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, 2000.
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 10, 2000 was 20,348,347
<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, 2000 (Unaudited)
and December 31, 1999. 1
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 (Unaudited). 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (Unaudited). 3
Notes to Consolidated Financial Statements. 4-10
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 11-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults on Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits, Financial Statements Schedules and Reports on Form 8-K 19
Signatures 20
<PAGE>
1
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
June 30, December 31,
2000 1999
--------------------- --------------------
Assets (unaudited)
------
Current assets:
Cash and cash equivalents $ 1,885,906 $ 12,871,773
Accounts receivable, less allowance for doubtful accounts of
$1,103,000 at June 30, 2000 and $815,000 at December 31,1999 11,109,861 9,294,149
Prepaid expenses and other current assets 2,437,166 2,463,005
--------------------- --------------------
Total current assets 15,432,933 24,628,927
Property and equipment, net (Notes 2 and 3) 174,178,823 174,957,281
Intangible assets, net (Notes 2 and 4) 46,782,817 47,860,406
Other assets 5,338,530 7,646,477
--------------------- --------------------
Total assets $ 241,733,103 $ 255,093,091
===================== ====================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable (Note 5) $ 11,984,712 $ 1,383,995
Accounts payable 11,547,989 14,712,075
Accrued expenses 18,256,310 14,734,758
Deferred revenue 1,833,506 1,893,576
--------------------- --------------------
Total current liabilities 43,622,517 32,724,404
Long-term debt and notes payable (Note 5) 108,271,249 172,715,823
Accrued Landfill closure and post-closure costs 1,352,028 2,800,471
--------------------- --------------------
Total liabilities 153,245,794 208,240,698
--------------------- --------------------
Commitments and Contingencies (Note 7) ,
Stockholders' equity (Notes 5 and 6):
Common stock, $.01 par value. Authorized 75,000,000 shares;
20,348,347 and 20,330,884 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively 203,483 203,309
Preferred Stock $.001 par value. Authorized 1,000,0000 shares.
Series D; 20,500 shares designated and 15,000 shares issued and
outstanding at June 30, 2000 and December 31, 1999. 15,000,000 15,000,000
Series E; 60,000 shares designated and 38,531 shares issued and
outstanding at June 30, 2000. 38,531,000 -
Series F; 35,000 shares designated and 23,100 shares issued and
outstanding at June 30, 2000. 23,100,000 -
Additional paid-in capital 96,037,851 96,318,442
Accumulated deficit (84,385,025) (64,669,358)
--------------------- --------------------
Total stockholders' equity 88,487,309 46,852,393
--------------------- --------------------
Total liabilities and stockholders' equity $ 241,733,103 $ 255,093,091
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
2
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION> Three months ended June 30, Six months ended June 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---------------- ----------------- ---------------- ---------------
Revenues
Cost of operations:
Operating expenses 15,576,686 6,915,757 29,028,079 12,486,873
Depreciation and amortization 4,010,369 2,816,512 7,788,344 4,569,026
Acquisition integration costs (Note 2) 419,017 462,186 701,678 1,006,586
---------------- ----------------- ---------------- ---------------
Total cost of operations 20,006,072 10,194,455 37,518,101 18,062,485
---------------- ----------------- ---------------- ---------------
Gross profit (loss) (542,918) 1,025,378 (1,253,306) 2,019,605
Selling, general and administrative expenses 3,304,292 2,093,810 6,172,605 4,007,419
---------------- ----------------- -------------- ---------------
Loss from operations (3,847,210) (1,068,433) (7,425,911) (1,987,814)
Other income (expense):
Other (expense), net (401,966) (145,288) (1,121,419) (277,690)
Interest income 75,496 277,827 131,000 446,169
Interest expense and financing costs (3,792,379) (3,889,939) (7,949,346) (5,896,406)
Non-cash charge for debt conversion (Note 5) - - - (5,583,717)
--------------- ----------------- ---------------- ---------------
Total other (expense) (4,118,849) (3,757,400) (8,939,765) (11,311,644)
Loss before extraordinary item (7,966,059) (4,825,833) (16,365,676) (13,299,458)
Extraordinary item - Loss on extinguishment of debt (465,766) (1,350) ( 1,428,938) (224,358)
--------------- ----------------- ---------------- ---------------
Net loss (8,431,825) (4,827,183) (17,794,614) (13,523,816)
Preferred stock dividends (1,147,544) - (1,913,877) -
--------------- ----------------- ---------------- ---------------
Net loss available for common shareholders $(9,579,369) $(4,827,183) $ (19,708,491) $ (13,523,816)
=============== ================= ================ ===============
Basic net loss per share:
Loss before extraordinary item $ (0.39) $ (0.36) $ (0.81) $ (0.99)
Extraordinary item (0.02) - (0.07) (0.02)
Preferred stock dividends (0.06) - (0.09) -
Basic net loss per share $ (0.47) $ (0.36) $ (0.97) $ (1.01)
================ ================= ================ ===============
Weighted average number of shares used in
Computation of basic net loss per share 20,348,347 13,421,480 20,345,092 13,443,389
================ ================= ================ ===============
</TABLE>
See accompanying notes to consolidated finacial statements.
