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,
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
incorporation or organization) Identification No.)
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 November 12, 1999 was 20,330,946.
<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,
1999 and December 31, 1998. 1
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1999 and 1998. 2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 21
Item 2. Changes in Securities 21
Item 3. Defaults on Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits, Financial Statements Schedules and
Reports on Form 8-K 21
Signatures 23
<PAGE>
1
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30, December 31,
1999 1998
------------------- --------------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,460,415 $ 193,613
Accounts receivable, less allowance for doubtful accounts of
$775,841 at September 30, 1999 and $222,028 at
December 31,1998 9,563,533 5,235,534
Prepaid expenses and other current assets 2,688,672 4,769,285
------------------- --------------------
Total current assets 14,712,620 10,198,432
Property and equipment, net (Notes 2 and 3) 164,536,765 44,685,735
Intangible assets, net (Notes 2 and 4) 48,848,823 38,059,374
Other assets 7,347,062 3,173,158
------------------- --------------------
Total assets $ 235,445,270 $ 96,116,699
=================== ====================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 5) $ 684,370 $ 8,259,922
Accounts payable 7,348,274 3,849,632
Accrued expenses 9,294,217 2,742,539
Current portion of landfill closure and post-closure costs 2,500,000 -
Deferred revenue 1,857,666 1,866,128
------------------- --------------------
Total current liabilities 21,684,527 16,718,221
Long-term debt and notes payable (Note 5) 171,958,095 74,861,187
Landfill closure and post-closure costs, and other liabilities 2,000,005 2,798,597
------------------- --------------------
Total liabilities 195,642,627 94,378,005
------------------- --------------------
Commitments and Contingencies (Note 7)
Stockholders' equity (Notes 5 and 6):
Common stock, $.01 par value. Authorized 75,000,000 shares;
18,580,621 and 11,718,323 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively 185,806 117,184
Preferred Stock $.001 par value Authorized 1,000,000 shares
Series C Preferred Stock; 1,000 shares designated, 1,000 and 0 issued
and outstanding at September 30, 1999 and December 31,
1998, respectively. 11,615,000 -
Additional paid-in capital 84,774,464 37,810,712
Accumulated deficit (56,772,627) (36,189,202)
------------------- --------------------
Total stockholders' equity 39,802,643 1,738,694
------------------- --------------------
Total liabilities and stockholders' equity $ 235,445,270 $ 96,116,699
=================== ====================
</TABLE>
See accompanying notes to consolidated financialstatements.
<PAGE>
2
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---------------- -------------- -------------- ---------------
Revenues $ 17,393,175 $ 7,009,378 $ 37,475,265 $ 12,670,181
Cost of operations:
Operating expenses 12,658,605 3,765,569 25,145,478 6,832,201
Depreciation and amortization 3,525,043 1,343,619 8,094,069 2,723,745
Acquisition integration costs (Note 2) 1,371,062 794,811 2,377,648 1,385,673
Write-off of project development costs - - - 235,284
---------------- -------------- -------------- ---------------
Total cost of operations 17,554,710 5,903,999 35,617,195 11,176,903
---------------- -------------- -------------- ---------------
Gross profit (loss) (161,535) 1,105,379 1,858,070 1,493,278
Selling, general and administrative expenses 2,660,717 1,158,924 6,668,136 2,939,750
---------------- -------------- ------------- ---------------
Loss from operations (2,822,252) (53,545) (4,810,066) (1,446,472)
---------------- -------------- ------------- ---------------
Other income (expense):
Royalty and other income (expense), net (264,410) (37,120) (542,100) (52,570)
Interest income 37,081 225,916 483,250 436,807
Interest expense and financing costs (4,010,028) (1,252,343) (9,906,434) (2,724,581)
Non-cash charge for debt conversion (Note 5) - - (5,583,717) -
---------------- -------------- ------------- ---------------
Total other income (expense) (4,237,357) (1,063,547) (15,549,001) (2,340,344)
---------------- -------------- ------------- ---------------
Loss before extraordinary item (7,059,609) (1,117,092) (20,359,067) (3,786,816)
Extraordinary item - Loss on extinguishment of debt - (3,597) (224,358) (237,627)
---------------- -------------- ------------- ---------------
Net loss (7,059,609) (1,120,689) (20,583,425) (4,024,443)
Preferred stock dividends - 410,837 - 887,869
---------------- -------------- ------------- ---------------
