landfill closure and post-closure costs 2,725,315 1,644,000
------------------- -------------------
Total liabilities
86,463,119 12,588,025
------------------- -------------------
Commitments and Contingencies (Note 9)
Stockholders' equity (Notes 7and 8):
Common stock, $.01 par value. Authorized 30,000,000 shares; 11,718,323 and
3,893,415 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively 117,183 38,934
Preferred stock, $.001 par value. Authorized 1,000,000 shares:
Series A Convertible Preferred Stock; 200,000 shares designated, 0 and
92,580 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively - 9,257,807
Series B Convertible Preferred Stock; 100,000 shares designated, 0 and
40,488 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively - 4,048,750
Additional paid-in capital 37,819,329 21,432,437
Accumulated deficit (33,718,011) (28,805,699)
------------------- -------------------
Total stockholders' equity
4,218,501 5,972,229
------------------- -------------------
Total liabilities and stockholders' equity 90,681,620 18,560,254
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statement
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
Revenues 7,009,378 829,954 12,670,181 1,862,722
---------- -------- --------- ---------
Cost of operations:
Operating expenses 3,765,569 304,546 6,832,201 934,502
Depreciation and amortization 1,343,619 230,789 2,723,745 488,660
Acquisition integration costs (Note 3) 794,811 - 1,385,673 -
Write-off of project development costs - - 235,284 837,423
--------- --------- ----------- ---------
Total cost of operations 5,903,999 535,335 11,176,903 2,260,585
--------- -------- ----------- ---------
Gross profit (loss) 1,105,379 294,619 1,493,278 (397,863)
Selling, general and administrative expenses 1,158,924 539,189 2,939,750 1,577,513
--------- ------- --------- ---------
Loss from operations (53,545) (244,570) (1,446,472) (1,975,376)
--------- -------- --------- ---------
Other income (expense):
Royalty and other income (expense), net (37,120) (40,081) (52,570) (48,432)
Interest income 225,916 63,732 436,807 122,993
Interest expense and financing costs (1,252,343) (292,201) (2,724,581) (979,184)
----------- -------- ----------- --------
Total other income (expense) (1,063,547) (268,550) (2,340,344) (904,623)
----------- -------- ----------- -------
Loss before extraordinary item (1,117,092) (513,120) (3,786,816) (2,879,999)
Extraordinary item - Loss on extinguishment of debt (Note 6) (3,597) - (237,627) (133,907)
------------ --------- ---------- ---------
Net loss (1,120,689) (513,120) (4,024,443) (3,013,906)
Preferred stock dividends (Note 8) 410,837 - 887,869 -
----------- --------- ----------- -----------
Net loss available for common shareholders (1,531,526) (513,120) (4,912,312) (3,013,906)
=========== ======== ========== ==========
Basic net loss per share:
Loss from continuing operations (0.12) (0.12) (0.64) (0.70)
Extraordinary item (0.00) - (0.04) (0.03)
----- ------ ------ -----
Basic net loss per share (0.12) (0.12) (0.68) (0.73)
===== ===== ===== ====
Weighted average number of shares used in
computation of basic net loss per share 9,439,810 4,153,465 5,930,765 4,104,306
========= ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<C> <C> <C>
Nine months ended
---------------------------------------
September 30, September 30,
1998 1997
Cash flows from operating activities:
Net loss (4,024,443) (3,013,906)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 2,769,147 585,196
Extraordinary loss on extinguishment of debt 3,597 133,907
Write-off of project development costs 235,284 837,423
Issuance of common stock for services 12,500 44,854
Landfill closure and post-closure costs 1,081,315 83,000
Allowance for doubtful accounts 219,643 4,000
Changes in assets and liabilities:
Accounts and notes receivable (893,400) 267,930
Prepaid expenses and other current assets (1,160,050) (438,558)
Accounts payable 1,085,369 (1,195,425)
Accrued expenses 997,775 (1,642,473)
Unearned revenue 323,267 -
-------------------- ----------------
Net cash provided (used) by operating activities
650,004 (4,334,052)
-------------------- ----------------
Cash flows from investing activities:
Net assets acquired through acquisitions (55,789,458) -
Restricted cash and securities 214,588 (73,014)
Landfills (2,612,573) (31,842)
Landfill development projects (85,453) (70,718)
Land, buildings, facilities and improvements (447,248) -
Machinery and equipment (508,477) (143,094)
Rolling stock (980,527) (260,457)
Containers (329,054) -
Furniture and fixtures (292,950) -
Intangible assets (150,000) (8,325)
Other assets (1,200,128) (194,683)
-------------------- ----------------
Net cash used by investing activities (62,181,280) (782,133)
-------------------- ----------------
Cash flows from financing activities:
Deferred financing and registration costs (1,800,346) (56,098)
Repayments of notes payable and long-term debt (14,784,601) (2,135,403)
Borrowings from notes payable and long-term debt 78,949,857 1,635,806
Proceeds from issuance of common stock 40,406 399,000
Proceeds from issuance of Series A preferred stock - 7,675,350
Dividends paid (887,869) -
-------------------- ----------------
Net cash provided by financing activities 61,517,447 7,518,655
-------------------- ----------------
Increase in cash and cash equivalents (13,829) 2,402,470
Cash and cash equivalents, beginning of period 2,964,274 264,776
-------------------- ----------------
Cash and cash equivalents, end of period 2,950,445 2,667,246
==================== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Supplemental disclosures of cash flow information:
For the nine months ended September 30, 1998 and 1997, cash paid for
interest was $1,539,738 and $717,838, respectively.
Supplemental disclosures of noncash activities:
During the nine months ended September 30, 1998 and 1997, the Company
acquired assets of $2,113,591 and $449,330, respectively, under capital
lease obligations.
During the nine months ended September 30, 1998, the Company converted
92,580 shares or $9,257,807 of its
Series A Preferred Stock into 6,590,577 shares of its Common Stock.
On May 14, 1998, the Company converted 40,488 shares or $4,048,750 of
its Series B Preferred Stock into 647,808 shares of its Common Stock.
On May 22, 1998, the Company issued 111,110 shares of its Common Stock in
connection with the acquisition of Eagle Recycling, Inc. and Horvath
Sanitation, Inc.
On September 22, 1998, the Company issued 455,922 shares of its Common
Stock in connection with the acquisition of Mattei-Flynn Trucking, Inc.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Waste
Systems International, Inc. and its subsidiaries ("WSI" or the "Company")
include the accounts of the Company after elimination of all significant
intercompany accounts and transactions. These consolidated financial statements
have been prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) considered
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 1998 and for all periods presented have been made.
The results of operations for the period ended September 30, 1998 are not
necessarily indicative of the operating results for the full year. Certain
information and footnote disclosure normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements presented herein be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, as amended, for the year ended December 31, 1997.
The Independent Auditors' Report of KPMG Peat Marwick LLP for the
fiscal year ended December 31, 1997, stated that "the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern." On May 13, 1998, the Company closed an
offering of $60.0 million in Convertible Subordinated Notes (the "Notes"), which
resulted in net proceeds to the Company of approximately $58.3 million. Also,
the Company generated cash from operating activities of approximately $650,000
for the nine months ended September 30, 1998 compared to a use of $4.3 million
for the same period of 1997. Additionally, the Company's EBITDA for both the
three and nine months ended September 30, 1998, was $1.3 and the Company's
Adjusted EBITDA for the three and nine months ended September 30, 1998 was $2.1
million and $2.9 million, respectively. The Company used the majority of the
proceeds from the Notes to repay approximately $11.7 million of existing debt
and complete several acquisitions. The Company also expects in the near future,
to dramatically expand the limits of its credit facility with a new group of
lenders, led by a well recognized financial institution and that its existing
credit facility with the Howard Bank will get i. The Company believes that a
combination of internally generated funds and the proceeds from the anticipated
financing will provide adequate funds to support the Company's cost structure,
acquisition strategy and working capital requirements for the foreseeable
future. The Company does not believe that the going concern uncertainty has
materially affected its ability to finance and conduct its business operations.
Note 2. Summary of Significant Accounting Policies
For a complete description of the Company's accounting policies in
addition to the policies listed below, see Note 2 to Consolidated Financial
Statements in the Company's 1997 Annual Report on Form 10-K, as amended.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Property and Equipment: Property and equipment are stated at cost. The
costs of all repairs and maintenance are charged to operations as incurred.
Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets as follows:
Buildings, facilities and improvements 10-30 years
Machinery and equipment 3-10 years
Rolling stock 3-10 years
Containers 5-10 years
Furniture and fixtures 5-10 years
<PAGE>
Rolling stock are vehicles used in the collection of solid waste from
customers of the Company, and includes both front and rear loading packer
trucks, long-haul trailers, trucks capable of picking up and dropping off
commercial waste containers, waste recycling vehicles and also general purpose
vehicles.