<PAGE>
3
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
<S> <C> <C>
2000 1999
------------------ -----------------
Cash flows from operating activities:
Net loss $ (17,794,614) $ (13,523,816)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 8,056,386 4,641,620
Non-cash charge for conversion of debt to equity - 5,583,717
Extraordinary loss on extinguishment of debt 1,428,938 224,358
Allowance for doubtful accounts 288,000 155,139
Landfill closure and post-closure costs 191,627 (43,967)
Changes in assets and liabilities: (
Accounts receivable (2,103,712) (1,806,134)
Prepaid expenses and other current assets 25,839 550,387
Accounts payable (3,189,283) (523,405)
Accrued expenses 3,050,270 3,480,444
Deferred revenue (60,070) (166,685)
------------------ -----------------
Net cash used by operating activities (10,106,619) (1,428,342)
------------------ -----------------
Cash flows from investing activities:
Net assets acquired through acquisitions - (42,620,301)
Expenditures for property and equipment (3,792,826) (5,407,829)
Deposits for future acquisitions - (2,927,153)
Landfill closure expenditures (1,640,070) -
Intangible assets (221,068) (197,857)
Other assets 416,370 (1,718,886)
------------------ -----------------
Net cash used by investing activities (5,237,594) (52,872,026)
------------------ -----------------
Cash flows from financing activities:
Deferred financing and registration costs (10,913) (2,998,611)
Repayments of notes payable and long-term debt (320,324) (20,603,278)
Borrowings from notes payable and long-term debt 5,000,000 100,000,000
Repurchase of common stock - (3,229,057)
Proceeds from issuance of common stock 30,000 65,675
Costs associated with equity transactions (340,417) -
------------------
-----------------
Net cash provided by financing activities 4,358,346 73,234,729
------------------ -----------------
Increase/(decrease) in cash and cash equivalents (10,985,867) 18,934,361
Cash and cash equivalents, beginning of period 12,871,773 193,613
------------------ -----------------
Cash and cash equivalents, end of period $ 1,885,906 $ 19,127,974
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16
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, 2000, and for all periods presented have been made. The
results of operations for the period ended June 30, 2000, 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 the 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, 1999.
There have been no significant additions to or changes in accounting policies of
the Company since December 31, 1999. For a complete description of the Company's
accounting policies, see Note 2 to Consolidated Financial Statements in the
Company's 1999 Annual Report on Form 10-K.
Note 2. Acquisitions
During the first six months of 1999, the Company 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 Washington
D.C. region. There have been no acquisitions during 2000.
The Company defines acquisition integration costs as costs incurred, after an
acquisition is closed, to integrate the acquired operation with the Company's
existing operation. These costs are separate from any obligations or
consideration paid to the seller. These costs include one-time, non-recurring
costs, which in the opinion of Company management have no future value and are
expensed as incurred. The majority of the items identified as acquisition
integration costs are related to: 1) Health and Safety, 2) Name Change, 3)
Information Systems, 4) Employee Severance and Retention and 5) Physical
Operation Relocation Costs. These charges are accrued as the costs are incurred.
While acquisition integration activities are generally completed within one year
from the date of acquisition new expenses and accruals are booked each quarter
as they are incurred.
With certain acquisitions, the Company has accrued liabilities for planned lease
termination costs and severance costs as a part of the purchase price, in
accordance with EITF 95-3. The amounts recorded to date are not material with
respect to the purchase price of the acquisition or the financial statements. In
instances where the Company decides to sever employees or exit lease commitments
after operating an acquired company for a period of time, the Company accrues
those costs in accordance with EITF 94-3. These costs are incurred as a result
of synergies created from multiple acquisitions within the same region. The
amount of such costs charged to operations during the six months ended June 30,
2000 and 1999 was $275,000 and $50,000, respectively. 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 $419,000, and $462,000, for the three months ended June 30, 2000
and 1999, respectively, and $702,000 and $1,007,000, for six months ended June
30, 2000 and 1999, 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, as if the acquisitions had occurred as
of January 1, 1999, 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.
<PAGE>
June 30, 1999
(unaudited)
Net revenues $ 34,925,000
==============
Loss from operations $ (3,046,000)
===============
Net loss $ (14,582,000)
===============
Basic loss per share $ (1.09)
===============
Note 3. Property and Equipment
Property and equipment are stated at cost and consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
Landfills $ 70,468,981 $ 70,206,638
Transfer stations, buildings and improvements 80,556,487 77,445,686
Machinery and equipment 10,367,628 9,028,635
Rolling stock 15,851,098 16,175,247
Containers and compactors 10,154,889 9,455,373
Capital development costs 4,175,435 4,103,697
Office furniture and equipment 1,981,797 1,665,320
------------- --------------
193,556,315 188,080,596
Less accumulated depreciation and amortization (19,377,492) (13,123,315)
-------------- --------------
Property and equipment, net $ 174,178,823 $ 174,957,281
============= ==============
Note 4. Intangible Assets
Intangible assets consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
Goodwill $ 40,958,533 $ 40,791,022
Non-compete agreements 5,792,435 5,792,435
Customer lists 4,877,599 4,817,599
Other 150,000 722,161
-------------- -------------
51,778,567 52,123,217
Less accumulated amortization (4,995,750) (4,262,811)
------------- ------------
Total intangible assets $ 46,782,817 $ 47,860,406
============== ============
Note 5. Long-term debt and notes payable
Long-term debt and notes payable consists of:
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
11 1/2% Senior Notes $84,645,000 $100,000,000
BankNorth Group Credit Facility 17,500,000 17,500,000
BIII Capital Partners, L.P. Credit Facility 5,000,000 -
7% Convertible Subordinated Notes 4,400,000 49,551,426
10% Convertible Subordinated Debentures 450,000 450,000
Capital Leases 1,004,336 1,104,288
Equipment and Other Notes Payable 7,256,625 5,494,104
--------- ------------
120,255,961 174,099,818
Less current portion (11,984,712) (1,383,995)
----------- ------------
Long-term portion $ 108,271,249 $172,715,823
============= ============
Senior Notes. On March 2, 1999, the Company completed a private placement of
$100.0 million of 11 1/2% 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 1/2% 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. 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 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.
