<PAGE>
As filed with the Securities and Exchange Commission on October 13, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Waste Holdings, Inc.
(Exact name of registrant as specified in its charter)
North Carolina 4953 56-0954929
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation or
organization)
3301 Benson Drive, Suite 601
Raleigh, North Carolina 27609
(919) 325-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
LONNIE C. POOLE, JR.
Chief Executive Officer
Waste Holdings, Inc.
3301 Benson Drive
Suite 601
Raleigh, North Carolina 27609
(919) 325-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
ALEXANDER M. DONALDSON, ESQ.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
(919) 781-4000
Fax (919) 781-4865
---------------
Approximate date of proposed sale to the public:
From time to time after this registration statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Introduction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Each Class Amount Maximum Aggregate Amount of
of Securities to to be Offering Price Offering Registration
be Registered Registered Per Share(1) Price(1) Fee
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
No par value per
share................. 13,710,000 Shares $7.125 $97,683,750 $25,789
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee, based
upon the average of the high and low prices of the Common Stock of Waste
Industries, Inc. on the Nasdaq National Market on October 12, 2000, in
accordance with Rule 457(f)(1).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROXY STATEMENT-PROSPECTUS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
OF WASTE INDUSTRIES, INC.
-------------------------
PROPOSED REORGANIZATION
-------------------------
Waste Industries, Inc., a North Carolina corporation, is proposing a
reorganization of the company. To effect the reorganization, Waste Industries
recently formed Waste Holdings, Inc., a North Carolina corporation, as a
wholly-owned subsidiary which in turn formed Waste Industries MergeCo, LLC, a
North Carolina limited liability company. Waste Industries, Waste Holdings and
Waste LLC have entered into an Agreement and Plan of Merger, dated October 6,
2000. Under the merger agreement, Waste Industries will merge into Waste LLC.
Waste LLC will be the surviving entity, which will change its name to Waste
Industries, LLC and will continue to be the wholly-owned subsidiary of Waste
Holdings. In the reorganization, each outstanding share of Waste Industries
common stock will automatically be converted into one share of Waste Holdings
common stock. The board of directors of Waste Industries has unanimously
approved the merger agreement.
A special meeting of the shareholders of Waste Industries will be held on
December , 2000 at : .m., at 3301 Benson Drive, First Floor, Raleigh,
North Carolina. At the special meeting, the shareholders of Waste Industries
will be asked to approve the merger agreement governing the reorganization.
Waste Industries common stock is traded on the Nasdaq National Market under
the symbol "WWIN". After the reorganization, the common stock of Waste Holdings
will continue to be traded on the Nasdaq National Market under the symbol
"WWIN".
Shareholders of Waste Industries do not have statutory dissenters' rights as
a result of the reorganization.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares of Waste Holdings
common stock to be issued in the merger or determined if this proxy
statement-prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The date of this proxy statement-prospectus is November , 2000. It is
first being mailed on or about November , 2000.
<PAGE>
WASTE INDUSTRIES, INC.
3301 Benson Drive, Suite 601
Raleigh, North Carolina 27609
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER , 2000
----------------------------------------------
TO THE SHAREHOLDERS OF WASTE INDUSTRIES, INC.:
Waste Industries, Inc. will hold a special meeting of shareholders at 3301
Benson Drive, First Floor, Raleigh, North Carolina, on December , 2000, at
: .m., to vote on:
1. The Agreement and Plan of Merger dated October 6, 2000 providing for the
merger of Waste Industries, Inc., a North Carolina corporation, with and
into Waste Industries MergeCo, LLC, North Carolina limited liability
company which is wholly-owned by Waste Holdings, Inc., a North Carolina
corporation organized by Waste Industries for the purpose of becoming
its holding company. Pursuant to the merger agreement, all of Waste
Industries' shareholders will become shareholders of Waste Holdings on a
share-for-share basis and Waste LLC will continue to be wholly-owned by
Waste Holdings; and
2. Any other matters that may properly come before the special meeting or
any adjournment of the special meeting.
Record holders of Waste Industries common stock at the close of business on
, 2000, will receive notice of and may vote at the special
meeting, including any adjournments. The agreement and the plan of merger
require approval by the holders of a majority of the outstanding shares of
Waste Industries common stock.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you sign, date and mail your proxy card without indicating how
you want to vote, we will vote your proxy in favor of the merger. If you do not
return your card or attend and vote in favor at the special meeting, the effect
will be a vote against the merger.
Your board of directors unanimously recommends that you vote for approval of
the merger.
By Order of the Board of directors
Lonnie C. Poole, Jr.,
Chairman of the Board and
Chief Executive Officer
Raleigh, North Carolina
November , 2000
<PAGE>
PLEASE NOTE
No one has been authorized to provide Waste Industries shareholders with
any information other than the information included in this document.
Shareholders of Waste Industries should not rely on other information as
being authorized by Waste Industries or Waste Holdings.
This proxy statement-prospectus has been prepared as of November ,
2000. There may be changes in the affairs of Waste Industries since that
date which are not reflected in this document.
This proxy statement-prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, the securities offered by this proxy
statement-prospectus, or the solicitation of a proxy, in any jurisdiction,
to or from any person to whom it is unlawful to make such offer or
solicitation of an offer or proxy solicitation in such jurisdiction.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION........................................ 1
SUMMARY.................................................................... 2
PROPOSAL NO. 1 -- APPROVAL OF THE REORGANIZATION........................... 5
Effects of the Reorganization............................................ 5
Reorganization Share Exchange............................................ 5
Exchange Method.......................................................... 5
Operation and Management of Waste Holdings and Waste LLC after the
Reorganization.......................................................... 6
Waste Industries Board Approval of and Reasons for the Reorganization.... 6
Recommendation........................................................... 6
Vote Required............................................................ 6
Organizational Documents Conditions to Related Events of the
Reorganization; Termination.............................................
Amendments and Waivers................................................... 7
Effective Time........................................................... 7
Expenses of the Reorganization........................................... 7
Expected Federal Income Tax Consequences of the Reorganization........... 7
Accounting Treatment of the Reorganization............................... 9
Restrictions on Resale of Waste Holdings Common Stock.................... 9
INFORMATION RELATING TO WASTE LLC.......................................... 9
INFORMATION RELATING TO WASTE HOLDINGS..................................... 10
BUSINESS OF WASTE INDUSTRIES............................................... 10
General.................................................................. 10
Industry Overview........................................................ 10
Strategy................................................................. 11
Internal Growth.......................................................... 11
Expansion Through Acquisitions........................................... 12
Operating Enhancements................................................... 13
Acquisition Program...................................................... 13
Contracts Program........................................................ 16
Services................................................................. 16
Operations............................................................... 18
Marketing and Sales...................................................... 22
Competition.............................................................. 22
Employees................................................................ 23
Risk Management, Insurance and Performance Bonds......................... 23
Regulation............................................................... 23
Property and Equipment................................................... 27
Legal Proceedings........................................................ 28
MANAGEMENT................................................................. 29
Directors................................................................ 29
Executive Officers....................................................... 30
Other Key Employees...................................................... 30
Executive Compensation................................................... 31
Compensation of Directors................................................ 32
Compensation Committee Interlocks and Insider Participation.............. 32
CERTAIN TRANSACTIONS....................................................... 33
PRINCIPAL SHAREHOLDERS..................................................... 33
MARKET FOR COMMON STOCK.................................................... 34
DIVIDEND POLICY............................................................ 35
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA............................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.............................................. 38
DESCRIPTION OF CAPITAL STOCK....................................... 45
DEADLINE FOR SHAREHOLDER PROPOSALS................................. 47
EXPERTS............................................................ 47
OPINIONS........................................................... 47
OTHER MATTERS...................................................... 48
FINANCIAL STATEMENTS............................................... F-1
Appendices:
Agreement and Plan of Merger and Reorganization.................... Appendix A
Articles of Incorporation of Waste Holdings, Inc................... Appendix B
Bylaws of Waste Holdings, Inc...................................... Appendix C
</TABLE>
ii
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Waste Industries files, and after the reorganization Waste Holdings will
file, annual, quarterly and current reports, proxy statements, and other
information with the SEC under the Securities Exchange Act of 1934. You may
read and copy this information at the Public Reference Section at the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information about issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov. In
addition, you can read and copy this information at the regional offices of the
SEC at 7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
also inspect reports, proxy and information statements, and other information
about Waste Industries at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Waste Holdings filed a registration statement with the SEC under the
Securities Act of 1933, as amended, relating to the Waste Holdings common stock
offered to the Waste Industries shareholders. The registration statement
contains additional information about the reorganization, Waste Holdings and
the Waste Holdings common stock. The SEC allows Waste Holdings to omit certain
information included in the registration statement from this proxy statement-
prospectus. The registration statement may be inspected and copied at the SEC's
public reference facilities described above.
You may obtain copies of our SEC filings or copies of exhibits to the
registration statement by writing or calling Trish Mueller, Investor Relations,
Waste Industries, Inc., 3301 Benson Drive, Suite 601, Raleigh, North Carolina
27609, telephone (919) 325-3000.
1
<PAGE>
SUMMARY
This summary highlights selected information from this proxy statement-
prospectus and might not contain all of the information that is important to
you. You should carefully read this entire document, including the appendices.
This will give you a more complete description of the reorganization we are
proposing.
Business of Waste Industries, Waste Holdings and Waste LLC
Waste Industries is a regional solid waste services company providing solid
waste collection, transfer, recycling, processing and disposal services to its
customers. Waste Industries has also recently expanded its business activities
to the ownership and operation of landfills. Waste LLC is a North Carolina
limited liability company that is wholly-owned by Waste Holdings. Waste LLC has
no present operations of its own and was recently formed by Waste Industries
(and is currently owned by Waste Holdings) to effect the reorganization. Waste
Holdings, a North Carolina corporation, is a company which has no present
operations of its own and was recently formed (and is currently owned) by Waste
Industries for the purpose of serving as its holding company after the
reorganization.
Proposed Reorganization
Waste Holdings is the holding company for Waste LLC. Waste Industries will
merge with and into Waste LLC. Waste Holdings will continue to be the sole
owner of Waste LLC. In the reorganization, the shareholders of Waste Industries
immediately prior to the reorganization will become the shareholders of Waste
Holdings.
It is also contemplated that some of the companies that are currently owned
by Waste Industries (and which will be owned by Waste LLC as a result of the
reorganization) will be merged with and into Waste LLC in order to consolidate
certain business assets. Ownership interests in the other companies that are
currently owned by Waste Industries (and which will be owned by Waste LLC as a
result of the merger) will be distributed by Waste LLC to Waste Holdings after
the reorganization in order that these companies will thereafter be directly or
indirectly owned by Waste Holdings.