Net loss available for common shareholders $(7,059,609) $(1,531,526) $(20,583,425) $ (4,912,312)
================ ============== ============= ===============
Basic net loss per share:
Loss from continuing operations $ (0.40) $ (0.12) $ (1.37) $ (0.64)
Extraordinary item (0.00) (0.00) (0.02) (0.04)
---------------- -------------- -------------- ---------------
Basic net loss per share (0.40) $ (0.12) $ (1.39) $ (0.68)
================ ============== ============= ===============
Weighted average number of shares used in
Computation of basic net loss per share 17,586,589 9,439,810 14,818,688 5,930,765
================ ============== ============== ===============
</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>
Nine months ended September 30,
1999 1998
------------------ -----------------
Cash flows from operating activities:
Net loss $ (20,583,425) $ (4,024,443)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization 8,215,971 2,769,147
Amortization of deferred financing costs 492,920 170,675
Non-cash charge for conversion of debt to equity 5,583,717 -
Extraordinary loss on extinguishment of debt 224,358 237,627
Write-off of project development costs - 235,284
Issuance of common stock for services - 12,500
Allowance for doubtful accounts 225,575 219,643
Landfill closure and post-closure costs 493,249 1,081,315
Changes in assets and liabilities:
Accounts receivable (2,282,037) (893,400)
Prepaid expenses and other current assets 3,327,804 (1,160,050)
Accounts payable 513,645 1,085,369
Accrued expenses 5,205,388 997,775
Deferred revenue (583,560) 323,267
------------------ -----------------
Net cash provided (used) by operating activities 833,605 1,054,709
------------------ -----------------
Cash flows from investing activities:
Net assets acquired through acquisitions (84,063,076) (55,789,458)
Restricted cash and securities (9,924) 214,588
Landfills (5,053,902) (2,612,573)
Landfill and other development projects (5,270,428) (85,453)
Buildings, facilities and improvements (764,141) (447,248)
Machinery and equipment (1,492,958) (508,477)
Rolling stock (1,827,179) (980,527)
Containers (989,446) (329,054)
Office furniture and equipment (527,222) (292,950)
Intangible assets (1,998,376) (150,000)
Other assets (1,664,980) (1,200,128)
------------------ -----------------
Net cash used by investing activities (103,641,629) (62,181,280)
------------------ -----------------
Cash flows from financing activities:
Deferred financing and registration costs (3,890,729) (1,971,021)
Repayments of notes payable and long-term debt (21,075,104) (15,018,631)
Borrowings from notes payable and long-term debt 117,500,000 78,949,857
Repurchase of common stock (3,229,057) -
Proceeds from the exercise of common stock options 91,500 40,406
Proceeds from private placement of common stock 15,678,216 -
Dividends paid on preferred stock - (887,869)
------------------ -----------------
Net cash provided by financing activities 105,074,826 61,112,742
------------------ -----------------
Increase in cash and cash equivalents 2,266,802 (13,829)
Cash and cash equivalents, beginning of period 193,613 2,964,274
------------------ -----------------
Cash and cash equivalents, end of period $ 2,460,415 $ 2,950,445
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
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 September 30, 1999 and for all periods presented have been made.
The results of operations for the period ended September 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 nine months ended September 30, 1999, WSI acquired five
collection companies and a landfill in Central Pennsylvania, one collection
company in Vermont, two collection companies, two transfer stations and a paper
recycling plant in Eastern New England, two collection companies and a transfer
station in Upstate New York and a collection company and transfer station in the
Baltimore, Maryland/Washington D.C region. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately $72.7
million in cash, $19.3 million in common stock, $11.6 million in Series C
Preferred Stock and $9.4 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 $42.0 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 approximately
$99.3 million, intangible assets of $11.0 million and other assets of $2.7
million. The excess of the purchase price over the fair value of the net
identifiable assets acquired of approximately $9.8 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 $1,371,062 and $794,811 for the three months ended
September 30, 1999 and 1998, and $2,377,648 and $1,385,673 for the nine months
ended September 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 nine months ended September 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.
