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, 2000
Commission File Number 0-22417
Waste Industries, Inc.
(exact name of Registrant as specified in its charter)
North Carolina 56-0954929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3301 Benson Drive, Suite 601
Raleigh, North Carolina
(Address of principal executive offices)
27609
(Zip Code)
(919) 325-3000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 13,813,678 shares
(Class) (Outstanding at August 9, 2000)
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ------------
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,176 $ 3,930
Accounts receivable - trade, less allowance for 26,756 27,287
uncollectible accounts (1999 - $921; 2000 - $846)
Inventories 1,617 1,800
Prepaid expenses and other current assets 3,017 6,074
Deferred income taxes 910 816
------------ ------------
Total current assets 35,476 39,907
------------ ------------
Property and equipment, net 138,530 173,702
Intangible assets, net 71,458 73,583
Other noncurrent assets 3,740 5,627
------------ ------------
Total assets 249,204 292,819
============ ============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt 5,826 10,295
Capital lease obligations 1,042 995
Accounts payable - trade 11,342 8,886
Federal and state income taxes payable 1,487 689
Accrued expenses and other liabilities 6,096 11,057
Deferred revenue 1,875 2,068
------------ ------------
Total current liabilities 27,668 33,990
------------ ------------
Long-term debt, net of current maturities 137,363 169,125
Capital lease obligations 2,337 1,859
Noncurrent deferred income taxes 10,105 12,005
Disposal site closure and long-term care obligations 1,590 2,034
Commitments and contingencies - -
Shareholders' equity:
Common stock, no par value, shares authorized - 46,700 46,521
80,000,000 shares issued and outstanding:
1999 - 13,854,355; 2000 - 13,865,139
Paid-in capital 7,245 7,245
Retained earnings 28,620 32,885
Note receivable - Liberty Waste (11,538) (11,538)
Shareholders' loans and receivables (886) (1,307)
------------ ------------
Total shareholders' equity 70,141 73,806
------------ ------------
Total liabilities and shareholders' equity $ 249,204 $ 292,819
============ ============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------- ------------ -------------
Revenues:
<S> <C> <C> <C> <C>
Service $ 52,601 $ 61,831 $ 99,891 $ 118,745
Equipment 254 416 500 785
------------ ------------- ------------ -------------
Total revenues 52,855 62,247 100,391 119,530
------------ ------------- ------------ -------------
Operating costs and expenses:
Operations 33,003 38,180 62,234 73,691
Equipment sales 190 258 294 478
Selling, general and administrative 7,660 9,488 14,753 18,501
Depreciation and amortization 5,405 6,454 10,462 12,658
Loss on sale of collection operations - 1,677 - 1,677
------------ ------------- ------------ -------------
Total operating costs and expenses 46,258 56,057 87,743 107,005
------------ ------------- ------------ -------------
Operating income 6,597 6,190 12,648 12,525
------------ ------------- ------------ -------------
Interest expense 2,124 3,424 3,935 6,238
Interest income (333) (363) (526) (707)
Other (58) (66) (152) (119)
------------ ------------- ------------ -------------
Total other expense (income) 1,733 2,995 3,257 5,412
------------ ------------- ------------ -------------
Income before income taxes 4,864 3,195 9,391 7,113
Income tax expense 1,799 1,280 3,475 2,848
------------ ------------- ------------ -------------
Net income $ 3,065 $ 1,915 $ 5,916 $ 4,265
============ ============= ============ =============
Earnings per share:
Basic 0.22 0.14 0.43 0.31
Diluted 0.22 0.14 0.42 0.30
Weighted average common shares outstanding:
Basic 13,761 13,858 13,632 13,850
Diluted 14,124 14,098 13,995 14,107
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
WASTE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------------
1999 2000
------------------- -------------------
Operating Activities
<S> <C> <C>
Net income $ 5,916 $ 4,265
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,462 12,658
(Gain)/loss on sale of property and equipment (57) (91)
Loss on sale of collection operations - 1,677
Provision for deferred income taxes 355 1,994
Disposal site closure and long-term care obligations 922 444
Changes in assets and liabilities, net of effects
from acquistions and disposition of related businesses:
Accounts receivable-trade (4,622) 353
Inventories (214) (230)
Prepaid and other current assets (1,811) (3,097)
Other noncurrent assets (442) (1,847)
Accounts payable - trade 1,970 (2,427)
Federal and state income taxes payable 544 (798)
Accrued expenses and other liabilities (8) 1,276
Deferred revenue (8) 445
------------------- -------------------
Net cash provided by operating activities 13,007 14,622
------------------- -------------------
Investing Activities
Acquisitions of related business, net of cash acquired (27,194) (39,975)
Proceeds from disposal of collection operations - 9,897
