-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mn4LOLWCXpEiKhRhz1EsKc+mdPrbyOe4nYlAdNQz8/AIdGc4Wi+y880SL2Lz4Fe4 IJHSn4wGy9dpKhKpPgO4AQ== 0000847468-99-000013.txt : 19990809 0000847468-99-000013.hdr.sgml : 19990809 ACCESSION NUMBER: 0000847468-99-000013 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0000847468 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 954203626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-25998 FILM NUMBER: 99678995 BUSINESS ADDRESS: STREET 1: 420 BEDFORD STREET STREET 2: SUITE 300 CITY: LEXINGTON STATE: MA ZIP: 02173 BUSINESS PHONE: 7818623000 MAIL ADDRESS: STREET 1: 420 BEDFORD STREET STREET 2: SUITE 300 CITY: LEXINGTON STATE: MA ZIP: 02173 FORMER COMPANY: FORMER CONFORMED NAME: BIOSAFE INTERNATIONAL INC DATE OF NAME CHANGE: 19950504 FORMER COMPANY: FORMER CONFORMED NAME: ZOE CAPITAL CORP DATE OF NAME CHANGE: 19920703 10-Q/A 1 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q/A [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1999. or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (For the transition period from ---------to --------). Commission file number 0-25998 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 02173 (Address of principal executive offices) (Zip Code) (781) 862-3000 (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 May 13, 1999 was 13,396,594. 13 This report on Form 10-Q/A amends the Report on Form 10-Q of Waste Systems International, Inc. ("Waste Systems") filed with the Securities and Exchange Commission on May 14, 1999 (the "Form 10-Q"). The Form 10-Q is hereby amended by deleting Part I, Item 2 thereof in its entirety and replacing it as follows: 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. 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 March 31, 1999, the Company owned one landfill in Vermont and three landfills in Central Pennsylvania. In addition, the Company has contracted with the Town of South Hadley, Massachusetts to operate that Town's landfill. See the table below detailing the "Estimated Total Remaining Permitted Capacity" and the "Capacity in Permitting Process" for each landfill. The Company also owns four operating transfer stations and has acquired another that is permitted and is under construction. At March 31, 1999, the Company's collection operations serve a total of approximately 70,000 commercial, industrial, residential and municipal customers in the Central Pennsylvania, Vermont, Upstate New York and Central Massachusetts markets. The following table provides certain information regarding the landfills that the Company owns or operates. All information is provided as of March 31, 1999. Remaining Estimated Permitted Capacity 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 2,835,000 - Moretown Moretown, VT 1,425,000 - Community Refuse Service, Inc. Cumberland, PA 5,600,000 - South Hadley(2) South Hadley, MA - 2,000,000 - -------------
(1) Represents capacity for which the Company has begun the permitting process. Does not include additional available capacity at the site for which permits have not yet been sought. (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 three months ended March 31, 1999, the Company acquired three collection companies and a landfill in Central Pennsylvania, one collection company in Central Massachusetts and one collection company in Upstate New York. During 1998, the Company completed 34 acquisitions within its 4 current operating regions. The Company intends to continue to expand by acquiring solid waste disposal capacity and collection companies in new and existing markets. In considering new markets, the Company evaluates opportunities to acquire or otherwise control sufficient landfills, transfer stations and collection operations which would enable it to generate an integrated waste stream and achieve the disposal economies of scale necessary to meet its market share and financial objectives. The Company has established criteria, which enable it to evaluate the prospective acquisition opportunity and the target market. Historically, the Company has entered new markets, which are adjacent to its existing markets; however, the Company is considering new markets in non-contiguous geographic areas, which meet its criteria. The following table sets forth the acquisitions completed by the Company through May 10, 1999: ACQUISITION MONTH ACQUIRED PRINCIPAL BUSINESS LOCATION Central Pennsylvania Region: Pro-Disposal April 1999 Collection Bellwood, PA Cumberland Waste Service, Inc. March 1999 Collection Cumberland, PA Community Refuse Service, Inc. March 1999 Landfill Cumberland, 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./ Eagle Recycling, Inc. May 1998 Collection Altoona, PA Vermont Region: B..B. & B. Trucking April 1999 Collection Burlington, VT Grady Majors Rubbish Removal September 1998 Collection St. Albans, VT Cota Sanitation June 1998 Collection Newport, VT Vincent Moss June 1998 