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, 1998
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)
3949 Browning Place
Raleigh, North Carolina
(Address of principal executive offices)
27609
(Zip Code)
(919) 782-0095
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
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 11,881,604 shares
(Class) (Outstanding at April 30, 1998)
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
WASTE INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 837,491 $ --
Accounts receivable - trade, less allowance for
uncollectible accounts (1997 - $907,900; 1998 -
$785,000) 13,351,355 17,852,672
Inventories 677,053 695,449
Current deferred income taxes 597,835 597,835
Prepaid expenses and other current assets 615,750 850,645
------------- -------------
Total current assets 16,079,484 19,996,601
------------- -------------
PROPERTY AND EQUIPMENT, net 63,145,661 69,800,798
INTANGIBLE ASSETS 29,977,579 30,623,020
OTHER NONCURRENT ASSETS 1,274,862 1,242,489
============= =============
TOTAL ASSETS $ 110,477,586 $ 121,662,908
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ -- $ 573,045
Current maturities of long-term debt 1,428,149 1,330,858
Accounts payable - trade 8,287,125 11,280,032
Federal and state income taxes payable 445,100 1,754,790
Accrued expenses and other liabilities 3,715,247 3,588,783
Deferred revenue 1,023,883 1,280,027
------------- -------------
Total current liabilities 14,899,504 19,807,535
------------- -------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 50,187,067 54,941,557
NONCURRENT DEFERRED INCOME TAXES 5,702,000 5,702,000
SHAREHOLDERS' EQUITY:
Preferred stock, undesignated, shares authorized -
10,000,000, shares issued and outstanding - none -- --
Common stock, no par value, shares authorized -
80,000,000, shares issued and outstanding:
1997 - 11,881,604; 1998 - 11,881,604 27,112,567 27,112,567
Additional capital 8,500,000 8,500,000
Retained earnings 4,338,051 5,864,085
Shareholders' loans (261,603) (264,836)
------------- -------------
Total shareholders' equity 39,689,015 41,211,816
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 110,477,586 $ 121,662,908
============= =============
See Notes to Unaudited Condensed Financial Statements.
</TABLE>
2
<PAGE>
WASTE INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
-----------------------------
1997 1998
------------ ------------
REVENUES:
Service revenues $ 25,837,462 $ 37,870,365
Equipment sales 355,223 351,058
------------ ------------
Total revenues 26,192,685 38,221,423
------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of service operations 15,743,822 23,545,972
Cost of equipment sales 269,811 193,575
------------ ------------
Total cost of operations 16,013,633 23,739,547
------------ ------------
Selling, general and administrative 5,172,739 6,723,811
Depreciation and amortization 2,430,439 3,557,254
------------ ------------
Total operating costs and expenses 23,616,811 34,020,612
------------ ------------
OPERATING INCOME 2,575,874 4,200,811
OTHER EXPENSE (INCOME):
Interest expense 639,513 929,884
Other expense (income) 28,910 (136,032)
------------ ------------
Total other expense, net 668,423 793,852
------------ ------------
INCOME BEFORE INCOME TAXES 1,907,451 3,406,959
INCOME TAX EXPENSE - 1,298,690
============ ============
NET INCOME (LOSS) - HISTORICAL BASIS $ 1,907,451 $ 2,108,269
============ ============
PRO FORMA INCOME BEFORE
INCOME TAXES $ 1,907,451 $ 3,406,959
PRO FORMA INCOME TAXES 763,000 1,298,690
------------ ------------
PRO FORMA NET INCOME $ 1,144,451 $ 2,108,269
============ ============
PRO FORMA EARNINGS PER SHARE:
BASIC $ 0.12 $ 0.18
============ ============
DILUTED $ 0.11 $ 0.17
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
BASIC 9,890,270 11,881,604
============ ============
DILUTED 10,217,585 12,267,584
============ ============
See Notes to Unaudited Condensed Financial Statements.
