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 June 30, 1999.
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 INTERNATIONAL, 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 02420
(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 August 12, 1999 was 18,428,919.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998. 1
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1999 and 1998. 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998. 3
Notes to Consolidated Financial Statements. 4-8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 9-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults on Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 21
Signatures 22
<PAGE>
1
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
--------------- --------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 19,127,974 $ 193,613
Accounts receivable, less allowance for doubtful accounts of
$377,167 at June 30, 1999 and $222,028 at December 31,1998 6,896,444 5,235,534
Prepaid expenses and other current assets 7,222,941 4,769,285
--------------- --------------
Total current assets 33,247,359 10,198,432
Restricted cash and securities 40,767 39,842
Property and equipment, net (Notes 2 and 3) 79,117,460 44,685,735
Intangible assets, net (Notes 2 and 4) 49,612,155 38,059,374
Other assets 7,218,318 3,133,316
--------------- --------------
Total assets $ 169,236,059 $ 96,116,699
=============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 5) $ 322,560 $ 8,259,922
Accounts payable 3,855,990 3,849,632
Accrued expenses 6,451,972 2,742,539
Current portion of landfill closure and post-closure costs 2,000,000 -
Deferred revenue 2,219,476 1,866,128
--------------- --------------
Total current liabilities 14,849,998 16,718,221
Long-term debt and notes payable (Note 5) 151,746,697 74,861,187
Landfill closure and post-closure costs 1,962,789 2,798,597
--------------- --------------
Total liabilities 168,559,484 94,378,005
--------------- --------------
Commitments and Contingencies (Note 7)
Stockholders' equity (Notes 5 and 6):
Common stock, $.01 par value. Authorized 75,000,000 shares;
13,405,394 and 11,718,323 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 134,060 117,184
Additional paid-in capital 50,255,533 37,810,712
Accumulated deficit (49,713,018) (36,189,202)
--------------- --------------
Total stockholders' equity 676,575 1,738,694
--------------- --------------
Total liabilities and stockholders' equity $ 169,236,059 $ 96,116,699
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
2
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
------------- -------------- -------------- -------------
Revenues $ 11,219,832 $ 4,132,833 $ 20,082,090 $ 5,660,803
Cost of operations:
Operating expenses 6,915,757 2,203,052 12,486,873 3,066,632
Depreciation and amortization 2,816,512 1,005,884 4,569,026 1,380,126
Acquisition integration costs (Note 2) 462,186 270,862 1,006,586 590,862
Write-off of project development costs - 235,284 - 235,284
------------- -------------- ---------------- --------------
Total cost of operations 10,194,455 3,715,082 18,062,485 5,272,904
------------- -------------- ---------------- ---------------
Gross profit 1,025,377 417,751 2,019,605 387,899
Selling, general and administrative expenses 2,093,810 1,123,613 4,007,419 1,780,826
------------- -------------- ---------------
Loss from operations (1,068,433) (705,862) (1,987,814) (1,392,927)
------------- -------------- ---------------- ---------------
Other income (expense):
Royalty and other income (expense), net (145,288) (1,324) (277,690) (15,450)
Interest income 277,827 182,906 446,169 210,891
Interest expense and financing costs (3,889,939) (1,038,193) (5,896,406) (1,472,238)
Non-cash charge for debt conversion (Note 5) - - (5,583,717) -
------------- -------------- ---------------- ---------------
Total other income (expense) (3,757,400) (856,611) (11,311,644) (1,276,797)
------------- -------------- ---------------- ---------------
Loss before extraordinary item (4,825,833) (1,562,473) (13,299,458) (2,669,724)
Extraordinary item - Loss on extinguishment of debt (1,350) (234,030) (224,358) (234,030)
------------- -------------- ---------------- ---------------
Net loss (4,827,183) (1,796,503) (13,523,816) (2,903,754)
Preferred stock dividends - 234,508 - 477,032
------------ -------------- ---------------- ---------------
Net loss available for common shareholders $ (4,827,183) $ (2,031,011) $ (13,523,816) $ (3,380,786)
============= ============== ================ ===============
Basic net loss per share:
Loss from continuing operations $ (0.36) $ (0.36) $ (0.99) $ (0.64)
Extraordinary item (0.00) (0.05) (0.02) (0.06)
------------- -------------- ---------------- ---------------
Basic net loss per share (0.36) $ (0.41) $ (1.01) $ (0.70)
============= ============== ================ ===============
Weighted average number of shares used in
Computation of basic net loss per share 13,421,480 4,387,802 13,443,389 4,144,576
============= ============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
3
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C>
Six months ended June 30,
1999 1998
------------------ -----------------
Cash flows from operating activities:
Net loss $ (13,523,816) $ (2,903,754)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 4,641,620 1,477,595
Non-cash charge for conversion of debt to equity 5,583,717 -
Extraordinary loss on extinguishment of debt 224,358 234,030
Write-off of project development costs - 235,284
Allowance for doubtful accounts 155,139 103,742
Landfill closure and post-closure costs (43,967) 137,688
Changes in assets and liabilities:
Accounts receivable (1,806,134) (393,181)
Prepaid expenses and other current assets 550,387 156,389
Accounts payable (523,405) 681,151
Accrued expenses 3,480,444 (153,168)
Deferred revenue (166,685) 207,982
------------------ -----------------
Net cash used by continuing operations (1,428,342) (216,242)
Net cash used by discontinued operations and restructuring - (491,260)
------------------ -----------------
Net cash used by operating activities (1,428,342) (707,502)
------------------ -----------------
Cash flows from investing activities:
Net assets acquired through acquisitions (42,620,301) (30,835,675)
Restricted cash and securities (925) 21,753
Landfills (1,974,946) (44,953)
Landfill and other development projects (765,917) (79,206)
Buildings, facilities and improvements (79,379) (23,976)
Machinery and equipment (382,722) (359,817)
Rolling stock (1,053,767) (777,703)
Containers (820,152) (39,571)
Office furniture and equipment (330,946) (209,738)
Deposits for future acquisitions (2,927,153) (323,469)
Intangible assets (197,857) (3,964)
Other assets (1,717,961) (192,960)
------------------ -----------------
Net cash used by investing activities (52,872,026) (32,869,279)
------------------ -----------------
Cash flows from financing activities:
Deferred financing and registration costs (2,998,611) (1,673,679)
Repayments of notes payable and long-term debt (20,603,278) (11,067,475)
Borrowings from notes payable and long-term debt 100,000,000 67,069,466
Repurchase of common stock (3,229,057) -
Proceeds from issuance of common stock 65,675 8,445
Dividends paid on preferred stock - (100,765)
------------------ -----------------
Net cash provided by financing activities 73,234,729 54,235,992
------------------ -----------------
Increase in cash and cash equivalents 18,934,361 20,659,211
Cash and cash equivalents, beginning of period 193,613 2,964,274
------------------ -----------------
Cash and cash equivalents, end of period $ 19,127,974 $ 23,623,485
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
Note 1. Basis of Presentation
The accompanying 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 June 30, 1999 and for all periods presented have been made. The
results of operations for the period ended June 30, 1999 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, for the year ended December 31, 1998.