Exchanges of Debt for Preferred Stock. On February 15, 2000, the Company closed
an Exchange Offer for its $49,551,426 of 7% Convertible Subordinated Notes due
2005 and its $100,000,000 Senior Notes due 2006. Approximately $15,355,000
principal amount of, plus accrued but unpaid interest on, its Senior Notes and
approximately $22,832,000 principal amount of, plus accrued but unpaid interest
on, its 7% Convertible Subordinated Notes were tendered and exchanged into
shares of the Company's newly designated Series E Convertible Preferred Stock
("Series E stock"). See Note 6, Preferred Stock.
On June 29, 2000, the Company exchanged approximately $22,300,000 of its 7%
Convertible Subordinated Notes into shares of the Company's newly designated
Series F Convertible Preferred Stock ("Series F stock"). See Note 6, Preferred
Stock.
Credit Facilities. On August 3, 1999, the Company entered into a $25 million
credit facility with the Banknorth Group. The credit facility has a three-year
term with no interim principal payments required. Interest is payable quarterly
at rates of prime plus 1% to prime plus 4%, depending on certain circumstances.
The credit facility is not callable by the Banknorth Group except, generally, in
the event of default by the Company of any of its covenants set forth in the
credit facility agreement. Certain of the covenants were established under the
assumption that the Company was going to complete several acquisitions that
would significantly increase the Company's earnings. These anticipated
acquisitions were not consummated. As a result, the Company has not been in
compliance with these covenants at the end of any quarter since the loan's
inception. The Company has obtained a waiver from the covenants of the Banknorth
Group. The Company has been negotiating with the Banknorth Group to establish
new covenants based on the Company's existing operations. On August 11, 2000,
the Banknorth Group agreed to forbear the Company's requirement to adhere to the
financial covenants through the end of the second quarter 2001. Under the
forbearance agreement, the Company will repay $6 million of the credit facility
on September 15, 2000. In addition, 50% of the proceeds of asset sales, if any,
between September 16, 2000 and December 31, 2000, will be used to pay down the
credit facility. At December 31, 2000, the Company will provide additional
collateral to the extent of any remaining balance under the credit facility.
On April 20, 2000, the Company entered into a one-year $7.5 million credit
facility with BIII Capital Partners, L.P., a major stockholder at the Company.
The facility provides for the repayment of any borrowings, plus interest at 20%,
on April 20, 2001. On June 25, 2000, the facility was expanded to $25 million
under the same terms.
Convertible Subordinated Notes. On May 13, 1998, the Company closed an offering
of $60.0 million in 7% Convertible Subordinated Notes ("Convertible Subordinated
Notes"). The Convertible Subordinated Notes mature in May 2005, and bear
interest at 7.0% per annum, payable semiannually in arrears on each June 30 and
December 31. The Convertible Subordinated Notes are convertible at the option of
the holder at any time and can be mandatorily converted by the Company, 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 days. On March 31, 1999, the
Company exchanged 2,244,109 shares of the Company's Common Stock for $10,449,000
of the Convertible Subordinated Notes. 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 was 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.
10% Convertible Subordinated Notes. During 1995, the Company closed a
"Regulation S" offering of $11,225,000 in Convertible Subordinated Notes and
Warrants. The Notes mature on September 30, 2000, and bear interest at 10%,
payable quarterly. The Notes were partially paid back as a result of the Senior
Notes Offering.
Capital Leases. The Company leases certain facilities, equipment and vehicles
under agreements, which are classified as capital leases.
Equipment and Other Notes Payable. The Company has entered into various
financing agreements for certain rolling stock and other machinery and
equipment. These agreements range from three to five years with interest rates
between 7% and 10%. The Notes are secured by the related rolling stock or
machinery and equipment.
Note 6. Preferred Stock
On December 28, 1999, the Company raised $15 million through a private placement
of Series D Convertible Preferred Stock ("Series D stock"). The Series D stock
carries a 10% dividend which is payable in kind or cash at the option of the
Company. The Series D stock can be converted into shares of the Company's Common
Stock at a price of $6.00 per share at any time at the option of the holder and
can be mandatorily converted by the Company if its common stock closing price
equals or exceeds $9.00 for a period of twenty consecutive trading days. The
Series D stock is eligible to vote on an as-converted basis with the Company's
Common Stock and is redeemable at any time by the Company. For the three and six
months ended June 30, 2000, the Company accrued dividends of approximately
$374,000 and $760,000, related to the Series D stock.
On February 15, 2000, the Company issued an aggregate of 38,531 shares of its
Series E stock, as a result of the Exchange Offer described in Note 5. The
Series E stock is redeemable at any time by the Company at par plus accrued and
unpaid dividends and can be converted into shares of the Company's common stock
at a price of $8.00 per share at any time at the option of the holder and can be
mandatorily converted by the Company if its common stock closing price equals or
exceeds $8.00 for a period of twenty consecutive trading days. The Series E
stock is eligible to vote on an as-converted basis. For the three and six months
ended June 30, 2000, the Company accrued dividends of approximately $769,000 and
$1,149,000, related to the Series E stock.
