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 June 30, 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 13,337,703 shares
(Class) (Outstanding at August 8, 2001)
1
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
December 31, June 30,
2000 2001
----------------- ----------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 7,401 $ 565
Accounts receivable - trade, less allowance for 27,983 30,516
uncollectible accounts (2000 - $1,957; 2001 - $1,899)
Accounts receivable - other 663 -
Accounts receivable-income tax 857 -
Inventories 1,778 1,675
Prepaid insurance 626 5,615
Prepaid expenses and other current assets 3,620 4,841
Deferred income taxes 1,183 1,245
----------------- ----------------
Total current assets 44,111 44,457
----------------- ----------------
PROPERTY AND EQUIPMENT, net 193,295 194,778
INTANGIBLE ASSETS, net 66,547 69,218
OTHER NONCURRENT ASSETS 3,795 9,778
----------------- ----------------
TOTAL ASSETS 307,748 318,231
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt 4,008 11,001
Current maturities of capital lease obligations 995 1,009
Accounts payable - trade 12,178 10,147
Income taxes payable - 83
Accrued expenses and other liabilities 2,134 3,130
Deferred acquisition costs 3,338 3,676
Accrued interest payable 2,462 2,365
Accrued wages payable 1,614 1,983
Deferred revenue 1,884 2,088
----------------- ----------------
Total current liabilities 28,613 35,482
----------------- ----------------
LONG-TERM DEBT, net of current maturities 193,382 193,833
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,227 726
NONCURRENT DEFERRED INCOME TAXES 14,875 14,327
CLOSURE/POSTCLOSURE LIABILITIES 2,725 3,302
COMMITMENTS AND CONTINGENCIES (Note 4) - -
SHAREHOLDERS' EQUITY:
Common stock, no par value, shares authorized - 37,037 38,151
80,000,000 shares issued and outstanding:
2000 - 13,119,171; 2001 - 13,337,703
Paid-in capital 7,245 7,245
Retained earnings 36,279 39,567
Note receivable - Liberty Waste (11,538) (11,538)
Shareholders' loans and receivables (2,097) (2,864)
----------------- ----------------
Total shareholders' equity 66,926 70,561
----------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 307,748 318,231
================= ================
See Notes to Unaudited Condensed Consolidated Financial Statements
2
PART 1 - FINANCIAL INFORMATION
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
2000 2001 2000 2001
----------------- ----------------- ---------------- ----------------
REVENUES:
Service $ 61,831 $ 64,184 $ 118,745 $ 123,866
Equipment 416 338 785 703
--------------- ----------------- ---------------- ----------------
Total revenues 62,247 64,522 119,530 124,569
--------------- ----------------- ---------------- ----------------
OPERATING COST AND EXPENSES:
Operations 38,180 40,538 73,691 77,290
Equipment sales 258 281 478 565
Selling, general and administrative 9,488 9,105 18,501 18,597
Depreciation and amortization 6,454 7,472 12,658 14,678
Organizational costs 570
Loss on sale of business unit 1,677 359 1,677 359
--------------- ----------------- ---------------- ----------------
Total operating costs and expenses 56,057 57,755 107,005 112,059
--------------- ----------------- ---------------- ----------------
OPERATING INCOME: 6,190 6,767 12,525 12,510
--------------- ----------------- ---------------- ----------------
Interest expense 3,424 3,887 6,238 8,224
Interest income (363) (376) (707) (758)
Other (66) (19) (119) (94)
--------------- ----------------- ---------------- ----------------
Total other expense, net 2,995 3,492 5,412 7,372
--------------- ----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 3,195 3,275 7,113 5,138
INCOME TAX EXPENSE 1,280 1,179 2,848 1,850
--------------- ----------------- ---------------- ----------------
NET INCOME $ 1,915 $ 2,096 $ 4,265 $ 3,288
=============== ================= ================ ================
EARNINGS PER SHARE
Basic 0.14 0.16 0.31 0.25
Diluted 0.14 0.16 0.30 0.25
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 13,858 13,337 13,850 13,238
Diluted 14,098 13,350 14,107 13,242
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
PART 1 - FINANCIAL INFORMATION
WASTE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------------------------
2000 2001
----------------- -----------------
Operating Activities:
Net income $ 4,265 $ 3,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,658 14,678
(Gain)/loss on sale of property and equipment (91) 18