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1998. For a complete description of
the Company's accounting policies, see Note 2 to Consolidated Financial
Statements in the Company's 1998 Annual Report on Form 10-K.
Note 2. Acquisitions
During the six months ended June 30, 1999, WSI acquired four collection
companies and a landfill in Central Pennsylvania, one collection company in
Vermont, one collection company in Central Massachusetts, and two collection
companies and a transfer station in Upstate New York. The aggregate cost of the
acquisitions was approximately $42.6 million consisting of $40.7 million in cash
and $1.9 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
$13.8 million. The acquisitions have been accounted for using the purchase
method of accounting. The purchase prices were allocated to the assets and
liabilities of the acquired companies based on their respective fair values at
the dates of acquisition as follows: property and equipment of $31.0 million,
intangible assets of $10.1 million and other assets of $1.5 million. The excess
of the purchase price over the fair value of the net identifiable assets
acquired of approximately $9.6 million has been recorded as goodwill and is
being amortized on a straight-line basis over forty years.
Acquisition integration costs consist of one-time, non-recurring costs,
which in the opinion of management have no future value and, therefore, are
expensed. Such costs include termination and retention of employees, lease
termination costs, costs related to the integration of information systems and
costs related to the change of name of the acquired company or business. These
charges are estimated and accrued at the time the acquisition is closed. The
estimates are reviewed frequently by management and the related operation teams
integrating the new acquisitions, and adjusted as required. Acquisition
integration costs totaled $462,186 and $270,862 for the three months ended June
30, 1999 and 1998, and $1,006,586 and $590,862 for the six months ended June 30,
1999 and 1998, respectively.
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 six months ended June 30, 1999 and 1998 as if the acquisitions
had occurred as of January 1, 1998 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.
June 30, 1999 June 30, 1998
(unaudited) (unaudited)
Net revenues $ 21,636,000 $ 20,901,000
============== ==============
Loss from operations $ (997,000) $ (1,661,000)
============== ==============
Net loss $ (12,309,000) $ (2,938,000)
============== ==============
Basic loss per share $ (0.92) $ (0.63)
============== ==============
Note 3. Property and Equipment
Property and equipment are stated at cost and consist of the following;
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1998
------------ ------------
Landfills $ 48,119,152 $ 18,631,409
Landfill and other development projects 10,644,104 8,778,901
Buildings, facilities and improvements 4,598,892 4,701,245
Machinery and equipment 4,691,922 3,038,700
Rolling stock 11,561,793 8,980,626
Containers 5,874,734 4,104,397
Office furniture and equipment 1,064,681 713,235
------------- -------------
86,555,278 48,948,513
Less accumulated depreciation and amortization (7,437,818) (4,262,778)
------------- -------------
Property and equipment, net $ 79,117,460 $ 44,685,735
============= =============
</TABLE>
Note 4. Intangible Assets
Intangible assets consist of the following;
June 30, December 31,
1999 1998
------------- -------------
Goodwill $ 40,008,752 $ 30,441,948
Non-compete agreements 5,321,435 4,333,685
Customer lists 4,794,599 3,841,599
Other 1,992,761 713,235
------------- -------------
52,117,547 39,330,467
Less accumulated amortization (2,505,392) (1,271,093)
------------- -------------
Total intangible assets $ 49,612,155 $ 38,059,374
============= =============
Note 5. Long-term debt and notes payable
Convertible Subordinated Notes and Conversion into Equity. 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 May 13, 2000 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.
On March 31, 1999, the Company exchanged 2,244,109 shares of the
Company's Common Stock for $10,449,000 of the Notes. The exchange price per
share of $4.656 was equal to the closing price of the Common Stock as reported
by NASDAQ on that date. Interest on the Notes totaling approximately $183,000
was paid in cash.
In connection with the conversion of debt into equity, the Company
issued 1,199,252 shares of Common Stock in excess of the shares that would have
been issued if the debt had been converted in accordance with its original
terms. The Company recorded a non-cash charge of $5,583,717 attributable to the
issuance of these additional shares of Common Stock, which has been offset in
consolidated stockholders' equity by the additional deemed proceeds from the
issuance of the shares.
Senior Notes Offering and Debt Repayment. On March 2, 1999, the Company
completed a private placement of $100.0 million of 11.5% Senior Notes (the
"Senior Notes") and warrants to purchase an aggregate of 1,500,000 shares of the
Company's common stock at an exercise price of $6.25 per share (the "Warrants").
The Senior Notes mature on January 15, 2006 and bear interest at 11.5% per
annum, payable semi-annually in arrears on each January 15 and July 15,
commencing July 15, 1999, subject to prepayment in certain circumstances. The
interest rate on the Senior Notes is subject to adjustment upon the occurrence
of certain events as provided in the Indenture for the Senior Notes offering.