The executive officers and directors of Waste Holdings immediately following
the reorganization will be the same executive officers and directors of Waste
Industries immediately prior to the reorganization.
The articles of incorporation of Waste Holdings are identical to those of
Waste Industries. The bylaws of Waste Holdings are substantially similar to
those of Waste Industries.
The merger agreement governs the reorganization and is included in this
proxy statement-prospectus as Appendix A.
2
<PAGE>
The following diagrams illustrate the present and proposed corporate
structures of Waste Industries and Waste Holdings before and after the
reorganization.
[DIAGRAM]
Present Structure Proposed Structure
----------------- ------------------
Public Shareholders Public Shareholders
Waste Industries Waste Holdings
Merge Waste Waste Waste Waste
Holdings Subsidiaries LLC Subsidiaries
Waste
LLC
Share Exchange
In the reorganization, each share of Waste Industries common stock
outstanding immediately prior to the reorganization will be converted into the
right to receive one share of Waste Holdings common stock.
Our Reasons for the Reorganization
Waste Industries' Board of directors has unanimously approved the merger
agreement and the related transactions because it believes that they will
enable Waste Industries to (i) simplify its organizational structure, (ii)
segregate for operational and liability purposes the distinct business
activities of Waste Industries and its subsidiaries, (iii) allow greater
autonomy to companies currently owned or to be acquired in the future, and (iv)
make it easier to implement future secured credit facilities at reduced costs
of implementation.
Expected Federal Income Tax Consequences of the Reorganization
Upon consummation of the reorganization, all outstanding shares of Waste
Industries common stock will be converted into the right to receive shares of
Waste Holdings common stock. For federal income tax purposes, the
reorganization should be tax-free to Waste Industries, Waste Holdings, Waste
LLC and the shareholders of Waste Industries.
3
<PAGE>
No Dissenters' Rights in the Reorganization
Waste Industries shareholders do not have statutory dissenters' rights in
relation to the reorganization.
Special Meeting
This proxy statement-prospectus is being furnished by Waste Industries'
Board of directors to the shareholders of Waste Industries for their use to
determine how to vote their shares at the special meeting of shareholders to be
held on December , 2000 at : .m. (local time) at 3301 Benson Drive,
First Floor, Raleigh, North Carolina.
In order for the special meeting to be held, a quorum must be present. A
quorum is established when a majority of the shares of Waste Industries common
stock entitled to be cast on a matter are represented at the special meeting
either in person or by proxy.
Shareholder Votes Required
Assuming that a quorum is present at the special meeting, to approve the
merger agreement, shareholders who own a majority of the outstanding shares of
Waste Industries common stock must vote for the merger agreement.
Voting Rights at the Special Meeting
If you owned shares of Waste Industries stock as of the close of business on
, 2000, the record date, you are entitled to vote at the special
meeting. On the record date shares of Waste Industries common stock
were outstanding. You will be entitled to one vote for each share of Waste
Industries common stock that was validly issued and outstanding and that you
owned on the record date. You may vote either by attending the special meeting
and voting your shares or by completing the enclosed proxy card and mailing it
to us in the enclosed envelope.
We are seeking your proxy to use at the special meeting. We have prepared
this proxy statement-prospectus to assist you in deciding how to vote and
whether or not to grant your proxy to us. Please indicate on your proxy card
how you want to vote. Then sign, date and mail it to us as soon as possible so
that your shares will be represented at the special meeting. If you sign, date
and mail your proxy card without indicating how you wish to vote, your proxy
will be counted as a vote to approve the merger agreement. If you sign a proxy,
you may revoke it at any time before the special meeting or by attending and
voting at the special meeting. You cannot vote shares held in "street name";
only your broker can. If you do not provide your broker with instructions on
how to vote your shares, your broker will not be permitted to vote them.
In addition to solicitation by mail, our officers, directors and employees
may, without additional compensation, solicit proxies from our shareholders in
person or by telephone. Any expenses of such solicitation will be paid by us.
Recommendation to Shareholders
Waste Industries' board of directors has unanimously approved the merger
agreement. The board of directors recommends that Waste Industries shareholders
vote to approve the merger agreement.
Share Ownership of Management
On the record date, Waste Industries' directors and executive officers,
their immediate family members and entities they control owned shares,
or approximately %, of the outstanding shares of Waste Industries common
stock. This number does not include stock that the directors and executive
officers may acquire through exercising stock options.
4
<PAGE>
PROPOSAL NO. 1--APPROVAL OF THE REORGANIZATION
General
Waste Industries, Waste LLC and Waste Holdings have entered into the merger
agreement, which provides for the merger of Waste Industries with and into
Waste LLC. A copy of the merger agreement is included in this proxy statement-
prospectus as Appendix A. This proxy statement-prospectus contains summaries of
many provisions contained in the merger agreement and the other appendices. All
references to and summaries of the appendices to this proxy statement-
prospectus are qualified in their entirety by reference to the full text of the
respective Appendix.
Effects of the Reorganization
Waste Industries plans to effect the reorganization on December 31, 2000. In
the reorganization, Waste Industries will be merged with and into Waste LLC.
Each share of Waste Industries common stock outstanding will be converted into
one share of Waste Holdings common stock, and Waste LLC will continue to be
wholly-owned by Waste Holdings. Waste LLC will be the surviving entity in the
merger, and the separate corporate existence of Waste Industries will
terminate. The powers, assets, rights and liabilities of Waste Industries will
be merged into Waste LLC.
The reorganization will not result in any change in the business,
management, fiscal year, operating assets, liabilities or location of the
principal facilities of Waste Industries. The directors of Waste Industries
prior to the reorganization will continue as the directors of Waste Holdings.
All stock plans of Waste Industries will be continued by Waste Holdings, and
each outstanding option or right to purchase shares of Waste Industries common
stock will automatically be converted into an option or right to purchase that
same number of shares of Waste Holdings common stock upon the same terms and
subject to the same conditions. Shareholders should note that approval of the
reorganization will also constitute approval of the assumption of all of Waste
Industries' stock plans by Waste Holdings. Waste Industries' other employee
benefit arrangements will be maintained by Waste LLC after the reorganization
upon the terms, and subject to the conditions, currently in effect.
Reorganization Share Exchange
In the reorganization, each outstanding share of Waste Industries common
stock held by shareholders will be converted into the right to receive one
share of Waste Holdings common stock. The shares so exchanged will be all of
Waste Holdings' issued and outstanding shares immediately after the
reorganization.
Exchange Method
Promptly following the reorganization, Waste Holdings' exchange agent will
mail letters of transmittal to each holder of record of Waste Industries common
stock, accompanied by instructions for exchanging certificates for shares of
Waste Industries common stock for certificates for shares of Waste Holdings
common stock. After receipt of such transmittal form, each shareholder may, at
such shareholder's option, surrender his or her certificates, together with a
duly completed and executed transmittal form, to the exchange agent, as
indicated on the transmittal form, and each shareholder will receive in
exchange therefor a certificate representing an identical number of shares of
common stock of Waste Holdings.
It is not necessary for shareholders of Waste Industries to exchange their
existing stock certificates for certificates of Waste Holdings. Until
surrendered and exchanged, each certificate evidencing Waste Industries common
stock will be deemed for all purposes to evidence the identical number of
shares of Waste Holdings common stock.
5
<PAGE>
Operation and Management of Waste Holdings and Waste LLC after the
Reorganization
The board of directors of Waste Holdings immediately following the
reorganization will be the existing board of directors of Waste Industries,
namely Lonnie C. Poole, Jr., Jim W. Perry, J. Gregory Poole, Jr., Thomas F.
Darden II, Thomas C. Cannon and Paul L. Brunswick. The executive officers of
Waste LLC and of Waste Holdings immediately following the reorganization will
be the current executive officers of Waste Industries, namely: Lonnie C. Poole,
Jr., Chairman and Chief Executive Officer, Jim W. Perry, President and Chief
Operating Officer, Thomas C. Cannon, Vice President and Stephen C. Shaw, Chief
Financial Officer, Secretary and Treasurer. The board of directors of Waste LLC
immediately following the reorganization will consist of Lonnie C. Poole, Jr.
and Jim W. Perry and the officers will be the same as for Waste Holdings.
Background and Reasons for the Reorganization
Waste Industries' board of directors has unanimously approved the merger
agreement and the related transactions because it believes that they will
provide organizational flexibility, administrative simplicity and planning
opportunities for business activities in which it is currently engaged and in
which it may engage in the future. Management also believes that the use of a
holding company will permit certain businesses currently owned and operated by
the Waste Industries, or acquired in the future by Waste Holdings, to retain
its operating identity if that appears desirable and may contribute to improved
management performance by giving the managers of one or more operating
subsidiaries a greater sense of identity and autonomy and a greater feeling of
individual responsibility for their business decisions. In addition, there may
be circumstances in which it will be advisable to insulate an existing or
acquired business from potential liability of other operating subsidiaries of
Waste Holdings. Neither Waste Holdings nor Waste Industries has any current
plans to engage in any business other than those in which Waste Industries is
currently engaged. Furthermore, management believes it will have greater
flexibility to undertake future secured credit facilities with a holding
company structure at reduced costs of implementation. Neither Waste Holdings
nor Waste Industries currently has any intention to replace its current credit
facility or to increase its current credit facility.
The board of directors of Waste Industries based its approval and
recommendation of the reorganization on a number of factors, including its
knowledge of the business, operations, financial needs, financial alternatives
and prospects of Waste Industries and its belief that the reorganization is in
the best interests of Waste Industries and Waste Industries' shareholders.
Creation of a holding company structure and the contemplated direct or indirect
ownership by the Waste Holdings after the reorganization of those subsidiaries
of Waste Industries that are not merged into Waste LLC will result in a
simplified organizational structure whereby the distinct business activities of
Waste Industries and its current subsidiaries will be conducted through
separate brother-sister entities. In light of the wide variety of factors
considered in reaching its recommendation, Waste Industries' board of directors
did not find it practicable to assign any relative weight to the factors it
considered.
The boards of directors of Waste Industries, Waste Holdings and Waste LLC
have unanimously approved the merger agreement. As the sole member of Waste
LLC, Waste Holdings has approved the merger agreement, and, as the sole
shareholder of Waste Holdings, Waste Industries also has approved the merger
agreement.
Recommendation
Waste Industries' Board of directors believes that the proposed
reorganization is fair to and in the best interests of Waste Industries and its
shareholders and recommends a vote FOR approval of the merger agreement.