Collection Newport, VT Austin Rubbish Removal June 1998 Collection Newport, VT Surprenant Rubbish, Inc. June 1998 Collection Newport, VT Fortin's Trucking of Williston May 1998 Collection Williston, VT John Leo & Sons, Ltd. March 1998 Collection Burlington, VT Rapid Rubbish Removal, Inc. February 1998 Collection/Transfer Station St. Johnsbury, VT Greenia Trucking February 1998 Collection St. Albans, VT Doyle Disposal January 1998 Collection Barre, VT Perkins Disposal January 1998 Collection St. Johnsbury, VT CSWD Transfer Station October 1997 Transfer Station Williston, VT The Hartigan Company January 1997 Collection Stowe, VT Waitsfield Transfer Station November 1995 Transfer Station Waitsfield, VT Moretown Landfill July 1995 Landfill Moretown, VT Upstate New York Region: Tri-Valley Sanitation, Inc. April 1999 Collection Whitesboro, NY Santaro Trucking Co., Inc. January 1999 Collection Syracuse, NY Richard A. Bristol, Sr. November 1998 Collection Rome, NY Bristol Trash and Recycling II November 1998 Collection Rome, NY Shepard Disposal Service October 1998 Collection Oneida, NY Emmons Trash Removal October 1998 Collection Sherill, NY Wayne Wehrle September 1998 Collection Clinton, NY Phillip Trucking September 1998 Collection Wampsville, NY Mary Lou Mauzy September 1998 Collection Cazenovia, NY Costello's Trash Removal September 1998 Collection Cazenovia, NY Bliss Rubbish Removal, Inc. September 1998 Collection/Transfer Station Camden, NY Besig & Sons September 1998 Collection Westmoreland, NY Larry Baker Disposal, Inc. September 1998 Collection Oneida, NY Central Massachusetts Region: Troiano Trucking, Inc. March 1999 Collection Worcester, MA Steve Provost Rubbish Removal December 1998 Collection Rochdale, MA Sunrise Trucking December 1998 Collection Spencer, MA Trashworks November 1998 Collection Worcester, MA Mattei-Flynn Trucking, Inc. August 1998 Collection Auburn, MA Mass Wood Recycling, Inc. July 1998 Transfer Station Oxford, MA
Internalization of Waste Throughout 1998 and during the three months ended March 31, 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 three months ended March 31, 1999, over 95% of the waste from the Company's Vermont operations was delivered for disposal at the Moretown Landfill and approximately 40% of the waste delivered for disposal at the Moretown Landfill during this period was collected by the Company. In addition, approximately 59% of the waste from the Company's Central Pennsylvania-Altoona division operations was delivered for disposal at the Sandy Run Landfill and approximately 58% 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 92% of the waste from the Company's Central Pennsylvania- Harrisburg division operations was delivered for disposal at the Community Refuse, Inc. landfill and approximately 16% of the waste delivered for disposal at the Community Refuse, Inc. landfill during this period was collected by the Company. Results of Operations During the three months ended March 31, 1999, the Company acquired one landfill, five solid waste collection companies and one transfer station. Because of the relative significance of the acquired business' operations to the Company's financial performance, as well as the acquisitions consummated in 1998, the Company does not believe that its historical financial statements are necessarily indicative of future performance and as a result will affect the comparability of the financial information included herein. Revenues Revenues represent fees charged to customers for solid waste collection, transfer, recycling and disposal services provided. Revenues for the periods presented in the consolidated statements of operations were derived from the following sources: Three months ended March 31, 1999 1998 ---- ---- Collection 85.5% 40.7% Landfill 10.4 27.8 Transfer 4.1 31.5 ---- ---- Total Revenue 100.0% 100.0% ===== ===== The increase in the Company's collection revenues as a percentage of revenues in the three months ended March 31, 1999 compared to the same period in 1998 is due primarily to the impact of the collection companies acquired during 1998 and the first quarter of 1999. During 1998 and three months ended March 31, 1999, the Company acquired 31 and 5 collection companies, respectively. The decrease in landfill and transfer station revenue as a percentage of revenues in the three months ended March 31, 1999 compared to the same periods in 1998 is due primarily to the acquisition of collection companies that had been disposing of their waste at the Company's transfer stations and landfills. These acquired revenues are now being recorded as collection revenue. Revenues increased $7,334,000, or 480%, to $8,862,000 for the three month period ended March 31, 1999 compared with $1,528,000 for the same period in 1998. The increase was primarily due to the impact of operations acquired during 1998 and the first quarter ended March 31, 1999. See Note 2 to the Consolidated Financial Statements. Revenue from acquisitions totaled approximately $7,150,000. The balance of the increase is the result of the internal growth within the Vermont operation, which was the only existing operation in the first quarter of 1998. The growth in the Vermont operations was due to increased volume and prices at the landfill and internal growth at the Company's collection operation. 