The Senior Notes may be redeemed at the option of the Company after March 2,
2003 at redemption prices set forth in the Senior Notes Indenture, together with
accrued and unpaid interest. The Warrants are exercisable from September 2,
1999, through March 2, 2004. The number of shares for which, and the price per
share at which, a Warrant is exercisable, are subject to adjustment upon the
occurrence of certain events as provided in the Warrant Agreement. The net
proceeds to the Company, after deducting the discount to the initial purchaser
and related issuance costs, was approximately $97.3 million. The Company used a
portion of the proceeds from the Senior Notes to repay existing debt of
approximately $20.6 and completed several acquisitions as previously described.
The Company intends to use the balance of the proceeds for general corporate
purposes, including possible future acquisitions and working capital.
On August 3, 1999, the Company entered into a $25 million secured
revolving credit facility with The BankNorth Group, N.A. to fund acquisitions
and for general working capital purposes. The revolving credit agreement has a
term of three years, provides for an interest rate based on LIBOR or Prime, and
includes other terms and conditions customary for secured revolving credit
facilities.
Note 6. Common Stock
Stock Repurchase. With a portion of the proceeds of the Senior Notes
discussed above, the Company repurchased approximately 575,000 shares of its
common stock from the period March 3, 1999 through May 13, 1999 for an aggregate
cost of approximately $3.2 million. These shares were retired upon purchase.
Private Placement. In August 1999, the Company closed a private placement
of its common stock of approximately $16 million at $7 per share.
Note 7. 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 environmental impairment liability insurance policies
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 is 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.
Note 8. Segment Information
The Company manages its business segments primarily on a regional
basis. The Company's reportable segments are comprised of Central Pennsylvania,
Vermont, Upstate New York and Central Massachusetts. The accounting policies of
the various segments are the same as those described in the "Summary of
Significant Accounting Policies" in Note 2 in the Company's 1998 Annual Report
of Form 10-K. The Company evaluates the performance of its segments based on
operating income (loss), EBITDA and Adjusted EBITDA, as further described in
Note 18 in the Company's 1998 Annual Report of Form 10-K.
Summary information by segment as of and for the six months ended June 30, 1999
and 1998 is as follows:
<TABLE>
<S> <C> <C>
1999 1998
------------- -------------
Central Pennsylvania
Revenue $ 8,106,393 $ 1,323,004
Income (loss) from continuing operations (110,678) (309,284)
EBITDA 2,438,763 70,743
Adjusted EBITDA 2,991,808 286,486
Segment assets 78,893,213 26,442,600
Vermont
Revenues $ 4,726,316 $ 4,337,799
Income (loss) from continuing operations 1,067,141 532,611
EBITDA 2,244,226 1,792,310
Adjusted EBITDA 2,249,356 2,167,428
Segment assets 27,979,932 22,642,005
Upstate New York
Revenue $ 4,504,461 $ -
Income (loss) from continuing operations (437,509) -
EBITDA 139,784 -
Adjusted EBITDA 412,697 -
Segment assets 19,293,078 -
Central Massachusetts
Revenue $ 2,744,920 $ -
Income (loss) from continuing operations (248,168) (235,464)
EBITDA 17,039 (235,464)
Adjusted EBITDA 192,537 (470,748)
Segment assets 14,631,695 1,071,931
Corporate
Revenue $ - $ -
Income (loss) from continuing operations (2,258,600) (1,380,790)
EBITDA (2,208,057) (1,235,780)
Adjusted EBITDA (2,208,057) (1,235,780)
Segment assets 28,438,141 24,048,091
</TABLE>
Note 9. Supplemental disclosures of cash flow information:
During the six months ended June 30, 1999 and 1998, cash paid for interest
was $2,124,672 and $1,472,238, respectively.
On March 31, 1999, the Company exchanged 2,244,109 shares of the Company's
Common Stock for $10,449,000 of its 7% Subordinated Notes. The Company
incurred a non-cash charge of $5,583,717 in connection with this conversion
of debt into equity.
In connection with the Company's acquisitions completed from January 1,
1999 through June 30, 1999, the Company acquired property and equipment of
approximately $31.0 million, intangible assets of $10.1 million and other
assets of $1.5 million. The aggregate cost of the acquisitions was
approximately $42.6 million consisting of $40.7 million in cash and $1.9
million in assumed liabilities.
<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 is an integrated non-hazardous solid waste management
company that provides solid waste collection, recycling, transfer and disposal
services to commercial, industrial, residential and municipal customers within
certain regional markets in the Northeast and Mid-Atlantic States where it
operates. The Company is achieving significant growth by implementing an active
acquisition strategy. At June 30, 1999, the Company owned one landfill in
Vermont and three landfills in Central Pennsylvania. In addition, the Company
has contracted with the Town of South Hadley, Massachusetts to operate that
Town's landfill. See the table below detailing the "Estimated Total Remaining
Permitted Capacity" and the "Capacity in Permitting Process" for each landfill.
The Company also owns four operating transfer stations and has acquired two
additional transfer stations that are permitted and are under construction. At
June 30, 1999, the Company's collection operations serve a total of
approximately 70,000 commercial, industrial, residential and municipal customers
in the Central Pennsylvania, Vermont, Upstate New York and Central Massachusetts
markets.
The following table provides certain information regarding the landfills
that the Company owns or operates. All information is provided as of June 30,
1999.
Remaining Estimated Permitted Capacity
<TABLE>
<S> <C> <C> <C>
Estimated Capacity in
Total Remaining Permitting
Permitted Capacity Process
Landfill Location (Cubic Yards) (Cubic Yards)(1)
Mostoller Somerset, PA 14,200,000 -
Sandy Run Hopewell, PA 2,783,000 -
Moretown Moretown, VT 1,390,000 -
Community Refuse Service, Inc. Cumberland, PA 5,541,000
South Hadley(2) South Hadley, MA - 2,000,000
</TABLE>
- -------------
(1) Represents capacity for which the Company has begun the permitting process.
(2) The South Hadley Landfill will be operated pursuant to an operating
agreement expiring in 2015.
The Company focuses on the operation of an integrated non-hazardous
solid waste management business, including the ownership and operation of
landfills, solid waste collection services and transfer stations. The Company'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 local market that it serves. The key elements of the Company's
strategy for achieving its objective are: (i) to acquire and integrate solid
waste disposal capacity, transfer stations and collection operations in its
targeted new markets, (ii) to generate internal growth through increased sales
penetration and the marketing of additional services to existing customers and
(iii) to enhance profitability by increasing operating efficiency.