Proceeds from sale of property and equipment (6) 252
Purchases of property and equipment (19,970) (19,148)
------------------- -------------------
Net cash used in investing activities (47,170) (48,974)
------------------- -------------------
Financing Activities
Proceeds from issuance of long term debt 79,518 51,409
Principal payments of long-term debt (37,171) (15,178)
Principal payments of capital lease obligations - (525)
Repayments of loans and receivables from shareholders 91 -
Advances under shareholder loans and receivables - (421)
Net proceeds from common stock issuance 3,250 2
Net proceeds from exercised options 44 161
Repurchase of common stock - (342)
Loan to Liberty Waste (11,538) -
Other (2) -
------------------- -------------------
Net cash provided by financing activities 34,192 35,106
------------------- -------------------
Increase in cash and cash equivalents 29 754
Cash and cash equivalents, beginning of period 3,665 3,176
------------------- -------------------
Cash and cash equivalents, end of period $ 3,694 $ 3,930
=================== ===================
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
WASTE INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. As applicable under such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the presentations and
disclosures in the financial statements included herein are adequate to make the
information not misleading. The financial statements reflect normal adjustments
which are necessary for a fair statement of the results for the interim periods
presented. Operating results for interim periods are not necessarily indicative
of the results for full years or the interim periods.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Recent Developments
Purchase Acquisitions:
During the six months ended June 30, 2000, the Company made the following
acquisitions accounted for as purchases:
o On March 1, 2000, the Company acquired of Trashbusters, LLC for
$861,000 in cash. This tuck-in acquisition further expands the
Company's existing operations in our Easley, South Carolina facility,
which serves the Greenville/Spartanburg area.
o On March 23, 2000, the Company acquired a construction and demolition
landfill in the Greenville/Spartanburg South Carolina area from South
Eastern Associates, Inc. known as Loveless & Loveless, for $1.8 million
in cash. This acquisition provides the Company with its seventh
landfill.
o On March 23, 2000, the Company acquired J&B Partnership, LLC for
$510,000 in cash. This tuck-in to our Easley, South Carolina facility
provides transfer operations for the Greenville/Spartanburg area.
o On May 30, 2000, through an asset swap, the Company acquired the
Sampson County Landfill, a municipal solid waste landfill in Roseboro,
North Carolina, and a collection operation as a tuck-in to its existing
Fayetteville, North Carolina operation, from Allied Waste Industries
for $28.9 million in cash. Simultaneously, the Company sold its
collection operations in Ooltewah, Tennessee and Dalton, Georgia to
Allied Waste Industries for $9.9 million in cash. This acquisition
provides the Company with its eighth landfill.
o On June 23, 2000, the Company acquired a construction and demolition
landfill in Atlanta, Georgia from Safeguard Landfill Management, Inc.
for $7.7 million in cash. This acquisition provides the Company with
its ninth landfill.
These acquisitions were funded primarily with proceeds from the Company's
long-term revolving credit facility.
5
<PAGE>
1. ORGANIZATION AND BASIS OF PRESENTATION - (Continued)
Components of cash used for the purchase acquisitions reflected in the unaudited
condensed consolidated statement of cash flows for the six months ended June 30,
2000 are as follows (in thousands):
Fair value of tangible assets acquired $ 32,293
Liabilities assumed ( 3,870)
Non-compete agreements and contracts 6
Goodwill 11,545
Net acquisition costs $ 39,974
========
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. This allocation has been
based on preliminary estimates which might be revised at a later date.
The following unaudited pro forma results of operations for the six months ended
June 30, 1999 and 2000 assume the transactions described above occurred as of
January 1, 1999 and 2000 after giving effect to certain adjustments, including
the amortization of the excess of cost over the underlying assets (in
thousands):
1999 2000
Total revenues $ 109,918 $ 126,392
-----------------------------
Operating income 15,763 14,807
-----------------------------
Net income 6,983 4,867
-----------------------------
Earnings per common share:
Basic $ 0.51 $ 0.35
------------ -------------
Diluted $ 0.50 $ 0.34
------------ -------------
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 5-30 years. Goodwill is amortized using the
straight-line method over 25-40 years. These estimated useful lives assigned to
goodwill are based on the period over which management believes that such
goodwill can be recovered through undiscounted future operating cash flows of
the acquired operations.