Loss on sale of business unit 1,677 359
Provision for deferred income taxes 1,994 (610)
Changes in operating assets and liabilities, net of effects from
acquistions and disposition of related businesses (5,881) (14,010)
---------------- ----------------
Net cash provided by operating activities 14,622 3,723
---------------- ----------------
Investing Activities:
Acquisitions of related business, net of cash acquired (39,975) (5,001)
Proceeds from sale of related business unit 9,897 426
Proceeds from sale of property and equipment 252 1,017
Purchases of property and equipment (19,148) (14,305)
---------------- ----------------
Net cash used in investing activities (48,974) (17,863)
---------------- ----------------
Financing Activities:
Proceeds from issuance of long-term debt 51,409 47,742
Principal payments of long-term debt (15,178) (40,298)
Principal payments of capital lease obligations (525) (487)
Advances under shareholder loans and receivables (421) (767)
Net proceeds from common stock issuance 2 6
Net proceeds from exercised options 161 1,108
Repurchase of common stock (342)
---------------- ----------------
Net cash provided by financing activities 35,106 7,304
---------------- ----------------
Increase (decrease) in cash and cash equivalents 754 (6,836)
Cash and cash equivalents, beginning of period 3,176 7,401
---------------- ----------------
Cash and cash equivalents, end of period $ 3,930 $ 565
================ ================
4
See Notes to Unaudited Condensed Consolidated Financial Statements.
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 interest to Waste Industries. Waste Holdings
was formed in September 2000 by Waste Industries for the purpose of becoming
Waste Industries' parent holding company. 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. 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 Acquisition and Disposition:
During the six months ended June 30, 2001, the Company made the following
acquisition which was accounted for as a purchase and disposition:
. 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 operations are in new markets.
. On May 15, 2001, the Company disposed of a non-core business unit known as
Air Cargo Services for $426,000 in cash and notes from Capital Cartage,
Inc.
The acquisition was funded primarily with proceeds from the Company's long-term
revolving credit facilities.
Components of cash used for the acquisition reflected in the unaudited condensed
consolidated statement of cash flows for the six months ended June 30, 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 date 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.
5
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS - (Continued)
The following unaudited pro forma results of operations for the six months ended
June 30, 2000 and 2001 assume the acquisition 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):
2000 2001
Total revenues $ 122,685 $ 125,621
----------- -----------
Operating income 12,891 12,632
----------- -----------
Net Income 4,432 3,347
----------- -----------
Earnings per common share:
Basic $ 0.32 $ 0.25
----------- -----------
Diluted $ 0.31 $ 0.25
----------- -----------
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the acquisition 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 six-month periods ended June
30, 2000 and 2001, stock options of 250,061 and 389,845, 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 2,228 and 472 shares of Company common stock with a fair
value of approximately $15,000 and $5,000 for the six-month periods ended June
30, 2001 and 2000, respectively, that were recorded as director's fees.
Stock options totaling 216,304 and 36,657 were exercised with net proceeds of
approximately $1,110,000 and $161,000, during the six-month periods ended June
30, 2001 and 2000, respectively.
During the six-month period ended June 30, 2000, the Company issued 291 shares
of Company common stock with a fair value of approximately $2,500 that was
recorded as compensation expense. In June, 2000 the Company implemented a stock
repurchase program whereby it could effect open-market purchases of up to
1,000,000 shares of its common stock. Purchases were conducted through various
brokers. As of June 30, 2000, the Company had purchased 35,600 shares at an
average price of $9.60 per share. The repurchase program was completed in the
third quarter of 2000 and all 1,000,000 shares were repurchased.