3
<PAGE>
WASTE INDUSTRIES, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income - historical basis $ 1,907,451 $ 2,108,269
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,430,692 3,557,254
Gain on sale of property and equipment (50,416) (6,725)
Changes in assets and liabilities, net of effects from
acquisitions of related businesses:
Accounts receivable - trade 353,931 (4,298,996)
Inventories 849,130 (18,396)
Prepaid and other current assets (69,619) (236,995)
Accounts payable - trade (668,452) 2,992,907
Income taxes payable -- 1,309,690
Accrued expenses and other liabilities (502,456) (126,464)
Deferred revenue 36,187 214,695
------------ ------------
Net cash provided by operating activities 4,286,448 5,495,239
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 178,129 28,695
Purchases of property and equipment (5,583,103) (7,867,694)
Acquisitions of related business (781,680) (2,629,582)
Other noncurrent assets (50,940) (14,155)
------------ ------------
Net cash used by investing activities (6,237,594) (10,482,736)
------------ ------------
FINANCING ACTIVITIES:
Bank overdraft -- 573,045
Proceeds from issuance of long-term debt 1,802,113 16,723,406
Principal payments on long-term debt (238,489) (12,561,207)
Shareholder loans (5,982) (3,233)
Cash distributions to shareholders (847,005) (582,005)
------------ ------------
Net cash provided by financing activities 710,637 4,150,006
------------ ------------
NET DECREASE IN CASH (1,240,509) (837,491)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,951,520 837,491
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 711,011 $ --
============ ============
</TABLE>
See Notes to Unaudited Condensed Financial Statements.
4
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS
Basis of Presentation
The condensed 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 and that 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 other interim periods.
It is suggested that the condensed financial statements included herein be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and the related notes thereto , and the Company's Form
S-1 Registration Statement (No. 333-25631).
Recent Developments
During the three months ended March 31, 1998, the Company distributed $582,005
and exchanged 290,113 shares of its common stock for all of the issued and
outstanding shares of common stock of ECO Services, Inc. ("ECO") and Air Cargo
Services, Inc. ("ACS"). Certain of the Company's executive officers, whom are
also Company shareholders, owned substantially all of the common stock of ECO
and ACS. Accordingly, the assets and liabilities transferred have been
accounted for at historical cost in a manner similar to that of pooling of
interests accounting pursuant to the provisions of AIN #39 of APB Opinion
No 16. The Company's financial statements have been restated to include the
accounts and operations for all periods presented.
Also during the three months ended March 31, 1998, the Company purchased
equipment and customer contracts related to commercial, industrial and
residential solid waste collection of three businesses, located in Durham, North
Carolina, Dalton, Georgia, and Lilburn, Georgia. The total cash consideration
paid was approximately $2,630,000.
2. CHANGE IN TAX STATUS AND INCOME TAXES
From 1986 until May 9, 1997, the Company was subject to taxation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"). As a
result, during that time the net income of the Company, for federal and certain
state income tax purposes, was reported by and taxable directly to the Company's
shareholders, rather than to the Company. Primarily to provide funds for tax
obligations payable by its shareholders on account of the Company's income in
1995 and 1996, the Company made cash distributions of approximately $3.1 million
and $1.8 million during 1996 and 1997, respectively, to its shareholders. In
connection with its conversion from S Corporation to C Corporation status, the
Company effected an S Corporation distribution (consisting of approximately
$1.48 million in cash payments) to the Company's S Corporation shareholders in
June 1997. The remaining S Corporation retained earnings of approximately $8.5
million have been reclassified to additional capital.
The Company's S Corporation status was terminated on May 9, 1997 and,
accordingly, the Company became fully subject to federal and state income taxes
on that date. Pro forma net income and earnings per share amounts have been
computed as if the Company was subject to federal and all applicable state
corporate income taxes for each period presented.
3. PRO FORMA PRIMARY EARNINGS PER SHARE
Pro forma 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 (using the initial offering price
of $13.50 per share for periods prior to the initial public offering). Common
stock outstanding used to compute the weighted-average shares was retroactively
adjusted for the 1996 exchange of shares resulting from the merger of affiliated
companies, for the 1997 conversion of nonvoting to voting stock, for the 1997
1-for-2.5 reverse stock split, and for the acquisition of entities under common
control during the quarter ending March 31, 1998. See Note 6 to Company's
Financial Statements for the year ended December 31, 1997 and the related notes
thereto included in the Form 10 K.
5
<PAGE>
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 such
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.
6
<PAGE>
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 COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997. CERTAIN 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 BY 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.
SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED. SUCH RISKS AND UNCERTAINTIES INCLUDE THOSE RELATED TO THE ABILITY
TO MANAGE GROWTH, THE AVAILABILITY AND INTEGRATION OF ACQUISITION TARGETS,
COMPETITION, GEOGRAPHIC CONCENTRATION, GOVERNMENT REGULATION AND OTHERS SET
FORTH IN THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-25631).