Certain 1999 financial statement amounts have been reclassified to conform with
the 2000 presentation.
2. EARNINGS PER SHARE
Basic and diluted earnings per share computations are based on the
weighted-average common stock outstanding and include the dilutive effect of
stock options using the treasury stock method.
3. SHAREHOLDERS' EQUITY
On February 29, 2000, the Company issued 236 shares of Company common stock with
a fair value of approximately $2,500 was recorded as compensation expense.
On May 31, 2000, the Company issued 291 shares of Company common stock with a
fair value of approximately $2,500 was recorded as compensation expense.
6
<PAGE>
The Company has implemented a stock repurchase program whereby it may effect
open-market purchases of up to 1,000,000 shares of its common stock. Purchases
will be 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.
During the quarter ended June 30, 2000, 36,657 stock options were exercised. The
net proceeds approximated $161,000.
4. CONTINGENCIES
Claims and lawsuits arising in the ordinary course of business have been filed
or are pending against the Company. In the opinion of management, all these
matters have been adequately provided for, are adequately covered by insurance,
or are of such kind that if disposed of unfavorably, would not have a material
adverse effect on the Company's financial position or results of operations.
The Company will have material financial obligations relating to disposal site
closure and long-term care obligations of landfill facilities which it has
acquired through the six-month period ended June 30, 2000. The Company provides
accruals for future obligations (generally for a term of 30 to 40 years after
final closure of the landfill) based on engineering estimates of consumption of
permitted landfill airspace over the useful life of the landfill. The Company's
ultimate financial obligations for actual closing or post-closing costs might
exceed the amount accrued and reserved or amounts otherwise receivable pursuant
to insurance policies or trust funds. Such a circumstance could have a material
adverse effect on the Company's financial condition and results of operations.
7
<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 Annual Report on Form
10-K for the year ended December 31, 1999. Some matters discussed in this
Management's Discussion and Analysis are "forward-looking statements" intended
to qualify for the safe harbors from liability established by the private
securities litigation reform act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as the Company "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives or goals are also forward-looking statements. Forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those currently anticipated. These
risks and uncertainties include those related to the ability to manage growth,
the availability and integration of acquisition targets, competition, geographic
concentration, government regulation and others set forth in the Company's Form
10-K. You should consider these factors carefully in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein are only
made as of the date of this report and the Company undertakes no obligation to
publicly update these forward-looking statements to reflect subsequent events or
circumstances.
OVERVIEW
Waste Industries is a regional, vertically integrated provider of solid waste
services. The Company operates primarily in North Carolina, South Carolina,
Virginia, Tennessee, Mississippi, Alabama, Georgia and Florida, providing solid
waste collection, transfer, recycling, processing and disposal services for
commercial, industrial, municipal and residential customers. We operate 41
collection operations, 23 transfer stations, approximately 100 county
convenience drop-off centers, eight recycling facilities and nine landfills in
the southeastern U.S. The Company had revenues of $214.7 million and operating
income of $26.0 million in the year ended December 31, 1999, and revenues of
$119.5 million and operating income of $12.5 million in the six months ended
June 30, 2000.
The Company's presence in high-growth markets in the southeastern U.S.,
including North Carolina, Georgia and Virginia, has supported its internal
growth. In addition, from 1990 through the six months ended June 30, 2000, the
Company acquired 57 solid waste collection or disposal operations. Current
levels of population growth and economic development in the southeastern U.S.
and the Company's strong market presence in the region should provide the
Company an opportunity to increase its revenues and market share. As the Company
adds customers in existing markets, its density should improve, which the
Company expects will increase its collection efficiencies and profitability.