Capitalization of landfill development costs begins upon determination
by the Company of the economic feasibility or extended useful life of each
landfill acquired as a result of comprehensive engineering and profitability
studies, and with the signing of landfill management contracts for facilities
operated by the Company that are not owned. Capital costs include acquisition,
engineering, legal, and other direct costs associated with the permitting and
development of new landfills, expansions at existing landfills, and cell
development. These costs are capitalized and not amortized until all permits are
obtained and operations have commenced.
Interest is capitalized on landfill development costs related to
permitting, site preparation, and facility construction during the period that
these assets are undergoing activities necessary for their intended use.
Capitalized interest costs for the three and nine months ended September 30,
1998 and 1997 were approximately $93,000 and $9,500 and $93,000 and $186,000,
respectively.
Landfill development costs are amortized using the unit-of-production
method, which is calculated using the total units of airspace filled during the
year in relation to total estimated permitted airspace capacity. The
determination of airspace usage and remaining airspace capacity is an essential
component in the amortization calculation. The determination is performed by
conducting quarterly topography surveys of the Company's landfill facilities to
determine remaining airspace capacity in each landfill. The surveys are reviewed
by the Company's consulting engineers, the Company's internal operating and
engineering staff, and its financial and accounting staff. Current remaining
airspace capacity is compared with the prior periods remaining airspace capacity
to determine the amount of airspace used during the current period. The result
is compared against the airspace consumption figures used during the current
period for accounting purposes to ensure proper recording of the amortization
provision. The reevaluation process did not materially impact results of
operations for any periods presented.
The Company performs assessments for each landfill of the
recoverability of capitalized costs which requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future revenues, estimated economic life and changes in
environmental regulation. It is the Company's policy to periodically review and
evaluate that the benefits associated with these costs are expected to be
realized and therefore capitalization and amortization is justified. Capitalized
costs related to landfill development for which the Company determines have no
future economic benefit are expensed in the period in which such determination
is made.
Intangible Assets: The Company records the excess of the purchase price
over the fair market value of the net identifiable assets of an acquired company
as goodwill. Goodwill is amortized on a straight-line basis over forty years.
Other intangible assets include customer lists and covenants not to compete
which are amortized on a straight-line basis over a period not to exceed ten
years and over the term of the agreement, respectively. The Company evaluates
the periods of amortization continually to determine whether subsequent events
and circumstances warrant revised estimates of useful lives. If estimates are
changed, the unamortized cost shall be allocated to the remaining period in the
revised useful life.
Landfill Closure and Post-Closure Costs: The Company has a material
financial obligation relating to future landfill closure and post-closure
activities for landfills it owns or operates. Accordingly, the Company estimates
and accrues closure and post-closure costs on a unit-of-production basis over
each landfill's estimated remaining permitted airspace capacity. The accrual is
based on final capping of the site, site inspection, leachate management,
methane gas control and recovery, groundwater monitoring, and operation and
maintenance costs to be incurred during the period after the facility closes.
The Company has accrued approximately $2.7 million and $1.6 million for closure
and post-closure costs at September 30, 1998 and December 31, 1997,
respectively. The engineering and accounting staff of the Company periodically
review its future obligation for closure and post-closure costs. If estimates of
the permitted air space capacity or the estimated costs of closure and
post-closure have changed, the Company revises the rates at which it accrues the
future costs.
<PAGE>
The Company records reserves for landfill closure and post-closure
costs, as necessary, as a component of the purchase price of facilities
acquired, in acquisitions accounted for under the purchase method, when the
acquisition is consummated.
Revenue Recognition: The Company's revenues are derived primarily
from its collection, recycling, transfer and disposal services. The Company
records revenues when the services are performed.
Cost of Operations: Cost of operations includes accruals for future
landfill closure and post-closure costs, direct labor and related taxes and
benefits, fuel, repairs and maintenance of vehicles and equipment, insurance,
depreciation and amortization of equipment and landfill development costs, and
other routine maintenance and operating costs directly related to landfill and
collection operations. Also included in cost of operations are payments made to
the towns in which each landfill is located in the form of "Host Town Fees",
which are negotiated on a rate per ton basis as part of the contract with the
Town. In Towns where landfills are operated under management contracts, the Town
is responsible for the closure and post-closure costs related to the landfill.
Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Loss per
share amounts for all periods have been presented and where appropriate,
restated to conform to the SFAS 128 requirements. Dilutive earnings per share
has not been presented, as the computation would be anti-dilutive. Weighted
average number of common and common equivalent shares outstanding and loss per
common and common equivalent shares for the three and nine months ended
September 30, 1997 have been restated to give effect to a one-for-five reverse
stock split effective Februray 13, 1998. See Note 7.
Reclassifications: Certain amounts in prior year financial statements
have been reclassified to conform to their 1998 presentation.
Note 3. Acquisitions
During the nine months ended September 30, 1998, WSI acquired eleven
collection companies and a transfer station in Vermont, five collection
companies and two landfills in Pennsylvania, one collection company and a
transfer station in Massachusetts, and nine collection companies and a transfer
station in New York. The aggregate cost of the acquisitions was approximately
$59.2 million consisting of $53.3 million in cash, $3.4 million in stock and
$2.5 million in assumed liabilities. See the chart in Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Introduction. The acquisitions have combined annual revenues of approximately
$33.0 million. The acquisitions have been accounted for using the purchase
method of accounting. The excess of the purchase price over the fair value of
the net identifiable assets acquired of approximately $28.2 million has been
recorded as goodwill and is being amortized on a straight-line basis over forty
years. See Note 5.
Acquisition integration costs consists of one-time, non-recurring
costs, which in the opinion of management have no future value and are therefore
expensed. Such costs include severance, and other termination and retention
costs, as well as specific costs related to integrating the acquired companies
(i.e. truck painting, sign changes, lease terminations, etc.) into the Company's
operations. For the three and nine months ended September 30, 1998, the Company
recorded charges of approximately $795,000 and $1,386,000 respectively, related
to acquisition integration costs.
<PAGE>
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the aggregate of the acquired
entities for the nine months ended September 30, 1998 and 1997 as if the
acquisitions had occurred as of January 1, 1997, respectively, after
giving effect to certain adjustments, including amortization of intangibles and
additional depreciation of property and equipment. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and the aggregate of the acquired entities
constituted a single entity during such period.
September 30,1998 September 30, 1997
(unaudited) (unaudited)
Net revenues $26,400,000 $22,263,000
=========== ===========
Net loss $ (351,000) $ (515,000)
============= ============
Basic loss per share $ (0.06 $ (0.13)
============= ============
Note 4. Property and Equipment
Property and equipment are stated at cost and consist of the following:
September 30, December 31,
1998 1997
Landfills $ 23,673,197 $ 8,412,010
Landfill development projects 776,678 691,225
Land, buildings, facilities
and improvements 4,285,012 1,624,764
Machinery and equipment 3,357,962 1,513,720
Rolling stock 8,334,063 662,595
Containers 3,546,638 401,941
Furniture and fixtures 596,667 199,217
------------- -------------------
44,570,217 13,505,472
Less: accumulated depreciation and
amortization (2,972,567) (1,018,289)
--------------- -------------------
Property and equipment, net $ 41,597,650 $ 12,487,183
============== ===================
Note 5. Intangible assets
Intangible assets consist of the following:
September 30, December 31,
1998 1997
Goodwill $ 28,197,510 $ 94,873
Non-compete agreements 4,198,685 -
Customer lists 3,713,029 -
Other 701,024 3,354
--------------- -------------------
36,810,248 98,227
Less: accumulated amortization (752,810) (1,395)
--------------- -------------------
Intangible assets, net $ 36,057,438 $ 96,832
=============== ===================
<PAGE>
Note 6. Long-term debt and notes payable
Long-term debt and notes payable consists of:
September 30, December 31,
1998 1997
7% Convertible Subordinated Notes $ 60,000,000 $ -
Howard Bank Credit Facility 10,000,000 748,000
Capital leases and equipment
notes payable 3,188,694 2,626,700
10% Subordinated Notes 1,850,000 4,425,000
Other notes payable 771,939 245,393
--------------- -------------------
75,810,633 8,045,093
Less: current portion 970,667 843,831
--------------- -------------------
Long-term portion $ 74,839,966 $ 7,201,262
=============== ===================
On May 13, 1998, the Company closed an offering of $60.0 million in 7%
Convertible Subordinated Notes (the "Notes" or "7% Subordinated Notes"), which
resulted in net proceeds to the Company of approximately $58.3 million. The
Notes mature in May 2005, and bear interest at 7.0% per annum, payable
semi-annually in arrears on each June 30 and December 31. The Notes and any
accrued but unpaid interest are convertible into Common Stock at a conversion
price of $10.00 per share. The shares are convertible at the option of the
holder at any time and can be mandatorily converted by the Company after 2 years
if the Company's Common Stock closing price equals or exceeds the conversion
price of $10.00 per share for a period of 20 consecutive trading days. The
Company used the majority of the proceeds from the Notes to repay existing debt
of approximately $11.7 million and complete several acquisitions. As a result of
the debt payoffs, the Company recorded an extraordinary loss on extinguishment
of debt of approximately $4,000 and $238,000 for the three and nine months ended
September 30, 1998, respectively.