4. LONG TERM DEBT
On April 5, 2001, we closed on a variable rate development bond with Sampson
County ("Sampson facility"). This bond provides up to $33.7 million of income
tax exempt funding. As of June 30, 2001, an aggregate of approximately $33.7
million was outstanding under the bond facility. The bonds are backed by a
letter of credit issued by Wachovia Bank & Trust as a participating lender under
our Fleet syndication. The average interest rate on outstanding borrowings was
approximately 3.47%.
6
As of June 30, 2001 the Company has drawn approximately $28.8 million from the
Sampson facility in order to repay funds borrowed from the Fleet syndication
used to finance the original Sampson County Landfill acquisition. The remaining
$4.9 million is classified as restricted cash within other non-current assets
and will be used for future site and cell development expenditures for the
Sampson County Landfill.
5. COMMITMENTS AND 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 had
acquired through the six-month period ended June 30, 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. NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS 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.
In June 2001 the FASB approved SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 142 requires a company to cease
amortizing goodwill recorded on its books and records upon adoption on January
1, 2002. Any goodwill resulting from acquisitions completed after June 30,
2001 will not be amortized. SFAS No. 142 also establishes a new method of
testing goodwill for impairment on an annual basis or on an interim basis if an
event occurs or circumstances change that would reduce the fair value of a
reporting unit below its carrying value. The adoption of SFAS No. 142 will
result in the Company's discontinuation of amortization of its goodwill;
however, the Company will be required to test its goodwill for impairment under
the new standard beginning in the first quarter of 2002. The Company is
currently evaluating the provisions and impact of SFAS 141 and 142 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 meaning. 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
general economic conditions, 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 June 30,
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 $124.6.million and operating income of $12.5 million in the six
months ended June 30, 2001.
Our presence in growth markets in the southeastern U.S., including North
Carolina, Georgia and Virginia, has supported our internal growth. In addition,
from 1990 through the six months ended June 30, 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 June 30, 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 years
and
8
provide consistent cash flow during the term of the contract since we are paid
regularly by the local government. At June 30, 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 June 30, 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 June 30, 2001, we owned and/or 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 Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2000 2001 2000 2001
-------------- -------------- ------------ --------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Service 99.3% 99.5% 99.3% 99.4%
Equipment 0.7% 0.5% 0.7% 0.6%
-------------- -------------- ------------ --------------
Cost of operations 61.3% 62.8% 61.6% 62.0%
Cost of equipment sales 0.4% 0.4% 0.4% 0.5%
Selling, general and administrative 15.3% 14.1% 15.5% 14.9%
Depreciation and amortization 10.4% 11.6% 10.6% 11.8%
Loss on disposal of business unit 2.7% 0.6% 1.4% 0.3%
Startup and organizational costs 0.0% 0.0% 0.0% 0.5%
-------------- -------------- ------------ --------------
Operating income 9.9% 10.5% 10.5% 10.0%
-------------- -------------- ------------ --------------
Interest expense 4.9% 5.5% 4.6% 6.0%
Other income -0.1% 0.0% -0.1% -0.1%
-------------- -------------- ------------ --------------
Income before income taxes 5.1% 5.0% 6.0% 4.1%
Income taxes 2.0% 1.8% 2.4% 1.5%
-------------- -------------- ------------ --------------
Net income 3.1% 3.2% 3.6% 2.6%
============== ============== ============ ==============
Three- and Six-Month Periods Ended June 30, 2001 vs. Three- and Six-Month
Periods Ended June 30, 2000
REVENUES. Total revenues increased approximately $2.3 million, or 3.7%, and $5.0
million , or 4.2%, respectively, for the three- and six-month periods ended June
30, 2001, compared with the same periods 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 June 30,
2001 resulting in a $3.1 million and a $6.8 million increase, respectively, for
the three- and six-month periods ended June 30, 2001, offset by the decrease in
revenues due to the loss on sale of business unit of $1.7 million and $0.4
million, respectively, for the three- and six-month periods ended June 30, 2001;
and (2) increased prices and collection volumes resulting from new municipal and
commercial contracts and residential subscriptions and annexation fees of $0.9
million and $2.2 million, respectively, for the three- and six-month periods
ended June 30, 2001.