On June 29, 2000, the Company issued an aggregate of 23,100 shares of its Series
F stock, as a result of the Exchange offer described in Note 5. The Series F
stock carries the same terms as the Series E stock. For the six months ended
June 30, 2000, the Company accrued dividends of approximately $5,000 related to
the Series F stock.
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, an agency may seek to
impose fines on the Company or to revoke or deny renewal of an operating permit
held by the Company. From time to time, the Company 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 are currently connected with the Superfund
National Priorities List or potentially responsible party issues.
The Company is party to pending legal proceedings and claims. Although the
outcome of such proceedings and claims cannot be determined with certainty, the
Company's management, after consultation with outside legal counsel, is of the
opinion that the expected final outcome should not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
Note 8. Segment Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing their performance. The Company's chief operating decision-maker
is the Chief Executive Officer.
The Company manages its business segments according to how they are integrated
between hauling, transfer and landfill operations. The Eastern New England -
Boston area and Washington D.C. operations are integrated with the Central
Pennsylvania operations, disposing the majority of their waste in Central
Pennsylvania. The Vermont operation is primarily integrated within itself. These
four operations are grouped together by management and evaluated as integrated
operations. While the operations have separate management teams, their operating
results are evaluated on a combined basis taking into consideration all
intercompany transactions and eliminations. The Upstate New York and Central
Massachusetts operations are not integrated and are reviewed together as
non-integrated operations.
In connection with an ongoing assessment of the operations, the Company is
considering various strategies to enhance the value of its investments in
certain of its operations, which are not fully integrated. These operations were
acquired with the expectation that the Company would acquire a landfill or,
otherwise secure disposal capacity near these operations in order to integrate
them. At this time, the Company feels it is unlikely that it will secure such
capacity near these operations. As such the Company is considering other options
with respect to these non-integrated operations, including swapping disposal
capacity or swapping assets with other companies, and the sale of some or all of
the assets of these operations. No decision has been reached at this time;
however, the Company does expect to finalize these strategies during the
remainder of 2000. In addition, the Company has determined that, with some
operations, internalizing all of the waste collected by the Company is not the
best strategy for the Company. The Company has begun disposing waste at third
party locations, where it is economical to do so. This will increase the
disposal cost but reduce the transportation costs and business risks at the
impacted hauling and transfer station operations. The Company's landfills are
expected to fully offset the reduced internal tonnage with increased third party
tonnage at higher per ton rates.
Each operating segment provides services as further described in Note 1 of the
December 31, 1999 Consolidated Financial Statements. The accounting policies of
the various segments are the same as those described in the "Summary of
Significant Accounting Policies" in Note 2 of the December 31, 1999 Consolidated
Financial Statements. The Company evaluates the performance of its segments
based on operating income (loss), EBITDA and Adjusted EBITDA. Operating income
(loss) for each segment includes all expenses directly attributable to the
segment, including acquisition related costs, and excludes certain expenses that
are managed outside the reportable segments. Costs excluded from segment profit
primarily consist of corporate expenses. Corporate expenses are comprised
primarily of information systems and other general and administrative expenses
separately managed. EBITDA is defined as operating income or loss from
continuing operations excluding 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 flows from operating activities, each as
determined in accordance with GAAP. Adjusted EBITDA represents EBITDA plus
one-time charges associated with the write-off of landfill development costs,
acquisition integration costs and restructuring costs. Segment assets exclude
corporate assets. Corporate assets include cash and cash equivalents, office
equipment and other assets. Capital expenditures for long-lived assets are not
reported to management by segment and are excluded, as presenting such
information is not practical. Summary information by segment as of and for the
six months ended June 30, 2000 and 1999 is as follows:
As of June 30,
Integrated Regions 2000 % 1999 %
------------------ ---- - ---- -
Revenue 30,153,223 100.0% $12,832,709 100.0%
Income (loss) from operations (3,248,310) (10.8%) 956,463 7.5%
Depreciation and amortization 6,869,882 22.8% 3,742,016 29.2%
Acquisition integration costs 665,917 2.2% 558,175 4.3%
EBITDA 3,621,572 12.0% 4,682,989 36.5%
Adjusted EBITDA 4,287,489 14.2% 5,241,164 40.8%
Net interest expense 209,183 0.7% 55,634 0.4%
Segment assets 203,878,066 106,873,145
Non-Integrated Regions
Revenue 6,111,572 100.0% 7,249,381 100.0%
Income (loss) from operations (1,472,380) (24.1%) (685,677) (9.5%)
Depreciation and amortization 982,265 16.1% 849,059 11.7%
Acquisition integration costs 35,761 0.6% 448,411 6.2%
EBITDA (490,115) (8.0%) 156,823 2.2%
Adjusted EBITDA (454,354) (7.4%) 605,234 8.3%
Net interest expense - 0.0% 2,449 0.0%
Segment assets 33,392,471 33,924,773
Corporate and Other
Revenue - - - -
Income (loss) from operations (2,705,221) - (2,258,600) -
Depreciation and amortization 79,020 - 50,544 -
Acquisition integration costs - - - -
EBITDA (2,625,969) - (2,208,057) -
Adjusted EBITDA (2,625,969) - (2,208,057) -
Net interest expense 7,609,163 - 5,392,154 -
Segment assets 4,462,568 28,438,141
TOTAL
Revenue 36,264,795 100.0% 20,082,090 100.0%
Income (loss) from operations (7,425,911) (20.5%) (1,987,814) (9.9%)
Depreciation and amortization 7,931,167 21.9% 4,641,619 23.1%
Acquisition integration costs 701,678 1.9% 1,006,586 5.0%
EBITDA 505,488 1.4% 2,631,755 13.1%
Adjusted EBITDA 1,207,166 3.3% 3,638,341 18.1%
Net interest expense 7,818,346 21.6% 5,450,237 27.1%
Segment assets 241,733,105 169,236,059
Note 10. Supplemental disclosures of cash flow information:
During the six months ended June 30, 2000 and 1999, cash paid for interest was
approximately $6,906,000 and $2,125,000, respectively.