At September 30, 1998, the Company has a credit facility with The
Howard Bank of Vermont. The credit facility allows the Company to borrow up to
$10 million. At September 30, 1998, the Company had $10 million of borrowings
under the credit facility.
The Company also expects in the near future, to dramatically expand the
limits of its credit facility with a new group of lenders led by a well
recognized financial institution. The Company plans to use a portion of the
proceeds to repay the existing Howard Bank facility and approximately $5 million
of other long-term debt.
Note 7. Common Stock
On February 13, 1998, the shareholders of the Company approved a one
for five reverse stock split of the Company's Common Stock at a special
shareholders' meeting. No fractional shares were issued in connection with the
reverse stock split, and shareholders received cash in payment for any
fractional shares otherwise issuable. The weighted average shares outstanding as
of September 30, 1997 have been restated to reflect the one for five reverse
stock split.
On May 21, 1998, the Company issued 111,110 shares of its Common
Stock in connection with the acquisition of Eagle Recycling, Inc. and
Horvath Sanitation, Inc.
On September 22 , 1998, the Company issued 455,922 shares of its Common
Stock in connection with the acquisition of Mattei-Flynn Trucking, Inc.
Note 8. Preferred Stock
On May 14, 1998, the Company met the mandatory conversion trading
requirements and elected to convert all of the shares of the Series B Preferred
Stock into 647,808 shares of Common Stock and the Board of Directors declared
and paid cash dividends of approximately $101,000.
<PAGE>
On July 27, 1998, the Company met the mandatory conversion trading
requirements and elected to convert all of the remaining shares of Series A
Preferred Stock into 6,321,066 shares of the Company's Common Stock and the
Board of Directors declared and paid cash dividends of approximately $787,000.
Note 9. Commitments and Contingencies
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company periodically
may become subject to various judicial and administrative proceedings involving
federal, state, or local agencies. In these proceedings, the 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 also may be subjected to
actions brought by citizens' groups in connection with the permitting of its
landfills or transfer stations, or alleging violations of the permits pursuant
to which the Company operates. Certain federal and state environmental laws
impose strict liability on the Company for such matters as contamination of
water supplies or the improper disposal of waste. The Company's operation of
landfills subjects it to certain operational, monitoring, site maintenance,
closure and post-closure obligations which could give rise to increased costs
for monitoring and corrective measures.
The Company has a $5.0 million environmental impairment liability
insurance policy at each of its operating landfills which covers claims for
sudden or gradual onset of environmental damage. If the Company were to incur
liability for environmental damage in excess of its insurance limits, its
financial condition could be adversely affected. The Company carries a
comprehensive general liability insurance policy which management considers
adequate at this time to protect its assets and operations from other risks.
None of the Company's landfills are currently connected with the
Superfund National Priorities List or potentially responsible party issues.
The Company is party to pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company's management, after consultation with outside legal counsel, is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, with respect to, among other things, the
Company's future revenues, operating income, or earnings per share. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar expression. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference are discussed
herein. See "Certain Factors Affecting Future Operating Results".
Introduction
Waste Systems International, Inc. (the "Company" or "WSI") is a
regional integrated non-hazardous solid waste management company that provides
solid waste collection, recycling, transfer and disposal services to commercial,
industrial, residential and municipal customers.
WSI's objective is to expand the current geographic scope of its
operations primarily within the Northeast and Mid-Atlantic regions of the United
States and to become one of the leading providers of non-hazardous solid waste
management services in each market that it serves. The Company's primary growth
strategy is to acquire landfills in or near urban metropolitan areas, and to
secure dedicated waste streams for such landfills by acquisition or development
of collection operations and transfer stations. The internalization of waste
streams is a major component of the Company's strategy. The Company believes
that significant opportunities exist to expand its operations in each of its
current and targeted markets. In connection with its growth strategy, the
Company currently is and at any given time will be involved in potential
acquisitions that are in various stages of negotiation and consummation (ranging
from initial discussions to the execution of definitive agreements), some of
which may be material.
The following table sets forth the acquisitions completed by the
Company through October 1, 1998:
<TABLE>
<C> <C> <C> <C> <C>
Acquisition Month Acquired Principal Business Location Market Area
Emmons Trash Removal October 1998 Solid waste collection Sherill, NY Upstate New York
Shepard Disposal Service October 1998 Solid waste collection Oneida, NY Upstate New York
Larry Baker Disposal, Inc. September 1998 Solid waste collection Oneida, NY Upstate New York
Besig & Sons September 1998 Solid waste collection Westmoreland, NY
Upstate New York
Bliss Rubbish Solid waste collection /
Removal, Inc. September 1998 Transfer Station Camden, NY Upstate New York
Costello's Trash Removal September 1998 Solid waste collection Cazenovia, NY Upstate New York
Mary Lou Mauzy September 1998 Solid waste collection Cazenovia, NY Upstate New York
Phillip Trucking September 1998 Solid waste collection Wampsville, NY Upstate New York
Wayne Wehrle September 1998 Solid waste collection Clinton, NY Upstate New York
Grady Majors Rubbish
Removal September 1998 Solid waste collection St. Albans, VT N.W. Vermont
Worthy's Refuse Service August 1998 Solid waste collection McVey Town, PA Central Pennsylvania
<PAGE>
Mattei-Flynn Trucking, Inc. August 1998 Solid waste collection Auburn, MA Central Massachusetts
Mostoller Landfill, Inc. August 1998 Landfill Somerset, PA Central Pennsylvania
Sandy Run Landfill July 1998 Landfill Hopewell, PA Central Pennsylvania
Mass Wood Recycling, Inc. July 1998 Transfer Station Oxford, MA Central Massachusetts
Surprenant Rubbish, Inc. June1998 Solid waste collection Newport, VT N.E. Vermont
Austin Rubbish Removal June 1998 Solid waste collection Newport, VT N.E. Vermont
Vincent Moss June 1998 Solid waste collection Newport, VT N.E. Vermont
Cota Sanitation June 1998 Solid waste collection Newport, VT N.E. Vermont
Horvath Sanitation, Inc,/
Eagle Recycling, Inc. May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Pleasant Valley Hauling May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Patterson's Hauling May 1998 Solid waste collection Altoona, PA Central Pennsylvania
Fortin's Trucking of
Williston May 1998 Solid waste collection Williston, VT N.W. Vermont
McCardle Refuse Company May 1998 Solid waste collection Burnham, PA Central Pennsylvania
John Leo & Sons, LTD. March 1998 Solid waste collection Essex, VT N.W. Vermont
Rapid Rubbish Solid waste collection/
Removal, Inc. February 1998 Transfer Station St. Johnsbury, VT N. E. Vermont
Greenia Trucking February 1998 Solid waste collection St. Albans, VT N.W. Vermont
Doyle Rubbbish
Removal January 1998 Solid waste collection Barre, VT Central Vermont
Perkins Rubbish
Removal January 1998 Solid waste collection St. Johnsbury, VT N. E. Vermont
CSWD Transfer Station October 1997 Transfer Station Burlington, VT N.W. Vermont
The Hartigan Company January 1997 Solid waste collection Stowe, VT Central Vermont
Waitsfield Transfer Station October 1995 Transfer station Waitsfield, VT Central Vermont
Moretown Landfill July 1995 Landfill Moretown, VT Central Vermont
</TABLE>
<PAGE>
The Company currently has operations in Vermont, Central Pennsylvania,
Central/Western Massachusetts and Upstate New York. The Company established its
first integrated solid waste management operations in the geographical area
surrounding its landfill in Moretown, Vermont. In addition to the landfill in
Moretown, Vermont, the Company currently owns and/or operates three transfer
stations and collection operations serving over 8,600 commercial, industrial,
residential and municipal customers in the Burlington, St. Albans, St.
Johnsbury, Barre-Montpelier, and Newport, Vermont areas. During the first nine
months of 1998, the Company completed eleven acquisitions of collection
companies and a transfer station in Vermont. The first cell ("Cell 1") at the
Company's landfill is currently operating at approximately 450 tons per day
("TPD") with remaining estimated permitted capacity at September 30, 1998 of
approximately 130,000 cubic yards. The Company received all of the permits
required for development and operation of Cell 2 and began construction on Cell
2 in July 1998. Cell 2 will increase the permitted landfill capacity by an
estimated additional 1.4 million cubic yards. The Company expects that Cell 2
will be ready to accept solid waste by the end of 1998.
In May 1998, the Company commenced operations in Central Pennsylvania,
through the acquisition of Horvath Sanitation, Inc. and Eagle Recycling, Inc.