RESULTS OF OPERATIONS
GENERAL
The Company's branch waste collection operations generate revenues from fees
collected from commercial, industrial and residential collection and transfer
station customers. The Company derives a substantial portion of its collection
revenues from commercial and industrial services that are performed under
one-year to five-year service agreements. The Company's residential collection
services are performed either on a subscription basis with individual
households, or under contracts with municipalities, apartment owners, homeowners
associations or mobile home park operators. Residential customers on a
subscription basis are billed quarterly in advance and provide the Company with
a stable source of revenues. A liability for future service is recorded upon
billing and revenues are recognized at the end of each month in which services
are actually provided. Municipal contracts in the Company's existing markets are
typically awarded, at least initially, on a competitive bid basis and thereafter
on a bid or negotiated basis and usually range in duration from one to five
years. Municipal contracts generally provide consistent cash flow during the
term of the contracts.
The Company's prices for its solid waste services are typically determined by
the collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged in its markets for similar services.
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.
8
<PAGE>
The Company currently operates approximately 100 convenience sites under
contract with 14 counties in order to consolidate waste in rural areas. These
contracts, which are usually competitively bid, generally have terms of one to
five years and provide consistent cash flow during the term of the contract
since the Company is paid regularly by the local government. The Company also
operates eight recycling processing facilities as part of its collection and
transfer operations where it collects, processes, sorts and recycles paper
products, aluminum and steel cans, pallets, plastics, glass and other items. The
Company's recycling facilities generate revenues from the collection, processing
and resale of recycled commodities, particularly recycled wastepaper. 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 owns,
operates or transfers from 23 transfer stations that reduce the Company's costs
by improving its utilization of collection personnel and equipment and by
consolidating the waste stream to gain more favorable disposal rates. The
Company owns and operates nine landfills. Operating expenses for these landfill
operations include labor, equipment, legal and administrative, ongoing
environmental compliance, 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.
Selling, general and administrative ("SG&A") expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with the Company's marketing and sales force and community relations
expense.
Property and equipment is depreciated over the estimated useful life of the
assets using the straight line method.
Other income and expense, which is comprised primarily of interest income has
not historically been material to the Company's results of operations.
To date, inflation has not had a significant impact on the Company's operations.
9
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues 100% 100% 100% 100%
Service 99.5% 99.3% 99.5% 99.3%
Equipment 0.5% 0.7% 0.5% 0.7%
------------ ------------ ------------ ------------
Total cost of operations 62.4% 61.3% 62.0% 61.6%
Cost of equipment sales 0.4% 0.4% 0.3% 0.4%
Selling, general and administrative 14.5% 15.3% 14.7% 15.5%
Depreciation and amortization 10.2% 10.4% 10.4% 10.6%
Loss on sale of assets 0.0% 2.7% 0.0% 1.4%
------------ ------------ ------------ ------------
Operating income 12.5% 9.9% 12.6% 10.5%
------------ ------------ ------------ ------------
Interest expense 3.4% 4.9% 3.4% 4.6%
Other income -0.1% -0.1% -0.2% -0.1%
------------ ------------ ------------ ------------
Income before income taxes 9.2% 5.1% 9.4% 6.0%
Income taxes 3.4% 2.0% 3.5% 2.4%
------------ ------------ ------------ ------------
Net income 5.8% 3.1% 5.9% 3.6%
============ ============ ============ ============
</TABLE>
Three and Six Months Ended June 30, 2000 vs. Three and Six Months Ended June 30,
1999
REVENUES. Total revenues increased approximately $9.4 million, or 17.8%, and
$19.1 million, or 19.1%, for the three-and six-month periods ended June 30,
2000, respectively, as compared with the same periods in 1999. These increases
were attributable primarily to the following factors: (1) the effect of 17
businesses acquired during the year ended December 31, 1999 and six businesses
acquired through June 30, 2000; and (2) to a lesser extent, increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions.
COST OF OPERATIONS. Cost of operations increased $5.2 million, or 15.7%, and
$11.5 million, or 18.4%, for the three-and six-month periods ended June 30,
2000, respectively, as compared to the same periods in 1999. These increases
were attributable primarily to the following factors: (1) loss on the sale of
asset; (2) the effect of 17 businesses acquired during the year ended December
31, 1999 and six business acquired through June 20, 2000; and (3) to a lesser
extent, increased collection volumes resulting from new municipal and commercial
contracts and residential subscriptions.