Expansion Through Acquisitions. During the six months ended June 30,
1999, WSI acquired four collection companies and a landfill in Central
Pennsylvania, one collection company in Vermont, one collection company in
Central Massachusetts, and two collection companies and a transfer station in
Upstate New York. During 1998, the Company completed 34 acquisitions within its
4 current operating regions. The Company intends to continue to expand by
acquiring solid waste disposal capacity and collection companies in new and
existing markets. In considering new markets, the Company evaluates
opportunities to acquire or otherwise control sufficient landfills, transfer
stations and collection operations which would enable it to generate an
integrated waste stream and achieve the disposal economies of scale necessary to
meet its market share and financial objectives. The Company has established
criteria, which enable it to evaluate the prospective acquisition opportunity
and the target market. Historically, the Company has entered new markets which
are adjacent to its existing markets; however, the Company is considering new
markets in non-contiguous geographic areas which meet its criteria.
The following table sets forth the acquisitions completed by the
Company through August 9, 1999:
<TABLE>
<S> <C> <C> <C>
Acquisition Month Acquired Principal Business Location
Central Pennsylvania Region
B&J Garbage Service July 1999 Collection Berlin,PA
Pro-Disposal April 1999 Collection Bellwood, PA
Cumberland Waste Service, Inc March 1999 Collection Cumberland, PA
Community Refuse Service, Inc March 1999 Landfill Shippensburg, PA
Koontz Disposal January 1999 Collection Boswell, PA
Jim's Hauling, Inc. January 1999 Collection Duncansville, PA
Mostoller Landfill, Inc. August 1998 Landfill Somerset, PA
Worthy's Refuse Service August 1998 Collection McVey Town, PA
Sandy Run Landfill July 1998 Landfill Hopewell, PA
Patterson's Hauling May 1998 Collection Altoona, PA
Pleasant Valley Hauling May 1998 Collection Altoona, PA
McCardle Refuse Company May 1998 Collection Burham, PA
Horvath Sanitation, Inc. May 1998 Collection Altoona, PA
Vermont Region
B. B. & B. Trucking April 1999 Collection Burlington, VT
Grady Majors Rubbish Removal September 1998 Collection St. Albans, VT
Cota Sanitation June 1998 Collection Newport, VT
Vincent Moss June 1998 Collection Newport, VT
Austin Rubbish Removal June 1998 Collection Newport, VT
Surprenant Rubbish, Inc. June 1998 Collection Newport, VT
Fortin's Trucking of Williston May 1998 Collection Williston, VT
John Leo & Sons, Ltd. March 1998 Collection Burlington, VT
Rapid Rubbish Removal, Inc. February 1998 Collection/Transfer Station St. Johnsbury, VT
Greenia Trucking February 1998 Collection St. Albans, VT
Doyle Disposal January 1998 Collection Barre, VT
Perkins Disposal January 1998 Collection St. Johnsbury, VT
CSWD Transfer Station October 1997 Transfer Station Williston, VT
The Hartigan Company January 1997 Collection Stowe, VT
Waitsfield Transfer Station November 1995 Transfer Station Waitsfield, VT
Moretown Landfill July 1995 Landfill Moretown, VT
Upstate New York Region
Palmer Resource Recovery Corp. May 1999 Transfer Station Syracuse, NY
Tri-Valley Sanitation, Inc. April 1999 Collection Whitesboro, NY
Santaro Trucking Co., Inc. January 1999 Collection Syracuse, NY
Richard A. Bristol, Sr. November 1998 Collection Rome, NY
Bristol Trash and Recycling II November 1998 Collection Rome, NY
Shepard Disposal Service October 1998 Collection Oneida, NY
Emmons Trash Removal October 1998 Collection Sherill, NY
Wayne Wehrle September 1998 Collection Clinton, NY
Phillip Trucking September 1998 Collection Wampsville, NY
Mary Lou Mauzy September 1998 Collection Cazenovia, NY
Costello's Trash Removal September 1998 Collection Cazenovia, NY
Bliss Rubbish Removal, Inc. September 1998 Collection/Transfer Station Camden, NY
Besig & Sons September 1998 Collection Westmoreland, NY
Larry Baker Disposal, Inc. September 1998 Collection Oneida, NY
Central Massachusetts Region
Troiano Trucking, Inc. March 1999 Collection Worcester, MA
Steve Provost Rubbish Removal December 1998 Collection Rochdale, MA
Sunrise Trucking December 1998 Collection Spencer, MA
Trashworks November 1998 Collection Worcester, MA
Mattei-Flynn Trucking, Inc. August 1998 Collection Auburn, MA
Mass Wood Recycling, Inc. July 1998 Transfer Station Oxford, MA
Southern New Hampshire/Eastern Massachusetts Region
C&J Trucking Company, Inc. July 1999 Collection/Transfer Station Hookset, NH
Baltimore, Maryland/Washington, D.C. Region
Eastern Trans-Waste of
Maryland, Inc. July 1999 Collection/Transfer Station Capitol Heights, MD
</TABLE>
Internalization of Waste
Throughout 1998 and during the six months ended June 30, 1999, the
Company increased the amount of waste collected by the Company that was
subsequently disposed at Company landfills, and increased the amount of the
waste delivered for disposal at the Company's landfills that was collected by
the Company. During the six months ended June 30, 1999, 97% of the waste from
the Company's Vermont operations was delivered for disposal at the Moretown
Landfill and approximately 49% of the waste delivered for disposal at the
Moretown Landfill during this period was collected by the Company. In addition,
approximately 66% of the waste from the Company's Central Pennsylvania - Altoona
division operations was delivered for disposal at the Sandy Run Landfill and
approximately 71% of the waste delivered for disposal at the Sandy Run Landfill
during this period was collected by the Company. Since the acquisition of
Community Refuse, Inc., on March 1, 1999, approximately 95% of the waste from
the Company's Central Pennsylvania - Harrisburg division operations was
delivered for disposal at the Community Refuse, Inc. landfill and approximately
14% of the waste delivered for disposal at the Community Refuse, Inc. landfill
during this period was collected by the Company.