("Eagle"), which are based in Altoona, Pennsylvania. In May and August 1998, the
Company completed four tuck-in acquisitions, Pleasant Valley Hauling, Patterson
Hauling, McCardle Refuse Company and Wothy's Refuse Services and has integrated
these acquisitions with Eagle's operations. The Central Pennsylvania operations
service approximately 35,000 commercial, industrial,, residential and municipal
customers. In July 1998, the Company acquired the Sandy Run Landfill, a
700-acre, 3 million cubic yard permitted solid waste landfill in Hopewell, PA
and began the process of integrating Eagle's operations with the Sandy Run
Landfill. The Sandy Run landfill is currently operating at approximately 300
tons per day, with remaining estimated permitted capacity at September 30, 1998
of approximately 2.9 million cubic yards In August 1998, the Company acquired
the Mostoller landfill in Somerset County, PA. The Mostoller Landfill is
permitted to operate at an average of 2,000 tons of waste per day, including
municipal solid waste, construction and demolition waste, sludge and residual
wastes. The landfill consists of 7 cells having in excess of 14 million cubic
yards of permitted capacity with expected additional room for expansion on the
513 acre permitted "greenfields" site. The Mostoller landfill is currently under
construction with operations expected to commence during the first half of 1999.
WSI and the Town of South Hadley, Massachusetts have entered into a
contract whereby the Company will operate the Town's 30-acre municipal solid
waste landfill. The Town of South Hadley will retain full ownership of the
landfill while the Company operates the facility. In March 1997, the Company
received a landfill disruption permit from the Massachusetts Department of
Environmental Protection ("MDEP"), which enabled WSI to begin engineering work
and feasibility studies at the South Hadley landfill. On May 1, 1998 the
Company's environmental impact report was accepted by the MDEP. The Company
anticipates receiving all of its operating and construction permits during the
fourth quarter of 1998, which would allow WSI to begin accepting solid waste at
the first 6-acre lined cell during the first half of 1999. The South Hadley
landfill project is currently expected to have approximately 2.0 million cubic
yards of new capacity for future disposal. In July 1998, the Company acquired
Mass Wood Recycling, Inc. in Oxford, MA. This is a permitted transfer station,
which is currently under construction with operations expected to commence
during the first half of 1999. In August 1998, the Company acquired Mattei-Flynn
Trucking, Inc. in Auburn, MA. This waste collection operation has an established
customer base of approximately 3,500 commercial, industrial, residential and
municipal customers. The Company intends to integrate this operation with the
Oxford Transfer Station and to eventually internalize the waste at the South
Hadley landfill.
On September 1 and October 1, 1998, the Company entered the Upstate New
York market with the acquisition of nine collection operations and a transfer
station. The Company is currently looking at a number of opportunities to
acquire a landfill in Upstate New York to internalize the waste collected from
its existing Upstate New York operations and as it continues to expand
throughout Upstate New York.
<PAGE>
Results of Operations
During the nine months ended September 30, 1998, the Company acquired
two landfills, twenty four solid waste collection companies and three transfer
stations. Because of the relative significance of the acquired business'
operations to the Company's financial performance, the Company does not believe
that its historical financial statements are necessarily indicative of future
performance and as a result will affect the comparability of the financial
information included herein.
Revenues:
Revenues represent fees charged to customers for solid waste
collection, transfer, recycling and disposal services provided. Revenues for the
periods presented in the consolidated statements of operations were derived from
the following sources:
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
--------- ------- -------- ------
Collection 47.6 % 15.2% 39.1% 14.4%
Landfill 35.5 84.8 39.4 85.6
Transfer 16.9 - 21.5 -
------- -------- ------ -------
Total Revenue 100.0% 100.0% 100.0% 100.0%
========= ======= ====== ======
The increase in the Company's collection revenues as a percentage of
revenues in the three and nine months ended September 30, 1998 compared to the
same periods in 1997 is due primarily to the impact of the collection companies
acquired during the respective periods. During the three and nine months ended
September 30, 1998, the Company acquired 10 and 24 collection companies
respectively. The decrease in landfill and transfer station revenue as a
percentage of revenues in the three and nine months ended September 30, 1998
compared to the same periods in 1997 is due primarily to the acquisition of
collection companies that had been disposing of their waste at the Company's
transfer stations and landfills. These acquired revenues are now being recorded
as collection revenue.
Revenues increased $6,179,000, or 745%, and $10,807,000, or 580%, for
the three and nine month periods ended September 30, 1998, respectively,
compared with the same periods in 1997. The increases for each period were
primarily due to the impact of operations acquired since January 1, 1998. See
Note 3 to the Consolidated Financial Statements. During the three and nine
months of 1998, over 90% of the waste collected by the Company's Vermont
collection operation was disposed at the Company's landfill. The Company
continues to improve its internalization rate in Pennsylvania, moving from
approximately 50% internalization in July of 1998 when the Sandy Run Landfill
was acquired to approximately 60% internalization in September 1998.
Operating Expenses:
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, expressed as a
percentage of revenues:
<TABLE>
<C> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- --------- -------
Revenues 100.0 % 100.0 % 100.0% 100.0%
---------- ---------- ---------- ---------
Operating expenses 53.7 36.7 53.9 50.2
Depreciation and amortization 19.2 27.8 21.5 26.2
Acquisition integration costs 11.3 - 10.9 -
Write-off of project
development costs - - 1.9 45.0
---------- ---------- ---------- -------
Total cost of operations 84.2 64.5 88.2 121.4
---------- ---------- ---------- -------
Gross profit (loss) 15.8 35.5 11.8 (21.4)
Selling, general and
administrative expenses 16.5 65.0 23.2 84.7
---------- ---------- ---------- -------
Loss from operations (0.7) (29.5) (11.4) (106.1)
Royalty and other
income (expense), net (0.5) (4.8) (0.4) (2.6)
Interest income 3.2 7.7 3.4 6.6
Interest expense and
financing costs (17.9) (35.2) (21.5) (52.6)
---------- ---------- ---------- --------
Loss before
Extraordinary item (15.9) (61.8) (29.9) (154.7)
Extraordinary item (0.1) - (1.9) (7.2)
---------- ---------- --------- --------
Net loss (16.0)% (61.8)% (31.8)% (161.9)%
========== ======= ========== =========
</TABLE>
<PAGE>
Operating expenses increased $3,461,000, or 1,137%, and $5,898,000 or
631%, for the three and nine month periods ended September 30, 1998,
respectively, compared with the same periods in 1997. As a percentage of
revenues, operating expenses increased from 36.7% in the third quarter of 1997
to 53.7% in the third quarter of 1998, and from 50.2% in the nine months ended
September 30, 1997, to 53.9% in the same period in 1998. Operating expenses
increased in both comparative periods primarily due to the acquisition of Eagle
in Central Pennsylvania as well as various other acquisitions in Central
Pennsylvania, Vermont and Upstate New York. Additionally, the increase in
operating expenses as a percentage of revenues resulted from a change in the
revenue mix as the Company has acquired twenty-four collection operations in
1998. In 1997, approximately 85% of revenues resulted from landfill operations,
which carry higher margins compared to 1998 when revenue from landfill
operations accounted for approximately 36% and 39% for the three and nine months
periods ended September 30, 1998, respectively.
Depreciation and amortization expense includes depreciation of property
and equipment over their useful lives using the straight-line method,
amortization of goodwill and other intangible assets over their useful lives
using the straight-line method, and amortization of landfill airspace assets
using the units-of-production method. Depreciation and amortization expense
increased $1,113,000 or 482%, and $2,235,000, or 457%, for the three and nine
month periods ended September 30, 1998, respectively, compared to the same
periods in 1997. The increases in both comparable periods are the result of
increased depreciation costs of the additional assets acquired through
acquisition and increased amortization due to substantial increases in
intangible assets related to acquisitions. Additionally, amortization of
landfill development costs increased as a result of the increase in the amount
of waste accepted at the Company's Vermont landfill and the addition of the
Sandy Run Landfill. As a percentage of revenues, depreciation and amortization
expense decreased from 27.8% in the third quarter of 1997 to 19.2% in the third
quarter of 1998, and from 26.2% in the nine months ended September 30, 1997, to
21.5% in the same period in 1998. The decrease in depreciation and amortization
expense as a percentage of revenues is primarily attributable to higher 1998
revenues in both comparable periods.
Acquisition integration costs include severance, and other termination
and retention costs as well as costs related to integrating the acquired
companies (i.e. truck painting, sign changes, lease terminations, etc.) into the
Company's operations. For the three and nine months ended September 30, 1998,
the Company incurred acquisition integration costs of $795,000 and $1,386,000
respectively. There were no acquisition integration costs for the comparable
periods in 1997.
Gross profit increased $811,000 or 275% and $1,891,000 or 475%, for the
three and nine month period ended September 30, 1998, respectively compared with
the same periods in 1997. Excluding acquisition integration costs of $795,000
and $1,386,000 for the three and nine month period ended September 30, 1998,
gross profit for the three and nine months ended September 30, 1998 increased
$1,606,000 or 300% and $3,277,000 or 825%, respectively compared with the same
periods in 1997.