Vote Required
Pursuant to the terms of the merger agreement and the provisions of the
North Carolina Business Corporation Act, approval of the merger agreement
requires the affirmative vote of the holders of at least a majority of all of
the shares of Waste Industries common stock outstanding on the record date.
6
<PAGE>
Certain Differences in Shareholders' Rights
The provisions of the articles of incorporation and bylaws of Waste Holdings
are substantially similar to the articles of incorporation and bylaws of Waste
Industries. A full discussion of the similarities and minor differences in
these organizational documents is found under the heading "DESCRIPTION OF
CAPITAL STOCK" on page 45.
Termination
Even if Waste Industries shareholders approve the merger agreement, it may
be terminated and the reorganization abandoned at any time prior to its
completion by action of the Board of directors of either Waste Holdings or
Waste Industries.
Amendments and Waivers
The merger agreement may be amended or modified and any of its provisions or
conditions (including those which otherwise would be cause for the abandonment
of the reorganization) may be waived either before or after the special meeting
upon the mutual agreement in writing of Waste Industries and Waste Holdings. No
amendment effected after the special meeting may affect the amount or type of
consideration to be delivered to shareholders of Waste Industries for their
Waste Industries common stock.
Effective Time
The merger agreement provides that, subject to its approval by the
shareholders of Waste Industries, the reorganization shall be effected on the
date and time specified in the articles of merger to be filed with the North
Carolina Secretary of State, which will be December 31, 2000, at 11:58 p.m.
Expenses of the Reorganization
Waste Industries will pay the expenses of the reorganization and any related
transactions regardless of whether the reorganization is completed.
Expected Federal Income Tax Consequences of the Reorganization
The material United States federal income tax consequences generally
applicable to Waste Industries, Waste LLC, Waste Holdings and the Waste
Industries shareholders who receive Waste Holdings common stock pursuant to the
reorganization are described below. Waste Industries and Waste Holdings have
not requested and do not intend to seek a ruling from the Internal Revenue
Service as to the federal income tax consequences of the reorganization. This
discussion is based upon the current provisions of the Internal Revenue Code of
1986, as amended, Treasury regulations, administrative decisions and rulings
and court decisions. This discussion does not address:
. state, local or foreign tax consequences of the reorganization;
. federal income tax consequences to Waste Industries shareholders who
hold their common stock as part of a hedge, straddle or conversion
transaction or who are subject to special rules under the Internal
Revenue Code, such as insurance companies, tax-exempt organizations,
individuals who are neither United States citizens nor United States
residents, foreign corporations, foreign partnerships, foreign trusts,
financial institutions, or brokers or dealers in stocks and securities;
. the federal tax consequences affecting Waste Industries shareholders who
do not hold their common stock as a capital asset; and
. the federal tax consequences affecting Waste Industries shareholders who
have acquired their common stock upon the exercise of options or
otherwise as compensation.
7
<PAGE>
The merger is intended to qualify as a reorganization under section 368(a)
of the Code. It is a condition to the obligation of Waste Industries to
consummate the merger that Waste Industries shall have received a tax opinion
from Deloitte & Touche LLP to the effect that the merger will be treated as a
reorganization within the meaning of section 368(a) of the Code. In rendering
its opinion, Deloitte & Touche LLP will rely upon the truth and accuracy, at
all relevant times, of the statements, covenants, representations and
warranties contained in (i) the Merger Agreement, (ii) certificates executed by
officers of Waste Industries, Waste Holdings and Waste LLC attached as an
exhibit to the tax opinion and (iii) such other documents and corporate records
as Deloitte & Touche has deemed necessary or appropriate for purposes of the
opinion. The tax opinion is an exhibit to the registration statement.
Tax Treatment of the Merger of Waste Industries into Waste LLC. Assuming the
accuracy of the representations and assumptions set forth in the tax opinion
and upon which the opinion will be based, the reorganization will constitute a
reorganization within the meaning of Section 368(a) of the Code. Based on the
conclusion that the reorganization qualifies as a reorganization within the
meaning of section 368(a) of the Code, Waste Industries, Waste Holdings and
Waste LLC will recognize no gain or loss for federal income tax purposes as a
result of the reorganization. Insofar as you are concerned, assuming that you
are not a "dealer" with respect to any Waste Industries common stock you hold,
the following federal income tax consequences should generally result to you as
a Waste Industries shareholder as a result of the reorganization:
1. No gain or loss will be recognized as a result of the exchange of your
shares of Waste Industries common stock for shares of Waste Holdings common
stock in the reorganization.
2. The basis in the shares of Waste Holdings common stock you receive in the
reorganization will equal your basis in the Waste Industries common stock you
surrendered in exchange therefor.
3. The holding period for the shares of Waste Holdings common stock you
receive will include the holding period for the shares of Waste Industries
common stock you exchanged in the reorganization.
Reporting Requirements. As a Waste Industries shareholder receiving Waste
Holdings stock as a result of the reorganization, you will be required to
retain certain records and file with your federal income tax return a statement
setting forth certain facts relating to the merger. The specific filing
requirements are found in Treasury Regulations section 1.368-3.
Treatment as a Taxable Transaction. The issuance of the tax opinion by
Deloitte & Touche LLP is no guarantee that the Internal Revenue Service would
agree with the characterization of the reorganization as a tax-free
transaction. A successful challenge by the Internal Revenue Service to the tax-
free status of the reorganization would result in characterization of the
transaction by the Internal Revenue Service as a taxable sale by shareholders
of their Waste Industries common stock in exchange for the shares of Waste
Holdings common stock. In this event, you would recognize taxable gain or loss
with respect to each share of Waste Industries common stock exchanged in the
reorganization equal to the difference between the fair market value, on the
effective date of the reorganization, of the total consideration received for
such share in the reorganization (i.e., the Waste Holdings common stock) and
your basis in the Waste Industries common stock so exchanged. Your aggregate
basis in the Waste Holdings common stock received in the reorganization would
equal the fair market value of such stock at the time of receipt, and your
holding period for such stock would begin on the date the reorganization was
effective.
Irrespective of the possible tax-free nature of the reorganization, a
recipient of shares of Waste Holdings would recognize gain to the extent such
shares are considered to be received in exchange for services or for property
other than solely Waste Industries common stock. All or a portion of such gain
may be taxable as ordinary income.
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The tax consequences of the reorganization may vary depending upon the
specific circumstances of each Waste Industries shareholder. Accordingly, we
urge you to consult your own tax advisors as to the particular tax consequences
to you of the reorganization, including the applicability and effect of any
state, local, foreign, or other tax laws, and of changes in applicable tax
laws.
Accounting Treatment of the Reorganization
There will be no accounting effect or change in the carrying amount of the
assets and liabilities of Waste Industries as a result of the merger of Waste
Industries into Waste LLC. The consolidated capitalization, assets, liabilities
and financial statements of Waste Holdings and Waste LLC immediately following
the reorganization will be the same as those of Waste Industries immediately
prior to the reorganization.
Restrictions on Resale of Waste Holdings Common Stock
The shares of Waste Holdings common stock to be issued pursuant to the
merger agreement have been registered under the Securities Act. Persons who are
not affiliates of Waste Industries and who will not be affiliates of Waste
Holdings after the reorganization may resell their shares of Waste Holdings
common stock without restriction. Generally, you are an "affiliate" of Waste
Industries or Waste Holdings if you are a director or executive officer of
either company or own 10% or more of the outstanding common stock of either
company. Under present law, any public reoffering or sale of such shares by any
person who is an affiliate of Waste Industries at the time the merger agreement
is submitted to a vote of Waste Industries' shareholders will require either
(i) the further registration of such shares under the Securities Act, (ii)
compliance with Rule 145 promulgated under the Securities Act, which permits
sales under certain conditions, as discussed below, or (iii) the availability
of another exemption from further registration. In general, under Rule 145,
assuming that a person is, at the time of sale, an affiliate of Waste Holdings,
that person may publicly sell such stock if the person: (1) sells during any
three-month period no more than the number of shares permitted under Rule
144(e) (which is generally the greater of (i) 1% of the total number of shares
of Waste Holdings common stock outstanding, or (ii) the average weekly volume
of trading of Waste Holdings common stock for the four calendar weeks prior to
the sale); (2) sells in a "brokers' transaction" (which means, generally, that
the broker can do no more than execute the order as agent for the seller, can
receive no more than the usual broker's commission, cannot solicit orders to
buy in connection with the transaction, and cannot believe that the seller is
an underwriter of the securities being sold); (3) does not solicit orders to
buy in connection with the transaction and does not make any payment in
connection with such sale to anyone other than the selling broker; and (4)
sells at a time when there is adequate current public information about Waste
Holdings (which will be satisfied so long as Waste Holdings common stock
remains registered under the Exchange Act and Waste Holdings continues to file
the necessary reports under the Exchange Act). If a person who was an affiliate
of Waste Industries at the time of the special meeting is not an affiliate of
Waste Holdings at the time of resale, he, she or it can also resell without
subsequent registration if he, she or it (a) holds the shares for at least one
year and sells at a time where there is adequate public information about Waste
Holdings (as in (4) above); or (b) holds the shares for at least two years
after the reorganization.
INFORMATION RELATING TO WASTE LLC
Waste Holdings organized Waste LLC, with Waste Holdings as its sole member,
on September 28, 2000. Waste LLC conducts no business and has no assets, and
exists for the primary purpose of effecting the reorganization. Waste
Industries will be merged with and into Waste LLC pursuant to the merger
agreement. After the reorganization, Waste LLC will continue to be wholly owned
by Waste Holdings, Waste LLC will carry on the business and operations of Waste
Industries and the separate corporate existence of Waste Industries will
terminate. Waste LLC's address and telephone number are the same as Waste
Industries' address and telephone number.
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INFORMATION RELATING TO WASTE HOLDINGS
Waste Holdings, a North Carolina corporation, was incorporated by Waste
Industries on September 28, 2000. Waste Holdings currently conducts no business
and has virtually no assets, and exists solely for the purpose of serving as a
holding company. After the reorganization, Waste LLC will continue to be wholly
owned by Waste Holdings, and Waste Holdings will have no assets (other than the
membership interests of Waste LLC), no liabilities and no operations (other
than certain administrative functions) independent of those of Waste LLC.
Consequently, financial statements of Waste Holdings following the
reorganization will be virtually identical to those of Waste Industries prior
to the reorganization. Accordingly, historical financial statements of Waste
Holdings and pro forma financial statements reflecting completion of the
reorganization have not been included in this proxy statement-prospectus. Waste
Holdings' address and telephone number are the same as Waste Industries'
address and telephone number.