SHAREHOLDERS, POTENTIAL INVESTORS AND OTHER READERS ARE URGED TO CONSIDER THESE
FACTORS CAREFULLY IN EVALUATING THE FORWARD-LOOKING STATEMENTS AND ARE CAUTION
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 SUCH
FORWARD-LOOKING STATEMENTS TO REFLECT SUBSEQUENT EVENTS OR CIRCUMSTANCES.
OVERVIEW
Waste Industries was founded by members of the current senior management team in
1970. The Company provides solid waste collection, transfer, recycling,
processing and disposal services to customers primarily in North Carolina and
South Carolina, Tennessee and Virginia.
The Company has acquired 28 solid waste collection operations since 1990. All of
these acquisitions were accounted for as purchases (except for two which have
been accounted for at historical cost in a manner similar to that of pooling of
interests accounting due to common control). Accordingly, the results of
operations of these purchased businesses have been included in the Company's
financial statements only from the respective dates of acquisition and have
affected period-to-period comparisons of the Company's operating results. The
Company anticipates that a substantial part of its future growth will come from
acquiring additional solid waste collection, transfer and disposal businesses
and, therefore, it is expected that additional acquisitions could continue to
affect period-to-period comparisons of the Company's operating results.
From 1986 until May 9, 1997, the Company was subject to taxation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"). As a
result, during that time the net income of the Company, for federal and certain
state income tax purposes, was reported by and taxable directly to the Company's
shareholders, rather than to the Company. Primarily to provide funds for tax
obligations payable by its shareholders on account of the Company's income in
1995 and, the Company made cash distributions of approximately $3.1 million and
$1.8 million during 1996 and 1997, respectively, to its shareholders. In
connection with its conversion from S Corporation to C Corporation status, the
Company effected an S Corporation distribution (consisting of approximately
$1.48 million in cash payments) to the Company's S Corporation shareholders in
June 1997. The remaining S Corporation retained earnings of approximately $8.5
million have been reclassified to additional capital. The Company's S
Corporation status was terminated on May 9, 1997 and, accordingly, the Company
became fully subject to federal and state income taxes on that date.
7
<PAGE>
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 which 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 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. 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.
The Company currently operates approximately 100 convenience sites under
contract with 15 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. The Company also
operates four 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, certain plastics, glass, and certain
other items. The Company's recycling facilities generate revenues from the
collection, processing and resale of recycled commodities, particularly recycled
wastepaper. 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. The Company
operates 18 transfer stations which 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. The Company does not
currently own or operate any solid waste landfills. In the event that the
Company develops or acquires landfills, operating expenses for such landfill
operations may include labor, equipment, legal and administrative, ongoing
environmental compliance, royalties to former owners, host community fees,
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.
At March 31, 1998, the Company had recorded no such capitalized costs. At March
31, 1998, the Company had recorded $85,510 of capitalized land acquisition costs
in connection with the development of a new Land Clearing and Inner
Debris("LCID") landfill and $0 relating to pending acquisitions. Because it
currently does not own any landfills, the Company does not accrue for estimated
landfill closure and post-closure maintenance costs.
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.
8
<PAGE>
Other income and expense, which is comprised primarily of interest income and
gains and losses on sales of equipment, 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.
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 March 31,
----------------------------------------
1997 1998
------------------ -----------------
Total revenues 100.0% 100.0%
Service revenues 98.6 99.1
Equipment sales 1.4 0.9
------------------ -----------------
Total cost of operations 61.1 62.1
Selling, general and administrative 19.7 17.6
Depreciation and amortization 9.3 9.3
------------------ -----------------
Operating income 9.8 11.0
Interest expense 2.4 2.4
Other expense (income) 0.1 (0.4)
------------------ -----------------
Income before income taxes 7.3 8.9
Pro forma income taxes (1) 2.9 3.4
------------------ -----------------
Pro forma net income (1) 4.4% 5.5%
================== =================
- -----------------------
(1) For the three months ended March 31, 1997, the Company was an S Corporation
and, accordingly, was not subject to federal and certain state corporate income
taxes. The pro forma information has been computed as if the Company were
subject to federal and all applicable state corporate income taxes for the three
month ended March 31, 1997 assuming the tax rate that would have applied had the
Company been taxed as a C Corporation. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview".