<PAGE>
Selling, general and administrative expenses consist of corporate
development activities, marketing and public relations costs, administrative
compensation and benefits, legal and accounting and other professional fees as
well as other administrative costs and overhead. Selling, general and
administrative costs increased $620,000, or 115%, and $1,362,000, or 86%, for
the three and nine month periods ended September 30, 1998, respectively,
compared to the same periods in 1997. The increase was due primarily to the
building of an infrastructure necessary to support increases in acquisition,
operating and administrative activities. As a percent of revenues, selling,
general and administrative expenses decreased from 65.0% in the third quarter of
1997 to 16.5% in the third quarter of 1998, and from 84.7% in the nine months
ended September 30, 1997, to 23.2% in the same period of 1998. The decrease was
due largely to an expanding revenue base that leveraged selling, general and
administrative expenses. The Company anticipates that in future periods its
selling, general and administrative expenses should continue to decrease as a
percentage of revenue as it leverages its current corporate overhead to revenue
growth primarily through acquisitions.
Interest income increased $162,000, or 254%, and $314,000, or 255%, for
the three and nine month period ended September 30, 1998, respectively compared
to the same periods in 1997. The increase was the result of higher average cash
and investment balances due to the proceeds from the 7% Subordinated Notes that
closed on May 13, 1998. See Note 6 to the Consolidated Financial Statements.
Interest expense and financing costs, net of capitalized interest
costs, increased $960,000, or 329%, and $1,745,000, or 178%, for the three and
nine month period ended September 30, 1998, respectively. The increase resulted
primarily from increased indebtedness incurred in connection with the 7%
Convertible Subordinated Notes, the bridge loan, equipment loans and the Howard
Bank facility. See Note 6 to the Consolidated Financial Statements.
The net loss for the three and nine months ended September 30, 1998 and
1997, included non-recurring charges, in addition to acquisition integration
costs, of $0 and $235,000, respectively, to settle obligations relating to the
closure of the Fairhaven landfill and $4,000 and $238,000 for the three and nine
months ended September 30, 1998, respectively, for the extraordinary loss on
extinguishment of debt.
EBITDA:
EBITDA is defined as operating income from continuing operations plus
depreciation and amortization, which includes depreciation and amortization
included in selling, general and administrative expenses. EBITDA does not
represent, and should not be considered as an alternative to net income or cash
flow from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not necessarily
indicate whether cash flow will be sufficient for such items as working capital,
capital expenditures, or to react to changes in the Company's industry or to the
economy in general. The Company believes that EBITDA is a measure commonly used
by lenders and certain investors to evaluate a company's performance in the
solid waste industry. The Company also believes that EBITDA data may help to
understand the Company's performance because such data may reflect the company's
ability to generate cash flows, which is an indicator of its ability to satisfy
its debt service, capital expenditures and working capital requirements.
However, functional or legal requirements may require the conservation of funds
for uses other than those previously described. Because EBITDA is not calculated
by all companies and analysts in the same fashion, investors should consider,
among other factors: the non-GAAP nature of EBITDA; actual cash flows; the
actual availability of funds for debt service, capital expenditures and working
capital; and the comparability of the Company's EBITDA data to similarly-titled
measures reported by other companies. Adjusted EBITDA consists of EBITDA, as
defined above, excluding non-recurring charges.
<PAGE>
The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statement of Operations, to determine
EBITDA and Adjusted EBITDA:
<TABLE>
Three months ended Nine months ended
September 30, September 30,
<C> <C> <C> <C> <C>
1998 1997 1998 1997
-------------- ------------- ------------- ---------
Loss from operations ($ 53,545) ($ 244,570) ($ 1,446,472) ($ 1,975,376)
Depreciation and amortization 1,362,864 209,306 2,769,147 585,196
EBITDA 1,309,319 (35,264) 1,322,675 (1,390,180)
Write-off of project
development costs - - 235,284 837,423
Acquisition integration costs 794,811 - 1,385,673 -
-------------- ------------- ------------- ------------
Adjusted EBITDA $ 2,104,130 ($35,264) $ 2,943,632 ($552,757)
============== ============= ============= =============
EBITDA as a % of revenue 18.7% (4.2%) 10.4% (74.6%)
============== ============= ============= =============
Adjusted EBITDA
as a % of revenue 30.0% (4.2%) 23.2% (29.7%)
============== ============= ============= =============
</TABLE>
Financial Position
WSI had approximately $3.0 million in cash as of September 30, 1998.
This represented a decrease of approximately $14,000 from December 31, 1997. The
Company had working capital of approximately $734,000 as of September 30, 1998,
a decrease of approximately $798,000 from December 31, 1997. This decrease was
primarily due to the costs associated with the acquisitions completed during the
first nine months of 1998, the increased level of operations and the payoff of
debt offset by proceeds from the 7% Convertible Subordinated Notes and The
Howard Bank credit facility.
The aggregate cost of the acquisitions in Vermont, Central
Pennsylvania, Central/Western Massachusetts and Upstate New York were
approximately $59.2 million consisting of $53.3 million in cash, $3.4 million in
stock and $2.5 million in assumed liabilities. The acquisitions have combined
annual revenues of approximately $33 million.
At September 30, 1998, the Company had approximately $3.9 million in
trade accounts receivables. The Company has estimated an allowance for doubtful
accounts of approximately $271,000, which is considered sufficient to cover
future bad debts.
During the nine months ended September 30, 1998, the Company devoted
substantial resources to various corporate development activities. Additions to
property and equipment during the nine months ended September 30, 1998 were
approximately $31.1 million, which included assets purchased through acquisition
of approximately $23.8 million.
<PAGE>
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's capital
requirements, which are substantial, include acquisitions, property and
equipment purchases and capital expenditures for landfill cell construction,
landfill development and landfill closure activities. Principally due to these
factors, the Company may incur working capital deficits. The Company plans to
meet its capital needs through various financing sources, including internally
generated funds, equity securities and debt. On May 13, 1998, the Company closed
on an offering of $60.0 million Convertible Subordinated Notes which resulted in
net proceeds to the Company of approximately $58.3 million (See Note 6 to the
Consolidated Financial Statements). The Company expects in the near future, to
dramatically expand the limits of its credit facility with a new group of
lenders led by a well recognized financial institution. WSI intends to
aggressively pursue and develop an integrated solid waste management company,
primarily through acquisitions. There can be no assurance that additional debt
or equity financing will be available, or available on terms acceptable to the
Company. Any failure of the Company to obtain required financing would have a
material adverse effect on the Company's financial condition and operation.
The Company maintains an acquisitions department that is responsible
for the identification, due diligence, negotiation and closure of acquisitions.
As the Company expands into additional geographic regions, the number of
acquisitions completed by the Company is also expected to dramatically increase.
The Company believes that a combination of internally generated funds,
additional debt and equity financing, the proceeds from the Notes and an
anticipated expanded bank facility will provide adequate funds to support the
Company's cost structure, acquisition strategy and working capital requirements
for the foreseeable future.
In connection with its growth strategy, the Company currently is and at
any given time will be involved in potential acquisitions that are in various
stages of negotiation and consummation (ranging from initial discussions to the
execution of definitive agreements), some of which may be material. If the
Company is successful in executing its acquisition strategy, the Company may
incur substantial costs in the form of cash or issuance of stock. However, there
can be no assurance that the Company will be successful in executing its
acquisition strategy.
Through October 1, 1998 the Company acquired eleven collection
companies and a transfer station in Vermont, five collection companies and two
landfills in Central Pennsylvania, one collection company and a transfer station
in Central/Western Massachusetts and nine collection companies and a transfer
station in Upstate New York. The aggregate cost of these acquisitions was
approximately $59.2 million consisting of approximately $53.3 million in cash,
$3.4 million in stock and approximately $2.5 million in assumed liabilities.
Acquisition integration costs for the nine months ended September 30, 1998,
related to the acquisitions in Vermont, Central Pennsylvania, Central/Western
Massachusetts and Upstate New York, were approximately $1,386,000.
The Company generated net cash from operating activities for the nine
months ended September 30, 1998 of approximately $650,000. The net cash provided
from operating activities was due primarily to the increase in depreciation and
amortization, increased accruals for landfill closure and
post-closure costs and the growth of trade accounts payable and accrued
expenses. The non-cash items totaled approximately $5.9 million and offset the
loss from operations of $4.0 million.
EBITDA increased $2.7 million to $1.3 million for the nine months ended
September 30, 1998 from ($1.4) million for the same period in 1997. As a
percentage of revenue, EBITDA increased to 19% for the nine months ended
September 30, 1998 from (4.2%) for the same period in 1997. Adjusted EBITDA
increased $3.5 million to $2.9 million for the nine months ended September 30,
1998 from ($553,000) for the same period in 1997. As a percentage of revenue,
Adjusted EBITDA increased to 23% for the nine months ended September 30, 1998
from (30%) for the same period in 1997.