BUSINESS OF WASTE INDUSTRIES
General
Waste Industries is a regional, vertically integrated solid waste services
company that provides solid waste collection, transfer, disposal and recycling
services to commercial, industrial and residential customer locations in North
Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama, Georgia
and Florida. Our principal operations as of June 30, 2000 consisted of 41
collection operations, 23 transfer stations, approximately 100 county
convenience drop-off centers, eight recycling facilities and nine landfills,
serving more than 360,000 municipal, residential, commercial and industrial
customer locations.
Members of the senior management team founded Waste Industries in 1970 and
are recognized for their leadership roles throughout the solid waste management
industry and trade organizations. Our management team collectively has over 119
years of experience in the solid waste industry and over 101 years with the
company.
Industry Overview
In recent years, the solid waste collection and disposal industry has
undergone a period of significant consolidation and integration. We believe
that this consolidation and integration has been caused primarily by:
(1) increasingly stringent environmental regulation and enforcement
resulting in increased capital requirements for collection companies
and landfill operators;
(2) the ability of larger integrated operators to achieve certain economies
of scale;
(3) the increased integration of collection, transfer, disposal and
recycling capabilities; and
(4) the continued privatization of solid waste collection and disposal
services by municipalities and other governmental bodies and
authorities.
Despite the considerable consolidation and integration that has occurred in
the solid waste industry in recent years, we believe the industry remains
primarily regional in nature and highly fragmented.
The increasingly stringent industry regulations, such as the Subtitle D
Regulations, have resulted in rising operating and capital costs and have
caused consolidation and acquisition activities to accelerate in the solid
waste collection and disposal industry. Many of the smaller industry
participants have found these costs difficult to bear and have decided to
either close their operations or sell them to larger operators. In addition,
Subtitle D requires more stringent engineering of solid waste landfills
including liners, leachate collection and monitoring and gas collection and
monitoring. These ongoing costs are coupled with increased financial reserves
from solid waste landfill operators for closure and post-closure monitoring. As
a result, we believe the number of solid waste landfills is declining while the
size of solid waste landfills is increasing.
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In certain markets, competitive pressures are forcing operators to become
more efficient by establishing an integrated network of solid waste collection
operations and transfer stations, through which they secure solid waste streams
for disposal. Operators have adopted a variety of disposal strategies,
including owning landfills, establishing strategic relationships to secure
access to landfills, or by otherwise capturing significant waste stream volumes
to gain leverage in negotiating lower landfill fees and securing long-term
contracts with high capacity landfills on most favored pricing status terms.
In the Southeastern U.S. solid waste market, city and county governments
have historically provided a variety of solid waste services using their own
personnel. Over time, many municipalities have opted to privatize or contract
out their collection and disposal services to the private sector. Landfills,
transfer stations and incinerators located in our market area, which is the
Southeastern market, are predominantly municipally owned. The Southeastern
market is currently undergoing significant economic and population growth.
Certain of the states in the Southeastern U.S. exceed the national average in
terms of economic growth as measured by gains in jobs, personal income and
population.
There is an increasing trend at the state and local levels to encourage
waste reduction at the source and to prohibit the disposal of certain types of
wastes, such as yard wastes and recyclable materials, at landfills. For
example, North Carolina, South Carolina and Virginia have each established the
goal of reducing by 25% the solid waste disposed of in their respective
landfills. We believe that these trends and laws have created significant
opportunities for solid waste services companies to provide additional
recycling services to generators of solid waste who are not otherwise able to
dispose of such waste.
Strategy
Our objective is to build the premier solid waste services company in the
Southeastern U.S. by expanding our operations and capitalizing on our strong
market presence. Our strategy for achieving this objective is:
(1) to generate internal growth by adding customers and services to our
existing operations;
(2) to acquire solid waste collection companies, customers and, under
appropriate circumstances, landfills in existing and new areas of our
target market; and
(3) to increase operating efficiencies and enhance profitability in our
existing and acquired operations.
We intend to implement this strategy as follows:
Internal Growth
In order to continue to achieve internal growth, we will focus on increasing
sales penetration in current and adjacent market areas, marketing upgraded or
additional services (such as on-site solid waste compaction) to existing
customers and implementing selective price increases. Current levels of
population growth and economic development in the Southeastern U.S. and the
strong market presence should provide an opportunity for Waste Industries to
increase revenues and market share in our region. As customers are added in
existing markets, our density is improved, which should increase our collection
efficiencies and profitability. At June 30, 2000, we had an approximately 40-
person sales force dedicated to maintaining and increasing our sales to new and
existing commercial, industrial, municipal and residential customers.
An important part of our internal growth strategy is to establish transfer
stations strategically located throughout our geographic area to improve our
consolidation of collected solid waste and permit us to deliver the collected
solid waste to landfills where we have negotiated favorable volume rates with
landfill operators. At June 30, 2000, we operated 23 transfer stations, five of
which we own. By operating transfer stations, we engage in direct communication
with municipalities regarding waste disposal services, better positioning us to
gain additional business in our markets in the event any of these
municipalities privatize their solid waste operations.
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Expansion Through Acquisitions
Our strategy for growth includes:
(1) "tuck-in" and other acquisitions of solid waste collection companies
and customers in existing and adjacent markets;
(2) the acquisition of solid waste collection companies and customers in
new markets; and
(3) the acquisition of landfills in certain circumstances.
We seek to acquire companies with a significant market presence, high
service standards and an experienced management team willing to remain with
Waste Industries.
We believe that numerous "tuck-in" acquisition opportunities exist within
our current market area. A "tuck-in" acquisition refers to an acquisition in
which we acquire a solid waste collection company, a division of a company or
certain customers of a company located in our existing market area, and
integrate the acquired operations or customers into the operations of one of
our existing branch facilities. These acquisitions have become an integral part
of the industry competitive model due to the efficiencies involved. Such
acquisitions, if consummated, provide us with opportunities to improve market
share and route density.
As we enter new markets through acquisitions, we intend to continue to
implement a regional expansion strategy. The regional expansion strategy
provides us with a base of operations to grow internally through price
increases, providing additional services to existing customers, adding new
private and public customers and tuck-in acquisitions. We can then expand our
presence in the targeted region by adding solid waste collection and transfer
operations in regional markets adjacent to or contiguous with the new location.
Because our goal is to increase the scale of our operations through internal
growth and through the acquisition of other solid waste businesses, we may
experience periods of rapid growth with significantly increased staffing
requirements. Such growth, if it were to occur, could place a significant
strain on our management and on our operational, financial and other resources.
Our ability to maintain and manage our growth effectively will require us to
expand our management information systems capabilities and improve our
operational and financial systems and controls. Moreover, we will need to
attract, train, motivate, retain and manage our senior managers, technical
professionals and other employees. Any failure to expand our management
information systems capabilities and our operational and financial systems and
controls or to recruit appropriate additional personnel in an efficient manner
at a pace consistent with any business growth we may experience would have a
material adverse effect on our company.
We are examining opportunities to expand our presence in new and existing
markets in the Southeastern U.S. There can be no assurance that we will be able
to identify suitable acquisition candidates or, if identified, negotiate
successfully their acquisition. If we fail to implement successfully our
acquisition strategy, our growth potential will be limited.
The recent consolidation and integration activity in the solid waste
industry, as well as the difficulties, uncertainties and expenses relating to
the development and permitting of solid waste landfills and transfer stations,
has increased competition for the acquisition of existing solid waste
collection, transfer and disposal operations. Increased competition for
acquisition candidates may result in fewer acquisition opportunities being made
available to us as well as less advantageous acquisition terms, including
increased purchase prices. These circumstances may increase acquisition costs
to levels beyond our financial capability or pricing parameters that, as to
acquisitions made by us, may have an adverse effect on our results of
operations. Many of our competitors for acquisitions are larger, better known
companies with significantly greater resources than we have. We also believe
that a significant factor in our ability to consummate acquisitions will be the
relative attractiveness of shares of our common stock as an investment
instrument to potential acquisition candidates. This attractiveness may, in
large part, be dependent upon the relative market price and capital
appreciation prospects of our common stock compared to the equity securities of
our competitors.
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We are actively engaged in identifying solid waste landfill acquisition
candidates in the Southeastern U.S., although the number of candidates is
limited in our current market area. We believe that the successful acquisition
of landfills will provide us with opportunities to integrate vertically our
collection, transfer and disposal operations while improving operating margins.
Generally, we will evaluate a landfill target by determining, among other
things, whether access to the landfill is economically feasible from our
existing market areas either directly or through strategically located transfer
stations, expected landfill life, the potential for landfill expansion, and
current disposal costs compared with the cost to acquire the landfill. In
addition, where the acquisition of a landfill site is either not available or
not economically feasible, we seek to enter into long-term disposal contracts
with facilities that are located in proximity to our market areas.
Operating Enhancements
We have implemented advanced management information systems, financial
controls, shared support services and benchmarking systems designed to improve
productivity, efficiency and profitability of our existing and acquired
operations. Each branch facility has on-line real time access to our financial,
operating, cost and customer information. This access enables our managers to
evaluate continuously our performance record and to establish benchmarks in all
phases of our operations. Management utilizes these systems to:
. improve collection and transportation efficiencies;
. enhance equipment and personnel utilization;
. reduce equipment acquisition and maintenance costs;
. reduce disposal costs by maximizing waste streams directed to lower cost
landfills;
. timely monitor and collect customer accounts; and
. provide current information to our sales force to ensure properly
structured pricing for new customers.
Through the utilization of our systems and controls, we will continue to
manage our landfill disposal costs and to negotiate long-term disposal
contracts with Subtitle D landfill operators. In addition, we have developed an
extensive network of transfer stations that we use to consolidate waste streams
to gain greater leverage in negotiating landfill disposal fees. As of June 30,
2000, approximately 29% of our waste volume is directed through transfer
stations owned or operated by us.
Acquisition Program
From 1990 through June 30, 2000, we acquired, either by merger or asset
purchase, 56 solid waste collection or disposal operations, with five being
acquired in 2000, 15 being acquired in 1999 and 13 in 1998. We have developed a
set of financial, geographic and management criteria designed to assist
management in the evaluation of acquisition candidates engaged in solid waste
collection and disposal. These criteria evaluate a variety of factors,
including, but not limited to:
(1) historical and projected financial performance;
(2) internal rate of return, return on assets and return on revenue;
(3) experience and reputation of the candidate's management and customer
service reputation and relationships with the local communities;
(4) composition and size of the candidate's customer base;
(5) whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;
(6) whether the acquisition will augment or increase our market share or
help protect our existing customer base;
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(7) any synergies gained by combining the acquisition candidate with our
existing operations; and
(8) liabilities of the candidate.
