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 March 31, 2001
Commission File Number 000-31050
Waste Holdings, 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 13,336,541 shares
(Class) (Outstanding at May 10, 2001)
PART 1 - Financial Information
Item 1. Financial Statements
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 31, March 31,
2000 2001
-------------------------- -------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 7,401 $ 997
Accounts receivable - trade, less allowance for 27,983 26,770
uncollectible accounts (2000 - $1,957; 2001 - $2,157)
Accounts receivable - other 663 -
Income taxes receivable 857 239
Inventories 1,778 1,644
Prepaid Insurance 626 7,612
Prepaid expenses and other current assets 3,620 3,355
Deferred income taxes 1,183 1,236
-------------------------- -------------------------
Total current assets 44,111 41,853
-------------------------- -------------------------
Property and equipment, net 193,295 195,562
Intangible assets, net 66,547 69,648
Other noncurrent assets 3,795 4,145
-------------------------- -------------------------
Total assets 307,748 311,208
========================== =========================
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt 4,008 6,066
Current maturities of capital lease obligations 995 992
Accounts payable - trade 12,178 8,095
Income taxes payable - 11
Accrued expenses and other liabilities 2,134 2,599
Deferred acquisition costs 3,338 3,723
Accrued interest payable 2,462 1,322
Accrued wages payable 1,614 1,752
Deferred revenue 1,884 2,315
-------------------------- -------------------------
Total current liabilities 28,613 26,875
-------------------------- -------------------------
Long-term debt, net of current maturities 193,382 197,347
Long-term capital lease obligations 1,227 982
Noncurrent deferred income taxes 14,875 14,215
Disposal site closure and long-term care obligations 2,725 3,143
Commitments and contingencies (Note 4) - -
Shareholders' equity:
Common stock, no par value, shares authorized - 37,037 38,152
80,000,000 shares issued and outstanding:
2000 - 13,119,171; 2001 - 13,336,541
Paid-in capital 7,245 7,245
Retained earnings 36,279 37,471
Note receivable - Liberty Waste (11,538) (11,538)
Other shareholders' loans and receivables (2,097) (2,684)
-------------------------- -------------------------
Total shareholders' equity 66,926 68,646
-------------------------- -------------------------
Total liabilities and shareholders' equity $ 307,748 $ 311,208
========================== =========================
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
PART 1 - Financial Information
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended
March 31,
----------------------------
2000 2001
------------- -------------
Revenues:
Service $ 56,914 $ 59,682
Equipment 369 365
------------- -------------
Total revenues 57,283 60,047
------------- -------------
Operating costs and expenses:
Operations 35,510 36,752
Equipment sales 221 284
Selling, general and administrative 9,013 9,492
Depreciation and amortization 6,203 7,206
Start-up and organizational costs - 570
------------- -------------
Total operating costs and expenses 50,947 54,304
------------- -------------
Operating income 6,336 5,743
------------- -------------
Interest expense 2,815 4,337
Interest income (344) (382)
Other (53) (75)
------------- -------------
Total other expense, net 2,418 3,880
------------- -------------
Income before income taxes 3,918 1,863
Income tax expense 1,568 671
------------- -------------
Net income $ 2,350 $ 1,192
============= =============
Earnings per share:
Basic 0.17 0.09
Diluted 0.17 0.09
Weighted average common shares outstanding:
Basic 13,854 13,141
Diluted 14,132 13,172
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
PART 1 - Financial Information
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------
2000 2001
------------ ------------
Operating Activities:
Net income $ 2,350 $ 1,192
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,203 7,206
(Gain)/Loss on sale of property and equipment (47) 4
Provision for deferred income taxes 1,079 (712)
Changes in operating assets and liabilities, net of effects
from acquisitions and disposition of related businesses (1,672) (8,171)
------------ ------------
Net cash provided by (used in) operating activities 7,913 (481)
------------ ------------
.