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 March 31, 1999 1998 ---- ---- Revenues 100.0% 100.0% Operating expenses 62.9 56.5 Depreciation and amortization 19.8 24.5 Acquisition integration costs 6.1 20.9 ---- ---- Total cost of operations 88.8 101.9 ---- ----- Gross profit 11.2 (1.9) Selling, general and administrative expenses 21.6 43.0 ---- ---- Loss from operations (10.4) (44.9) Royalty and other income (expense), net (1.5) (0.9) Interest income 1.9 1.8 Interest expense and financing costs (22.6) (28.4) Non-cash charge for debt conversion (63.0) - Extraordinary item (2.5) - ------ ----- Net loss (98.1)% (72.4)% ====== ====== Operating expenses increased $4,708,000, or 545%, to $5,571,000 from $864,000 for the three months ended March 31, 1999, compared with the same period in 1998. As a percentage of revenues, operating expenses increased from 56.5% in the first quarter of 1998 to 62.9% in the first quarter of 1999. Operating expenses increased primarily due to the acquisitions. The increase in operating expenses as a percentage of revenues was primarily due to the change in revenue mix, with a much larger portion of the revenue coming from collection operations, which typically experience much higher operating expenses than landfill operations. The Company internalizes a significant portion of its waste collected in Vermont and Central Pennsylvania, which significantly reduces costs of operations as a percentage of revenue. The Company's Upstate New York and Central Massachusetts operations consist of only collection and transfer station operations at this time. Depreciation and amortization expense includes depreciation of property and equipment over their useful lives using the straight-line method, amortization of goodwill and other intangible assets over their useful lives using the straight-line method, and amortization of landfill development costs using the units-of-production method. Depreciation and amortization expense increased $1,378,000 or 368% to $1,753,000 for the three months ended March 31, 1999 from $374,000 for the comparable period in 1998. The increase is the result of increased depreciation costs of the additional assets acquired through acquisition and increased amortization due to substantial increases in intangible assets related to acquisitions. Additionally, amortization of landfill development costs increased as a result of the increase in the amount of waste accepted at the Company's Vermont landfill and the additions of the Sandy Run and Community Refuse, Inc. landfills in Central Pennsylvania. As a percentage of revenues, depreciation and amortization expense decreased to 19.8% in the first quarter of 1999 from 24.5% in the first quarter of 1998. The decrease in depreciation and amortization expense as a percentage of revenues is primarily attributable to higher 1999 revenues. Acquisition integration costs consist of one-time, non-recurring costs, which in the opinion of management have no future value and, therefore, are expensed. Such costs include termination and retention of employees, lease termination costs, costs related to the integration of information systems and costs related to the change of name of the acquired company or business. These charges are estimated and accrued at the time the acquisition is closed. The estimates are reviewed frequently by Company management and the related operation teams integrating the new acquisitions and adjusted as required. Acquisition integration costs totaled approximately $544,400 and $320,000 for the three months ended March 31, 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 costs increased $1,256,000, or 191%, to $1,914,000 for the three month period ended March 31, 1999 from $657,000 in the comparable period in 1998. As a percentage of revenue, selling, general and administrative expenses decreased to 21.6% for the three months ended March 31, 1999 from 43.0% for the same period in 1998. The dollar increase was due to efforts by the Company to build an infrastructure to sustain its significant growth through acquisition and to support the several corporate initiatives designed to implement its strategy. The Company expects spending growth to continue moderately through 1999 as the Company continues to implement its growth through acquisition strategy. The decrease as a percentage of revenue was primarily due to the expanded revenue base and related efficiencies, as the Company is able to purchase "tuck-in" acquisitions that increase revenues and improve margins without adding significant