Net cash used by investing activities for the nine months ended
September 30, 1998 and 1997 was $62.2 million and $782,000, respectively. Of the
net cash used by investing activities in 1998, approximately $55.8 million was
used for the acquisition of landfill, collection and transfer operations in
Vermont, Central Pennsylvania, Central/Western Massachusetts and Upstate New
York. Additional capital expenditures were made to increase operating
efficiencies at the Company's Vermont, Central Pennsylvania, Central/Western
Massachusetts and Upstate New York operations. The net cash used by investing
activities for the same period in 1997 was primarily the result of the
increasing operating activities at the Moretown, Vermont landfill.
<PAGE>
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets, and will increase
further as the Company continues to complete acquisitions. Total capital
expenditures are expected to further increase during the fourth quarter of 1998
due to acquisitions, ongoing construction of Cell 2 at the Company's Moretown
landfill and the development and construction of the Mosteller landfill in
Central Pennsylvania, and the South Hadley landfill in Western Massachusetts and
construction of the transfer station in Central Massachusetts.
Net cash provided by financing activities for the nine months ended
September 30, 1998 and 1997 was approximately $61.5 million and $7.5 million,
respectively. The increase for the first nine months of 1998 is due primarily to
the receipt of the net proceeds of $58.3 million related to the 7% Convertible
Subordinated Notes, borrowings under The Howard Bank credit facility of $10
million, and borrowings for equipment purchases of approximately $9.0 million.
The proceeds were offset by principal repayments of debt of approximately $11.7
million and dividend payments of approximately $888,000.
The Company also expects in the near future, to dramatically expand the
limits of its credit facility with a new group of lenders lead by a well
recognized financial institution. The Company plans to use a portion of the
proceeds to repay the existing Howard Bank facility and approximately $5 million
of other long-term debt.
At September 30, 1998, the Company had approximately $75.8 million of
short-term and long-term debt. See Note 6 to the Consolidated Financial
Statements.
WSI does not believe its operations have been materially affected by
inflation.
Certain Factors Affecting Future Operating Results
The following factors, as well as others mentioned in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, could cause
actual results to differ materially from those indicated by forward-looking
statements made in this Quarterly Report on Form 10-Q.
Uncertain Ability to Finance the Company's Growth. The Company has
limited liquidity in relation to its short-term capital commitments and
operating cash requirements. Additionally, WSI will require substantial funds to
complete and bring to commercial viability all of its currently planned
projects. The Company also anticipates that any future acquisitions will be
financed through cash from operations, the issuance of the Company's common
stock or seller financing or additional equity or debt financing. Therefore,
WSI's ability to satisfy its capital commitments and operating requirements are
dependent on a number of pending or future financing activities, none of which
are assured successful completion. Any failure of the Company to obtain
sufficient financing in the future would have a material adverse effect on the
Company's financial condition and operations.
The Company may choose to finance future acquisitions by issuing shares
of Common Stock for a portion or all of the consideration to be paid. In the
event the Company's Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company might
not be able to utilize Common Stock as consideration for acquisitions and would
be required to utilize more of its cash resources, if available, in order to
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it could obtain additional capital
through debt or equity financings. In addition, growth through the development
or acquisition of existing and new landfills, transfer stations, collection
companies or other facilities, as well as the ongoing maintenance of such
landfills, transfer stations, collection companies or other facilities, will
require substantial capital expenditures. There can be no assurance that
additional financing will be available if and when needed or on terms acceptable
to the Company. The inability of the Company to use its Common Stock as
consideration for acquisitions or to obtain additional financing for capital
projects and acquisitions could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, future
issuances of Common Stock in connection with acquisitions would be dilutive to
the Company's stockholders.
History of Losses. During the fiscal years ending December 31, 1997,
1996 and 1995, the Company incurred net losses (including non-recurring charges)
of approximately ($5,589,000), ($13,890,000) and ($7,880,000) respectively, on
revenues of $3,458,000, $1,496,000, and $1,344,000 respectively. For the three
and nine months ended September 30, 1998, the Company incurred a net loss of
approximately ($1,121,000) on revenues of $7,009,000, and ($4,024,000) on
revenues of $12,670,000, respectively. As of September 30, 1998, the Company's
accumulated deficit was approximately ($33,718,000). Following its restructuring
in 1996, the Company implemented a business strategy based on aggressive growth
through acquisitions. The Company's ability to become profitable, and to
maintain such profitability, as it pursues its business strategy will depend
upon several factors, including its ability to (i) execute its acquisition
strategy and expand its revenue generating operations while not proportionately
increasing its administrative overhead, (ii) locate sufficient financing to fund
acquisitions, and (iii) continually adapt to changing conditions in the
competitive market in which it operates. Outside factors, such as the economic
and regulatory environments in which it operates, will also have an effect on
the Company's business.
<PAGE>
The Independent Auditors' Report of KPMG Peat Marwick LLP for the
fiscal year ended December 31, 1997, stated that "the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern." On May 13, 1998, the Company closed an
offering of $60.0 million in Convertible Subordinated Notes (the "Notes"), which
resulted in net proceeds to the Company of approximately $58.3 million. Also,
the Company generated cash from operating activities of approximately $650,000
for the nine months ended September 30, 1998 compared to a use of $4.3 million
for the same period of 1997. Additionally, the Company's EBITDA for both the
three and nine months ended September 30, 1998, was $1.3 and the Company's
Adjusted EBITDA for the three and nine months ended September 30, 1998 was $2.1
million and $2.9 million, respectively. The Company used the majority of the
proceeds from the Notes to repay approximately $11.7 million of existing debt
and complete several acquisitions. The Company also expects in the near future,
to dramatically expand the limits of its credit facility with a new group of
lenders led by a well recognized financial institution and that its existing
credit facility with the Howard Bank will get i. The Company believes that a
combination of internally generated funds and the proceeds from the anticipated
financing will provide adequate funds to support the Company's cost structure,
acquisition strategy and working capital requirements for the foreseeable
future. The Company does not believe that the going concern uncertainty has
materially affected its ability to finance and conduct its business operations.
Substantial Increased Leverage. In connection with its business
strategy, the Company will incur substantial indebtedness resulting in a highly
leveraged capital structure. The Company's total indebtedness as of September
30, 1998 was approximately $75,811,000 and its total stockholders' equity was
approximately $4,218,000. The Company intends to expand its bank credit facility
which will increase its leverage and likely contain various covenants that will
limit, among other things, the Company's ability to engage in mergers and
acquisitions, incur additional indebtedness, make interest payments on
subordinated debt, and pay dividends or make other distributions. The Company's
substantial leverage could have important consequences, including limiting its
ability to obtain additional financing, increasing the Company's vulnerability
to changes in economic conditions and competitive pressures, and limiting the
Company's ability to realize some or all of the benefits of significant business
opportunities. The 7% Convertible Subordinated Notes are convertible into Common
Stock at a conversion price of $10.00 per share. See Note 6 to the Consolidated
Financial Statements. Any default by the Company under the terms of its
indebtedness could have a material adverse effect on the Company's business,
financial condition, and results of operations.
The Company may not presently generate sufficient cash from operations
to satisfy the principal and interest payment requirements of its outstanding
indebtedness (including the $60 million in Convertible Subordinated Notes issued
on May 13, 1998) until maturity. Unless the Company's cash flow from operations
grows sufficiently in the future, which will depend upon financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control, the Company will be required to refinance all or a portion of its
debt, or to obtain additional financing. There can be no assurance that any
refinancing would be possible or that any additional financing would be
obtained.
Dependence on Senior Management. The Company's future success is highly
dependent upon the services of its executive officers, particularly, Philip W.
Strauss, Chairman, Chief Executive Officer and President of the Company, and
Robert Rivkin, Executive Vice President--Acquisitions, Chief Financial Officer,
Treasurer and Secretary of the Company. The loss of the services of Mr. Strauss
or Mr. Rivkin could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not currently
maintain key man insurance on any of its personnel.
<PAGE>
The Company's future success is also highly dependent upon its
continuing ability to identify, hire, train and motivate highly qualified
personnel. The Company faces competition for hiring such personnel from other
companies, government entities and other organizations. There can be no
assurances that the Company will be successful in attracting and retaining
qualified personnel as required for its projected operations. The inability to
attract and retain qualified personnel could have a material adverse effect upon
the Company's business, financial condition and results of operations.
Risk of Growth through Acquisition. Pursuant to its business strategy,
the Company is experiencing a period of significant growth from recent
acquisitions. Through October 1, 1998, the Company completed eleven acquisitions
in Vermont, seven in Central Pennsylvania, two in Central/Western Massachusetts
and nine in Upstate New York. The Company expects significant additional
expansion in the size and geographic scope of the Company's operations. There
can be no assurance that the Company will be able to identify, acquire or
profitably manage additional businesses in existing or targeted expansion
markets or successfully integrate any acquired businesses into the Company
without substantial costs, delays, or other operational or financial problems.