Investing Activities:
Acquisitions of related business, net of cash acquired (3,477) (5,001)
Proceeds from sale of property and equipment 163 794
Purchases of property and equipment (9,044) (8,020)
------------ ------------
Net cash used in investing activities (12,358) (12,227)
------------ ------------
Financing Activities:
Proceeds from issuance of long term debt 5,745 7,263
Principal payments of long-term debt (1,320) (1,238)
Principal payments of capital lease obligations (260) (248)
Advances under shareholder loans and receivables - (587)
Net proceeds from common stock issuance 2 6
Net proceeds from exercised options - 1,108
------------ ------------
Net cash provided by financing activities 4,167 6,304
------------ ------------
Decrease in cash and cash equivalents (278) (6,404)
Cash and cash equivalents, beginning of period 3,176 7,401
------------ ------------
Cash and cash equivalents, end of period $ 2,898 $ 997
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
WASTE HOLDINGS, 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.
Waste Holdings is the successor in interest to Waste Industries, Inc. Waste
Holdings was formed in September 2000 by Waste Industries as part of Waste
Industries' holding company reorganization. The holding company reorganization
was completed on March 31, 2001 upon the merger of Waste Industries into Waste
Industries MergeCo, LLC, a wholly owned subsidiary of Waste Holdings, Inc., a
North Carolina corporation for the purpose of becoming its parent holding
company. Each share of Waste Industries outstanding common stock was
automatically converted into one share of Waste Holdings common stock.
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, 2000.
Recent Developments
Purchase Acquisitions and Disposition:
During the three months ended March 31, 2001, the Company made the following
acquisition which was accounted for as a purchase:
o On March 1, 2001, the Company acquired commercial routes in Memphis and
Nashville, Tennessee; Norfolk, Virginia; Augusta, Georgia; and
Pensacola, Florida for $5.0 million in cash from Allied Waste
Industries, Inc. The Memphis and Norfolk operations are tuck-ins to
existing operations and the Nashville, Augusta, and Pensacola are
operations in new markets.
This acquisition was funded primarily with proceeds from the Company's long-term
revolving credit facilities.
Components of cash used for the purchase acquisitions reflected in the unaudited
condensed consolidated statement of cash flows for the three months ended March
31, 2001 are as follows (in thousands):
Fair value of tangible assets acquired $ 1,742
Liabilities assumed (264)
Goodwill 3,523
---------
Total consideration paid, including direct cost,
net of cash acquired $ 5,001
=========
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 three months
ended March 31, 2000 and 2001 assume the transactions described above occurred
as of January 1, 2000 and 2001, after giving effect to certain adjustments,
including the amortization of the excess of cost over the underlying assets (in
thousands):
5
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS - (Continued)
2000 2001
Total revenues $ 58,861 $ 61,099
------------------------------
Operating income 6,519 5,865
------------------------------
Net income 2,434 1,251
------------------------------
Earnings per common share:
Basic $ 0.18 $ 0.10
------------ -------------
Diluted $ 0.17 $ 0.10
------------ -------------
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 2000 financial statement amounts have been reclassified to conform with
the 2001 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 three months ended March
31, 2000 and 2001, stock options of 250,061 and 350,029, 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 1,066 and 236 shares of Company common stock with a fair
value of approximately $6,000 and $2,500 for the three-month periods ending
March 31, 2001 and 2000, respectively, that were recorded as director's fees.
During the three-month period ended March 31, 2001, stock options totaling
216,304 were exercised with net proceeds of approximately $1.1 million. No
options were exercised for the same period in 2000.
4. CONTINGENCIES
Certain 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 three-month period ended March 31, 2001. 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.
6
5. NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company has adopted Financial Accounting
Standards Board ("FASB") issued FASB No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by FASB No. 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities. FASB No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. Management
does not believe the Company has any derivative instruments or hedging
activities that are within the scope of SFAS No. 133 and, accordingly, the
adoption of SFAS No. 133 has not had a material impact on the Company's
consolidated 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, 2000. 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 including
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.
OVERVIEW
Waste Holdings is a regional, vertically-integrated provider of solid waste
services. We operate 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 March 31,
2001, we operated 42 collection operations, 24 transfer stations, approximately
100 county convenience drop-off centers, eight recycling facilities and ten
landfills in the southeastern U.S. We had revenues of $242.4 million and
operating income of $25.5 million in the year ended December 31, 2000, and
revenues of $60.0 million and operating income of $5.7 million in the three
months ended March 31, 2001.