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Total revenues increased approximately $12.0 million, or 45.9%, for
the three-month period ended March 31, 1998 as compared with the same period in
1997. This increase was attributable primarily to the following factors:
(i) increased collection volumes resulting from new municipal and
commercial contracts and residential subscriptions; and (ii) the effect of seven
businesses acquired during the year ended December 31, 1997 and five
businesses acquired during the three months ended March 31, 1998.
COST OF OPERATIONS. Total cost of operations increased approximately $7.7
million, or 48.2%, for the three-month period ended March 31, 1998
compared to the same period in 1997. The principal reason for the increase
was the addition of new customers and contracts, including those from the
acquisitions of new businesses, since March 31, 1997. Total cost of
operations as a percentage of revenues increased to 62.1% in the first quarter
of 1998 compared to 61.1 % in the first quarter of 1997. This percentage
increase was the result of acquisition-related costs and lower than
projected revenues.
SG&A. SG&A increased approximately $1.6 million, or 30.0%, for the three-month
period ended March 31, 1998 compared to the same period in 1997, primarily due
to the increase in labor costs associated with acquisitions and internal growth
since March 1997. As a percentage of revenues, SG&A decreased to 17.6% in the
first quarter of 1998 compared to 19.7% in the first quarter of 1997.
The decrease from 1997 is primarily due to synergies achieved through
acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
approximately $1.1 million, or 46.4%, for the three-month period ended March 31,
1998 compared to the same period in 1997. The principal reason for this
increase was depreciation of additional property and equipment acquired and put
into service due to higher collection volumes and depreciation of the additional
assets of businesses acquired during 1997 and 1998. Depreciation and
amortization, as a percentage of revenues, remained stable at 9.3% for each of
the three month periods ended March 31, 1998 and 1997.
9
<PAGE>
INTEREST EXPENSE. Interest expense increased approximately $290,000, or 45.4%,
for the three-month period ended March 31, 1998 compared to the same period in
1997. The increase was primarily due to the higher level of the average
outstanding indebtedness related to the Company's purchases of assets of
businesses acquired and an increase in the interest rates on outstanding
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1998 was approximately $189,000
compared to $1.2 million at December 31, 1997. The Company's strategy in
managing its working capital has been to apply the cash generated from its
operations which remains available after satisfying its working capital and
capital expenditure requirements to reduce its indebtedness under its bank
revolving credit facility and to minimize its cash balances. The Company
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 1998. The Company has a revolving credit facility with BB&T
allowing the Company to borrow up to $50 million for acquisitions and capital
expenditures and $10 million for working capital. In addition, the Company
has established two $25 million term loan facilities with Prudential Insurance
Company of America ("Prudential"). As of March 31,1998, the Company had fully
drawn down one of these facilities, leaving the Company with an uncommitted
shelf facility of $25 million. Both of the BB&T and the Prudential credit
facilities require the Company to maintain certain financial ratios, such as
current debt to total capitalization, debt to earnings and fixed charges to
earnings, and satisfy other predetermined requirements, such as minimum net
worth, net income and deposit balances. Interest on the BB&T facility is payable
monthly based on an adjusting spread to LIBOR. The 12-month weighted average
interest rate on outstanding borrowings under the BB&T facility was 7.05% at
March 31, 1998. Interest on the Prudential facility is paid quarterly, based
on a fixed rate of 7.28%. Of the Company's $50 million in committed facilities,
$5 million mature on April 1, 1999, with the remainder maturing on April 1,
2006, subject to renewal. The Company has a compensating balance
arrangement with the bank for $370,000.
Net cash provided by operating activities totaled $5.5 million for the
three months ended March 31, 1998, compared to $4.3 million for the three months
ended March 31, 1997. This increase was caused principally by the increases in
depreciation and amortization, trade accounts payable and income taxes payable,
partially offset by an increase in trade accounts receivable.
Net cash used in investing activities totaled $10.5 million for the three months
ended March 31, 1998, compared to $6.2 million for the three months ended March
31, 1997. This increase was caused principally by the acquisition of certain
assets employed or arising in connection with a residential collection business
for approximately $2.6 million and an increase in capital expenditures of
approximately $2.3 million.