On June 29, 2000, the Company exchanged approximately $22,300,000 principal
amount, plus accrued and unpaid interest, of its 7% Convertible Subordinated
Notes into 23,100 shares of its Series F stock.
On February 15, 2000, the Company exchanged approximately $22,832,000 of its 7%
Convertible Subordinated Notes and $15,300,000 of its $100,000,000 Senior Notes
due 2006, plus accrued interest, for 38,531 shares of its Series E stock.
During the first six months of 2000, the Company accrued dividends of
approximately $1.9 million for its Series D, E and F Preferred stock.
On March 31, 1999, the Company exchanged 2,244,109 shares of the Company's
Common stock for $10,449,000 of its Convertible Subordinated Notes. The Company
incurred a non-cash charge of $5,583,717 in connection with this conversion of
debt into equity.
The Company acquired property and equipment of approximately $1,683,000, during
the first six months of 2000 under various financing arrangements.
In connection with the Company's acquisitions, during the first six months of
1999, the Company acquired property and equipment of $30.3 million, intangible
assets of $7.5 million and other assets of $0.1 million. The Company paid
approximately $36.0 million in cash and assumed liabilities from the acquired
companies of $1.9 million. There have been no acquisitions during 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, with respect to, among other things, the
Company's future revenues, operating income, or earnings per share. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar expression. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference are discussed
herein. See "Certain Factors Affecting Future Operating Results".
Introduction
Waste Systems International, Inc. (the "Company" or "WSI") is 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 focuses on the
operation of an integrated non-hazardous solid waste management business,
including the ownership and operation of solid waste disposal facilities
(landfills), transfer stations and solid waste collection services. The Company
derives revenue from collecting solid waste from its customers, which it
delivers for disposal in its own landfills, and also from unaffiliated waste
collection companies who pay to dispose of waste in the Company's landfills.
At June 30, 2000, the Company owned and operated one landfill in Vermont and
three landfills in Central Pennsylvania. The Company's Moretown Landfill in
Vermont and Sandy Run Landfill in Hopewell, Pennsylvania were in operation for
all of 1999 and 2000. On March 1, 1999, the Company acquired the Community
Refuse Services ("Community") Landfill located in Cumberland, Pennsylvania. On
December 28, 1999 the Company completed construction and opened the Mostoller
Landfill in Somerset, Pennsylvania. As of June 30, 2000, the aggregate remaining
estimated permitted capacity of the Company's four owned landfills was
approximately 22.5 million cubic yards. In addition, the Company has contracted
with the Town of South Hadley, Massachusetts to construct and operate the Town's
landfill, which has an estimated capacity of approximately 1.2 million cubic
yards available for future disposal. Providing there are no unexpected
permitting delays, the Company expects to begin operating the South Hadley
Landfill in 2001.
The following table provides certain information regarding the 4 landfills owned
and operated by the Company as of June 30, 2000.
Currently Annual Remaining
Total Site Permitted Permitted Permitted
Landfill Name Location Acreage Acreage Tons of MSW Capacity (cu yds)
------------- -------- ------- ------- ----------- -----------------
Mostoller Somerset, PA 715 278 624,000 14,043,000
Sandy Run Hopewell, PA 711 40 86,000 2,620,310
Moretown Moretown, VT 200 34 120,000 1,174,000
Community Cumberland, PA 627 105 309,000 4,629,000
The Company also owns and operates five transfer stations and has two additional
transfer stations that are permitted and are under construction. As of June 30,
2000, the Company's collection operations served commercial, industrial,
residential and municipal customers in the Central Pennsylvania, Eastern New
England, Upstate New York, Vermont and Washington DC markets.
During the first six months of 1999, the Company 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 Washington
D.C. region. During 1998, the Company completed 34 acquisitions within its five
current operating regions. There have been no acquisitions during 2000.
The Company does not expect to pursue any acquisitions during the remainder of
2000. The Company may consider additional acquisitions at a later date. During
2000, the primary focus of the Company is the on-going integration of current
operations. The Company will continue to optimize the value of its landfill,
transfer and collection assets through, among other means, internalization of
waste collected by the Company, internal growth through sales and marketing
efforts and operating efficiencies.
Internalization of Waste
Throughout 1999 and during the six months ended June 30, 2000, the Company
continued to pursue maximizing the amount of waste collected by the Company that
was subsequently disposed at Company landfills, where it is economical to do so.
