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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the Quarterly Period Ended June 30, 2004
 
or
 
o
   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: 000-25955

Waste Services, Inc.

(Successor registrant of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
(Exact name of registrant as specified in its charter)
     
Delaware
   01-0780204
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)

1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8

(Address of principal executive offices and zip code)

(905) 319-1237

(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 þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes o          No þ

      The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at August 2, 2004 was 96,886,711 (assuming conversion of all exchangeable shares).

 

TABLE OF CONTENTS

             
Page
 PART I. FINANCIAL INFORMATION
   Financial Statements     2  
     Condensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003     2  
     Unaudited Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2004 and 2003     3  
     Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2004     4  
     Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003     5  
     Notes to Unaudited Condensed Consolidated Financial Statements     6  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     24  
   Quantitative and Qualitative Disclosures About Market Risk     40  
   Controls and Procedures     40  
 
 PART II. OTHER INFORMATION
   Legal Proceedings     II-1  
   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities     II-1  
   Defaults upon Senior Securities     II-1  
   Submission of Matters to a Vote of Security Holders     II-1  
   Other Information     II-1  
   Exhibits and Reports on Form 8-K     II-1  
 Signatures     II-3  

1

 

PART I. FINANCIAL INFORMATION

 
Item 1. Financial Statements

WASTE SERVICES, INC.

(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
                     
June 30, December 31,
2004 2003
(Unaudited)
ASSETS
Current assets:
                
 
Cash and cash equivalents
  $ 2,955     $ 21,062  
 
Restricted cash
    —       14,433  
 
Accounts receivable (net of allowance for doubtful accounts of $2,094 and $620 as of June 30, 2004 and December 31, 2003, respectively)
    41,084       26,999  
 
Prepaid expenses and other current assets
    12,662       29,649  
     
     
 
   
Total current assets
    56,701       92,143  
Property and equipment, net
     116,767       74,521  
Landfill sites, net
     168,065       117,541  
Deferred income taxes, net
     2,596       1,135  
Goodwill and other intangible assets, net
     322,914       163,380  
Other assets
     21,786       22,278  
     
     
 
   
Total assets
   $ 688,829     $ 470,998  
     
     
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                
 
Accounts payable
  $ 27,232     $ 12,074  
 
Accrued expenses and other current liabilities
    32,922       25,401  
 
Short-term financing and current portion of long-term debt
    265,457       172,280  
     
     
 
   
Total current liabilities
     325,611       209,755  
Long-term debt
     —       3,130  
Accrued closure, post-closure and other obligations
     10,550       8,791  
Cumulative mandatorily redeemable Preferred Shares (net of discount of $11,112 and $13,558 as of June 30, 2004 and December 31, 2003, respectively)
     56,132       48,205  
     
     
 
   
Total liabilities
     392,293       269,881  
     
     
 
Commitments and contingencies
                
Mezzanine financing (13,400,000 common shares pending registration)
     49,132       —  
     
     
 
Shareholders’ equity:
                
 
Common stock, no par value; unlimited shares authorized; 83,448,281 and 68,338,828 shares issued as of June 30, 2004 and December 31, 2003, respectively
    297,263       215,395  
 
Options, warrants and deferred stock-based compensation
    25,011       25,828  
 
Accumulated other comprehensive income
    10,537       15,952  
 
Accumulated deficit
    (85,407 )     (56,058 )
     
     
 
   
Total shareholders’ equity
     247,404       201,117  
     
     
 
   
Total liabilities, mezzanine financing and shareholders’ equity
   $ 688,829     $ 470,998  
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

 

WASTE SERVICES, INC.

(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
                                   
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenue
   $ 72,626     $ 31,282     $ 122,943     $ 56,562  
Operating and other expenses:
                                
 
Cost of operations
    49,913       20,430       84,084       37,024  
 
Selling, general and administrative expense exclusive of stock-based compensation
    13,959       6,792       25,909       11,521  
 
Stock-based compensation expense (benefit)
    357       120       (1,034 )     (177 )
 
Depreciation, depletion and amortization
    7,809       3,566       13,281       6,791  
 
Foreign exchange gain and other
    (283 )     392       (373 )     357  
     
     
     
     
 
Income (loss) from operations
     871       (18 )     1,076       1,046  
Interest expense
    12,266       1,667       18,582       2,987  
Changes in fair value of warrants pending registration
    421       —       421       —  
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs
    4,290       2,198       8,309       2,198  
     
     
     
     
 
Loss before income taxes
     (16,106 )     (3,883 )     (26,236 )     (4,139 )
Income tax provision (benefit)
    2,509       (377 )     3,338       (334 )
     
     
     
     
 