Further, the Company will continue to recognize a significant amount of
amortization of intangible asset charges in connection with its acquisitions of
landfills, collection businesses and transfer stations that are accounted for
under the "purchase" method of accounting. Such intangibles are amortized over a
specified period depending on the business acquired, resulting in an annual
non-cash charge to earnings during that period. Certain risks inherent in an
acquisition strategy, such as increasing leverage and debt service requirements
(to the extent the Company elects to finance its acquisitions with debt) and
difficulties associated with combining disparate company systems and cultures
(including the potential loss of key employees from acquired companies), could
adversely affect the Company's ability to integrate acquired businesses. The
process of integrating acquired companies may involve unforeseen difficulties
and may require a disproportionate amount of management's attention and
financial and other resources. Identifying suitable acquisition candidates
involves risks inherent in assessing the values, strengths, weaknesses, risks
and profitability of such candidates, including effects on the Company's
operating results, diversion of management's attention and risks associated with
unanticipated problems or latent liabilities. Moreover, the Company competes for
acquisition candidates with other corporations in its industry that are
employing similar acquisition strategies. These competitors include larger, more
established corporations with significantly greater resources than the Company.
As a result, fewer acquisition opportunities may be available to the Company and
acquisition costs for opportunities that are available may increase. There can
be no assurance that any business that the Company acquires in the future will
achieve anticipated revenues and earnings. In addition, the size, timing and
integration of acquisitions may cause substantial fluctuations in the Company's
operating results from quarter to quarter.
Sustaining the Company's growth and expansion will continue to require
substantial enhancements to the Company's operational and financial systems and
controls as well as additional administrative, operational and financial
resources. There can be no assurance that the Company will be able to manage its
expanding operations successfully or that it will be able to maintain or
accelerate its growth; and any failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
Competition. The solid waste management industry is highly competitive,
very fragmented and requires substantial labor and capital resources.
Competition exists for collection, recycling, transfer and disposal services,
and acquisition targets. The markets in which the Company competes or is likely
to compete are usually served by one or more of the large national, regional or
local solid waste companies who may have greater financial, marketing or
technical resources than the Company and who may have accumulated substantial
goodwill. The Company also competes with counties, municipalities and operators
of alternative disposal facilities that operate their own waste collection and
disposal facilities. The availability of tax revenues and tax-exempt financing
may provide a competitive advantage to public sector competitors. Additionally,
alternative disposal facilities such as recycling and incineration may reduce
the demand for the disposal of solid waste in landfills. Competition for waste
collection and disposal business is based on the quality of operation, price and
geographical location. From time to time, competitors may reduce the price of
their services in an effort to expand or maintain market share or to win
competitively bid contracts. There can be no assurance that the Company will be
able to successfully bid such contracts or compete with the larger and
better-capitalized companies.
<PAGE>
Limitations on Landfill Permitting and Expansion/Government Permitting
Requirements and Regulations. The Company's existing operations depend on its
ability to expand the landfills it owns or operates and develop new landfill
sites. In some areas, suitable land for new sites or expansion of the Company's
existing landfill sites may be unavailable. There can be no assurance that the
Company will be successful in obtaining new landfill sites or expanding the
permitted capacity of the landfills it currently owns or operates. The process
of obtaining required permits and approvals to operate and expand landfills and
transfer stations has become increasingly difficult and expensive. The process
can take several years and involves hearings and compliance with zoning,
environmental and other requirements. There can be no assurance that the Company
will be successful in obtaining and maintaining required permits. Even when
granted, final permits to expand a landfill are often not approved until the
remaining capacity of such landfill is very low. In the event the Company
exhausts its permitted capacity at a landfill or its permits expire or are
revoked, the Company's ability to expand internally will be limited and the
Company will be required to cap and close the landfill at potentially
significant cost. In addition, the Company could be forced to dispose of its
waste at landfills operated by its competitors. The additional costs could have
a material adverse effect on the Company's business. Additionally, the Company
and its customers operate in a highly regulated environment, and in general the
Company's landfill projects will be required to have federal, state and/or local
government permits and approvals. Any of these permits or approvals may be
subject to denial, revocation or modification under various circumstances. In
addition, if new environmental legislation or regulations are enacted or
existing legislation or regulations are amended or are interpreted or enforced
differently, the Company or its customers may be required to obtain additional
operating permits or approvals. There can be no assurance that the Company will
meet all of the applicable regulatory requirements.
Geographic Concentration of Operations. The Company has established
solid waste management operations in Vermont, Central Pennsylvania,
Central/Western Massachusetts and Upstate New York. Since the Company's current
primary source of revenues will be concentrated in these geographic locations,
the Company's business, financial condition and results of operations could be
materially effected by, among other factors, downturns in the local economy,
severely harsh weather conditions, and state regulations. There can be no
assurance that the Company will be able to continue to increase the waste stream
to its landfills, or be able to expand its geographic markets to lessen the
effects of adverse events that may occur in any of these regions.
Seasonality. The Company's revenues and results of operations tend to
vary seasonally. The winter months of the fourth and first quarters of the
calendar year tend to yield lower revenues than those experienced in the warmer
months of the second and third quarters. The primary reasons for lower revenues
in the winter months include, but are not limited to: (i) harsh winter weather
conditions which can interfere with collection and transportation; (ii) the
construction and demolition activities that generate landfill waste are
primarily performed in the warmer seasons; and (iii) the volume of waste in the
region is generally lower in comparison to that which occurs in warmer months.
The Company believes that the seasonality of the revenue stream will not have a
material adverse effect on the Company's business, financial condition and
results of operations on an annualized basis.
Year 2000 Issues. The Company is assessing the readiness of its systems
for handling the Year 2000. Although the assessment is still underway,
management currently believes that all material systems will be compliant by
Year 2000 and that the costs associated with this are not material.
The Company is in the process of identifying key third-party vendors to
understand their ability to continue providing services through Year 2000. The
Company uses well-regarded nationally known software vendors for both its
general accounting applications and industry-specific customer information and
billing systems. The Company is implementing a new general accounting package
which will be fully year 2000 compatible, and the provider of the solid waste
industry customer information and billing system is Year 2000 compatible. The
Company's banking arrangements are with an national banking institution, which
are taking all necessary steps to insure its customers' uninterrupted service
throughout applicable year 2000 timeframes. The Company's payroll is performed
out-of-house by the largest provider of third party payroll services in the
country, which has made a commitment of uninterrupted service to their customers
throughout applicable year 2000 timeframes.
While the Company currently expects that the Year 2000 issue will not
cause significant operational problems, delays in the implementation of new
information systems, or failure to fully identify all Year 2000 dependencies in
the Company's systems and in the systems of suppliers and financial institutions
could have material adverse consequences. Therefore, the Company is developing
contingency plans for continuous operations in the event such problems arise.
<PAGE>
Potential Environmental Liability. The Company may be subject to
liability for environmental damage, including personal injury and property
damage, that its solid waste facilities may cause to neighboring property
owners, particularly as a result of the contamination of drinking water sources
or soil, possibly including damage resulting from conditions existing or
commencing before the Company acquired the facilities. The Company may also be
subject to liability for similar claims arising from off-site environmental
contamination caused by pollutants or hazardous substances if the Company or its
predecessors arranged to transport, treat or dispose of those materials. Any
substantial liability incurred by the Company arising from environmental damage
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), imposes strict, joint and several liability
on the present owners and operators of facilities from which a release of
hazardous substances into the environment has occurred, as well as any party
that owned or operated the facility at the time of disposal of the hazardous
substances, regardless of when the hazardous substance was first detected.
Similar liability is imposed upon the generators of waste that contains
hazardous substances and upon hazardous substance transporters that select the
treatment, storage or disposal site. All such persons, who are referred to as
potentially responsible parties ("PRPs"), generally are jointly and severally
liable for the expense of the waste site investigation, waste site cleanup costs
and natural resource damages, regardless of whether they exercised due care and
complied with all relevant laws and regulations. These costs can be very
substantial. Furthermore, such liability can be based upon the existence of only
very small amounts of "hazardous substances," as defined in CERCLA, which is a
broader category of substances than "hazardous wastes," as defined in the
Resource Conservation Recovery Act of 1976 ("RCRA"). The states in which the
Company operates have laws similar to CERCLA, which also impose environmental
liability on broad classes of parties. Although the Company is not in the
business of transporting or disposing of hazardous waste, it is possible that
hazardous substances have in the past, or may in the future, come to be located
in landfills with which the Company has been associated as a generator or
transporter of waste or as an owner or operator of the landfill. If the U.S.
Environmental Protection Agency ever determines that remedial measures under
CERCLA or RCRA are appropriate at any of these sites or operations, if a state
agency makes such a finding under similar state law, or if a third party brings
a private cost-recovery or contribution action with respect to remedial costs
incurred or to be incurred, the Company could be subject to substantial
liability which could have a material adverse effect on the Company's business,
financial condition and results of operations.