Recent Business Developments
Acquisitions.
On August 3, 1999, we completed the acquisition of the assets of C&J
Trucking, Inc. and affiliates, with collection operations throughout Eastern
Massachusetts and Southern New Hampshire. The acquired assets also include two
transfer stations located in Lynn, Massachusetts and Londonderry, New Hampshire,
which are initially expected to handle in excess of 1,000 tons of waste per day.
On July 1, 1999, we acquired Eastern Trans-Waste of Maryland, Inc., a
well-established commercial and industrial collection operation servicing the
Baltimore, Maryland and Washington, D.C. region. Its operations include a 53,000
square foot transfer station located in Washington, D.C., which is permitted to
operate twenty-four hours per day with no capacity restrictions. As part of its
customer base, Eastern Trans-Waste serves the White House and numerous federal
agencies. The total purchase price for these acquisitions was approximately $70
million, in cash and stock. The consideration paid to former stockholders of
Eastern Trans-Waste of Maryland, Inc. includes 2,678,620 shares of common stock
and 894 shares of newly designated Series C Preferred Stock that is
automatically convertible, upon stockholder approval, into 1,576,292 shares of
common stock, subject to adjustment in the event of a stock dividend,
subdivision or combination of Waste Systems' common stock or a capital
reorganization, merger or consolidation of Waste Systems or the sale of all or
substantially all of Waste Systems' assets. We intend to hold a special meeting
of the stockholders before October 30, 1999 to consider and vote on stockholder
approval of the Series C conversion.
The acquisitions are expected to add annualized revenues of
approximately $30 million and will be recorded using the purchase method of
accounting. As a result, we believe that we are poised to continue our growth in
these areas and to enhance our profitability through the implementation of
operating efficiencies.
New Revolving Credit Facility
On August 3, 1999, the Company entered into a $25 million secured
revolving credit facility with The BankNorth Group, N.A. to fund acquisitions
and for general working capital purposes. The revolving credit agreement has a
term of three years, provides for an interest rate based on LIBOR or Prime, and
includes other terms and conditions customary for secured revolving credit
facilities.
Private Placement of common stock
In August 1999, the Company closed a private placement of its common
stock of approximately $16 million at $7 per share.
Results of Operations
During the six months ended June 30, 1999, the Company acquired one
landfill, eight solid waste collection companies and one transfer station.
Because of the relative significance of the acquired business' operations to the
Company's financial performance, as well as the acquisitions consummated in
1998, 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 Six months ended
June 30, June 30,
1999 1998 1999 1998
------ ------ ------ ------
Collection 78.1% 70.5% 81.7% 62.5%
Landfill 16.8 4.9 13.7 10.2
Transfer 5.1 24.6 4.6 27.3
------ ------ ------ ------
Total Revenue 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
The increase in collection revenues as a percentage of revenues in the
three and six months ended June 30, 1999 compared to the same period in 1998 is
due primarily to the acquisition of the collection companies acquired during
1998 and the first six months of 1999. During 1998 and six months ended June 30,
1999, the Company acquired 31 and 8 collection companies, respectively. The
increase in the Company's landfill revenues as a percentage of revenues in the
three and six months ended June 30, 1999 compared to the same periods in 1998 is
due primarily to the acquisition of the Community Refuse Landfill which is
accepting significant third party waste.
Revenues increased $7,086,999 or 171% and $14,421,287, or 255%, to
$11,219,832 and $20,082,090 for the three and six month periods ended June 30,
1999, respectively. Total revenues for the comparable periods in 1998 were
$4,132,833 and $5,660,803. The increase was primarily due to the impact of
operations acquired during 1998 and the two quarters ended June 30, 1999. See
Note 2 to the Consolidated Financial Statements. Revenue from acquisitions
accounted for approximately $6,500,000 and $12,300,000 of the growth in revenues
for the three and six month periods ended June 30, 1999. The balance of the
increase is the result of the internal growth within the Vermont and
Pennsylvania operations which were the only operations in existence during the
periods in 1998. The growth in the Vermont and Pennsylvania operations were due
to increased volume and prices at the Vermont landfill and internal growth at
both collection operations.
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>
<S> <C> <C> <C> <C>
Three months ended Six Months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expense 61.6 53.3 62.2 54.2
Depreciation and amortization 25.1 24.3 22.7 24.4
Acquisition integration costs 4.1 6.6 5.0 10.4
Write-off of project development costs - 5.7 - 4.1
------- ------ ------- --------
Total cost of operations 90.8 89.9 89.9 93.1
------- ------ ------- --------
Gross profit 9.2 10.1 10.1 6.9
Selling, general and
administrative expenses 18.7 27.2 20.0 31.5
------- ------ ------ -------
Loss from operations (9.5) (17.1) (9.9) (24.6)
Royalty and other income (expense), net (1.3) (0.0) (1.4) (0.3)
Interest income 2.5 4.4 2.2 3.7
Interest expense and financing costs (34.7) (25.1) (29.3) (26.0)
Non-cash charge for debt conversion - - (27.7) -
Extraordinary item - (5.7) (1.1) (4.1)
------- ------- ------- ---------
Net loss (43.0)% (43.5)% (67.2)% (51.3)%
======== ======== ======== ==========
</TABLE>
Operating expenses increased $4,712,705 or 214% and $9,420,241, or
307%, to $6,915,757 and $12,486,873 for the three and six months ended June 30,
1999, respectively. Cost of operations for the comparable periods in 1998 were
$2,203,052 and $3,066,632. As a percentage of revenues, operating expenses
increased to 61.6% and 62.2% for the three and six months ended June 30, 1999,
respectively from 53.3% and 54.2% for the same periods in 1998. Operating
expenses increased for both comparable periods in 1999 primarily due to the
acquisitions indicated above. The increase in operating expenses as a percentage
of revenues was primarily due to the change in revenue mix, with increased
revenue coming from collection operations, which typically experience much
higher operating expenses than landfill operations. The Company internalizes a
significant portion of its waste collected in Vermont and Central Pennsylvania,
which significantly reduces costs of operations as a percentage of revenue. The
Company's Upstate New York and Central Massachusetts operations consist of only
collection and transfer station operations at this time.
