SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number 0-22417
Waste Industries, Inc.
(exact name of Registrant as specified in its charter)
North Carolina 56-0954929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3301 Benson Drive, Suite 601
Raleigh, North Carolina
(Address of principal executive offices)
27609
(Zip Code)
(919) 325-3000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 13,109,665 shares
(Class) (Outstanding at November 8, 2000)
PART 1 - Financial Information
Item 1. Financial Statements
WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 31, September 30,
1999 2000
----------- -----------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,176 $ 3,661
Accounts receivable - trade, less allowance for 26,756 28,417
uncollectible accounts (1999 - $921; 2000 - $1,034)
Accounts receivable - other - 1,529
Inventories 1,617 1,885
Prepaid expenses and other current assets 3,017 4,490
Deferred income taxes 910 1,199
----------- ---------------
Total current assets 35,476 41,181
----------- ---------------
Property and equipment, net 138,530 191,272
Intangible assets, net 71,458 67,761
Other noncurrent assets 3,740 4,887
----------- ---------------
Total assets 249,204 305,101
=========== ===============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt 5,826 9,384
Current maturities of capital lease obligations 1,042 940
Accounts payable - trade 11,343 10,963
Federal and state income taxes payable 1,487 750
Accrued expenses and other liabilities 6,095 10,517
Deferred revenue 1,875 2,079
----------- ---------------
Total current liabilities 27,668 34,633
----------- ---------------
Long-term debt, net of current maturities 137,363 188,507
Long-term capital lease obligations 2,337 1,599
Noncurrent deferred income taxes 10,105 12,406
Disposal site closure and long-term care obligations 1,590 2,477
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, no par value, shares authorized - 46,700 37,058
80,000,000 shares issued and outstanding:
1999 - 13,854,355; 2000 - 13,109,327
Paid-in capital 7,245 7,245
Retained earnings 28,620 34,614
Note receivable - Liberty Waste (11,538) (11,538)
Other shareholders' loans and receivables (886) (1,900)
----------- ---------------
Total shareholders' equity 70,141 65,479
----------- ---------------
Total liabilities and shareholders' equity $ 249,204 $ 305,101
=========== ===============
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
PART 1 - Financial Information
WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
1999 2000 1999 2000
------------- ------------ ------------- -------------
Revenues:
Service $56,023 $62,289 $ 155,915 $ 181,034
Equipment 448 477 948 1,262
------------- ------------ ------------- -------------
Total revenues 56,471 62,766 156,863 182,296
------------- ------------ ------------- -------------
Operating costs and expenses:
Operations 35,354 38,976 97,589 112,660
Equipment sales 308 441 602 920
Selling, general and administrative 8,344 10,207 22,864 28,715
Depreciation and amortization 5,887 6,880 16,349 19,538
Loss on sale of collections operations - - - 1,677
Merger/Start-up 102 - 334 -
------------- ------------ ------------- -------------
Total operating costs and expenses 49,995 56,504 137,738 163,510
------------- ------------ ------------- -------------
Operating income 6,476 6,262 19,125 18,786
------------- ------------ ------------- -------------
Interest expense 2,316 3,773 6,251 10,011
Interest income (392) (370) (918) (1,078)
Other (142) (25) (293) (143)
------------- ------------ ------------- -------------
Total other expense, net 1,782 3,378 5,040 8,790
------------- ------------ ------------- -------------
Income before income taxes 4,694 2,884 14,085 9,996
Income tax expense 1,739 1,154 5,214 4,002
------------- ------------ ------------- -------------
Net income $ 2,955 $ 1,730 $ 8,871 $ 5,994
============= ============ ============= =============
Earnings per share:
Basic 0.21 0.13 0.65 0.44
Diluted 0.21 0.13 0.63 0.43
Weighted average common shares outstanding:
Basic 13,854 13,633 13,707 13,778
Diluted 14,203 13,815 14,063 13,999
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
PART 1 - Financial Information
WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
September 30,
----------------------------
1999 2000
----------- ------------
Operating Activities:
Net income $ 8,871 $ 5,994
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,349 19,538
Gain on sale of property and equipment (236) (112)
Loss on sale of collection operations - 1,677
Provision for deferred income taxes 2,084 2,012
Disposal site closure and long-term care obligations 1,172 887
Changes in assets and liabilities, net of effects
from acquistions and disposition of related businesses:
Accounts receivable-trade (7,021) (698)
Inventories (425) (314)
Prepaid and other current assets (2,029) (3,041)
Other noncurrent assets (245) (2,470)
Accounts payable - trade (1,332) (350)
Federal and state income taxes payable 55 (737)