%Collection % Landfill
Company Owned Operations Internalization(1) Internalization (2)
--------------------------------------------------------------------------------
Vermont - Moretown Landfill 97% 34%
Altoona Division - Sandy Run Landfill 93% 79%
Harrisburg Division - Community Landfill 98% 26%
Somerset Division - Mostoller Landfill 99% 89%
Eastern New England (3) 71% n/a
Washington D.C. (3) 92% n/a
Upstate New York and Central Massachusetts 0% n/a
(1) Percentage of the total waste collected by Company-owned hauling operations
and disposed of in the Company's landfills.
(2) Percentage of the waste delivered to the Company landfills which was
collected by Company-owned hauling operations.
(3) These operations dispose of their waste at the Community and Mostoller
Landfills.
In connection with an ongoing assessment of the operations, the Company is
considering various strategies to enhance the value of its investments in
certain of its operations, which are not fully integrated. These operations were
acquired with the expectation that the Company would acquire a landfill or
otherwise secure disposal capacity near these operations in order to integrate
them. At this time, the Company feels it is unlikely that it will secure such
capacity near these operations. As such the Company is considering other options
with respect to these non-integrated operations, including swapping disposal
capacity or swapping assets with other companies, and the sale of some or all of
the assets of these operations. No decision has been reached at this time;
however, the Company does expect to finalize these strategies during the
remainder of 2000. There can be no assurance that the Company can implement a
new strategy during 2000 with respect to these assets, nor that any new strategy
will maximize the value of these assets. In addition, the Company has determined
that, with some operations, internalizing all of the waste collected by the
Company is not the best strategy for the Company. The Company has begun
disposing waste at third party locations, where it is economical to do so. This
will increase the disposal cost but reduce the transportation costs and business
risks at the impacted hauling and transfer station operations. The Company's
landfills are expected to fully offset the reduced internal tonnage with
increased third party tonnage at higher per ton rates.
Results of Operations
Because of the relative significance of the acquired business' operations to the
Company's financial performance relating to the acquisitions consummated in
1999, 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. Arrangements with customers
include both long-term contractual arrangements and as-received disposal at
prices quoted by the Company. 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,
2000 1999 2000 1999
---- ---- ---- ------
Collection 74.5% 78.1% 73.2% 81.7%
Landfill 7.8 16.8 9.9 13.7
Transfer 17.7 5.1 16.9 4.6
----- --- ---- ---
Total Revenue 100.0% 100.0% 100.0% 100.0%
====== ====== ======= ======
For the purpose of this table, revenue is attributed to the operation where the
Company first receives the waste. For example, revenue received from waste
collected by the Company and disposed in a Company landfill is entirely
attributed to collection. During 2000, the change in revenue mix is primarily
attributable to the three transfer stations the Company acquired July 1, 1999.
Transfer stations derive a significant portion of their revenues from third
parties. These transfer stations were not owned by the Company during the first
six months of 1999.
Revenues increased approximately $8,243,000 or 73.5%, to $19,463,000 for the
three-month period ended June 30, 2000. Total revenue for the comparable period
in 1999 was approximately $11,220,000. Revenues increased approximately
$16,183,000 or 80.6%, to $36,265,000 for the six months ended June 30, 2000.
Total revenue for the comparable period in 1999 was approximately $20,082,000.
The increase was primarily due to the impact of the operations acquired during
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:
Three months ended Six Months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expense 80.0 61.6 80.0 62.2
Depreciation and amortization 20.6 25.1 21.5 22.7
Acquisition integration costs 2.2 4.1 1.9 5.0
--- --- --- ---
Total cost of operations 102.8 90.8 103.4 89.9
----- ---- ------- ----
Gross profit/(loss) (2.8) 9.2 (3.4) 10.1
Selling, general and
administrative expenses 17.0 18.7 17.0 20.0
---- ---- ---- -----
Loss from operations (19.8) (9.5) (20.4) (9.9)
Other (expense), net (2.1) (1.3) (3.1) (1.4)
Interest income 0.4 2.5 0.4 2.2
Interest expense and
financing costs (19.5) (34.7) (21.9) (29.3)
Non-cash charge for
debt conversion - - - (27.7)
Extraordinary item (2.4) - (3.9) (1.1)
Preferred stock dividend (5.9) - (5.3) -
----- ----- ----- -----
Net loss available for
common shareholders (49.2)% (43.0)% (54.3)% (67.2)%
======= ======= ======= =======
Operating expenses increased by approximately $8,661,000 or 125.2% and
$16,541,000, or 132.5%, to $15,577,000 and $29,028,000 for the three and six
months ended June 30, 2000, respectively. Costs of operations for the comparable
periods in 1999 were $6,916,000 and $12,487,000. As a percentage of revenues,
operating expenses increased to 80.0% for the three and six months ended June
30, 2000, from 61.6% and 62.2% for the same periods in 1999. Operating expenses
increased for both periods primarily due to acquisitions as indicated above (see
Note 2 of the Consolidated Financial Statements). The increase in operating
expenses as a percentage of revenues was primarily due to the increase in
transfer station revenue as a percentage of the Company's revenue and increased
transportation costs in connection with disposing of waste collected from the
Eastern New England region at the Company's landfills in Central Pennsylvania.
The Company also had higher than normal repairs and maintenance costs on its
rolling stock, during the first half of 2000, related primarily to acquisitions
in Eastern New England. Finally, the Company had increased labor costs as it
ramped up operations at its Somerset, PA region and also at its Vermont and
Eastern New England regions.