Our presence in high-growth markets in the southeastern U.S., including North
Carolina, Georgia and Virginia, has supported our internal growth. In addition,
from 1990 through the three months ended March 31, 2001, we acquired 59 solid
waste collection or disposal operations. Current levels of population growth and
economic development in the southeastern U.S. and our strong market presence in
the region should provide us with an opportunity to increase our revenues and
market share. As we add customers in our existing markets, our density should
improve, which we expect will increase our collection efficiencies and
profitability.
RESULTS OF OPERATIONS
GENERAL
Our branch waste collection operations generate revenues from fees collected
from commercial, industrial and residential collection and transfer station
customers. We derive a substantial portion of our collection revenues from
commercial and industrial services that are performed under one-year to
five-year service agreements. Our 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 us 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 our 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.
Our prices for our 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 our markets for similar services.
Our ability to pass on price increases is sometimes limited by the terms of our
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 March 31, 2001, we 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
8
years and provide consistent cash flow during the term of the contract since we
are paid regularly by the local government. At March 31, 2001, we also operated
eight recycling processing facilities as part of our collection and transfer
operations where we collect, process, sort and recycle paper products, aluminum
and steel cans, pallets, plastics, glass and other items. Our recycling
facilities generate revenues from the collection, processing and resale of
recycled commodities, particularly recycled wastepaper. Through a centralized
effort, we resell recycled commodities using commercially reasonable practices
and seek to manage commodity pricing risk by spreading the risk among our
customers. We also operate curbside residential recycling programs in connection
with our residential collection operations in most of the communities we serve.
Operating expenses for our collection operations include labor, fuel, insurance,
equipment maintenance and tipping fees paid to landfills. At March 31, 2001, we
owned, operated or transferred from 24 transfer stations that reduce our costs
by improving our utilization of collection personnel and equipment and by
consolidating the waste stream to gain more favorable disposal rates and
transportation costs. At March 31, 2001, we owned and operated ten 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 our cost to purchase the equipment that we
resell.
We capitalize 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. Our policy is to charge against net income
any unamortized capitalized expenditures and advances (net of any portion
thereof that we estimate 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, or SG&A, expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with our 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 our results of operations.
To date, inflation has not had a significant impact on our operations.
The following table sets forth for the periods indicated the percentage of
revenues represented by the individual line items reflected in our unaudited
condensed statements of operations:
9
Three Months Ended
March 31,
-----------------------------
2000 2001
----------- ------------
Total revenues 100.0% 100.0%
Service 99.4% 99.4%
Equipment 0.6% 0.6%
----------- ------------
Cost of operations 62.0% 61.2%
Cost of equipment sales 0.4% 0.5%
Selling, general and administrative 15.7% 15.8%
Depreciation and amortization 10.8% 12.0%
Startup and organizational costs 0.0% 0.9%
----------- ------------
Operating income 11.1% 9.6%
----------- ------------
Interest expense 4.3% 6.6%
Other income - -0.1%
----------- ------------
Income before income taxes 6.8% 3.1%
Income taxes 2.7% 1.1%
----------- ------------
Net income 4.1% 2.0%
=========== ============
Three Month Period Ended March 31, 2001 vs. Three Month Period Ended March 31,
2000
REVENUES. Total revenues increased approximately $2.8 million, or 4.8%, for the
three-month period ended March 31, 2001, compared with the same period in 2000.
This increase was attributable primarily to the following factors: (1) the
effect of seven businesses acquired during the year ended December 31, 2000 and
contracts acquired through March 31, 2001 resulting in a $4.6 million increase
for the three-month period ended March 31, 2001, offset by the decrease in
revenues due to the loss on the sale of collection operations of $2.3 million;
and (2) increased prices and collection volumes resulting from new municipal and
commercial contracts and residential subscriptions of $0.5 million.