With respect to each business that the Company acquires or has
acquired, there may be liabilities that the Company fails to or is unable to
discover, including liabilities arising from waste transportation or disposal
activities or noncompliance with environmental laws by prior owners or
operators, and for which the Company, as a successor owner, may be legally
responsible. Representations, warranties and indemnities from the sellers of
such businesses, if obtained and if legally enforceable, may not cover fully the
resulting environmental or other liabilities due to their limited scope, amount
or duration, the financial limitations of the warrantor or indemnitor or other
reasons. Certain environmental liabilities, even though expressly not assumed by
the Company, may nonetheless be imposed on the Company under certain legal
theories of successor liability, particularly under CERCLA. An uninsured claim
against the Company, if successful and of sufficient magnitude, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Potential Adverse Community Relations. The Company has experienced, and
may in the future experience, unexpected delays, costs and litigation resulting
from community resistance and concerns relating to specific projects in various
communities. There can be no assurance that such delays, costs, and litigation
will not arise in the future in connection with any existing or acquired
landfill projects.
Failure to Obtain Performance or Surety Bonds and Letters of Credit;
Adequacy of Accruals for Closure and Post-Closure Costs. Municipal solid waste
collection contracts and landfill closure obligations may require performance or
surety bonds, letters of credit, or other means of financial assurance to secure
contractual performance. If the Company were unable to obtain performance or
surety bonds or letters of credit in sufficient amounts or at acceptable rates,
it could be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits. Any
future difficulty in obtaining insurance could also impair the Company's ability
to secure future contracts conditioned upon the contractor having adequate
insurance coverage. Accordingly, the failure of the Company to obtain
performance or surety bonds, letters of credit, or other means of financial
assurance or to maintain adequate insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has material financial obligations relating
to closure and post-closure costs of its existing landfills and any landfill it
may purchase or operate in the future. The Company estimates and accrues closure
and post-closure costs based on engineering estimates of airspace usage and
remaining airspace capacity. There can be no assurances that the Company's
financial obligations for closure and post-closure costs will not exceed the
amount accrued, and that this may have a material adverse effect on the
Company's business, financial condition and results of operations.
Environmental Impairment Insurance. The Company has a $5.0 million
environmental impairment liability insurance policy covering claims for sudden
or gradual onset of environmental damage. If the Company were to incur a
liability for environmental damage in excess of its insurance limits, its
financial condition could be adversely affected. The Company carries a
comprehensive general liability insurance policy which management considers
adequate at this time to protect its assets and operations from other risks.
Capital Expenditures. The Company capitalizes, in accordance with
generally accepted accounting principles, certain expenditures and advances
relating to acquisitions, pending acquisitions and landfill projects.
Capitalization of landfill development costs begins upon determination by the
Company of the economic feasibility or extended useful life of each landfill
acquired as a result of comprehensive engineering and profitability studies and
with the signing of landfill management contracts for facilities operated by the
Company that are not owned. Capital costs include acquisition, engineering,
legal, and other direct costs associated with the permitting and development of
new landfills, expansions at existing landfills, and cell development. These
costs are capitalized and not amortized until all permits are obtained and
operations have commenced. Interest is capitalized on landfill development costs
related to permitting, site preparation, and facility construction during the
period that these assets are undergoing activities necessary for their intended
use.
<PAGE>
Following the commencement of operations at a particular landfill, or
upon consummation of the acquisition of an operating landfill, the Company
amortizes its landfill development costs using the unit-of-production method,
which is calculated using the total units of airspace filled during the year in
relation to total estimated permitted airspace capacity. Under this method,
current year-end remaining airspace capacity is compared with prior year-end
remaining airspace capacity to determine the amount of airspace used during the
current year. The result is compared against the airspace consumption figures
used during the current year for accounting purposes to ensure proper recording
of the amortization provision. There can be no assurance that an incorrect
estimate of total permitted airspace capacity would not materially impact the
Company's results of operations of future periods.
The Company's policy is to expense in the current period unamortized
capital expenditures and advances relating to any operation that is permanently
shut down or any acquisition that will not be consummated and any landfill
project that is terminated. Thus, the Company may be required to incur a charge
against earnings in future periods that could have a material adverse effect on
the Company's business, financial conditions and results of operations.
<PAGE>
PART II
Item 1. Legal Proceedings
The Company is party to pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company's management, after consultation with outside legal counsel, is of
the opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of the Company was held on
August 19, 1998. The stockholders of the Company elected members of the Board of
Directors; approved an amendment to the Company's Amended and Restated 1995
Stock Option and Incentive Plan to permit the granting of options and other
benefits under the Option Plan to Non-Employee Directors, consultants and other
key persons and to increase the number of shares of the Company's Common Stock,
par value $.01 per share reserved for issuance under the Option Plan from
1,700,000 shares to 3,000,000 shares; approved an amendment to the Company's
Amended and Restated 1995 Stock Option Plan for Non-Employee Directors to
increase the number of shares of the Company's Common Stock issuable under stock
options granted once to Non-Employee Directors elected to the Board for the
first time from 4,000 shares to 20,000 shares and to increase the number of
shares of the Company's Common Stock issuable under the stock options granted
annually as compensation to Non-Employee Directors from 2,000 shares to 10,000
shares; approved the conversion of the Company's 7% Subordinated Notes into
shares of Common Stock and ratified the selection of KPMG Peat Marwick LLP as
the Company's independent auditors for the current fiscal year. The number of
affirmative, negative and abstained votes cast with respect to each of the
matters voted on were as follows:
The tabulation of votes for the nominees for directors were as follows:
For Against Withheld
Philip Strauss 2,700,274 10,592 7,106
Robert Rivkin 2,700,274 10,592 7,106
Jay Matulich 2,700,274 10,592 7,106
David J. Breazzano 4,290,109 - -
Charles Johnston 4,290,109 - -
Judy K. Mencher 4,290,109 - -
William B. Philipbar 4,290,109 - -
Amendment to the Company's Amended and Restated
1995 Stock Option and Incentive Plan 4,738,847 81,053 9,687
Amendment to the Company's Amended and Restated
1995 Stock Option Plan for
Non-Employee Directors 6,916,091 83,763 8,227
Conversion of the Company's 7% Subordinated Notes
into shares of Common Stock 4,762,096 50,744 16,747
Selection of KPMG Peat Marwick LLP as auditor 7,002,983 4,838 260
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
The financial statements are listed under Part I, Item 1 of this
Report.
2. Financial Statement Schedules
None.
3. Exhibits
None.
(B) Reports on Form 8-K
During the quarter covered by this report, the Company filed two
Current Reports on Form 8-K/A dated August 3, 1998 and August 28, 1998. These
Current Reports amended an earlier Current Report filed on Form 8-K on May 22,
1998. The Current Reports are reported on Item 2. Acquisition or Disposition of
Assets and on Item 7. Financial Statements and Pro Forma Financial Information
and Exhibits. The Company announced the acquisition of Eagle Recycling, Inc. and
Horvath Sanitation, Inc. (collectively "Eagle Companies") which are based in
Altoona, Pennsylvania pursuant to the terms of a Stock Purchase Agreement dated
March 3, 1998 by and among Bestin H.S.A., Jacques Khodara and Harry K. Benjamin
and the Company. The Company filed consolidated financial statements for the
Eagle Companies as of March 31, 1998 (unaudited) and as of December 31, 1997 and
1996 (audited). The Company also filed Pro forma Combined Condensed Statements
of Operations for the three months ended March 31, 1998 (unaudited) and for the
year ended December 31, 1997 (unaudited) and Pro forma Combined Condensed
Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997
(unaudited).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: November 13, 1998 By: /s/ Philip Strauss
--------------------- ------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: November 13, 1998 By: /s/ Robert Rivkin
--------------------- -----------------
Robert Rivkin
Executive Vice President -
Acquisitions, Chief
Financial Officer, Treasurer
and Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000847468
<NAME> Waste Systems International, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,950,445
<SECURITIES> 0
<RECEIVABLES> 4,205,800
<ALLOWANCES> 270,476
<INVENTORY> 0
<CURRENT-ASSETS> 9,632,415
<PP&E> 44,570,217
<DEPRECIATION> 2,972,567
<TOTAL-ASSETS> 90,681,620
<CURRENT-LIABILITIES> 8,897,838
<BONDS> 0
0
0
<COMMON> 117,183
<OTHER-SE> 4,101,318
<TOTAL-LIABILITY-AND-EQUITY> 90,681,620
<SALES> 12,670,181
<TOTAL-REVENUES> 12,670,181
<CGS> 11,176,903
<TOTAL-COSTS> 14,116,653
<OTHER-EXPENSES> 52,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,724,581
<INCOME-PRETAX> (3,786,816)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,786,816)
<DISCONTINUED> 0
<EXTRAORDINARY> (237,627)
<CHANGES> 0
<NET-INCOME> (4,024,443)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>