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
approximately $1,194,000 or 42.4% and $3,219,000 or 70.5% for the three and
six-month periods ended June 30, 2000, to $4,010,000 and $7,788,000,
respectively. Depreciation and amortization expense for the comparable periods
in 1999 were approximately $2,817,000 and $4,569,000. 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 Mostoller landfill, which opened December 27,
1999. As a percentage of revenues, depreciation and amortization expense
decreased to 20.6% for the three months ended June 30, 2000 compared with 25.1%
for the three months ended June 30, 1999. As a percentage of revenues,
depreciation and amortization expense decreased to 21.5% for the six months
ended June 30, 2000 compared with 22.7% for the six months ended June 30, 1999.
Acquisition integration costs totaled approximately $419,000 and $462,000 for
the three months ended June 30, 2000 and 1999, respectively and approximately
$702,000 and $1,007,000 for the six months ended June 30, 2000 and 1999,
respectively. The reduction in 2000 is due to the high level of acquistions in
the first half of 1999.
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 approximately $1,210,000 or 57.8% and $2,165,000, or 54.0% to
$3,304,000 and $6,173,000 for the three and six-month periods ended June 30,
2000, respectively. Selling, general and administrative expenses for the
comparable periods in 1999 were approximately $2,094,000 and $4,007,000. As a
percentage of revenues, selling, general and administrative expenses decreased
to 17.0% for the three and six months ended June 30, 2000, from 18.7% and 20.0%
for the same periods in 1999. The dollar increase was due to ongoing development
of infrastructure and to support the several corporate initiatives designed to
implement its strategy. The decreases as a percentage of revenue was primarily
due to the expanded revenue base and related efficiencies.
Interest income decreased approximately $202,000 or 72.8% and $315,000, or 70.6%
to $75,500 and $131,000 for the three and six months ended June 30, 2000,
respectively. Interest income for the comparable periods in 1999 was
approximately $278,000 and $446,000. The decrease was the result of lower
average cash and investment balances.
Interest expense and financing costs, net of capitalized interest costs
decreased approximately $97,600, or 2.5% to $3,792,000, for the three month
period ended June 30, 2000. Interest expense and financing costs, net of
capitalized interest costs increased approximately $2,053,000, or 34.8% to
$7,949,000 for the six month period ended June 30, 2000. Interest expense and
financing costs, net of capitalized interest costs for the comparable periods in
1999 were approximately $3,890,000 and $5,896,000. The increase resulted
primarily from increased indebtedness incurred in connection with the 11 1/2%
Senior Notes and other debt in the second quarter of 1999. The increase for the
six months ended June 30, 2000, is due to the fact that the 11 1/2% Senior Notes
have been in place for a full six months. 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 approximately $357,000 and $692,000 of interest
costs, respectively.
The net loss for the six months ended June 30, 1999 includes a non-cash charge
of approximately $5,584,000 in connection with the conversion of debt into
equity, during the first quarter of 1999.
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:
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
Loss from operations ($3,847,210) ($1,068,433) ($7,425,911)($1,987,814)
Depreciation and amortization 4,071,852 2,889,106 8,056,386 4,641,620
--------- --------- --------- ---------
EBITDA 224,642 1,820,673 630,475 2,653,806
Acquisition integration costs 419,017 462,186 701,678 1,006,586
------- ------- ------- ---------
Adjusted EBITDA $643,659 $2,282,859 $1,332,153 $ 3,660,392
======== ========= ========= ===========
EBITDA as a % of revenue 1.2% 16.2% 1.7% 13.2%
==== ===== ==== =====
Adjusted EBITDA as a % of revenue 3.3% 20.3% 3.7% 18.2%
==== ===== ==== =====
Financial Position
The Company's business is capital intensive. The Company's capital requirements,
which are substantial, include 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.
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. The Company did not have any
acquisitions during 2000.
WSI had approximately $1.9 million in cash as of June 30, 2000. This represents
a decrease of approximately $11 million from December 31, 1999. The Company had
negative working capital of approximately ($28.2) million as of June 30, 2000, a
decrease of approximately $20.1 million from December 31, 1999. The decrease was
primarily due to cash paid for interest and capital projects and the increase of
short-term borrowings.
At June 30, 2000, the Company had approximately $12.2 million in trade accounts
receivables. The Company has estimated an allowance for doubtful accounts of
approximately $1.1 million, which is considered sufficient to cover future bad
debts.
On February 15, 2000 approximately $22.8 million of the 7% Convertible
Subordinated Notes and approximately $15.4 million of the 11 1/2% Senior Notes,
plus accrued interest, were exchanged into an aggregate of 38,531 shares of the
Company's Series E stock. On June 29, 2000, the Company exchanged approximately
$22,300,000 million of its 7% Convertible Subordinated Notes into shares of the
Company's newly designated Series F stock. Each Series carries an 8% dividend
which is payable in kind or cash at the option of the Company, is redeemable at
any time by the Company, can be converted into shares of the Company's common
stock at a price of $8.00 per share at any time at the option of the holder and
can be mandatorily converted by the Company if the closing price of its common
stock equals or exceeds $8.00 for a period of twenty consecutive trading days.
During the six months ended June 30, 2000 the Company continued development and
construction activities on several capital projects. 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 operation. Additions to property and equipment during
the six months ended June 30, 2000, were approximately $5.5 million.