We have an established integration procedure for newly acquired companies
designed to effect a prompt and efficient integration of the acquired business
while minimizing disruption to our ongoing business and that of the acquired
business. Once a solid waste collection operation is acquired, programs
designed to improve collection and disposal routing, equipment maintenance and
utilization, employee productivity, operating efficiencies and overall
profitability are implemented. To improve an acquired business' operational
productivity, administrative efficiency and profitability, we apply the same
benchmarking programs and systems to the acquired business as are employed at
our existing operations. We also solicit new commercial, industrial and
residential customers in areas within and surrounding the markets served by the
acquired collection operations as a means of further improving operating
efficiencies and increasing the volumes of solid waste collected by the
acquired operation. We typically attempt to retain the acquired company's
management and key employees and to decentralize operations, while
consolidating administrative and management information systems through our
corporate offices.
Prior to completing an acquisition, we perform extensive environmental,
operational, engineering, legal, human resource and financial due diligence.
All acquisitions are subject to initial evaluation and approval by our
management before being recommended to the Board of directors.
1999 Acquisitions
On December 1, 1999, we acquired assets from Traco Waste Systems, Inc.,
related to its solid waste disposal business in and around Newport News,
Virginia, for approximately $705,000 in cash.
On November 1, 1999, we made a tuck-in acquisition of the assets of Matthews
Sanitation Services related to its solid waste collection, disposal and
recycling business in and around the Wake County, North Carolina area, for
approximately $175,000 in cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Southern Waste Services, Inc., which operates a solid waste collection and
hauling business in southern Mississippi, for approximately $3.3 million in
cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Southern Waste of Alabama, Inc., which operates a solid waste collection and
hauling business in and around Mobile, Alabama, for approximately $580,000 in
cash.
On October 31, 1999, we acquired all of the outstanding capital stock of S.
& S. Enterprises, Inc., which owns and operates a Class I rubbish site in
Harrison County, Mississippi, for approximately $202,000 in cash.
On October 31, 1999, we acquired all of the outstanding capital stock of
Quick-Way Salvage, Inc., which operates a solid waste collection, disposal,
recycling and scrap metal salvage business in and around Danville and South
Boston, Virginia, for approximately $2.9 million in cash.
On October 30, 1999, we made a tuck-in acquisition of the assets of Jerry's
Sanitation, Inc. related to its solid waste collection, disposal and recycling
business in and around the Mecklenburg County, North Carolina area, for
approximately $550,000 in cash.
On June 11, 1999, we acquired assets from A&S Waste Services, Inc. related
to its solid waste collection and recycling business located in the Douglas,
Georgia area for approximately $550,000 in cash.
On June 1, 1999, we acquired assets from Keith D. Threet of Crossville,
Tennessee related to his waste collection business known as Keith's Disposal
Service for approximately $200,000 in cash.
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On May 31, 1999, we acquired assets from Elaine Woodard related to her
residential solid waste collection and recycling business located in the
Raleigh, North Carolina area and known as A&B Sanitation for approximately
$320,000 in cash.
On May 20, 1999, we purchased customer routes, containers and certain other
assets of K&S Sanitation, Inc. related to its residential solid waste
collection business located in the Charlotte, North Carolina area for
approximately $550,000 in cash.
On May 1, 1999, we acquired the assets of S&T Haulers, LLC associated with
its solid waste collection and recycling business located in and around
Marietta, Georgia for approximately $1.6 million in cash.
On May 1, 1999, we acquired North Mecklenburg Sanitation, Inc., which
operates a solid waste collection business in and around Charlotte, North
Carolina. The purchase price for this company was approximately $4.5 million in
cash and 281,250 unregistered shares of our common stock which were registered
effective June 1, 1999. This transaction expands our operations into the
Charlotte, North Carolina area.
On April 30, 1999, we made a tuck-in acquisition of Central Georgia Waste
Services, Inc. for $500,000 in cash. This tuck-in acquisition further expands
our existing operations in and around Atlanta, Georgia.
On April 1, 1999, we acquired Old Kings Road Solid Waste Services, Inc.,
which operates a landfill and a related solid waste collection business in and
around Jacksonville, Florida, for approximately $5.0 million in cash. This
acquisition gives Waste Industries its fourth landfill and expands its
operations into northeastern Florida, a new market for the Company in the
southeastern U.S.
On February 12, 1999 we purchased equipment and customer contracts related
to the commercial, industrial and residential solid waste collection and
recycling businesses of Clary's Container Corporation, located in Max Meadows,
Virginia, for approximately $1.3 million in cash.
On January 14, 1999, we acquired a regional municipal solid waste landfill
in Decatur County, Tennessee from Waste Services of Decatur, LLC through
Liberty Waste Services, LLC for approximately $12.9 million in cash.
We primarily used borrowings under our revolving credit facility to fund
acquisitions during 1999.
2000 Acquisitions
On March 1, 2000, we acquired Trashbusters, LLC for approximately $861,000
in cash. This tuck-in acquisition further expands our existing operations in
our Easley, South Carolina facility, which serves the Greenville/Spartanburg
area.
On March 23, 2000, we 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 us with our seventh landfill.
On March 23, 2000, we acquired substantially all of the assets of 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.
On May 30, 2000, through an asset swap, we acquired the Sampson County
Landfill, a municipal solid waste landfill in Roseboro, North Carolina, and a
collection operation as a tuck-in to our existing Fayetteville, North Carolina
operation, from Allied Waste Industries for $28.9 million in cash.
Simultaneously, we sold our collection operations in Ooltewah, Tennessee and
Dalton, Georgia to Allied Waste Industries for $10.5 million in cash. This
acquisition provides us with our eighth landfill.
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On June 23, 2000, we acquired a construction and demolition landfill in
Atlanta, Georgia from Safeguard Landfill Management, Inc. for $7.7 million in
cash. This acquisition provides us with our ninth landfill.
On July 21, 2000, we acquired a transfer station in Wilson County, North
Carolina from a subsidiary of Allied Waste Industries, Inc. for approximately
$2.35 million in cash.
On September 1, 2000, we acquired all of the outstanding capital stock of
Shamrock Environmental, Inc., a waste-hauling operation serving the Macon,
Georgia area, for approximately $1.7 million in cash.
We primarily used borrowings under our revolving credit facility to fund
acquisitions during the first nine months of 2000.
Contracts Program
We currently have approximately 236 municipal contracts. We believe that
opportunities for gaining larger contracts are increasing due to trends among
municipalities to privatize or outsource solid waste services. In most cases,
only larger disposal services companies such as Waste Industries are
financially acceptable to the municipality. Historically, in the Southeastern
U.S., city and county governments have provided a variety of solid waste
services using their own personnel. Over time, many municipalities have opted
to privatize or contract out their collection and disposal services to the
private sector. Typically, these contracts are competitively bid and have
initial terms of one to five years. In bidding for large contracts, our
management team draws on its experience in the waste industry and its knowledge
of local service areas in existing and target markets. We engage in extensive
due diligence using our advanced management information systems and
productivity and cost modeling analyses to respond to requests for proposals to
provide services. Our regional managers are responsible for managing the
relationships with local governmental officials within their respective service
area and sales representatives may be assigned specific municipalities for
coverage. We may be required to bid for renewal of a contract previously
awarded to us, or in certain cases to renegotiate the contract as a result of
changed market conditions. During 1999, we retained over 74% of our municipal
contracts that were up for bid or renewal.
Services
Commercial, Industrial and Residential Waste Services
We provide commercial and industrial collection and disposal services under
one-year to five-year service agreements. Fees are determined by such factors
as collection frequency, level of service, route density, the type, volume and
weight of the 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 service. Collection of
larger volumes associated with commercial and industrial waste streams
generally helps improve our operating efficiencies and, through consolidation
of these volumes, we can negotiate more favorable disposal prices. Our
commercial and industrial customers utilize portable containers for storage
thereby enabling us to service many customers with fewer collection vehicles.
Commercial and industrial collection vehicles normally require one operator. We
provide two to eight cubic yard containers to commercial customers and 10 to 42
cubic yard containers to industrial customers. As a part of the services
provided by Waste Industries and for an additional fee under our waste services
contract, we install stationary compactors that compact waste prior to
collection are installed on the premises of a substantial number of large
volume customers. No single commercial or industrial contract is individually
material to our results of operations.
Our residential solid waste collection and disposal services are performed
either on a subscription basis with individual households, or under contracts
with municipalities, homeowners associations, apartment owners or mobile home
park operators. Municipal contracts grant us the right to service all or a
portion of the residences in a specified community or to provide a central
repository for residential waste drop-off. We had approximately 236 municipal
contracts in place as of June 30, 2000. No single municipal or other
residential contract is individually material to our results of operations.
Municipal contracts in our market areas
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are typically awarded on a competitive bid basis and thereafter on a bid or
negotiated basis and usually range in duration from one to five years.
Residential contract fees are based primarily on route density, the frequency
and level of service, the distance to the disposal or processing facility, the
cost of disposal or processing and prices charged in its markets for similar
service. Municipal collection fees are paid either by the municipalities from
tax revenues or through direct service charges to the residents receiving the
service.
At June 30, 2000, we owned and operated nine solid waste landfills in
Florida, Georgia, Mississippi, North Carolina and Tennessee. Our landfill
facilities are designed and operated to meet federal, state and local
regulations in all material respects and we believe each of our landfill sites
are in compliance with current applicable state and federal Subtitle D
regulations in all material respects. None of our landfills are permitted to
accept hazardous waste.
Transfer Station Services
The 23 transfer stations operated by Waste Industries at June 30, 2000
receive, compact and transfer solid waste to larger company-owned vehicles for
transport to landfills. We believe that transfer stations benefit us by:
(1) providing access to multiple landfills;
(2) improving utilization of collection personnel and equipment;
(3) concentrating the waste stream to gain leverage in negotiating for more
favorable disposal rates; and
(4) building relationships with municipalities that can lead to
opportunities for additional business in the future.
Depending on the location, size and local regulatory environment, transfer
stations can be constructed for as little as $150,000 for a small rural
facility or as much as $1.0 million for larger sites. We believe that we have
obtained all permits and authorizations necessary to operate our existing
transfer stations and that each of our existing transfer stations has been
operated in compliance in all material respects with applicable environmental
regulations.
At June 30, 2000, we owned five of the transfer stations we operate, and
operate the remaining 18 transfer stations pursuant to operating agreements.
These operating agreements have terms ranging from annual one-year renewals to
an indefinite period. We generally receive a fixed monthly operating fee for
our services under these agreements, together with a variable fee based upon
the number of hauls made by us from the station. At June 30, 2000,
approximately 60% of waste directed to the transfer stations operated by us is
delivered by third parties, who pay us a fee based on the tonnage delivered.