Loss before cumulative effect of change in accounting principle
     (18,615 )     (3,506 )     (29,574 )     (3,805 )
Cumulative effect of change in accounting principle, net of provision for income taxes of $134 and $256 for the six months ended June 30, 2004 and 2003, respectively
    —       —       225       518  
     
     
     
     
 
Net loss
     (18,615 )     (3,506 )     (29,349 )     (3,287 )
Deemed dividend on Series 1 Preferred Shares
    —       (12,489 )     —       (21,021 )
     
     
     
     
 
Net loss attributable to Common Shareholders
   $ (18,615 )   $ (15,995 )   $ (29,349 )   $ (24,308 )
     
     
     
     
 
Basic and diluted loss per share:
                                
 
Basic and diluted loss per share attributable to Common Shareholders before cumulative effect of change in accounting principle
  $ (0.21 )   $ (0.42 )   $ (0.37 )   $ (0.68 )
 
Cumulative effect of change in accounting principle
    —       —       —       0.01  
     
     
     
     
 
 
Loss per share — basic and diluted
  $ (0.21 )   $ (0.42 )   $ (0.37 )   $ (0.67 )
     
     
     
     
 
 
Weighted average Common Shares outstanding — basic and diluted
    88,855       37,865       79,736       36,537  
     
     
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

 

WASTE SERVICES, INC.

(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30, 2004
(In thousands)
                                                 
Options, Accumulated
Warrants and Other
Common Stock Deferred Comprehensive Total
Stock-Based Income Accumulated Shareholders’
Shares Amount Compensation (Loss) Deficit Equity
Balance, December 31, 2003
     68,339     $ 215,395     $ 25,828     $ 15,952     $ (56,058 )   $ 201,117  
Common Shares issued in acquisitions
    14,798       80,615       —       —       —       80,615  
Common Shares to be issued in acquisitions (38 shares)
    —       —       241       —       —       241  
Exercise of options and warrants
    311       1,253       (212 )     —       —       1,041  
Deferred stock-based compensation
    —       —       (846 )     —       —       (846 )
Foreign currency translation adjustment
    —       —       —       (5,415 )     —       (5,415 )
Net loss
    —       —       —       —       (29,349 )     (29,349 )
     
     
     
     
     
     
 
Balance, June 30, 2004
     83,448     $ 297,263     $ 25,011     $ 10,537     $ (85,407 )   $ 247,404  
     
     
     
     
     
     
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

 

WASTE SERVICES, INC.

(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                       
Six Months Ended
June 30,
2004 2003
Cash flows from operating activities:
                
 
Net loss
  $ (29,349 )   $ (3,287 )
 
Adjustments to reconcile net loss to net cash flows from operating activities — Depreciation and depletion
    11,028       6,444  
   
Amortization of intangible assets
    2,253       347  
   
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs
    8,309       2,198  
   
Amortization of debt issue costs
    9,616       465  
   
Deferred income tax provision (benefit)
    3,338       (334 )
   
Foreign exchange loss (gain)
    (84 )     480  
   
Non-cash stock-based compensation
    (1,034 )     (177 )
   
Cumulative effect of change in accounting principle, net of tax
    (225 )     (518 )
   
Changes in fair value of warrants pending registration
    421       —  
   
Other non-cash items
    (49 )     14  
 
Changes in operating assets and liabilities (excluding the effects of acquisitions) —
               
     
Accounts receivable
    (2,594 )     (2,145 )
     
Prepaid expenses and other current assets
    (2,243 )     (607 )
     
Accounts payable
    5,901       831  
     
Accrued expenses and other current liabilities
    2,793       1,680  
     
     
 
      8,081       5,391  
     
     
 
Cash flows from investing activities:
                
 
Cash used in business combinations and significant asset acquisitions, net of cash acquired
    (161,439 )     (69,300 )
 
Capital expenditures
    (22,606 )     (5,943 )
 
Proceeds from business divestitures
    9,983       —  
 
Deposits for business acquisitions
    (542 )     (6,917 )
     
     
 
      (174,604 )     (82,160 )
     
     
 
Cash flows from financing activities:
                
 
Proceeds from issuance of debt
    266,000       8,801  
 
Principal repayments of debt
    (181,639 )     (10,060 )
 
Proceeds from the private placement of Common Shares and warrants
    53,600       —  
 
Proceeds from release of restricted cash and release of collateral supporting letters of credit
    22,617       —  
 
Proceeds from the issuance of Series 1 Preferred Shares
    —       45,725  
 
Proceeds from the issuance of mandatorily redeemable Preferred Shares
    —       55,000  
 
Proceeds from the exercise of options and warrants
    1,041       —  
 
Fees paid for financing transactions
    (12,999 )     (8,493 )
     
     
 
      148,620       90,973