SG&A. SG&A increased $1.8 million, or 23.9%, and $3.7 million, or 25.4%, for the
three- and six-month periods ended June 30, 2000, respectively, as compared with
the same periods in 1999. As a percentage of revenues, SG&A increased from 14.5%
to 15.3% in the second quarter of 2000, compared to the second quarter of 1999,
due primarily to stand-alone acquisitions in 1999 and 2000 requiring higher
costs to operate.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $1.0
million, or 19.4%, and $2.2 million, or 21.0% for the three- and six-month
periods ended June 30, 2000, respectively, compared to the same periods in 1999.
Depreciation and amortization, as a percentage of revenues, has increased to
10.4% for the second quarter of 2000, from 10.2% for the second quarter of 1999,
and to 10.6% for the six-month period ended June 30, 2000, from 10.4% for the
same period in 1999. The principal reasons for these increases were (1)
depreciation of additional property and equipment acquired and put into service
due to higher collection volumes; (2) depreciation of the additional assets of
businesses acquired; and (3) increased amortization related to newly acquired
landfills.
10
<PAGE>
INTEREST EXPENSE. Interest expense (net of interest income) increased $1.3
million, or 70.1%, and $2.1 million, or 62.2%, for the three-and six-month
periods ended June 30, 2000, respectively, compared to the same periods in 1999.
These increases were primarily due to the higher level of the Company's average
outstanding indebtedness as well as a higher interest rate related to the
Company's purchases of assets of businesses acquired.
INCOME TAX EXPENSE. Income tax expense decreased $0.5 million, or 28.8%, and
$0.6 million, or 18.0%, for the three- and six-month periods ended June 30,
2000, respectively, compared to the same periods in 1999. These decreases were
attributable to a decline in income before taxes, which were offset by an
increase in the effective tax rate of approximately 3.0% (from 37.0% to 40.0%).
The increase in the effective tax rate is due to reduced tax credits available
to the Company.
NET INCOME. Net income decreased $1.2 million, or 37.5%, and $1.7 million, or
27.9%, for the three- and six-month periods ended June 30, 2000, respectively,
compared to the same periods in 1999. These decreases were primarily
attributable to increases in interest expense (net of interest income) of $1.3
million and $2.1 million for the three- and six-month periods ended June 30,
2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 2000 was $5.9 million compared to $7.8
million at December 31, 1999. The Company's strategy in managing its working
capital has been to apply the cash generated from operations that remains
available after satisfying its working capital and capital expenditure
requirements to reduce indebtedness under its bank revolving credit facility and
to minimize its cash balances. The Company generally finances its working
capital requirements from internally generated funds and bank borrowings. In
addition to internally generated funds, the Company has in place financing
arrangements to satisfy its currently anticipated working capital needs in 2000.
As of June 30, 2000, the Company had fully drawn upon its three $25 million term
facilities with Prudential Insurance Company of America ("Prudential"), leaving
the Company with an uncommitted shelf facility of $25 million. The Prudential
facilities require the Company to maintain financial ratios, such as minimum net
worth, net income, and limits on capital expenditures and indebtedness. 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, subject to renewal.
In November 1999, the Company entered into a revolving credit agreement with a
syndicate of lending institutions for which Fleet National Bank, formerly known
as BankBoston, N.A. ("Fleet") acts as agent. This credit facility provides up to
$200 million through November 2004. Virtually all of the assets of the Company
and its subsidiaries, including the Company's interest in the equity securities
of its subsidiaries, secure the Company's obligations under the Fleet credit
facility. Pursuant to an intercreditor agreement with Fleet, Prudential shares
in the collateral pledged under the Fleet credit facility. In addition, the
Company's subsidiaries have guaranteed the Company's obligations under the
Prudential term loan facilities. The Fleet credit facility bears interest at a
rate per annum equal to, at the Company's option, either a Fleet base rate or at
the Eurodollar rate (based on Eurodollar interbank market rates) plus, in each
case, a percentage rate that fluctuates, based on the ratio of our funded debt
to EBITDA, from 0% to 0.5% for base rate borrowings and 0.2% to 0.4% for
Eurodollar rate borrowings. The Fleet facility requires the Company to maintain
financial ratios and satisfy other requirements, such as minimum net worth, net
income, and limits on capital expenditures and indebtedness. It also requires
the lenders' approval of acquisitions in some circumstances. As of June 30, 2000
an aggregate of approximately $94 million was outstanding under the Fleet credit
facility, and the average interest rate on outstanding borrowings was
approximately 8.45%.