Control of these third-party waste streams coupled with our waste stream adds
to our bargaining power in our negotiations for favorable solid waste disposal
rates with landfill operators.
Recycling Services
Recycling involves the removal of reusable materials from the waste stream
for processing and sale in various applications. We believe that recycling will
continue to be an important component of local and state solid waste management
plans as a result of the public's increasing environmental awareness and
expanding regulations mandating or encouraging waste recycling. We offer
commercial, industrial and residential customers recycling for office paper,
cardboard, newspaper, aluminum and steel cans, plastic, glass, pallets and yard
waste. At June 30, 2000, we operated approximately 100 convenience sites where
residents can dispose of recyclables. These commodities are delivered either to
third-party processing facilities in exchange for a fee or to one of eight
facilities operated by us for processing prior to resale.
From January 1, 1995 through June 30, 2000, we invested approximately $5
million in infrastructure to develop regionally located recycling facilities
and equipment. Through these facilities, we recycle office paper,
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cardboard, aluminum and steel cans, plastic, glass, pallets and yard waste. At
June 30, 2000, less than 3% of our waste stream was recycled. Through a
centralized effort, we resell recycled waste products using commercially
reasonable practices and seek to manage commodity-pricing risk by spreading the
risk among our customers. The resale prices of, and demand for, recyclable
commodities, particularly wastepaper, can be volatile and subject to changing
market conditions. Accordingly, our results of operations will be affected, and
may be affected materially, by changing resale prices or demand for certain
recyclable commodities, particularly wastepaper. These changes may also
contribute to significant variability in our period-to-period results of
operations.
Convenience Sites and Other Specialized Services
In 1982, we developed the concept of a convenience site in response to
increasing volumes of waste dumped randomly in rural areas. Each site typically
consists of a ramp for easy disposal access, a trash compactor and trash and
recycling containers. Most sites have posted operating hours during which Waste
Industries personnel assist residents with the deposit of waste and recyclables
while monitoring the types of waste deposited at the sites. Because these
convenience sites reduce the amount of trash dumped along roads and adjacent to
recreational areas, we believe that county and local governments will contract
for these sites to be strategically located. At June 30, 2000, we operated
approximately 100 convenience sites located in 14 counties in our market area.
In addition, we have increased our efforts to secure additional contracts to
manage comprehensive disposal services for large corporations and
municipalities. For example, after thorough review and evaluation, we may
provide a lump sum quote for handling all the waste in a company's facility.
This would include source separating various wastes into commodities for resale
and non-recyclables for disposal. The process of sorting at the source,
processing through a compaction system and scheduling waste and recyclable
removals only when the containers are full reduces our cost and increases our
operating efficiency. Furthermore, confidential documents can be controlled
throughout the process and destroyed to the customer's satisfaction.
Operations
Branch Facility Structure
We believe that a branch facilities structure retains decision-making
authority close to the customer, which enables us to identify customers' needs
quickly and implement cost-effective solutions. Furthermore, we believe that it
provides a low-overhead, highly efficient operational structure that allows us
to branch into geographically contiguous markets and operate in small
communities which larger competitors may not find attractive. We believe that
branch facilities and decentralized management of operations provide us with a
strategic competitive advantage given the relatively rural nature of the
Southeastern U.S.
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We deliver our waste services from branch locations, in contiguous service
areas, which permit our branch facilities to provide back-up services and
support to one another. Each manager of a branch facility has autonomous
service and decision-making authority for the local market area. Each
designated region is overseen by a regional manager, who is typically located
at one of our branch facilities. As of June 30, 2000, the branch network was
divided into the eight regions set forth below:
Collection Operations
<TABLE>
<CAPTION>
Carolinas Mississippi
Central Carolinas South Carolinas West Valley Tennessee Valley
--------- --------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Durham, NC Wilmington, NC Graham, NC Olive Branch, MS Crossville, TN
Garner, NC Bolivia, NC Greensboro, NC Biloxi, MS Lilburn, GA
Hope Mills,
NC Charleston, SC Henderson, NC Mobile, AL Easley, SC
Morrisville,
NC Conway, SC Oxford, NC Decatur, TN Alpharetta, GA
Sumter, SC Wytheville, VA Dawson, GA
Huntersville, NC Americus, GA
Carolinas
East Carolinas Coastal Danville, VA Warner Robbins, GA
--------- -----------------
Douglas, GA
Elizabeth
City, NC Newport, NC Albany, GA
Goldsboro,
NC Jacksonville, NC Moultrie, GA
Greenville,
NC Warner Robbins AFB, GA
Kinston, NC
Norfolk, VA
Rocky Mount,
NC
Wilson, NC
</TABLE>
Disposal Operations
<TABLE>
<CAPTION>
Mississippi
Carolinas Central Valley Tennessee Valley
----------------- ----------- ----------------
<S> <C> <C>
Durham, NC Olive Branch, MS Jacksonville, FL
Biloxi, MS Douglas, GA
Carolinas Sampson Decatur, TN Graycourt, SC
-----------------
Sampson County, NC Fairburn, GA
</TABLE>
Our managerial philosophy centers on the principle that customers' needs can
best be served at the local level by a staff of well-trained personnel led by a
branch manager. Each branch manager is responsible for implementing sales
programs, maintaining service quality, promoting safety in the branch's
operations and overseeing the day-to-day operations for the branch, including
contract administration. Branch managers also assist regional managers in
identifying potential acquisition candidates. Frequently, the branch manager is
also the branch facility's sales manager; but in larger market areas, branch
facilities will have one or more sales persons. Branch managers are compensated
based on the performance of their branch. Each branch manager reports to a
regional manager or Vice President, who reports directly to our President.
In addition to delivering our services, branch staff responsibilities
include setting up customer accounts, answering customer questions, processing
accounts payable and maintaining accurate payroll and personnel information.
Maintenance support for collection equipment is also provided at the branch
facility. The facility size, number of maintenance personnel and capabilities
are determined by the number of vehicles operated and the type of services
provided within the branch facility's market area.
On a monthly basis, the corporate and/or regional officers meet with each
branch manager to discuss and evaluate the branch operations. This evaluation
is conducted through the use of flash reports on a weekly basis at the branch
and regional levels and monthly at the corporate level. Flash reports highlight
key operating data such as man-hours, overtime hours, truck hours, revenues and
extraordinary costs. These meetings are oriented
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to identifying trends, opportunities and strategies in the branch facility's
proximate geographic area. Using a decentralized approach, but with strong
corporate monitoring and strict budgetary and operating guidelines and quality
control standards, each branch manager has the authority to exercise discretion
in business decisions. Our management information systems provide corporate
management timely oversight of branch performance.
Information Technologies
A cornerstone of our desire to deliver responsive and cost-effective waste
services is our management information systems network. Many of our information
systems, controls and services are designed to assist branch facilities'
personnel in making decisions based upon centralized information. Financial
control is maintained through personnel, fiscal and accounting policies which
are established at the corporate level for implementation at the branch
locations. Our systems allow for centralized billing and collection through a
lock-box system, thus enhancing cash management. An internal audit program
monitors compliance with our policies and the benchmarks are monitored
continuously using an advanced management information system. This information
system links our IBM AS/400 computer to each branch using satellite technology
which allows each branch on-line, real-time financial, productivity,
maintenance and customer information.
Support Services
In order to ensure focus at the branch facility level and to support branch
operations, we established our Support Services Team in 1995. Support services
include:
(1) safety and training services;
(2) risk management;
(3) capital expenditure evaluation;
(4) human resources services;
(5) equipment maintenance;
(6) location of most economical disposal facilities;
(7) purchasing;
(8) sales and marketing support;
(9) productivity analysis;
(10) research and development services; and
(11) acquisition due diligence.
The Support Services Team provides significant assistance to the branch
facilities in the integration of newly acquired operations and in securing new
and retaining existing customers. Successful integration of an acquired
business is critical to achieving operational and administrative efficiencies
and improved profitability of the incremental business.
Support services include a comprehensive safety and risk management program
that has strong management support and includes strict safety rules and
policies, accident investigations, tracking and statistical analysis, employee
safety awards, branch safety committees and random facility inspections by both
corporate staff and an outside loss control specialist.
Management believes that its safety program has resulted in accident rates
and insurance loss ratios that are consistently lower than industry averages.
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Landfill and Other Disposal Alternatives
At June 30, 2000, we used approximately 100 landfill disposal sites in the
markets we serve and we owned and operated nine of these landfill sites. We
have financial obligations relating to closure and post-closure or remediation
costs (long-term care) for the landfill sites we now own and operate, and our
obligations for such costs will increase if we decide to develop or acquire
additional landfill sites in the future.
Landfill closure and post-closure costs include estimated costs to be
incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. We estimate
these future cost requirements based on our interpretation of the technical
standards of the Environmental Protection Agency's Subtitle D regulations.
While the precise amounts of these future obligations cannot be determined, at
June 30, 2000, we estimate the total costs to be approximately $16.0 million
for remediation, final closure of our operating facilities and post-closure
monitoring costs. Our estimate of these costs is expressed in current dollars
and is not discounted to reflect anticipated timing of future expenditures. We
had accrued approximately $262,000, $1,590,000 and $2,034,000 for such
projected costs at December 31, 1998 and 1999 and June 30, 2000, respectively.
We provide accruals for these future costs (generally for a term of 30 years
after final closure of any landfill), and will provide additional accruals for
these and other landfills we may acquire or develop in the future, based on
engineering estimates of consumption of airspace over the useful lives of such
facilities. There can be no assurance that our ultimate financial obligations
for actual closure or post-closure costs will not 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 our
financial condition and results of operation.
We have historically opted to contract for landfill services due to the
availability of disposal space at favorable tipping fees in close proximity to
our current markets. In certain markets, we have been able to control disposal
costs by negotiating long-term disposal contracts with Subtitle D landfill
operators. In addition, we operate an extensive network of transfer stations to
consolidate waste streams and receive volume discounts on disposal costs.
We believe that many landfills not in compliance with Subtitle D Regulations
will close in our market area in the next few years. Despite this, the absolute
volume of disposal capacity is increasing due both to the expansion of capacity
at existing landfills and the opening of new landfills. Landfill operators are
aggressively soliciting solid waste volumes to ensure cash flows sufficient to
support the expansion costs and other capital expenditures made to achieve
compliance with the provisions of Subtitle D. We believe there will continue to
be a significant supply of low-cost disposal capacity in our current markets
and that by controlling a large volume of the waste stream we will be able to
continue to negotiate favorable disposal costs. We plan to continue to secure
long-term disposal contracts with Subtitle D landfill operators and to continue
expansion of transfer stations. Transfer stations allow us access to additional
disposal sites and are substantially less expensive to develop than landfills.