Accrued expenses and other liabilities (654) 556
Deferred revenue 133 456
----------- ------------
Net cash provided by operating activities 16,722 23,398
----------- ------------
Investing Activities:
Acquisitions of related business, net of cash acquired (27,487) (43,964)
Proceeds from disposal of related business, net of cash acquired - 9,897
Proceeds from sale of property and equipment 493 536
Purchases of property and equipment (27,685) (32,588)
----------- ------------
Net cash used in investing activities (54,679) (66,119)
----------- ------------
Financing Activities:
Proceeds from issuance of long term debt 96,566 88,423
Principal payments of long-term debt (53,202) (33,721)
Principal payments of capital lease obligations - (840)
Repayments of loans and receivables from shareholders 91 -
Advances under shareholder loans and receivables - (1,014)
Net proceeds from common stock issuance 3,250 36
Net proceeds from exercised options 44 1,328
Repurchases of common stock - (11,006)
Loan to Liberty Waste (11,538) -
Other (2) -
----------- ------------
Net cash provided by financing activities 35,209 43,206
----------- ------------
Increase (Decrease) in cash and cash equivalents (2,748) 485
Cash and cash equivalents, beginning of period 3,665 3,176
----------- ------------
Cash and cash equivalents, end of period $ 917 $ 3,661
=========== ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. As applicable under such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the presentations and
disclosures in the financial statements included herein are adequate to make the
information not misleading. The financial statements reflect normal adjustments
which are necessary for a fair statement of the results for the interim periods
presented. Operating results for interim periods are not necessarily indicative
of the results for full years or the interim periods.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Recent Developments
Purchase Acquisitions and Disposition:
During the nine months ended September 30, 2000, the Company made the
following acquisitions accounted for as purchases:
o On March 1, 2000, the Company acquired Trashbusters, LLC for $900,000
in cash. This tuck-in acquisition further expands the Company's
existing operations in our Easley, South Carolina facility, which
serves the Greenville/Spartanburg area.
o On March 23, 2000, the Company acquired a construction and demolition
landfill in the Greenville/Spartanburg South Carolina area from South
Eastern Associates, Inc. known as Loveless & Loveless, for $2.3 million
in cash. This acquisition provides the Company with its seventh
landfill.
o On March 23, 2000, the Company acquired J&B Partnership, LLC for
$500,000 in cash. This tuck-in to our Easley, South Carolina facility
provides transfer operations for the Greenville/Spartanburg area.
o On May 30, 2000, through an asset swap, the Company acquired the
Sampson County Landfill, a municipal solid waste landfill in Roseboro,
North Carolina, and a collection operation as a tuck-in to its existing
Fayetteville, North Carolina operation, from Allied Waste Industries
for $27.4 million in cash. Simultaneously, the Company sold its
collection operations in Ooltewah, Tennessee and Dalton, Georgia to
Allied Waste Industries for $9.9 million in cash. This acquisition
provides the Company with its eighth landfill.
o On June 23, 2000, the Company acquired a construction and demolition
landfill in Atlanta, Georgia from Safeguard Landfill Management, Inc.
for $7.3 million in cash. This acquisition provides the Company with
its ninth landfill.
o On July 21, 2000, the Company acquired a transfer station in Wilson
County, North Carolina from a subsidiary of Allied Waste Industries,
Inc. for approximately $2.2 million in cash.
o On September 1, 2000, the Company acquired Shamrock Environmental,
Inc., of Oglethorpe, GA, for $1.7 million in cash. This acquisition
provides industrial and commercial collection services and
transportation services to the Southwest Georgia Region.
These acquisitions were funded primarily with proceeds from the Company's
long-term revolving credit facilities.
5
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS - (Continued)
Components of cash used for the purchase acquisitions reflected in the unaudited
condensed consolidated statement of cash flows for the nine months ended
September 30, 2000 are as follows (in thousands):
Fair value of tangible assets acquired $ 42,881
Liabilities assumed (4,049)
Noncompete agreements and contracts 7
Goodwill 5,125
--------
Total consideration paid, including direct
cost, net of cash acquired $ 43,964
========
In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities based on their
respective fair values at the dates of acquisition. These purchase price
allocations are preliminary estimates, based on available information and
certain assumptions management believes are reasonable. Accordingly, such
purchase price allocations are subject to finalization.