Net cash provided by operating activities totaled $14.6 million for the six
months ended June 30, 2000, compared to $13.0 million for the six months ended
June 30, 1999. This increase was caused principally by increases in depreciation
and a loss on sale of collection operations, offset by decreases in net income
and working capital.
Net cash used in investing activities totaled $49.0 million for the six-months
ended June 30, 2000, compared to $47.1 million for the six-months ended June 30,
1999. This increase was caused principally by a higher level of acquisitions of
related businesses offset by proceeds received from sale of collection
operations.
We currently expect capital expenditures for 2000 to be approximately $31.0
million, compared to $35.0 million in 1999. In 2000, we expect to use
approximately $22.0 million for vehicle and equipment additions and
replacements, approximately $2.3 for landfill site and cell development,
approximately $1.1 million for support equipment and approximately $5.6 million
for facilities, additions and improvements. The Company intends to fund its
planned 2000 capital expenditures principally through internally generated funds
and borrowings under existing credit facilities. In addition, the Company
anticipates that it might require substantial additional capital expenditures to
facilitate its growth strategy of acquiring solid waste collection and disposal
businesses. As an owner of and potential acquirer of additional
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new landfill disposal facilities, the Company might also be required to make
significant expenditures to bring newly acquired disposal facilities into
compliance with applicable regulatory requirements, obtain permits for newly
acquired disposal facilities or expand the available disposal capacity at any
such newly acquired disposal facilities. The amount of these expenditures cannot
be currently determined, because they will depend on the nature and extent of
any acquired landfill disposal facilities, the condition of any facilities
acquired and the permitting status of any acquired sites.
Net cash provided by financing activities totaled $35.1 million for the six
months ended June 30, 2000, compared to $34.2 million for the six months ended
June 30, 1999. The increase was primarily attributable to a $11.5 million loan
to Liberty in 1999, offset by net proceeds of $3.3 million in 1999 and a $6.6
million reduction in net proceeds from issuances of long-term debt to fund
acquisitions.
At June 30, 2000, the Company had approximately $182.3 million of long-term and
short-term borrowings outstanding (including capital leases) and approximately
$2.5 million in letters of credit. At June 30, 2000, the ratio of the Company's
total debt (including capital leases) to total capitalization was 71.1%,
compared to 67.6% at December 31, 1999.
SEASONALITY
The Company's results of operations tend to vary seasonally, with the first
quarter typically generating the least amount of revenues, higher revenues in
the second and third quarters, and a decline in the fourth quarter. This
seasonality reflects the lower volume of waste during the fall and winter
months. Also, operating and fixed costs remain relatively constant throughout
the calendar year, which, when offset by these revenues, results in a similar
seasonality of operating income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure has not changed materially from the exposure
as disclosed in the Company's 1999 Annual Report on Form 10-K.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
(b) During the quarter ended June 30, 2000, the Company filed
three reports on Form 8-K: (1) on June 12, 2000, the Company
announced its acquisition of the Sampson County Landfill in
an asset swap with Allied Waste Industries; (2) on June 15,
2000, the Company announced its share repurchase program
whereby it may effect open-market purchases of up to
1,000,000 shares of its common stock; and (3) on July 18,
2000, the Company filed a report on Form 8-K/A amending its
report on the Sampson County Landfill acquisition to
announce that additional reporting of financial information
on the transaction was not required under SEC accounting
rules.
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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 11, 2000 Waste Industries, Inc.
(Registrant)
By: /s/ Stephen C. Shaw
------------------------------
Stephen C. Shaw
Chief Financial Officer
(Principal Financial Officer)
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WASTE INDUSTRIES, INC.
EXHIBIT INDEX
Second Quarter 2000
Exhibit Number Exhibit Description
-------------- -------------------
10.8 First Amendment to Revolving Credit Agreement dated
as of February 10, 2000, among the Registrant and its
subsidiaries, the lending institutions party thereto,
BankBoston, N.A., as Administrative Agent, and Branch
Banking and Trust Company, as Documentation Agent
10.9 Second Amendment to Revolving Credit Agreement dated
as of June 14, 2000, among the Registrant and its
subsidiaries, the lending institutions party thereto,
Fleet National Bank (f/k/a BankBoston, N.A.), as
Administrative Agent, and Branch Banking and Trust
Company, as Documentation Agent
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 six months
ended June 30, 2000 and is qualified in its entirety by reference to such
financial statements.
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