We believe that landfills that have been targeted for closure may provide prime
sites to develop transfer stations.
We acquired five landfills in 1999 and three landfills in the first six
months of 2000 and intend to acquire more. We may acquire other existing
landfills or we may develop landfills or partner with an experienced landfill
operator for the acquisition, development or assumption of the operation of
additional landfills. In our current markets, such action would be pursued if
we believed that ownership or operation of a landfill in a particular market
would provide significant cost benefits compared to our traditional system of
consolidating waste and negotiating favorable disposal rates. In a new market,
we may become a landfill owner or operator if that market lacks the amount of
disposal capacity that we have experienced in our current markets.
We also intend to develop land clearing and inert debris ("LCID") landfills
in the near future. Such development would provide us an opportunity to dispose
of a portion of our waste stream in our own landfill, rather than paying a
third party to do so. LCID landfills can only take limited kinds of waste
(namely land-clearing and inert debris such as trees, rocks and concrete), as
opposed to traditional solid waste landfills, which can take any kind of waste
(except hazardous waste). Traditional solid waste landfills are therefore
subject to more stringent regulation than LCID landfills. As a result, LCID
landfills generally can be
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<PAGE>
constructed in a relatively short time and involve fewer regulatory hurdles
compared to traditional solid waste landfills.
Alternatives to landfill disposal, such as recycling and composting, are
increasingly being used. In addition, incineration is an alternative to
landfill disposal in certain of our markets. There also has been an increasing
trend at the state and local levels to mandate recycling and waste reduction at
the source and to prohibit the disposal of certain type of wastes, such as yard
wastes, at landfills. These developments may result in the volume of waste
being reduced in certain areas. North Carolina, South Carolina and Virginia
have each adopted plans or requirements that set goals for specified
percentages of certain solid waste items to be recycled. These recycling goals
are being phased in over the next few years. These alternatives, if and when
adopted and implemented, may have a material adverse effect on our business,
financial condition and results of operations.
Marketing and Sales
We market our services locally through our regional and branch managers and
approximately 40 direct sales representatives who focus on commercial,
industrial and residential customers. We also obtain new customers from
referral sources, our general reputation and local market print advertising.
Leads are also developed from a construction reporting service, new building
permits, business licenses and other public records. Additionally, each branch
facility advertises in the yellow pages and other local business print media
that cover its service area. A variety of methods are used to market services
directly to individual households. Some branch locations have dedicated sales
representatives that market residential services. We engage in direct mail
campaigns and door-to-door marketing and works with real estate agents and
developers to sell services to new developments. We recently installed
telemarketing programs to sell residential services. All Waste Industries
containers display the Waste Industries logo, name and telephone number.
Additionally, we attend and make presentations at municipal and state
conferences and advertise in governmental associations' membership
publications.
Our sales representatives visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon certain incentive
formulas. We emphasize providing quality services and customer satisfaction and
retention, and believe that its focus on quality service will help retain
existing and attract additional customers. Maintenance of a local presence and
identity is an important aspect of our marketing plan, and many of our managers
are involved in local governmental, civic and business organizations.
No single customer of ours accounted for more than 4% of our revenues in
1999 and the first six months of 2000. We do not believe that the loss of any
single customer would have a material adverse effect on our results of
operations.
Competition
The solid waste management industry is highly competitive, very fragmented
and requires substantial labor and capital resources. Intense competition
exists within the industry not only for collection, transportation and disposal
volume, but also for acquisition candidates. The industry includes three large
national waste companies: Waste Management, Inc.; Allied Waste Industries, Inc.
and Republic Services, Inc. There are several other public companies in the
industry with annual revenue in excess of $100 million, including Casella Waste
Systems, Inc. and Waste Connections, Inc. We compete with a number of these and
other regional and local companies, including publicly or privately owned
providers of incineration services.
We also compete with certain municipalities that operate their own solid
waste collection and disposal facilities. These municipalities may have certain
advantages over us due to the availability of tax revenues and tax-exempt
financing.
22
<PAGE>
We compete for collection and recycling accounts primarily on the basis of
price and quality of our services. From time to time, competitors may reduce
the price of their services in an effort to expand market share or to win a
competitively bid municipal contract. These practices may also lead to reduced
pricing for our services or the loss of business. We provide a substantial
portion of our residential collection services under municipal contracts. As is
generally the case in the industry, municipal contracts are subject to periodic
competitive bidding. The balance of our residential services are provided on a
subscription basis. Our inability to compete with larger and better capitalized
companies, or to replace a significant number of municipal contracts lost
through the competitive bidding process with comparable contracts or other
revenue sources within a reasonable time period, could have a material adverse
effect on our results of operations.
Employees
At June 30, 2000, we employed approximately 1,800 full-time employees. None
of our employees are represented by unions. We have experienced low turnover
among our employees and believe that our relations with our employees are good.
We are highly dependent upon the services of the members of our management
team, the loss of any of whom may have an adverse effect on our operations.
Risk Management, Insurance and Performance Bonds
We actively maintain an environmental and other risk management programs
appropriate for our business. Our environmental risk management program
includes evaluating both existing facilities, as well as potential
acquisitions, for environmental law compliance and operating procedures. We
also maintain a worker safety program that encourages safe practices in the
workplace. Operating practices at all of our existing operations stress
minimizing the possibility of environmental contamination and litigation. We
believe that all of our facilities are in compliance in all material respects
with applicable state and federal regulations.
We carry a range of insurance intended to protect our assets and operations,
including a commercial general liability policy and a property damage policy. A
partially or completely uninsured claim against us (including liabilities
associated with cleanup or remediation at our own facilities) if successful and
of sufficient magnitude, could have a material adverse effect on our results of
operations or financial condition. Any future difficulty in obtaining insurance
could also impair our ability to secure future contracts, which may be
conditioned upon the availability of adequate insurance coverage.
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. We have
not experienced difficulty in obtaining performance bonds or letters of credit
for our current operations. At June 30, 2000, we had provided customers and
various regulatory authorities with bonds and letters of credit of
approximately $2.48 million to secure our obligations. If we were unable to
obtain surety bonds or letters of credit in sufficient amounts or at acceptable
rates, we may be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits.
Regulation
Introduction
We are subject to extensive and evolving federal, state and local
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations not only strictly regulate the conduct of our operations but also
are related directly to the demand for many of the services we offer.
The regulations affecting us are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies. We
believe that we are currently in substantial compliance with applicable
federal, state and local laws, permits, orders and regulations, and we do not
currently anticipate
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<PAGE>
any material environmental costs (although there can be no assurance in this
regard). We anticipate there will continue to be increased regulation,
legislation and regulatory enforcement actions related to the solid waste
services industry. As a result, we attempt to anticipate future regulatory
requirements and to plan accordingly to remain in compliance with the
regulatory framework.
In order to transport waste, we must have one or more permits from state or
local agencies. These permits also must be periodically renewed and are subject
to modification and revocation by the issuing agency. None of our permits has
ever been revoked.
In order to develop, own or operate a landfill, a transfer station or most
other solid waste facilities, we are required to go through several
governmental review processes and obtain one or more permits and often zoning
or other land use approvals. Obtaining these permits and zoning or land use
approvals is difficult, time consuming and expensive and is often opposed by
various local elected officials and citizens' groups. Once obtained, operating
permits generally must be periodically renewed and are subject to modification
and revocation by the issuing agency.
Our facilities are subject to a variety of operational, monitoring, site
maintenance, closure, post-closure and financial assurance obligations which
change from time to time and which could give rise to increased capital
expenditures and operating costs. In connection with any such landfills, it is
often necessary to expend considerable time, effort and money in complying with
the governmental review and permitting process necessary to maintain or
increase the capacity of these landfills. Governmental authorities have broad
power to enforce compliance with these laws and regulations and to obtain
injunctions or impose civil or criminal penalties in the case of violations.
The principal federal, state and local statutes and regulations applicable
to our various operations are as follows:
The Resource Conservation and Recovery Act of 1976
RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and non-hazardous. Wastes are generally classified as hazardous if
they (i) either (a) are specifically included on a list of hazardous wastes or
(b) exhibit certain hazardous characteristics and (ii) are not specifically
designated as non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous.
Among the wastes that are specifically designated as non-hazardous waste are
household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most non-
hazardous industrial waste products.
Although we currently are not involved with transportation or disposal of
hazardous substances, we transported hazardous substances in the past and may
become involved with hazardous substance transportation and disposal in the
future. The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure, post-closure and financial responsibilities.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective
in October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements,
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groundwater monitoring requirements, groundwater remediation standards and
corrective action requirements. In addition, the Subtitle D Regulations require
that new landfill sites meet more stringent liner design criteria (typically,
composite soil and synthetic liners or two or more synthetic liners) designed
to keep leachate out of groundwater and have extensive collection systems to
carry away leachate for treatment prior to disposal. Groundwater monitoring
wells must also be installed at virtually all landfills to monitor groundwater
quality and, indirectly, the leachate collection system operation. The Subtitle
D Regulations also require, where threshold test levels are present, that
methane gas generated at landfills be controlled in a manner that protects
human health and the environment. Each state is required to revise its landfill
regulations to meet these requirements or such requirements will be
automatically imposed upon it by the EPA. Each state is also required to adopt
and implement a permit program or other appropriate system to ensure that
landfills within the state comply with the Subtitle D Regulations criteria.
Various states in which we operate or may enter have adopted regulations or
programs as stringent as, or more stringent than, the Subtitle D Regulations.
Failure to comply with these regulations could require us to undertake
investigatory or remedial activities, to curtail operations or to close a
landfill temporarily or permanently. Future changes in these regulations may in
the future require us to modify, supplement or replace equipment or facilities
at costs that may be substantial. The failure of regulatory agencies to enforce
these regulations vigorously or consistently may give an advantage to our
competitors whose facilities do not comply with the Subtitle D Regulations or
its state counterparts. Our ultimate financial obligations related to any
failure to comply with these regulations could have a material adverse effect
on our operations and financial condition.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended, known as the
Clean Water Act, establishes rules regulating the discharge of pollutants from
a variety of sources, including solid waste disposal sites and transfer
stations, into waters of the U.S. If run-off from our transfer stations or if
run-off or collected leachate from our owned or operated landfills is
discharged into streams, rivers or other surface waters, the Clean Water Act
would require us to apply for and obtain a discharge permit, conduct sampling
and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the EPA's storm water regulations issued in November 1990, which
are designed to prevent possibly contaminated landfill storm water runoff from
flowing into surface waters. We believe that our facilities are in compliance
in all material respects with Clean Water Act requirements, particularly as
they apply to treatment and discharge of leachate and storm water. Various
states in which we operate, or in which we might operate in the future, have
been delegated authority to implement the Clean Water Act permitting
requirements, and some of these states have adopted regulations that are more
stringent than the federal requirements.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, also known as CERCLA, established a regulatory and remedial program
intended to provide for the investigation and cleanup of facilities from which
there has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to
impose strict joint and several liability for cleanup of facilities on current
owners and operators of the site, former owners and operators of the site at
the time of the disposal of the hazardous substances, as well as the generators
of the hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be very substantial. Liability under CERCLA does not depend
upon the existence or disposal of "hazardous waste" as defined by RCRA, but can
also be founded upon the existence of even very small amounts of the more than
700 "hazardous substances" listed by the EPA, many of which can be found in
household waste. If we were to be found to be a responsible party for a CERCLA
cleanup, the enforcing agency could hold us, or any other generator,
transporter or the owner or operator of the facility, completely responsible
for all investigative and remedial costs even if others may also be liable.