COST OF OPERATIONS. Cost of operations increased $2.4 million, or 6.2%, and $3.6
million, or 4.9%, respectively, for the three- and six-month periods ended June
30, 2001, compared to the same periods in 2000. This increase was attributable
primarily to increased health insurance rates of approximately $1.1 million and
$2.2 million; labor costs and associated expenses of approximately $0.6 million
and $1.2 million; employee health benefit costs of $0.5 million and $0.6
million; increased landfill site and accrual expenses of approximately $0.4
million and $1.0 million, offset by a decrease in landfill and disposal fees of
$0.9 million and $2.8 million. The remaining increases of $0.7 million and $1.3
million were primarily due to increased fleet maintenance costs along with
general cost increases and the acquisition of a new business during the three-
and six-month periods ended June 30, 2001. Total cost of operations as a
percentage of revenues increased to 62.8% from 61.3% and to 62.0% from 61.6% for
the three- and six-months ended June 30, 2001 and 2000, respectively.
SG&A. SG&A decreased $0.4 million, or 4.0%, and increased $0.1 million, or 0.5%,
respectively, for the three- and six-month periods ended June 30, 2001, compared
with the same periods in 2000. The decrease for the three-month period ended
June 30, 2001 was primarily attributable to an increased management focus on and
overall evaluation of expenditures. The slight increase for the six-month
period ended June 30, 2001 was primarily attributable to increased insurance and
bad debt expense. The SG&A costs remained relatively flat while we were able to
increase revenues. SG&A as a percentage of revenues decreased to 14.1% from
15.3% and to 14.9% from 15.5% for the three- and six-month periods ended June
30, 2001 and 2000, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.0
million, or 15.8%, and $2.0 million, or 16.0%, respectively, for the three- and
six-month periods ended June 30, 2001, compared to the same periods in 2000.
Depreciation and amortization, as a percentage of revenues, increased to 11.6%
from 10.4% and to 11.8% from 10.6%, respectively, for the three- and six-month
periods ended June 30, 2001 and 2000. The primary components of this
10
increase were (1) the increase in equipment acquired for operation at the
landfills and (2) the effect of additional depreciation related to the seven
businesses acquired during the year ended December 31, 2000 and the one business
acquired during the six-month period ended June 30, 2001.
INTEREST EXPENSE. Interest expense (net of interest income) increased $0.5
million, or 14.7%, and $1.9 million, or 35.0%, respectively, for the three- and
six-month periods ended June 30, 2001, compared to the same periods in 2000.
This increase was primarily due to the higher level of average outstanding
indebtedness for businesses acquired in 2000 and 2001 and the debt required to
fund our stock repurchase plan completed in the third quarter of 2000.
INCOME TAX EXPENSE. Income tax expense decreased $0.1 million, or 7.9%, and $1.0
million, or 35.0%, respectively, for the three- and six-month periods ended June
30, 2001, compared to the same periods in 2000. This decrease was attributable
to a decline in income before taxes for the six-month period ended June 30,
2001, and a decrease in the effective tax rate of approximately 4.0% (from 40.0%
to 36.0%) for the three- and six-month periods ended June 30, 2001. The decrease
in the effective tax rate was due to the reorganization of our corporate legal
structure completed in the quarter ended March 31, 2001.
NET INCOME. Net income increased $0.2 million, or 9.5%, for the three-month
period ended June 30, 2001, and decreased $1.0 million, or 22.9%, for the six-
month period ended June 30, 2001 compared to the same periods in 2000. The
increase for the three-month period ended June 30, 2001 was primarily related to
a decrease in income tax expense. The decrease for the six-month period ended
June 30, 2001was 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.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital at June 30, 2001 was $9.0 million 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 June 30, 2001, we had 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 June 30, 2001, an aggregate of approximately $92 million
was outstanding under the Fleet credit facility, and the average interest rate
on outstanding borrowings was approximately 5.97%.