The following unaudited pro forma results of operations for the nine months
ended September 30, 1999 and 2000 assume the transactions described above
occurred as of January 1, 1999 and 2000 after giving effect to certain
adjustments, including the amortization of the excess of cost over the
underlying assets (in thousands):
1999 2000
Total revenues $ 172,372 $ 190,240
------------ -----------
Operating income 24,084 21,322
------------ -----------
Net income 10,450 6,693
------------ -----------
Earnings per common share:
Basic $ 0.76 $ 0.49
------------ -----------
Diluted $ 0.74 $ 0.48
------------ -----------
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the transactions taken place
at the beginning of the periods presented or of future operating results.
Property and equipment are stated at cost. Depreciation expense is calculated on
the straight-line method over a period between 5 to 30 years. Goodwill is
amortized using the straight-line method over 25 to 40 years. These estimated
useful lives assigned to goodwill are based on the period over which management
believes that such goodwill can be recovered through undiscounted future
operating cash flows of the acquired operations.
Certain 1999 financial statement amounts have been reclassified to conform with
the 2000 presentation.
2. EARNINGS PER SHARE
Basic and diluted earnings per share computations are based on the
weighted-average common stock outstanding and include the dilutive effect of
stock options using the treasury stock method. For the nine months ended
September 30, 1999 and 2000, 184,636 and 154,494 stock options, respectively,
were excluded from the computations of diluted earnings per share because the
impact of their inclusion would be anti-dilutive.
3. SHAREHOLDERS' EQUITY
The Company issued 2,297 and 2,824 shares of Company common stock with a fair
value of approximately $34,000 and $39,000 for the three- and nine-months period
ended September 30, 2000, respectively, that was recorded as director's fees.
6
On September 18, 2000, the Company completed its stock repurchase program with
the purchase of 1,000,000 shares of its common stock at a cost of $11.0 million.
Cash for the stock repurchase program was funded by the Company's existing
revolving credit facilities.
During the three- and nine-month periods ended September 30, 2000, 227,652 and
264,309 stock options were exercised with net proceeds of approximately $125,000
and $1.3 million, respectively.
4. CONTINGENCIES
Claims and lawsuits arising in the ordinary course of business have been filed
or are pending against the Company. In the opinion of management, all these
matters have been adequately provided for, are adequately covered by insurance,
or are of such kind that if disposed of unfavorably, would not have a material
adverse effect on the Company's financial position or results of operations.
The Company will have material financial obligations relating to disposal site
closure and long-term care obligations of landfill facilities which it has
acquired through the nine-month period ended September 30, 2000. The Company
provides accruals for future obligations (generally for a term of 30 to 40 years
after final closure of the landfill) based on engineering estimates of
consumption of permitted landfill airspace over the useful life of the landfill.
The Company's ultimate financial obligations for actual closing or post-closing
costs might exceed the amount accrued and reserved or amounts otherwise
receivable pursuant to insurance policies or trust funds. Such a circumstance
could have a material adverse effect on the Company's financial condition and
results of operations.
5. NEW ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133 ("FAS 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued. This
statement establishes standards for valuing and reporting at fair value all
derivative instruments as either assets or liabilities. FAS 133, as amended by
FAS 137 and 138, is effective for all fiscal quarters beginning after June 15,
2000 (effective date of January 1, 2001 for the Company). The Company does not
expect adoption of FAS 133 to have a material impact on its financial
statements.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on the recognition, presentation and
disclosures of revenue in financial statements filed with the Commission and is
required to be implemented no later than the fourth quarter of fiscal 2000. The
Company believes the adoption of SAB 101 will not have a material impact on its
financial statements.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 1999. Some matters discussed in this
Management's Discussion and Analysis are "forward-looking statements" intended
to qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. 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 import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements. Forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those currently anticipated. These
risks and uncertainties include those related to the ability to manage growth,
the availability and integration of acquisition targets, competition, geographic
concentration, weather conditions, government regulation and others set forth in
the Company's Form 10-K. You should consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements made
herein are only made as of the date of this report and the Company undertakes no
obligation to publicly update these forward-looking statements to reflect
subsequent events or circumstances.