September 30, 1999 September 30, 1998
(unaudited) (unaudited)
Net revenues $ 53,231,949 $ 52,181,445
Loss from operations $ (2,087,516) $ (2,444,877)
Net loss $ (17,860,875) $ (5,022,848)
Basic loss per share $ (1.21) $ (0.85)
Note 3. Property and Equipment
Property and equipment are stated at cost and consist of the following;
September 30, December 31,
1999 1998
Landfills $ 49,568,129 $ 18,631,409
Landfill and other development projects 16,904,508 8,778,901
Buildings, facilities and improvements 75,706,194 4,701,245
Machinery and equipment 6,990,458 3,038,700
Rolling stock 14,888,175 8,980,626
Containers 9,268,213 4,104,397
Office furniture and equipment 1,305,957 713,235
175,061,613 48,948,513
Less accumulated depreciation and
amortization (10,094,869) (4,262,778)
------------- -------------
Property and equipment, net $164,536,765 $ 44,685,735
Note 4. Intangible Assets
Intangible assets consist of the following;
September 30, December 31,
1999 1998
Goodwill $ 40,726,976 $ 30,441,948
Non-compete agreements 5,792,435 4,333,685
Customer lists 4,817,599 3,841,599
Other 722,161 713,235
52,059,171 39,330,467
Less accumulated amortization (3,210,348) (1,271,093)
------------- -------------
Total intangible assets $ 48,848,823 $ 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, 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 to complete several
acquisitions.
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. At September 30, 1999 the Company had borrowed
$17,500,000 against the credit facility.
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 issued 2,239,745 shares
of its common stock at $7 per share in a private placement for proceeds totaling
$15,678,216 which were used for acquisitions.
Series C Preferred Stock. As a part of an acquisition completed in July
1999, the Company authorized and issued 1,000 shares of Series C Preferred Stock
at $11,615 per share or $11,615,000 total. In accordance with the terms of the
issuance, on October 21, 1999, a special shareholders meeting was held and each
share of the Series C Preferred Stock was converted into 1,763 shares of common
stock or 1,763,000 total.
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,
results of operations and liquidity 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 condition, 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, Eastern New England, Baltimore Maryland/Washington DC and Upstate New
York. 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 revenues, 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 nine months ended September 30,
1999 and 1998 is as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998
Central Pennsylvania
Revenue $ 12,457,983 $ 4,048,317
Income (loss) from continuing operations (283,955) 54,461
EBITDA 3,884,658 1,007,528
Adjusted EBITDA 4,623,917 1,429,927
Segment assets 82,618,495 44,102,354
Vermont
Revenues $ 7,310,568 $ 7,450,404
Income (loss) from continuing operations 1,569,144 1,152,101
EBITDA 3,471,992 2,816,599
Adjusted EBITDA 3,477,124 3,222,693
Segment assets 28,382,021 25,912,608
Eastern New England
Revenue $ 9,305,242 $ 741,083
Income (loss) from continuing operations (1,178,483) (157,077)
EBITDA (315,357) (93,775)
Adjusted EBITDA 375,961 191,189
Segment assets 59,650,306 11,110,676
Baltimore, MD/Washington D.C.
Revenue $ 1,679,228 $ -
Income (loss) from continuing operations (437,222) -
EBITDA (158,653) -
Adjusted EBITDA 229,428 -
Segment assets 39,144,201 19,685
Upstate New York
Revenue $ 6,722,244 $ 430,377
Income (loss) from continuing operations (1,061,532) (464,421)
EBITDA (139,284) (419,543)
Adjusted EBITDA 414,574 87,957
Segment assets 19,501,890 6,383,982
Corporate
Revenue $ - $ -
Income (loss) from continuing operations (3,418,018) (2,031,536)
EBITDA (3,337,451) (1,988,134)
Adjusted EBITDA (3,337,451) (1,988,134)
Segment assets 6,148,357 3,152,315
</TABLE>
Note 9. Supplemental disclosures of cash flow information:
During the nine months ended September 30, 1999 and 1998, cash paid for
interest was $7,030,574 and $1,539,738, respectively.
On March 31, 1999, the Company issued 2,244,109 shares of the Company's
Common Stock in exchange 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. See Note 5.