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 development costs
using the units-of-production method. Depreciation and amortization expense
increased $1,810,628 or 180% and $3,188,900 or 231% for the three and six month
periods ended June 30, 1999, to $2,816,513 and $4,569,026 respectively.
Depreciation and amortization expense for the comparable periods in 1998 were
$1,005,884 and $1,380,126. The increase is 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 additions of the Sandy Run and Community Refuse, Inc.
landfills in Central Pennsylvania. As a percentage of revenues, depreciation and
amortization expense increased slightly to 25.1% for the three months ended June
30, 1999 compared with 24.3% for the three months ended June 30, 1998. As a
percentage of revenues, depreciation and amortization expense decreased slightly
to 22.7% for the six months ended June 30, 1999 compared with 24.4% for the
three months ended June 30, 1998.
Acquisition integration costs consist of one-time, non-recurring costs,
which in the opinion of management have no future value and, therefore, are
expensed. Such costs include termination and retention of employees, lease
termination costs, costs related to the integration of information systems and
costs related to the change of name of the acquired company or business. These
charges are estimated and accrued at the time the acquisition is closed. The
estimates are reviewed frequently by Company management and the related
operation teams integrating the new acquisitions and adjusted as required.
Acquisition integration costs totaled approximately $462,186 and $270,862 for
the three months ended June 30, 1999 and 1998, respectively and approximately
$1,006,586 and $590,862 for the six months ended June 30, 1999 and 1998,
respectively.
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 expenses increased $970,197 or 86% and $2,226,593, or 125% to
$2,093,810 and $4,007,419 for the three and six month periods ended June 30,
1999, respectively. Selling, general and administrative expenses for the
comparable periods in 1998 were $1,123,613 and $1,780,826. As a percentage of
revenues, selling, general and administrative expenses decreased to 18.7% and
20.0% for the three and six months ended June 30, 1999, respectively from 27.2%
and 31.5% for the same periods in 1998. The dollar increase was due to efforts
by the Company to build an infrastructure to sustain its significant growth
through acquisition and to support the several corporate initiatives designed to
implement its strategy. The Company expects spending growth to continue
moderately through 1999 as the Company continues to implement its growth through
acquisition strategy. The decrease as a percentage of revenue was primarily due
to the expanded revenue base and related efficiencies, as the Company is able to
purchase "tuck-in" acquisitions that increase revenues and improve margins
without adding significant administrative costs. 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 $95,921 or 52% and $235,278, or 112% to
$277,827 and $446,169 for the three and six months ended June 30, 1999,
respectively. Interest income for the comparable periods in 1998 were $182,906
and $210,891. The increase was the result of higher average cash and investment
balances due to the proceeds from the 11.5% Senior Notes that closed on March 2,
1999. See Note 5 to the Consolidated Financial Statements.
Interest expense and financing costs, net of capitalized interest costs
increased $2,851,746 or 275% and $4,424,168, or 301% to $3,889,939 and
$5,896,406 for the three and six month periods ended June 30, 1999,
respectively. Interest expense and financing costs, net of capitalized interest
costs for the comparable periods in 1998 were $1,038,193 and $1,472,238. The
increase resulted primarily from increased indebtedness incurred in connection
with the 11.5% Senior Notes. In addition 1999 results reflect the full impact of
the 7% Convertible Subordinated Notes which closed during the second quarter of
1998. See Note 5 to the Consolidated Financial Statements. 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. For the three and six
months ended June 30, 1999, the Company capitalized $356,547 and $692,199 of
interest costs, respectively. No interest was capitalized for the three and six
months ended June 30, 1998.
Royalty and other income (expense) was ($145,288) and ($277,690) for
the three and six month periods ended June 30, 1999, respectively. Royalty and
other income (expense) for the comparable periods in 1998 were ($1,324) and
($15,450), respectively. Royalty and other income (expense) primarily relates to
the Company's medical waste treatment proprietary technologies. The increase in
1999 was due to travel and professional fees related to an ongoing patent
infringement lawsuit discussed in Note 15 to the Consolidated Financial
Statements in the Company's Annual Report filed on Form 10-K, for the year ended
December 31, 1998.
The net loss for the six months ended June 30, 1999 includes a non-cash
charge of $5,583,717 in connection with the conversion of debt into equity. See
Note 5 to the Consolidated Financial Statements.
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.
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>
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Loss from operations ($ 1,068,433) ($ 705,862) ($ 1,987,814) ($ 1,392,927)
Depreciation and amortization 2,889,106 1,071,479 4,641,620 1,477,595
--------- --------- --------- ---------
EBITDA 1,820,673 365,617 2,653,806 84,668
Write-off of projected development costs - 235,284 - 235,284
Acquisition integration costs 462,186 270,862 1,006,586 590,862
----------- ---------- ------------- ------------
Adjusted EBITDA $ 2,282,859 $ 871,763 $ 3,660,392 $ 910,814
============ ========== =========== ===========
EBITDA as a % of revenue 16.2% 8.9% 13.2% 1.5%
===== ==== ===== ====
Adjusted EBITDA as a % of revenue 20.3% 21.1% 18.2% 16.1%
===== ===== ===== =====
</TABLE>
Financial Position
WSI had approximately $19.1 million in cash as of June 30, 1999. This
represents an increase of approximately $18.9 million from December 31, 1998.
The Company had working capital of approximately $18.4 million as of June 30,
1999, an increase of approximately $24.9 million from December 31, 1998. This
increase was primarily due to the remaining proceeds from the Senior Notes.
During the six months ended June 30, 1999, WSI acquired four collection
companies and a landfill in Central Pennsylvania, one collection company in
Vermont, one collection company in Central Massachusetts, and two collection
companies and a transfer station in Upstate New York. The aggregate cost of the
acquisitions was approximately $42.6 million consisting of $40.7 million in cash
and $1.9 million in assumed liabilities. The acquisitions have combined annual
revenues of approximately $13.8 million.