OVERVIEW
Waste Industries is a regional, vertically-integrated provider of solid waste
services. The Company operates primarily in North Carolina, South Carolina,
Virginia, Tennessee, Mississippi, Alabama, Georgia and Florida, providing solid
waste collection, transfer, recycling, processing and disposal services for
commercial, industrial, municipal and residential customers. As of September 30,
2000, we operated 42 collection operations, 24 transfer stations, approximately
100 county convenience drop-off centers, eight recycling facilities and nine
landfills in southeastern U.S. The Company had revenues of $214.7 million and
operating income of $26.0 million in the year ended December 31, 1999, and
revenues of $182.3 million and operating income of $18.8 million in the nine
months ended September 30, 2000.
The Company's presence in high-growth markets in the southeastern U.S.,
including North Carolina, Georgia and Virginia, has supported its internal
growth. In addition, from 1990 through the nine months ended September 30, 2000,
the Company acquired 59 solid waste collection or disposal operations. Current
levels of population growth and economic development in southeastern U.S. and
the Company's strong market presence in the region should provide the Company an
opportunity to increase its revenues and market share. As the Company adds
customers in its existing markets, its density should improve, which the Company
expects will increase its collection efficiencies and profitability.
RESULTS OF OPERATIONS
GENERAL
The Company's branch waste collection operations generate revenues from fees
collected from commercial, industrial and residential collection and transfer
station customers. The Company derives a substantial portion of its collection
revenues from commercial and industrial services that are performed under
one-year to five-year service agreements. The Company's residential collection
services are performed either on a subscription basis with individual
households, or under contracts with municipalities, apartment owners, homeowners
associations or mobile home park operators. Residential customers on a
subscription basis are billed quarterly in advance and provide the Company with
a stable source of revenues. A liability for future service is recorded upon
billing and revenues are recognized at the end of each month in which services
are actually provided. Municipal contracts in the Company's existing markets are
typically awarded, at least initially, on a competitive bid basis and thereafter
on a bid or negotiated basis and usually range in duration from one to five
years. Municipal contracts generally provide consistent cash flow during the
term of the contracts.
The Company's prices for its solid waste services are typically determined by
the collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged in its markets for similar services.
8
The Company's ability to pass on price increases is sometimes limited by the
terms of its contracts. Long-term solid waste collection contracts typically
contain a formula, generally based on a predetermined published price index, for
automatic adjustment of fees to cover increases in some, but not all, operating
costs.
At September 30, 2000, the Company operated approximately 100 convenience sites
under contract with 14 counties in order to consolidate waste in rural areas.
These contracts, which are usually competitively bid, generally have terms of
one to five years and provide consistent cash flow during the term of the
contract since the Company is paid regularly by the local government. At
September 30, 2000, the Company also operated eight recycling processing
facilities as part of its collection and transfer operations where it collects,
processes, sorts and recycles paper products, aluminum and steel cans, pallets,
plastics, glass and other items. The Company's recycling facilities generate
revenues from the collection, processing and resale of recycled commodities,
particularly recycled wastepaper. While these prices fluctuate, they do not have
a significant impact to the Company as a whole. Through a centralized effort,
the Company resells recycled commodities using commercially reasonable practices
and seeks to manage commodity pricing risk by spreading the risk among its
customers. The Company also operates curbside residential recycling programs in
connection with its residential collection operations in most of the communities
it serves.
Operating expenses for the Company's collection operations include labor, fuel,
equipment maintenance and tipping fees paid to landfills. At September 30, 2000,
the Company owned, operated or transferred from 24 transfer stations that reduce
the Company's costs by improving its utilization of collection personnel and
equipment and by consolidating the waste stream to gain more favorable disposal
rates and transportation costs. At September 30, 2000, the Company owned and
operated nine landfills. Operating expenses for these landfill operations
include labor, equipment, legal and administrative, ongoing environmental
compliance, host community taxes, site maintenance and accruals for closure and
post-closure maintenance. Cost of equipment sales primarily consists of the
Company's cost to purchase the equipment that it resells.
The Company capitalizes certain expenditures related to pending acquisitions or
development projects. Indirect acquisition and project development costs, such
as executive and corporate overhead, public relations and other corporate
services, are expensed as incurred. The Company's policy is to charge against
net income any unamortized capitalized expenditures and advances (net of any
portion thereof that the Company estimates to be recoverable, through sale or
otherwise) relating to any operation that is permanently shut down, any pending
acquisition that is not consummated and any landfill development project that is
not expected to be successfully completed. Engineering, legal, permitting,
construction and other costs directly associated with the acquisition or
development of a landfill, together with associated interest, are capitalized.