In connection with the Company's acquisitions completed from January 1,
1999 through September 30, 1999, the Company acquired property and
equipment of approximately $99.3 million, intangible assets of $11.0
million and other assets of $2.7 million. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately
$72.7 million in cash, $19.3 million in common stock, $11.6 million in
newly issued Series C Preferred Stock and $9.4 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 International Inc. ("WSI" or "the Company") 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
September 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 seven
operating transfer stations and has acquired two additional transfer stations
that are permitted and are under construction. At September 30, 1999, the
Company's collection operations serve a total of approximately 73,000
commercial, industrial, residential and municipal customers in Central
Pennsylvania, Vermont, Upstate New York, Eastern New England and Baltimore
Maryland/Washington DC.
The following table provides certain information regarding the landfills
that the Company owns or operates. All information is provided as of September
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 2,785,000 -
Moretown Moretown, VT 1,319,000 -
Community Refuse Service, Inc. Cumberland, PA 5,289,000
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 nine months ended September
30, 1999, WSI acquired five collection companies and a landfill in Central
Pennsylvania, one collection company in Vermont, two collection companies, two
transfer stations and a paper recycling plant in Eastern New England, two
collection companies and a transfer station in Upstate New York and a collection
company and transfer station in the Baltimore, Maryland/Washington D.C region.
During 1998, the Company completed 34 acquisitions within its five 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 November 12, 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
Eastern New England Region
C&J Trucking, Inc. and July 1999 Collection/Transfer Station Lynn, MA/
affiliates Londonderry, NH
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
Baltimore, Maryland/Washington, D.C. Region
Eastern Trans-Waste of
Maryland, Inc. July 1999 Collection/Transfer Station Capitol Heights, MD/
Washington, DC
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
</TABLE>
<PAGE>
Internalization of Waste
Throughout 1998 and during the nine months ended September 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 nine months ended September 30, 1999, nearly 100% of the
waste from the Company's Vermont operations was delivered for disposal at the
Moretown Landfill and approximately 41% of the waste delivered for disposal at
the Moretown Landfill during this period was collected by the Company. In
addition, approximately 65% of the waste from the Company's Central Pennsylvania
- - Altoona division operations was delivered for disposal at the Sandy Run
Landfill and approximately 70% 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 93% of
the waste from the Company's Central Pennsylvania - Harrisburg division
operations was delivered for disposal at the Community Refuse, Inc. landfill and
approximately 19% of the waste delivered for disposal at the Community Refuse,
Inc. landfill during this period was collected by the Company. During the third
quarter, the Company acquired Eastern Trans-Waste of Maryland, Inc. and C&J
Trucking Company, Inc. and Affiliates. For the quarter ended September 30, 1999,
Eastern Trans-Wastes disposed of approximately 26% of its waste at the Community
Refuse, Inc. landfill. C&J Trucking Company, Inc. disposed of approximately 3%
of its waste at the Community Refuse, Inc. landfill. It is management's
intentions to fully internalize these operations with WSI owned landfills over
the next several quarters, including the Mostoller landfill which is expected to
open up in December 1999.
Recent Business Developments
Acquisitions.
In July 1999, the Company 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. Also in July 1999, the Company 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. The total purchase price for
these acquisitions was approximately $70 million, in cash, stock and assumed
liabilities.
The acquisitions are expected to add annualized revenues of
approximately $28 million and were 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 and internalization of waste.
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. As of September 30, 1999 the company had borrowed $17,500,000 under
the facility.
Private Placement of common stock
In August 1999, the Company issued 2,239,745 shares of its common stock at $7
per share in a private placement for proceeds totaling $15,678,216. The proceeds
were used for acquisitions.
Results of Operations
During the nine months ended September 30, 1999, the Company acquired
one landfill, eleven solid waste collection companies and four transfer
stations. 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:
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
Collection 70.6% 47.6% 74.6% 39.1%
Landfill 13.6 35.5 15.0 39.4
Transfer 15.8 16.9 10.4 21.5
------ ------ ------ ------
Total Revenue 100.0% 100.0% 100.0% 100.0%
</TABLE>
The increase in collection revenues as a percentage of revenues in the
three and nine months ended September 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 nine months of 1999. During 1998 and the nine months
ended September 30, 1999, the Company acquired 31 and 11 collection companies,
respectively. The increase in the Company's transfer station revenues as a
percentage of revenues in the three ended September 30, 1999 compared to the
nine months ended September 30, 1999 is due primarily to the acquisitions of the
Eastern Trans-Waste of Maryland, Inc. and C&J Trucking, Inc. and affiliates
transfer stations.