Net cash provided by operating activities totaled $3.7 million for the six
months ended June 30, 2001, compared to net cash provided by operations of $14.6
million for the six months ended June 30, 2000. This decrease was caused
principally by a reduction in net income of $1.0 million, an increase in non-
cash depreciation and amortization of $2.0 million, an increase in working
capital primarily related to prepaid insurance of $4.9 million and an increase
in other non-current assets of $4.9 million, which was restricted cash from the
Sampson County Bond that had not yet been disbursed, and the remainder related
to a decrease in deferred income taxes, and increase in loss on sale of business
unit and closure/postclosure liabilities.
Net cash used in investing activities totaled $17.9 million for the six months
ended June 30, 2001, compared to $49.0 million for the six months ended June 30,
2000. This decrease was caused principally by a lower level of acquisitions of
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related businesses of $35.0 million, a decrease in proceeds from the sale of
business unit of $8.7 million and a decrease in capital expenditures of $4.8
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 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 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 $7.3 million for the six
months ended June 30, 2001, compared to $35.1 million for the six months ended
June 30, 2000. The decrease was primarily attributable to decreased borrowings
(net of repayments) of $28.8 million and increased proceeds from options
exercised of $0.9 million offset by a decrease in shareholder loans and
receivables of $0.3 million.
At June 30, 2001, we had approximately $206.6 million of long-term and short-
term borrowings outstanding (including capital lease obligations) and
approximately $6.0 million in letters of credit. At June 30, 2001, the ratio of
our total debt (including capital lease obligations) to total capitalization was
74.5%, compared to 74.9% at December 31, 2000.
Prepaid insurance increased approximately $5.0 million to $5.6 million for the
period ended June 30, 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.
Other non-current assets increased $6.0 million for the period ended June 30,
2001 from $3.8 million at December 31, 2000 due primarily to an increase of
restricted cash totaling $4.9 million resulting from the Sampson County Bond
issuance.
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 2000 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 30, 2001. The
following is a description of each matter voted upon at the meeting and the
number of affirmative votes and the number of negative votes cast with respect
to each matter.
(a) The stockholders elected the following persons as directors of the
Company: Lonnie C. Poole, Jr.; Jim W. Perry; J. Gregory Poole, Jr.;
Thomas F. Darden; Thomas C. Cannon ; and Paul L. Brunswick. The votes for
and against (withheld) each nominee were as follows:
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Nominee Votes For Votes Withheld
------- --------- --------------
Lonnie C. Poole, Jr. 12,798,155 84,892
Jim W. Perry 12,798,355 84,692
J. Gregory Poole, Jr. 12,859,747 23,300
Thomas F. Darden 12,795,155 87,892
Thomas C. Cannon 11,836,408 1,046,639
Paul L. Brunswick 12,857,047 26,000
(b) The stockholders ratified the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31,
2001, with 12,876,047 shares voting for, 4,125 shares voting against and
2,875 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
(b) The Company filed two Current Reports on Form 8-K during the quarter
ended June 30, 2001: on April 2, 2001, the Company reported the
completion of the holding company reorganization of Waste Industries,
Inc., which resulted in the Company owning Waste Industries; and on May
31, 2001, the Company reported the results of its Annual Meeting of
Stockholders.
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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: August 9, 2001 Waste Holdings, Inc.
(Registrant)
By: /s/ Paul L. Brunswick
---------------------------
Paul L. Brunswick
Interim Chief Financial Officer
(Principal Financial Officer)
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WASTE HOLDINGS, INC.
EXHIBIT INDEX
Second Quarter 2001
Exhibit Number Exhibit Description
-------------- -------------------
11 Computation of Earnings Per Share
15