Selling, general and administrative ("SG&A") expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with the Company's marketing and sales force and community relations
expense.
Property and equipment is depreciated over the estimated useful life of the
assets using the straight line method.
Other income and expense, which is comprised primarily of interest income has
not historically been material to the Company's results of operations.
To date, inflation has not had a significant impact on the Company's operations.
9
The following table sets forth for the periods indicated the percentage of
revenues represented by the individual line items reflected in the Company's
unaudited condensed statements of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Service 99.2% 99.2% 99.4% 99.3%
Equipment 0.8% 0.8% 0.6% 0.7%
------------ ------------ ------------ ------------
Cost of operations 62.6% 62.1% 62.2% 61.8%
Cost of equipment sales 0.5% 0.7% 0.4% 0.5%
Selling, general and administrative 15.0% 16.2% 14.8% 15.8%
Depreciation and amortization 10.4% 11.0% 10.4% 10.7%
Loss on sale of collection operations 0.0% 0.0% 0.0% 0.9%
------------ ------------ ------------ ------------
Operating income 11.5% 10.0% 12.2% 10.3%
------------ ------------ ------------ ------------
Interest expense 3.4% 5.4% 3.4% 4.9%
Other income -0.2% 0.0% -0.2% -0.1%
------------ ------------ ------------ ------------
Income before income taxes 8.3% 4.6% 9.0% 5.5%
Income taxes 3.1% 1.8% 3.3% 2.2%
------------ ------------ ------------ ------------
Net income 5.2% 2.8% 5.7% 3.3%
============ ============ ============ ============
Three- and Nine-Month Periods Ended September 30, 2000 vs. Three- and Nine-Month
Periods Ended September 30, 1999
REVENUES. Total revenues increased approximately $6.3 million, or 11.1%, and
$25.4 million, or 16.2%, for the three-and nine-month periods ended September
30, 2000, respectively, as compared with the same periods in 1999. These
increases were attributable primarily to the following factors: (1) the effect
of 17 businesses acquired during the year ended December 31, 1999 and seven
businesses acquired through September 30, 2000 resulting in a $5.0 million
increase and a $16.1 million increase for the three- and nine-month periods
ended September 30, 2000, offset by the decrease in revenues due to the loss on
the sale of collection operations of $2.0 million and $3.3 million,
respectively; and (2) increased prices and collection volumes resulting from new
municipal and commercial contracts and residential subscriptions of $3.3 million
and $12.6 million, respectively.
COST OF OPERATIONS. Cost of operations increased $3.6 million, or 10.2%, and
$15.1 million, or 15.4%, for the three-and nine-month periods ended September
30, 2000, respectively, as compared to the same periods in 1999. For the three-
and nine-month periods ending September 30, 2000, these increases were
attributable primarily to increased labor costs and associated expenses of
approximately $1.1 million and $4.3 million, respectively, increased fuel
expense of approximately $0.7 million and $2.6 million, respectively, increased
landfill and disposal expenses of approximately $0.5 million and $4.5 million,
respectively, increased repairs and maintenance of approximately $0.4 million
and $1.6 million, respectively, loss on sale of collection operations of $1.7
million during the quarter ended 6/30/00, and the remaining increases due to
increased collection volumes resulting from new municipal and commercial
contracts and residential subscriptions. Of the increases, $1.1 million and $3.8
million, respectively, were directly related to the acquisition of new
businesses during the periods.