administrative costs. The Company anticipates that in future periods its selling, general and administrative expenses should continue to decrease as a percentage of revenue as it leverages its current corporate overhead to revenue growth primarily through acquisitions. Interest income increased $140,000, or 502% to $168,000 for the three months ended March 31, 1999, from $28,000 in the comparable period in 1998. The increase was the result of higher average cash and investment balances due to the proceeds from the 11.5% Senior Notes that closed on March 2, 1999. See Note 5 to the Consolidated Financial Statements. Interest expense and financing costs, net of capitalized interest costs increased $1,572,000, or 362%, to $2,006,000 for the three month period ended March 31, 1999, from $434,000 for comparable period in 1998. The increase resulted primarily from increased indebtedness incurred in connection with the 11.5% Senior Notes, the 7% Convertible Subordinated Notes, and other debt. 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 months ended March 31, 1999 and 1998, the Company capitalized $335,692 and $0 of interest costs, respectively. Royalty and other income (expense) was ($132,000) and ($14,000) for the three month periods ended March 31, 1999 and 1998, 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 three months ended March 31, 1999 includes a non-cash charge of $5,584,000 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: Three months ended March 31, 1999 1998 ---- ---- Loss from operations ($ 919,381) ($ 687,065) Depreciation and amortization 1,775,970 406,116 --------- ------- EBITDA 856,589 (280,949) Acquisition integration costs 544,400 320,000 ------- ------- Adjusted EBITDA $1,400,989 $39,051 ========= ====== EBITDA as a % of revenue 9.7% (18.4%) Adjusted EBITDA as a % of revenue 15.8% 2.6% ======== ======= Financial Position WSI had approximately $36.8 million in cash as of March 31, 1999. This represents an increase of approximately $36.6 million from December 31, 1998. The Company had working capital of approximately $34.1 million as of March 31, 1999, an increase of approximately $40.6 million from December 31, 1998. This increase was primarily due to the remaining proceeds from the Senior Notes. During the three months ended March 31, 1999, WSI acquired three collection companies and a landfill in Central Pennsylvania, one collection company in Central Massachusetts, and one collection company in Upstate New York. The aggregate cost of the acquisitions was approximately $37.9 million consisting of $36.0 million in cash and $1.9 million in assumed liabilities. The acquisitions have combined annual revenues of approximately $12 million. At March 31, 1999, the Company had approximately $6.2 million in trade accounts receivables. The Company has estimated an allowance for doubtful accounts of approximately $126,000, which is considered sufficient to cover future bad debts. During the three months ended March 31, 1998, the Company devoted substantial resources to various corporate development activities. Additions to property and equipment during the three months ended March 31, 1999 were approximately $32.5 million, which included assets purchased through acquisition of approximately $30.3 million. Liquidity and Capital Resources The Company's business is capital intensive. The Company's capital requirements, which are substantial, include acquisitions, property and equipment purchases and capital expenditures for landfill cell construction, landfill development and landfill closure activities. Principally due to these factors, the Company may incur working capital deficits. The Company plans to meet its capital needs through various financing sources, including internally generated funds, 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. See Footnote 5 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. The Company generated net cash from operating activities for the three months ended March 31, 1999 of $1,735,000. During the same period in 1998, the Company used ($1,020,000) for operating activities. The improved cash flow from operations in 1999 was due primarily to the increased revenues which were offset by related increases in 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 increases in accounts payable, accrued expenses and deferred revenue. These were offset by an increase in accounts receivable. EBITDA increased by $1,138,000 during the first quarter of 1999 to $857,000 from negative EBITDA of ($281,000) during the same period in 1998. As a percentage of revenue, EBITDA increased to 9.7% during the first quarter of 1999 from (18.4%) in the first quarter of 1998. Adjusted EBITDA increased by $1,362,000 during the first quarter of 1999 to $1,401,000 from $39,000 during the same period in 1998. As a percentage of revenue, Adjusted EBITDA increased to 15.8% during the first quarter of 1999 from 2.6% in the first quarter