At June 30, 1999, the Company had approximately $7.3 million in trade
accounts receivables. The Company has estimated an allowance for doubtful
accounts of approximately $0.4 million, which is considered sufficient to cover
future bad debts.
During the six months ended June 30, 1999, the Company devoted
substantial resources to various corporate development activities. Additions to
property and equipment during the six months ended June 30, 1999 were
approximately $37.6 million, which included assets purchased through acquisition
of approximately $32.4 million.
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 and the issuance of equity securities and debt. On May 13, 1998,
the Company closed an offering of $60.0 million 7% Convertible Subordinated
Notes which resulted in net proceeds to the Company of approximately $58.3
million. On March 2, 1999, the Company completed a private offering of 11 1/2%
Senior Notes in the aggregate principal amount of $100 million due January 15,
2006 which resulted in net proceeds to the Company of approximately $97.3
million. On March 31, 1999, the Company completed an exchange offering whereby
approximately $10,449,000 of the 7% Convertible Subordinated Notes were
exchanged into 2,244,109 shares of its common stock. In August 1999, the Company
closed a private placement of its common stock of approximately $16 million at
$7 per share. See Footnotes 5 and 6 for further discussion of these items. The
Company intends to continue its strategy 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 results of operations.
The Company maintains an acquisitions department that is responsible for
the identification, due diligence, negotiation and closure of acquisitions. The
Company believes that a combination of internally generated funds, additional
debt and equity financing and the remaining proceeds from the Notes will provide
adequate funds to support the Company's cost structure, acquisition strategy and
working capital requirements for the near 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 exploration and negotiation (ranging from initial discussions to the
execution of letters of intent and the preparation of definitive agreements),
some of which may, if consummated, be material. No assurance can be given,
however, that the Company will be successful in completing further acquisitions
in accordance with its growth strategy, or that such acquisitions, if completed,
will be successful.
For the six months ended June 30, 1999 the Company used ($1,428,342) for
operating activities compared to ($707,502) during the same period in 1998. The
decreased cash flow from operations in 1999 was due primarily to increased cost
of operations, acquisition integration costs and selling general and
administrative expenses which more than offset increased revenues. The remainder
of the cash flow decrease was due to changes in the operating assets and
liabilities including increased accounts receivable and decreased accounts
payable and deferred revenue. These were offset by a decrease in prepaid
expenses and increased accrued expenses.
EBITDA increased by $1,455,056 and $ 2,569,138 during the three and six
months ended June 30, 1999 to $1,820,673 and $2,653,806. EBITDA during the
comparable periods in 1998 was $365,617 and $84,668. As a percentage of revenue,
EBITDA increased to 16.2% and 13.2% during the three and six months ended June
30, 1999 from 8.8% and 1.5% during the same periods in 1998. Adjusted EBITDA
increased by $1,411,096 and $2,749,578 during the three and six months ended
June 30, 1999 to $2,282,859 and $3,660,392. Adjusted EBITDA during the
comparable periods in 1998 was $871,763 and $910,814. As a percentage of
revenue, adjusted EBITDA decreased slightly to 20.3% from 21.1% for the three
months ended June 30, 1999 compared to the same period in 1998. For the six
months ended June 30, 1999, Adjusted EBITDA increased to 18.2% compared with
16.1% during the same period in 1998.
Net cash used by investing activities during the first six months of
1999 was $52,872,026 compared to $32,869,279 in the same period in 1998. Of the
net cash used by investing activities in 1999, approximately $42.6 million was
used for the acquisition of landfill, collection and transfer operations. See
Footnote 2. Additional capital expenditures of approximately $6.6 million were
made to increase operating efficiencies at the Company's existing operations.
Other investing activity included the acquisition of various long-term permits
necessary to operate the landfills and for long-term prepaid disposal costs.
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 1999 due to acquisitions,
ongoing development and construction of the Mostoller and South Hadley
Landfills, and construction of transfer stations in Upstate New York and Central
Massachusetts.
Net cash provided by financing activities during the first six months
of 1999 was approximately $73.2 million. The primary source of cash was due to
the proceeds of approximately $97.3 million, net of expenses, from the $100
million Senior Notes offering. The proceeds were offset by repayment of existing
debt of approximately $20.6. In addition, the Company repurchased approximately
575,000 shares of its common stock for approximately $3.2 million.
The Company had a $10 million line of credit facility with The BankNorth
Group, N.A. which was fully drawn as of December 31, 1998. The entire balance
was repaid on March 2, 1999 with the proceeds from the Senior Notes and the
credit facility was closed. On August 3, 1999, the Company entered into a $25
million line of credit facility with The BankNorth Group, N.A. The term of the
new credit facility is three years.
At June 30, 1999, the Company had approximately $151.7 million of
long-term debt.
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, without limitation: (i) harsh winter weather conditions
which can interfere with collection and transportation, (ii) the construction
and demolition activities which generate waste are primarily performed in the
warmer seasons and (iii) the volume of waste in the region is generally lower
than 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.
The Company does not believe its operations have been materially
affected by inflation.
Based upon its current operating plan, the Company believes that its
cash and cash equivalents, available borrowings, future cash flow from
operations and the proceeds of future debt and equity financings will satisfy
the Company's working capital needs for the near future. However, there can be
no assurances in this regard.
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, 1998, (filed March
31, 1999), as amended by Form 10-K/A Amendments Nos. 1 and 2 (filed April 4,
1999 and August 6, 1999, respectively; File No. 000-25998), could cause actual
results to differ materially from those indicated by forward-looking statements
made in this Quarterly Report on Form 10-Q:
- - Our history of losses makes investment in Waste Systems highly speculative; -
Our high level of indebtedness could adversely affect our financial health; -
Incurring more debt could further exacerbate the risks of our high level of
indebtedness; - We may not generate enough cash to service our indebtedness or
our other liquidity needs; - We have no control over many factors in our ability
to finance planned growth; - Our future success depends upon our ability to
manage rapid growth in operations and personnel; - Our future success depends
upon our ability to identify, acquire and integrate acquisition targets; - Loss
of key executives could affect Waste Systems' ability to achieve our business
objectives;
- - Failed acquisitions or projects may adversely affect our results of operations
and financial condition; - Our business may not succeed due to the highly
competitive nature of the solid waste management industry; - Seasonal revenue
fluctuations may negatively impact our operations; - The geographic
concentration of our operations magnifies the risks to our success; - Potential
difficulties in acquiring landfill capacity could increase our costs; - Failure
to obtain landfill closure performance bonds and letters of credit may adversely
affect our business; - Estimated accruals for landfill closure and post-closure
costs may not meet our actual financial obligations; - Environmental and other
government regulations impose costs and uncertainty on our operations; - We are
exposed to potential liability for environmental damage and regulatory
noncompliance; - Our environmental liability insurance may not cover all risks
of loss; - Addressing local community concerns about our operations may
adversely affect our business; and - Year 2000 problems could have an adverse
impact on our business.