SG&A. SG&A increased $1.9 million, or 22.3%, and $5.9 million, or 25.6%, for the
three- and nine-month periods ended September 30, 2000, respectively, as
compared with the same periods in 1999. For the three- and nine-month periods
ending September 30, 2000, these increases were attributable primarily to
increased labor costs and associated expenses of approximately $0.9 million and
$3.2 million, respectively, increased legal and accounting services of
approximately $0.2 million and $0.2 million, respectively, increased rent
expense of approximately $0.1 million and $0.4 million respectively, offset by
the sale of collection operations of $0.3 and $0.9 million, respectively, with
the remaining increases due to
10
increased collection volumes resulting from new municipal and commercial
contracts and residential subscriptions, for the three- and nine-month periods,
respectively. Of the increases, 23.8% and 19.2%, respectively, were directly
related to the acquisition of new businesses during the periods.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.0
million, or 16.9%, and $3.2 million, or 19.5% for the three- and nine-month
periods ended September 30, 2000, respectively, compared to the same periods in
1999. The primary components of these increases were (1) the effect of
additional depreciation related to the 17 businesses acquired during the year
ended December 31, 1999 and seven businesses acquired through September 30, 2000
resulting in a $0.7 million increase and $0.9 million increase for the three-
and nine-month periods ended September 30, 2000, respectively; (2) depreciation
resulting from additional property acquired and placed into service due to
higher collection volumes of $1.2 million for the nine months ended September
30, 2000 and (3) increased amortization related to newly acquired landfills of
approximately $1.0 million for the nine months ended September 30, 2000.
INTEREST EXPENSE. Interest expense (net of interest income) increased $1.5
million, or 76.9%, and $3.6 million, or 67.5%, for the three- and nine-month
periods ended September 30, 2000, respectively, compared to the same periods in
1999. These increases were primarily due to the higher level of the Company's
average outstanding indebtedness as well as a higher interest rate related to
the Company's purchases of assets of businesses acquired and the debt required
to fund the Company's stock repurchase plan.
INCOME TAX EXPENSE. Income tax expense decreased $0.6 million, or 33.6%, and
$1.2 million, or 23.2%, for the three- and nine-month periods ended September
30, 2000, respectively, compared to the same periods in 1999. These decreases
were attributable to a decline in income before taxes, which was offset by an
increase in the effective tax rate of approximately 3.0% (from 37.0% to 40.0%).
The increase in the effective tax rate is due to reduced tax credits available
to the Company.
NET INCOME. Net income decreased $1.2 million, or 41.5%, and $2.9 million, or
32.4%, for the three- and nine-month periods ended September 30, 2000,
respectively, compared to the same periods in 1999. These decreases were
primarily attributable to increased labor costs and associated expenses,
landfill and disposals costs, loss on sale of collection operations and interest
expense (net of interest income) offset by a decrease in income tax expense for
the three- and nine-month periods ended September 30, 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 2000 was $6.5 million compared to
$7.8 million at December 31, 1999. The Company's strategy in managing its
working capital has been to apply the cash generated from operations that
remains available after satisfying its working capital and capital expenditure
requirements to reduce indebtedness under its bank revolving credit facilities
and to minimize its cash balances. The Company generally finances its working
capital requirements from internally generated funds and bank borrowings. In
addition to internally generated funds, the Company has in place financing
arrangements to satisfy its currently anticipated working capital needs in 2000.
As of September 30, 2000, the Company had fully drawn upon its three $25 million
term facilities with Prudential Insurance Company of America ("Prudential"),
leaving the Company with an uncommitted shelf facility of $25 million. The
Prudential facilities require the Company to maintain financial ratios, such as
minimum net worth, net income, and limits on capital expenditures and
indebtedness. At September 30, 2000, the Company did not meet the minimum
tangible net worth covenant. The Company has requested a waiver for this
violation. Management believes a waiver will be granted by Prudential. Interest
on the three Prudential facilities is paid quarterly, based on fixed rates for
the three facilities of 7.28%, 6.96% and 6.84%, respectively, and the facilities
mature as follows: $25 million in April 2006, $25 million in June 2008 and $25
million in February 2009, all subject to renewal.
In November 1999, the Company entered into a revolving credit agreement with a
syndicate of lending institutions for which Fleet National Bank, formerly known
as BankBoston, N.A. ("Fleet"), acts as agent. This credit facility provides up
to $200 million through November 2004. Virtually all of the assets of the
Company and its subsidiaries, including the Company's interest in the equity
securities of its subsidiaries, secure the Company's obligations under the Fleet
credit facility. Pursuant to an intercreditor agreement with Fleet, Prudential
shares in the collateral pledged under the Fleet credit facility. In addition,
the Company's subsidiaries have guaranteed the Company's obligations under the
Prudential term loan facilities. The Fleet credit facility bears interest at a
rate per annum equal to, at the Company's option, either a Fleet base rate or at
the Eurodollar rate (based on Eurodollar interbank market rates) plus, in each
case, a percentage rate that fluctuates, based on the ratio of our funded debt
to EBITDA, from 0% to 0.5% for base rate borrowings and 0.2% to 0.4% for
Eurodollar rate borrowings. The Fleet facility requires the Company to maintain
financial ratios and satisfy other requirements, such as minimum net worth, net
income, and limits on capital expenditures and indebtedness. At September 30,
2000, the Company did not meet the minimum tangible net worth covenant. The
Company has requested a waiver for this violation. Management believes a waiver
will be granted by Fleet. It also requires the lenders' approval of acquisitions
in some circumstances. As of September 30, 2000, an aggregate of approximately
$120 million was outstanding under the Fleet credit facility, and the average
interest rate on
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outstanding borrowings was approximately 8.2%.