of 1998. Net cash used by investing activities during the first three months of 1999 was $39,071,000 compared to $7,280,000 in the same period in 1998. Of the net cash used by investing activities in 1999, approximately $36.0 million was used for the acquisition of landfill, collection and transfer operations. See Footnote 2. Additional capital expenditures of approximately $2.2 million were made to increase operating efficiencies at the Company's existing operations. Other investing activity included the acquisition of various long-term permits necessary to operate the landfills and for long-term prepaid disposal costs. The Company's capital expenditures and capital needs for acquisitions have increased significantly, reflecting the Company's rapid growth by acquisition and development of revenue producing assets, and will increase further as the Company continues to complete acquisitions. Total capital expenditures are expected to further increase during 1999 due to acquisitions, ongoing construction of Cell 2 at the Moretown Landfill, the development and construction of the Mostoller and South Hadley Landfills, and construction of a transfer station in Central Massachusetts. Net cash provided by financing activities during the first three months of 1999 was approximately $74.0 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 497,778 shares of its common stock from the FDIC for approximately $2.8 million. The Company had a $10 million line of credit facility with The BankNorth Group, N.A. which was fully drawn as of December 31. The entire balance was repaid on March 2, 1999 with the proceeds from the Senior Notes and the credit facility was closed. The Company is currently negotiating a new expanded facility with The BankNorth Group, N.A. which it expects to close in the third quarter of 1999. At March 31, 1999, the Company had approximately $152.1 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, 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; Year 2000 problems could have an adverse impact on our business. Recent Senior Notes Offering Since December 31, 1998, the Company incurred additional indebtedness through the $100 million Senior Notes offering, which creates a more highly leveraged capital structure of the Company. While the Company does not have to pay any principal on the Senior Notes until 2006, the Company will incur substantial increased interest expense. In addition, based on the terms of the Senior Notes, the interest rate on the Senior Notes will be increased if the Company does not achieve certain levels of consolidated stockholders' equity. Accordingly, the Company may decide to issue substantial additional shares of its common stock, in order to increase its stockholders' equity. Year 2000 Compliance The statements in the following section include the "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. Please refer to the information located at the beginning of this Item 2 regarding forward-looking statements contained in this section. The Company is assessing the readiness of its systems for handling the Year 2000. Although the assessment is still underway, management currently believes that all material systems will be compliant by Year 2000 and that the costs associated with this will not be material. The Company has incurred only minimal costs to date associated with the Year 2000 issue. The Company is in the process of identifying key third-party vendors to understand their ability to continue providing services through Year 2000. The Company uses well-regarded nationally known software vendors for both its general accounting applications and industry-specific customer information and billing systems. The Company is implementing a new general accounting package which the Company believes will be fully Year 2000 compatible, and the Company believes that the provider of the solid waste industry customer information and billing system is Year 2000 compatible. The Company's banking arrangements are with national banking institutions, which are taking all necessary steps to insure its customers' uninterrupted service throughout applicable Year 2000 time frames. 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 time frames. While the Company currently expects that the Year 2000 issue will not cause significant operational problems, delays in the implementation of new information systems, or failure to fully identify all Year 2000 dependencies in the Company's systems and in the systems of suppliers and financial institutions could have material adverse consequences. Therefore, the Company is developing contingency plans for continuous operations in the event such problems arise. [END OF AMENDMENT] SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 5, 1999 By: /s/ Robert Rivkin ---------------------------------- Robert Rivkin Executive Vice President - Acquisitions, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----