Revenues increased $10,383,797 or 148% and $24,805,084, or 196%, to
$17,393,175 and $37,475,265 for the three and nine months ended September 30,
1999, respectively. Total revenues for the comparable periods in 1998 were
$7,009,378 and $12,670,181. The increase was primarily due to the impact of
operations acquired during 1998 and the nine months ended September 30, 1999.
See Note 2 to the Consolidated Financial Statements.
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 Nine months ended
September 30, September 30,
1999 1998 1999 1998
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expense 72.8 53.7 67.1 53.9
Depreciation and amortization 20.3 19.2 21.6 21.5
Acquisition integration costs 7.9 11.3 6.3 10.9
Write-off of project development costs - - - 1.9
Total cost of operations 101.0 84.2 95.0 88.2
Gross profit (1.0) 15.8 5.0 11.8
Selling, general and
administrative expenses 15.3 16.5 17.8 23.2
Loss from operations (16.3) (0.7) (12.8) (11.4)
Royalty and other income (expense), net (1.5) (0.5) (1.4) (0.4)
Interest income 0.2 3.2 1.3 3.4
Interest expense and financing costs (23.1) (17.9) (26.4) (21.5)
Non-cash charge for debt conversion - - (14.9) -
Extraordinary item - (0.1) (0.6) (1.9)
Net loss (40.7)% (16.0)% (54.8)% (31.8)%
</TABLE>
Operating expenses increased $8,893,036 or 236% and $18,313,277, or
268%, to $12,658,605 and $25,145,478 for the three and nine months ended
September 30, 1999, respectively. Cost of operations for the comparable periods
in 1998 were $3,765,569 and $6,832,201. As a percentage of revenues, operating
expenses increased to 72.8% and 67.1% for the three and nine months ended
September 30, 1999, respectively from 53.7% and 53.9% 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, Eastern New England and Baltimore,
Maryland/Washington DC operations consist of only collection and transfer
station operations at this time. It is management's intention to fully
internalize the waste from these operations with WSI owned landfills, including
the Mostoller landfill expected to open in December 1999, over the next several
quarters, which will significantly reduce the operating expenses as a percentage
of revenue.
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 $2,181,424 or 162% and $5,370,324 or 197% for the three and nine month
periods ended September 30, 1999, to $3,525,043 and $8,094,069 respectively.
Depreciation and amortization expense for the comparable periods in 1998 were
$1,343,619 and $2,723,745. The increase is the result of increased depreciation
and amortization costs of the additional assets acquired through 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 to 20.3% and 21.6% for the three and nine months
ended September 30, 1999 compared with 19.2% and 21.5% for the comparable
periods in 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 $1,371,062 and $794,811 for the three
months ended September 30, 1999 and 1998, respectively and $2,377,648 and
$1,385,673 for the nine months ended September 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 $1,501,793 or 130% and $3,728,386, or 127% to
$2,660,717 and $6,668,136 for the three and nine month periods ended September
30, 1999, respectively. Selling, general and administrative expenses for the
comparable periods in 1998 were $1,158,924 and $2,939,750. As a percentage of
revenues, selling, general and administrative expenses decreased to 15.3% and
17.8% for the three and nine months ended September 30, 1999, respectively from
16.5% and 23.2% 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 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 decreased ($188,835) or 83.6% to $37,081 for the three
months ended September 30, 1999 from $225,916 during the same period in 1998.
Interest income increased $46,443, or 10.6% to $483,250 for the nine months
ended September 30, 1999 from $436,807 during the same period in 1998. The
increase for the nine months ended September 30, 1999 was the result of higher
average cash and investment balances during the first half of the year. The
remaining proceeds from the $100 million Senior Notes were used to complete the
acquisitions in the third quarter which lead to the reduction of interest income
for the three months ended September 30, 1999.