Net cash provided by operating activities totaled $23.4 million for the nine
months ended September 30, 2000, compared to $16.7 million for the nine months
ended September 30, 1999. This increase was caused principally by an increase in
cash provided by operations of $1.8 million and a reduction in the use of
working capital of $4.9 million.
Net cash used in investing activities totaled $66.1 million for the nine months
ended September 30, 2000, compared to $54.7 million for the nine months ended
September 30, 1999. This increase was caused principally by a higher level of
acquisitions of related businesses offset by proceeds received from sale of
collection operations, and an increase in capital expenditures of $4.9 million.
We currently expect capital expenditures for 2000 to be approximately $37.0
million, compared to $35.0 million in 1999. In 2000, we expect to use
approximately $27.0 million for vehicle and equipment additions and
replacements, approximately $2.3 for landfill site and cell development,
approximately $2.1 million for support equipment and approximately $5.6 million
for facilities, additions and improvements. The Company intends to fund its
planned 2000 capital expenditures principally through internally generated funds
and borrowings under existing credit facilities. As an owner of and potential
acquirer of additional new landfill disposal facilities, the Company might also
be required to make significant expenditures to bring newly acquired disposal
facilities into compliance with applicable regulatory requirements, obtain
permits for newly acquired disposal facilities or expand the available disposal
capacity at any such newly acquired disposal facilities. The amount of these
expenditures cannot be currently determined, because they will depend on the
nature and extent of any acquired landfill disposal facilities, the condition of
any facilities acquired and the permitting status of any acquired sites.
Net cash provided by financing activities totaled $43.2 million for the nine
months ended September 30, 2000, compared to $35.2 million for the nine months
ended September 30, 1999. The increase was primarily attributable to increased
borrowings (net of repayments) of $11.3 million and a loan to Liberty Waste
Lending Company, LLC, a wholly-owned subsidiary of Waste Industries, Inc., of
$11.5 million in 1999, offset by repurchases of the Company's outstanding common
stock of $11.0 million in 2000.
At September 30, 2000, the Company had approximately $200.4 million of long-term
and short-term borrowings outstanding (including capital lease obligations) and
approximately $4.7 million in letters of credit. At September 30, 2000, the
ratio of the Company's total debt (including capital lease obligations) to total
capitalization was 75.4%, compared to 67.6% at December 31, 1999.
SEASONALITY
The Company's results of operations tend to vary seasonally, with the first
quarter typically generating the least amount of revenues, higher revenues in
the second and third quarters, and a decline in the fourth quarter. This
seasonality reflects the lower volume of waste during the fall and winter
months. Also, operating and fixed costs remain relatively constant throughout
the calendar year, which, when offset by these revenues, results in a similar
seasonality of operating income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure has not changed materially from the exposure
as disclosed in the Company's 1999 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
(b) During the quarter ended September 30, 2000, the Company filed a
report on Form 8-K on September 29, 2000 to pre-announce lower
than expected third quarter earnings.
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SIGNATURE
Pursuant to the requirements 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.
Dated: November 13, 2000 Waste Industries, Inc.
(Registrant)
By: /s/ Stephen C. Shaw
---------------------------------------
Stephen C. Shaw
Chief Financial Officer
(Principal Financial Officer)
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WASTE INDUSTRIES, INC.
EXHIBIT INDEX
Third Quarter 2000
Exhibit Number Exhibit Description
- ---------------- -------------------
11 Computation of Earnings Per Share
27 Financial Data Schedule
The Financial Data Schedule contains summary financial information extracted
from the condensed financial statements of Waste Industries, Inc. as of and for
the nine months ended September 30, 2000 and is qualified in its entirety by
reference to such financial statements.
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