COST OF OPERATIONS. Cost of operations increased $1.3 million, or 3.7%, for the
three-month period ended March 31, 2001, compared to the same period in 2000.
This increase was attributable primarily to increased health insurance rates of
approximately $1.2 million, labor costs and associated expenses of approximately
$0.7 million, increased landfill site and accrual expenses of approximately $0.6
million, offset by a decrease in landfill and disposal fees of $1.4 million, and
the remaining increases were primarily due to increased collection volumes
resulting from new municipal and commercial contracts, residential subscriptions
and the acquisition of new businesses during the period. Total cost of
operations as a percentage of revenues decreased to 61.2% in 2001 from 62.0% in
2000 due to a higher internalization rate.
SG&A. SG&A increased $.5 million, or 5.3%, for the three-month period ended
March 31, 2001, compared with the same period in 2000. This increase was
attributable primarily to increased bad debt expense of approximately $0.4
million, increased legal, accounting services, postage and utility expense of
approximately $0.4 million, offset by amounts attributable to the sale of
collection operations of $0.3 million in 2000. SG&A as a percentage of revenues
increased to 15.8% of revenue in 2001 from 15.7% of revenue in 2000 due to the
aforementioned increases.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.0
million, or 16.2%, for the three-month period ended March 31, 2001, compared to
the same period in 2000. Depreciation and amortization, as a percentage of
revenues, increased to 12.0% from 10.8%, for the three month periods ended March
31, 2001 and 2000, respectively. The primary components of this increase were
(1) the effect of additional depreciation related to the seven businesses
acquired during the year ended December 31, 2000 and three businesses acquired
through March 31, 2001 resulting in a $0.7 million increase for the three-month
period ended March 31, 2001 offset by amounts attributable to the sale of
collection operations of $0.3 million in 2000; and (2) depreciation resulting
from additional property acquired and placed into service due to higher
collection volumes of $0.6 million for the three months ended March 31, 2001.
INTEREST EXPENSE. Interest expense (net of interest income) increased $1.5
million, or 60.1%, for the three-month period ended March 31, 2001, compared to
the same period in 2000. This increase was primarily due to the higher level of
average outstanding indebtedness as well as a higher interest rate related to
our purchases of assets of businesses acquired
10
and the debt required to fund our stock repurchase plan completed in 2000.
INCOME TAX EXPENSE. Income tax expense decreased $0.9 million, or 57.2%, for the
three-month period ended March 31, 2001, compared to the same period in 2000.
This decrease was attributable to a decline in income before taxes and a
decrease in the effective tax rate of approximately 4.0% (from 40.0% to 36.0%).
The decrease in the effective tax rate is due to reorganization of our corporate
legal structure completed in the quarter ended March 31, 2001.
NET INCOME. Net income decreased $1.2 million, or 49.3%, for the three-month
period ended March 31, 2001, compared to the same period in 2000. This decrease
was primarily attributable to increased insurance expense, landfill site and
accrual expenses, bad debt expense and interest expense (net of interest income)
offset by a decrease in income tax expense for the three-month period ended
March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital at March 31, 2001 was $15.0 compared to $15.5 million at
December 31, 2000. Our strategy in managing our working capital has been to
apply the cash generated from operations that remains available after satisfying
our working capital and capital expenditure requirements to reduce indebtedness
under our bank revolving credit facilities and to minimize our cash balances. We
generally finance our working capital requirements from internally generated
funds and bank borrowings. In addition to internally generated funds, we have in
place financing arrangements to satisfy our currently anticipated working
capital needs in 2001. As of March 31, 2001, we have fully drawn upon our three
$25 million term facilities with Prudential Insurance Company of America,
leaving us with an uncommitted shelf facility of $25 million. The Prudential
facilities require us to maintain financial ratios, such as minimum net worth,
net income, and limits on capital expenditures and indebtedness. 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, we entered into a revolving credit agreement with a syndicate
of lending institutions for which Fleet National Bank, formerly known as
BankBoston, N.A., acts as agent. This credit facility provides up to $200
million through November 2004. Virtually all of our assets and those of our
subsidiaries, including our interest in the equity securities of our
subsidiaries, secure our 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, our subsidiaries have
guaranteed our obligations under the Prudential term loan facilities. The Fleet
credit facility bears interest at a rate per annum equal to, at our 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 us to maintain financial ratios and satisfy other requirements, such as
minimum net worth, net income, and limits on capital expenditures and
indebtedness. It also requires the lenders' approval of acquisitions in some
circumstances. As of March 31, 2001, an aggregate of approximately $129 million
was outstanding under the Fleet credit facility, and the average interest rate
on outstanding borrowings was approximately 8.3%.