Since December 31, 1998, the Company incurred additional indebtedness
through the $100 million Senior Notes offering, which creates a more highly
leveraged capital structure of the Company. While the Company does not have to
pay any principal on the Senior Notes until 2006, the Company will incur
substantial increased interest expense. In addition, based on the terms of the
Senior Notes, the interest rate on the Senior Notes will be increased if the
Company does not achieve certain levels of consolidated stockholders' equity.
Accordingly, the Company may decide to issue substantial additional shares of
its common stock, in order to increase its stockholders' equity.
Year 2000 Compliance
The statements in the following section include the "Year 2000
readiness disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Please refer to the information located at the
beginning of this Item 2 regarding forward-looking statements contained in this
section.
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 will not be material. The Company has incurred only
minimal costs to date associated with the Year 2000 issue.
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 the Company believes will be fully Year 2000 compatible, and the Company
believes that the provider of the solid waste industry customer information and
billing system is Year 2000 compatible. The Company's banking arrangements are
with national banking institutions, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Waste Systems $25 million credit facility has an variable interest rate
based on LIBOR or the Prime rate. As interest rates increase in the overall
credit market, our interest expense will increase proportionately. In addition,
as interest rates increase in the overall market, we may find it difficult to
borrow under the credit facility or to enter into other loans to finance our
acquisition strategy. We do not believe that our market risk is material to our
financial condition 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
In August 1999, the Company closed a private placement of its common
stock of approximately $16 million at $7 per share.
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 June
14, 1999. The stockholders elected members of the Board of Directors; approved
an amendment to the Company's Amended and Restated Certificate of Incorporation
increasing the number of authorized shares of Common Stock, par value $0.01 per
share, from 30,000,000 shares to 75,000,000; approved an amendment to the
Company's Amended and Restated 1995 Stock Option and Incentive Plan increasing
the number of authorized shares of Common Stock , par value $0.01 per share,
from 3,000,000 shares to 4,000,000 and approved 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:
<TABLE>
<S> <C> <C> <C>
For Against Withheld
Philip Strauss 7,775,089 456,522 11,357
Robert Rivkin 7,775,089 456,522 11,357
Jay Matulich 7,772,839 458,772 11,357
David J. Breazzano 7,775,089 456,522 11,357
Charles Johnston 7,774,789 456,822 11,357
Judy K. Mencher 7,759,489 472,122 11,357
William B. Philipbar 7,774,189 457,422 11,357
</TABLE>
The tabulation of votes for the Company's other proposals were as follows:
<TABLE>
<S> <C> <C> <C>
Amendment to the Company's Amended and Restated
Certificate of Incorporation 7,553,326 684,455 5,187
Amendment to the Company's Amended and Restated
1995 Stock and Incentive Plan 5,208,131 761,619 2,273,218
Selection of KPMG Peat Marwick LLP as auditors 7,780,897 460,412 20,097
</TABLE>
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 a Current
Report on Form 8-K/A dated May 24, 1999 . This Current Report amended an earlier
Current Report filed on Form 8-K on March 25, 1999. The Current report is
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 Community Refuse Service, Inc. and
Cumberland Waste Services, Inc. (collectively "Community Refuse, Inc. and
Affiliate") which are based in Shippensburg, Pennsylvania pursuant to the terms
of Stock and Asset Purchase Agreements dated March 11, 1999 by and among Robert
H. Grove, Esther L. Grove, Michael Grove, Timothy Grove, Joseph Grove and Robin
Vink and the Company. The Company filed consolidated financial statements for
Community Refuse, Inc. and Affiliate as of December 31, 1998 and 1997 (audited).
The Company also filed Pro Forma Combined Condensed Statements of Operations for
the year ended December 31, 1998 and Combined Condensed Balance Sheet as of
December 31, 1998 (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: August 13, 1999 By: /s/ Philip Strauss
---------------- -------------------
Philip Strauss
Chairman, Chief Executive Officer and
President
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ Robert Rivkin
---------------- ------------------
Robert Rivkin
Executive Vice President - Acquisitions,
Chief Financial Officer, Secretary, Treasurer
and Director
(Principal Financial and Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
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<CIK> 0000847468
<NAME> Waste Systems International, Inc
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 19,127,974
<SECURITIES> 0
<RECEIVABLES> 6,896,444
<ALLOWANCES> 377,167
<INVENTORY> 0
<CURRENT-ASSETS> 33,247,359
<PP&E> 79,117,460
<DEPRECIATION> 7,437,818
<TOTAL-ASSETS> 169,236,059
<CURRENT-LIABILITIES> 14,849,998
<BONDS> 0
0
0
<COMMON> 134,060
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<TOTAL-LIABILITY-AND-EQUITY> 169,236,059
<SALES> 20,082,090
<TOTAL-REVENUES> 20,082,090
<CGS> 12,486,873
<TOTAL-COSTS> 18,062,485
<OTHER-EXPENSES> 4,007,419
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<INTEREST-EXPENSE> 5,896,406
<INCOME-PRETAX> (13,299,458)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,299,458)
<DISCONTINUED> 0
<EXTRAORDINARY> (224,358)
<CHANGES> 0
<NET-INCOME> (13,523,816
<EPS-BASIC> (0.99)
<EPS-DILUTED> (1.01)
</TABLE>