Interest expense and financing costs, net of capitalized interest costs
increased $2,757,685 or 220% and $7,181,853, or 264% to $4,010,028 and
$9,906,434 for the three and nine month periods ended September 30, 1999,
respectively. Interest expense and financing costs, net of capitalized interest
costs for the comparable periods in 1998 were $1,252,343 and $2,724,581. 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 and the increased borrowing from The BankNorth Group. 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 nine months ended September
30, 1999, the Company capitalized $369,237 and $1,061,437 of interest costs,
respectively. No interest was capitalized for the three and nine months ended
September 30, 1998.
Royalty and other income (expense) was ($264,410) and ($542,100) for
the three and nine month periods ended September 30, 1999, respectively. Royalty
and other income (expense) for the comparable periods in 1998 were ($37,120) and
($52,570), 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 nine months ended September 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 Nine months ended
September 30, September 30,
1999 1998 1999 1998
Loss from operations ($ 2,822,252) ($ 53,545) ($ 4,810,066) ($ 1,446,472)
Depreciation and amortization 3,574,351 1,362,864 8,215,971 2,769,147
EBITDA 752,099 1,309,319 3,405,905 1,322,675
Write-off of projected development costs - - - 235,284
Acquisition integration costs 1,371,062 794,811 2,377,648 1,385,673
Adjusted EBITDA $ 2,123,161 $ 2,104,130 $ 5,783,553 $ 2,943,632
EBITDA as a % of revenue 4.3% 18.7% 9.1% 10.4%
Adjusted EBITDA as a % of revenue 12.2% 30.0% 15.4% 23.2%
</TABLE>
Financial Position
WSI had approximately $2.5 million in cash as of September 30, 1999.
This represents an increase of approximately $2.3 million from December 31,
1998. The Company had negative working capital of approximately $7.0 million as
of September 30, 1999, a decrease of approximately $0.5 million from December
31, 1998. This increase in cash was primarily due to the remaining proceeds from
the Senior Notes, private placement and BankNorth Group credit facility which
were offset by the cash paid for acquisitions and debt repayments.
During the nine months ended September 30, 1999, WSI acquired five
collection companies and a landfill in Central Pennsylvania, one collection
company in Vermont, two collection companies, two transfer stations and a paper
recycling plant in Eastern New England, two collection companies and a transfer
station in Upstate New York and a collection company and transfer station in the
Baltimore, Maryland/Washington D.C region. The aggregate cost of the
acquisitions was approximately $113.0 million consisting of approximately $72.7
million in cash, $19.3 million in common stock, $11.6 million in Series C
Preferred Stock and $9.4 million in assumed liabilities. The acquisitions have
combined annual revenues of approximately $42.0 million.
At September 30, 1999, the Company had approximately $9.6 million in
trade accounts receivables. The Company has estimated an allowance for doubtful
accounts of approximately $0.8 million, which is considered sufficient to cover
future bad debts.
During the nine months ended September 30, 1999, the Company devoted
substantial resources to various corporate development activities. Additions to
property and equipment during the nine months ended September 30, 1999 were
approximately $126.1 million, which included assets purchased through
acquisition of approximately $110.2 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 will usually have 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 $15.7 million at $7 per share. See Footnotes 5 and 6 to the
Consolidated Financial Statements 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 nine months ended September 30, 1999 the Company generated
$1,059,180 from operating activities. For the same period in 1998, the Company
generated $1,054,709. The increased cash flow from operations in 1999 was due
primarily to significantly increased revenues offset by increased cost of
operations, acquisition integration costs and selling general and administrative
expenses. The remainder of the cash flow increase was due to changes in the
operating assets and liabilities including increased accounts payable and
accrued expenses offset by increased accounts receivable and deferred revenue.