Capital expenditures for 1998 are currently expected to be approximately $23.8
million, compared to $22.5 million in 1997. In 1998, approximately $17.9 million
is expected to be utilized for vehicle and equipment additions and replacements,
approximately $0.5 million for expansion of transfer station services and
approximately $5.4 million for facilities, additions and improvements. The
Company intends to fund its planned 1998 capital expenditures principally
through internally generated funds and borrowings under existing credit
facilities. In addition, the Company anticipates that it may require substantial
additional capital expenditures to facilitate its growth strategy of acquiring
solid waste collection and disposal businesses. If the Company is successful in
acquiring landfill disposal facilities, the Company may also be required to make
significant expenditures to bring any such newly acquired disposal facilities
into compliance with applicable regulatory requirements, obtain permits for any
such 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, since 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 $4.1 million for the
three months ended March 31, 1998, compared to approximately $711,000 for the
three months ended March 31, 1997. This increase was caused principally by
proceeds from issuances of long-term debt, net of principal repayments. Each
period included distributions to shareholders: in 1997 while the Company was
subject to taxation under Subchapter S of the Code (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview"); and in 1998 in connection with the acquisitions of ECO and ACS from
certain Company shareholders (see Note 1 to Unaudited Condensed Financial
Statements).
At March 31, 1998, the Company had approximately $56.3 million of long-term and
short-term borrowings outstanding and approximately $621,000 in letters of
credit. At March 31, 1998, the ratio of the Company's long-term debt to total
capitalization was 57.1% compared to 55.8% at December 31, 1997.
10
<PAGE>
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, certain 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.
11
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits filed with this Form 10-Q report are incorporated
herein by reference to the Exhibit Index accompanying this
report.
(b) No current reports on Form 8-K were filed during the quarter
ended March 31, 1998.
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, 1998 Waste Industries, Inc.
(Registrant)
By: /s/ Robert H. Hall
---------------------------------------
Robert H. Hall
Vice President, Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
<PAGE>
WASTE INDUSTRIES, INC.
EXHIBIT INDEX
First Quarter 1998
Exhibit Number Exhibit Description
11 Computations of Earnings Per Share
27 Financial Data Schedule*
*THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF WASTE INDUSTRIES, INC. AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
13
Exhibit 11
WASTE INDUSTRIES, INC.
COMPUTATION RE: EARNINGS PER SHARE
Pro forma (1)
----------------------------
Three Months Ended March 31
----------------------------
1997 1998
------------ ------------
Net income $ 1,144,451 $ 2,108,269
============ ============
Weighted average number of common shares
issued and outstanding - basic 9,890,270 11,881,604
Common stock equivalents -
Options for common stock 526,000 526,000
------------ ------------
Weighted average common stock equivalents 10,416,270 12,407,604
Less treasury shares to be repurchased (198,685) (140,020)
------------ ------------
Weighted average shares outstanding - diluted 10,217,585 12,267,584
------------ ------------
Basic earnings per share $ 0.12 $ 0.18
============ ============
Diluted earnings per share $ 0.11 $ 0.17
============ ============
(1) Pro forma 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 (using the initial offering price
of $13.50 per share for periods prior to the initial public offering. Common
stock outstanding used to compute the weighted-average shares was retroactively
adjusted for the 1996 exchange of shares resulting from the merger of affiliated
companies, for the 1997 conversion of nonvoting to voting stock, for the 1997
1-for-2.5 reverse stock split and for the acquisition of entities under common
control during the quarter ending March 31, 1998.
The Company's S Corporation status was terminated on May 8, 1997 and,
accordingly, the Company became fully subject to federal and state income taxes
on May 9, 1997. Pro forma net income and earnings per share amounts have been
computed as if the Company was subject to federal and all applicable state
corporate income taxes for the three months ended March 31, 1998.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,637,701
<ALLOWANCES> (785,029)
<INVENTORY> 695,449
<CURRENT-ASSETS> 19,996,601
<PP&E> 127,892,555
<DEPRECIATION> (58,091,757)
<TOTAL-ASSETS> 121,662,908
<CURRENT-LIABILITIES> 19,807,535
<BONDS> 54,941,557
0
0
<COMMON> 25,591,475
<OTHER-SE> 15,620,341
<TOTAL-LIABILITY-AND-EQUITY> 121,662,908
<SALES> 38,221,423
<TOTAL-REVENUES> 38,221,423
<CGS> 23,739,547
<TOTAL-COSTS> 34,020,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 929,884
<INCOME-PRETAX> 3,406,959
<INCOME-TAX> 1,298,690
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,108,269
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