For the six months ended June 30, 2000 the Company used approximately
($10,107,000) for operating activities compared to ($1,428,000) during the same
period in 1999. The decreased cash flow from operations in 2000 was due
primarily to the higher cost of operations and selling general and
administrative expenses at the Company's transfer stations, which represent a
higher percentage of revenue in 2000. In addition, the Company paid cash for
interest expense of approximately $6.9 million. The remainder of the cash flow
decrease was due to changes in the operating assets and liabilities including an
increase in accrued expenses, offset by decreases in accounts payable and
deferred revenue and an increase in accounts receivable.
EBITDA decreased by approximately $1,596,000 and $2,023,000 during the three and
six months ended June 30, 2000 to approximately $225,000 and $630,000. As a
percentage of revenue, EBITDA decreased to 1.2% and 1.7% during the three and
six months ended June 30, 2000 from 16.2% and 13.2% during the same periods in
1999. Adjusted EBITDA decreased by $1,639,000 and $2,328,000 during the three
and six months ended June 30, 2000 to $644,000 and $1,332,000. As a percentage
of revenue, adjusted EBITDA decreased to 3.3% from 20.3% for the three months
ended June 30, 2000 compared to the same period in 1999. For the six months
ended June 30, 2000, Adjusted EBITDA decreased to 3.7% compared with 18.2%
during the same period in 1999.
Net cash used by investing activities during the first six months of 2000 was
$5,238,000 compared to $52,872,000 in the same period in 1999. Capital
expenditures of approximately $3.8 million were made in connection with ongoing
construction projects, expenditures of property and equipment and to increase
operating efficiencies at the Company's existing operations. In addition, the
Company spent approximately $1.6 million on landfill closure costs. In 1999, the
Company spent $42.6 million on acquisitions.
Net cash provided by financing activities during the first six months of 2000
was approximately $4,358,000, primarily related to borrowings against the
$5,000,000 credit facility with BIII Capital Partners, L.P. The proceeds were
offset by repayment of existing debt and expenses associated with the Series E
and Series F stock exchanges.
On August 3, 1999, the Company entered into a $25 million credit facility with
the Banknorth Group. The credit facility has a three-year term with no interim
principal payments required. Interest is payable quarterly at rates of prime
plus 1% to prime plus 4%, depending on certain circumstances. The credit
facility is not callable by the Banknorth Group except, generally, in the event
of default by the Company of any of its covenants set forth in the credit
facility agreement. Certain of the covenants were established under the
assumption that the Company was going to complete several acquisitions that
would significantly increase the Company's earnings. These anticipated
acquisitions were not consummated. As a result, the Company has not been in
compliance with these covenants at the end of any quarter since the loan's
inception. The Company has obtained a waiver from the covenants of the Banknorth
Group. The Company has been negotiating with the Banknorth Group to establish
new covenants based on the Company's existing operations. On August 11, 2000,
the Banknorth Group agreed to forbear the Company's requirement to adhere to the
financial covenants through the end of the second quarter 2001. Under the
forbearance agreement, the Company will repay $6 million of the credit facility
on September 15, 2000. In addition, 50% of the proceeds of asset sales, if any,
between September 16, 2000 and December 31, 2000, will be used to pay down the
credit facility. At December 31, 2000, the Company will provide additional
collateral to the extent of any remaining balance under the credit facility.
On April 20, 2000, the Company entered into a one-year $7.5 million credit
facility with BIII Capital Partners, L.P., who is a major stockholder at the
Company. The facility provides for the repayment of any borrowings, plus
interest at 20% on April 20, 2001. On June 25, 2000, the facility was expanded
to $25 million under the same terms.
At June 30, 2000, the Company had approximately $108.3 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 and potential asset sales 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, 1999, (filed March 30,
2000), 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;
- 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.
<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
On June 29, 2000, the Company exchanged approximately $22.3 million of its 7%
Convertible Subordinated Notes into shares of the Company's newly designated
Series F stock. Each Series carries an 8% dividend which is payable in kind or
cash at the option of the Company, is redeemable at any time by the Company, can
be converted into shares of the Company's common stock at a price of $8.00 per
share at any time at the option of the holder and can be mandatorily converted
by the Company if the closing price of its common stock equals or exceeds $8.00
for a period of twenty consecutive trading days.
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, 2000.
The stockholders elected members of the Board of Directors and approved the
selection of KPMG 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 was as follows:
The tabulation of votes for the nominees for directors were as follows:
For Against Withheld
Philip Strauss 9,070,318 922,811 4,139
Robert Rivkin 9,986,344 6,785 4,139
Jay Matulich 9,068,331 922,611 6,326
David J. Breazzano 9,984,357 6,585 6,326
Charles Johnston 9,984,357 6,585 6,326
Judy K. Mencher 9,984,357 6,585 6,326
William B. Philipbar 9,984,357 6,585 6,326
The tabulation of votes for the Company's other proposals were as follows:
Selection of KPMG LLP as auditors 9,995,158 1,450 660
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
On June 21, 2000, the Company filed a Current Report on Form 8-K,
whereby it announced that it received a waiver of the previously disclosed
noncompliance with certain financial covenants as of March 31, 2000, from its
senior lender.
<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 14, 2000 By: /s/ Philip Strauss
--------------------- ------------------
Philip Strauss
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
Date: August 14, 2000 By: /s/ James Elitzak
--------------------- -----------------
James Elitzak
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