EBITDA decreased by $557,220 during the three months ended September 30,
1999 to $752,099. EBITDA increased $2,083,230 during the nine months ended
September 30, 1999 to $3,405,905. EBITDA during the comparable periods in 1998
was $1,309,319 and $1,322,675. As a percentage of revenue, EBITDA decreased to
4.3% and 9.1% during the three and nine months ended September 30, 1999 from
18.7% and 10.4% during the same periods in 1998. Adjusted EBITDA increased by
$19,031 and $2,839,921 during the three and nine months ended September 30, 1999
to $2,123,161 and $5,783,553. Adjusted EBITDA during the comparable periods in
1998 was $2,104,130 and $2,943,632. As a percentage of revenue, adjusted EBITDA
decreased to 12.2% from 30.0% for the three months ended September 30, 1999
compared to the same period in 1998. For the nine months ended September 30,
1999, Adjusted EBITDA decreased to 15.4% compared with 23.2% during the same
period in 1998. The primary reason for the reduced EBITDA and adjusted EBITDA as
a percentage of revenue is due to the acquisitions completed in the third
quarter of 1999. During the third quarter of 1999, the Company acquired new
operations in the Eastern New England and Baltimore, Maryland/Washington DC
regions. These acquisitions consist of only collection and transfer station
operations at this time which typically experience much lower margins than
landfill operations. It is management's intentions to fully internalize the
waste from these operations with WSI owned landfills, including the Mostoller
landfill expected to open in December 1999, over the next several quarters,
which will significantly reduce the cash expense for waste disposal. The Company
would expect that as these operations are internalized, EBITDA and adjusted
EBITDA would both increase in dollars and as a percentage of revenue.
Net cash used by investing activities during the first nine months of
1999 was $103,641,629 compared to $62,181,280 in the same period in 1998. Of the
net cash used by investing activities in 1999, approximately $84.0 million was
used for the acquisition of landfill, collection and transfer operations. See
Footnote 2. Additional capital expenditures of approximately $16.0 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 the remainder of 1999 and
into 2000 due to acquisitions, ongoing development and construction of the
Mostoller and South Hadley Landfills, and construction of transfer stations in
Upstate New York and Eastern New England.
Net cash provided by financing activities during the first nine months
of 1999 was approximately $105.0 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
also received $15.7 million through the private placement of 2,239,745 shares of
common stock.
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. At September 30, 1999 the Company had borrowed $17,500,000 against
the credit facility.
At September 30, 1999, the Company had approximately $172.6 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 capital 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 continuing, 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 has implemented a new general accounting package
which the Company believes is 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 have represented to the Company that
they 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 on the Company's business, financial
prospects and results of operations. 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 a 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
Private Placement. In August 1999, the Company issued 2,239,745 shares
of its common stock at $7 per share in a private placement for proceeds totaling
$15,678,216. The proceeds were used for acquisitions.
Series C Preferred Stock. As a part of an acquisition completed in
August 1999, the Company issued 1,000 shares of Series C Preferred Stock at
$11,615 per share for total proceeds of $11,615,000. In accordance with the
terms of the issuance, on October 21, 1999, a special shareholders meeting was
held and each share of the Series C Preferred Stock was converted into 1,763
shares of common stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Series C Preferred Stock. As a part of an acquisition completed in
July 1999, the Company created and issued 1,000 shares of Series C Preferred
Stock. Each share was issued at $11,615 for total proceeds of $11,615,000. On
October 21, 1999, a special shareholders meeting was held and the conversion of
the Series C Preferred Stock was approved. As a result, the 1,000 shares of
Series C Preferred stock were fully converted into 1,763,000 shares of common
stock. The detail of the vote is as follows:
For Against Abstain No Vote Total
9,987,329 46,290 8,000 - 10,041,619
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
None.
<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 12, 1999 By: /s/ Philip Strauss
Philip Strauss
Chairman, Chief Executive Officer
and President
(Principal Executive Officer)
Date: November 12, 1999 By: /s/ James L. Elitzak
James L. Elitzak
Vice President and Chief Financial
Officer
(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> USD
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,460,415
<SECURITIES> 0
<RECEIVABLES> 10,339,374
<ALLOWANCES> 775,841
<INVENTORY> 0
<CURRENT-ASSETS> 14,712,620
<PP&E> 164,536,765
<DEPRECIATION> 10,094,869
<TOTAL-ASSETS> 235,445,270
<CURRENT-LIABILITIES> 21,684,527
<BONDS> 0
0
11,615,000
<COMMON> 84,774,464
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 235,445,270
<SALES> 37,475,265
<TOTAL-REVENUES> 37,475,265
<CGS> 25,145,478
<TOTAL-COSTS> 42,285,331
<OTHER-EXPENSES> 542,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,906,434
<INCOME-PRETAX> (20,359,067)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,359,067)
<DISCONTINUED> 0
<EXTRAORDINARY> (224,358)
<CHANGES> 0
<NET-INCOME> (20,583,425)
<EPS-BASIC> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