Net cash used in operating activities totaled $.5 million for the three months
ended March 31, 2001, compared to net cash provided by operations of $7.9
million for the three months ended March 31, 2000. This decrease was caused
principally by a reduction in net income of $1.2 million, an increase in
non-cash depreciation and amortization of $1.0 million, an increase in working
capital primarily related to prepaid insurance of $7.0 million and an increase
in other noncurrent assets of $1.2 million and the remainder related to a
decrease in deferred income taxes, and increase in loss on sales of property and
equipment and closure/postclosure liabilities.
Net cash used in investing activities totaled $12.2 million for the three months
ended March 31, 2001, compared to $12.4 million for the three months ended March
31, 2000. This decrease was caused principally by a higher level of acquisitions
of related businesses of $1.6 million, an increase in proceeds from the sale of
property and equipment of $0.6 million and a decrease in capital expenditures of
$1.0 million.
We currently expect capital expenditures for 2001 to be approximately $28.0
million, compared to $42.3 million in 2000. In 2001, we expect to use
approximately $8.5 million for vehicle and equipment additions and replacements,
approximately $8.7 million for landfill site and cell development, approximately
$7.0 million for support equipment and approximately $3.8 million for
facilities, additions and improvements. We expect to fund our planned 2001
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, we 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
11
extent of any acquired landfill disposal facilities, the condition of any
facilities acquired and the permitting status of any acquired sites. We expect
we would fund any capital expenditures to acquire solid waste collection and
disposal business, to the extent we could not fund such acquisitions with our
common stock, and any regulatory expenses for newly acquired disposal facilities
through borrowings under our existing credit facilities.
Net cash provided by financing activities totaled $6.3 million for the three
months ended March 31, 2001, compared to $4.2 million for the three months ended
March 31, 2000. The increase was primarily attributable to increased borrowings
(net of repayments) of $1.5 million and increased proceeds from options
exercised of $1.1 million offset by a decreased shareholder loans and
receivables of $0.5 million.
At March 31, 2001, we had approximately $205.4 million of long-term and
short-term borrowings outstanding (including capital lease obligations) and
approximately $4.7 million in letters of credit. At March 31, 2001, the ratio of
our total debt (including capital lease obligations) to total capitalization was
75.0%, compared to 74.9% at December 31, 2000.
Accounts receivable-other decreased approximately $0.7 million for the
three-month period ended March 31, 2001 compared to December 31, 2000. This
decrease was due to the settlement of an acquisition holdback.
Prepaid insurance increased approximately $7.0 million to $7.6 million for the
period ended March 31, 2001 from $0.6 million at December 31, 2000 due primarily
to the prepayment of our annual insurance premium for auto liability and
physical damage coverage and workers' compensation coverage. This payment was
made in advance in order to obtain a lower insurance rate.
Accrued interest payable decreased approximately $1.2 million to $1.3 million
for the period ended March 31, 2001 from $2.5 million at December 31, 2000 due
to an increase in interest payments in excess of accruals.
SEASONALITY
Our 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 generated 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
Our market risk exposure has not changed materially from the exposure as
disclosed in our Company's 2000 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
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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: May 15, 2001 Waste Holdings, Inc.
(Registrant)
By: /s/ Stephen C. Shaw
----------------------------------
Stephen C. Shaw
Chief Financial Officer
(Principal Financial Officer)
13
WASTE HOLDINGS, INC.
EXHIBIT INDEX
First Quarter 2001
Exhibit Number Exhibit Description
-------------- --------------------
11 Computation of Earnings Per Share
14