CERCLA also authorizes the imposition of a lien in favor of the U.S. upon all
real property subject to, or
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affected by, a remedial action for all costs for which a party is liable.
CERCLA provides a responsible party with the right to bring legal action
against other responsible parties for their allocable share of investigative
and remedial costs. Our ability to get others to reimburse us for their
allocable share of such costs would be limited by our ability to find other
responsible parties and prove the extent of their responsibility and by the
financial resources of such other parties.
The Clean Air Act
The Clean Air Act provides for regulation, through state implementation of
federal requirements, of the emission of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. The EPA has proposed new source performance
standards regulating air emissions of certain regulated pollutants (methane and
non-methane organic compounds) from municipal solid waste landfills. Landfills
located in areas with air pollution problems may be subject to even more
extensive air pollution controls and emission limitations. In addition, the EPA
has issued standards regulating the disposal of asbestos-containing materials.
Some of the federal statutes described above contain provisions authorizing
under certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes.
The Occupational Safety and Health Act of 1970
OSHA establishes employer responsibilities and authorizes the promulgation
by the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
worker protection standards established by OSHA, to maintain certain records,
to provide workers with required disclosures and to implement certain health
and safety training programs. Various of those promulgated standards might
apply to our operations, including those standards concerning notices of
hazards, safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials, and worker training and emergency response
programs. Our employees are trained to respond appropriately in the event there
is an accidental spill or release of packaged asbestos-containing materials or
other regulated substances during transportation or landfill disposal.
State and Local Regulations
Each state in which we now operate or might operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and, in
most cases, the siting, design, operation, maintenance, closure and post-
closure maintenance of landfills and transfer stations. In addition, many
states have adopted Superfund statutes comparable to, and in some cases more
stringent than, CERCLA. These statutes impose requirements for investigation
and cleanup of contaminated sites and liability for costs and damages
associated with such sites, and some provide for the imposition of liens on
property owned by responsible parties. Furthermore, many municipalities also
have ordinances, local laws and regulations affecting our operations. These
include zoning and health measures that limit solid waste management activities
to specified sites or activities, flow control provisions that direct the
delivery of solid wastes to specific facilities, laws that grant the right to
establish franchises for collection services and then put out for bid the right
to provide collection services, and bans or other restrictions on the movement
of solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and
approvals, as well as certain state and local regulations, may limit a landfill
to accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate
against out-of-state waste. Generally, restrictions on the importation of out-
of-state waste have not withstood judicial challenge. However, from time to
time federal legislation is proposed which would allow individual states to
prohibit the disposal of out-of-state waste or to limit the amount of out-of-
state waste that
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could be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states.
Although Congress has not yet passed such legislation, if this or similar
legislation is enacted, states in which we operate landfills could act to limit
or prohibit the importation of out-of-state waste. Such state actions could
materially adversely affect landfills within those states that receive a
significant portion of waste originating from out-of-state.
In addition, certain states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the U.S. Supreme Court held unconstitutional, and
therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local
jurisdictions continue to seek to enforce such restrictions and, in certain
cases, we may elect not to challenge such restrictions based upon various
considerations. In addition, the aforementioned proposed federal legislation
would allow states and localities to impose certain flow control restrictions.
These restrictions could result in the volume of waste going to landfills
being reduced in certain areas, which may materially adversely affect our
ability to operate our landfills at their full capacity and/or affect the
prices that can be charged for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to its customers, our business,
financial condition and results of operations could be materially adversely
affected.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to
prohibit or restrict the disposal of certain types of solid wastes, such as
yard wastes, leaves and tires, in landfills. The enactment of regulations
reducing the volume and types of wastes available for transport to and disposal
in landfills could affect our ability to operate our facilities at their full
capacity.
Property and Equipment
Our principal executive offices are located at 3301 Benson Drive, Raleigh,
North Carolina, where we currently lease approximately 25,000 square feet of
office space. Our principal property and equipment consists of land (primarily
transfer stations, bases for collection operations and landfill sites),
buildings, and vehicles and equipment. We own or lease real property in the
states in which we do business. At June 30, 2000, we operated 41 collection
operations, 23 transfer stations, eight recycling facilities and nine landfills
aggregating approximately 2,276 acres.
Containers
Some type of container is used in almost every service we provide, and we
therefore have an extensive inventory on-hand or on-site at customers'
locations. We own all of our containers and centrally manage our inventory
located at the branch facility level. We also own a significant number of on-
site compaction containers, which provide efficiency for high-volume solid
waste generators. Container life is dependent on the location of the container,
the type of waste that is deposited into the container and how the container is
maintained. Proper maintenance of commercial and industrial front loader and
roll-off containers consists of regular repainting, scheduled repairs and
switch-outs, quality cleaning, sanding and priming and monitoring of the
container by our employees to check for needed repairs. Residential collection
containers require minor maintenance.
Collection Vehicles
We use a fleet of specialized collection vehicles to collect and transport
waste and to provide recycling and convenience site services. At June 30, 2000,
we owned approximately 95% of our transportation fleet and lease the remainder.
We have implemented an aggressive and reliable maintenance program to extend
the useful lives of our equipment. Preventative and long-term maintenance is
performed on regularly scheduled cycles that are
27
<PAGE>
more frequent than most manufacturers' suggested schedules. Preventative
maintenance is performed on collection vehicles after every 150 to 250 hours of
operation depending on its class, and long-term maintenance (reconstruction of
engines, transmissions, etc.) is performed every four to six years.
Additionally, cosmetic repairs (painting, interior upholstery repairs) are
performed as needed. The majority of the maintenance program is done by our
personnel located in branch facilities.
Legal Proceedings
In the normal course of our business and as a result of the extensive
governmental regulation of the waste industry, we may periodically become
subject to various judicial and administrative proceedings involving federal,
state or local agencies. In these proceedings, an agency may seek to impose
fines on us or to revoke, or to deny renewal of, an operating permit held by
us. In addition, we may become party to various claims and suits pending for
alleged damages to persons and property, alleged violation of certain laws and
for alleged liabilities arising out of matters occurring during the normal
operation of the waste management business. However, there is no current
proceeding or litigation involving us that we believe will have a material
adverse effect upon our financial condition or results of operations.
28
<PAGE>
MANAGEMENT
The directors and executive officers of Waste Holdings will be the same as
those of Waste Industries. As of September 30, 2000, our directors and officers
were as follows:
Directors
<TABLE>
<CAPTION>
Director
Name Age Since
---- --- --------
<S> <C> <C>
Lonnie C. Poole, Jr............................................. 63 1970
Jim W. Perry.................................................... 56 1974
J. Gregory Poole, Jr............................................ 65 1994
Thomas F. Darden II............................................. 45 1997
Thomas C. Cannon................................................ 50 1999
Paul L. Brunswick............................................... 60 1999
</TABLE>
LONNIE C. POOLE, JR., founded Waste Industries in 1970 and has served as
Chief Executive Officer and Chairman of the Board of directors of Waste
Industries since that time. Mr. Poole holds a B.S. in Civil Engineering from
North Carolina State University and an M.B.A. from the University of North
Carolina at Chapel Hill. Mr. Poole has more than 29 years' experience in the
solid waste industry. He has served in the Environmental Industry Association,
("EIA", formerly the National Solid Waste Management Association or the
"NSWMA"), a non-profit business association established to, among other things,
inform, educate and assist its members in cost-effective, safe and
environmentally responsible management of waste in the following positions:
Chairman, Vice-Chairman, Board Member. In addition, Mr. Poole has served in the
EIA Research and Education Foundation as Chairman and now is a member of its
Board of directors. Mr. Poole was inducted into the EIA Hall of Fame in 1994.
JIM W. PERRY joined Waste Industries in 1971 and has served as our President
and Chief Operating Officer since 1987 and as a director since 1974. Mr. Perry
holds a B.S. in Agricultural and Biological Engineering from North Carolina
State University and an M.S. in Systems Management from the University of
Southern California. Mr. Perry has more than 29 years' experience in the solid
waste industry and has received the Distinguished Service Award from the NSWMA.
In addition, Mr. Perry has served in the Carolinas Chapter of NSWMA as Chairman
and on the Membership Committee. Mr. Perry was inducted into the EIA Hall of
Fame in 1997.
J. GREGORY POOLE, JR., an original investor in the Company in 1970, has
served as a member of the Board of Directors since 1994. Until March 1999, Mr.
Poole was Chairman of the Board and Chief Executive Officer of Gregory Poole
Equipment Company. Mr. Poole is a member of the Board of Directors of First
Union Corporation. Mr. Poole holds a B. S. in Business Administration from the
University of North Carolina at Chapel Hill.
THOMAS F. DARDEN II, has served as a director of the Company since June
1997. Since 1984, Mr. Darden has served as Chairman of Cherokee Sanford Group
LLC, or its predecessors and affiliates, which include a brick manufacturing
company and a $250 million brownfield investment fund. He is also a principal
of Franklin Street/Fairview Capital, a private equity investment company. Mr.
Darden chaired the Triangle Transit Authority and is on the boards of Shaw
University, Winston Hotels, Inc. and BTI Telecom Corp. In addition, Mr. Darden
has served on the Board of Visitors and currently serves on the Honors Advisory
Board at the University of North Carolina at Chapel Hill. Mr. Darden holds a B.
A. with Highest Honors and an M.R.P. in Environmental Planning from the
University of North Carolina at Chapel Hill, and a J. D. from Yale University.
THOMAS C. CANNON has served as a Vice President of the Company since its
acquisition of TransWaste Services, Inc. in September 1998. Mr. Cannon founded
TransWaste Services in 1994 and has served as its President since that time. He
holds a B.B.A. in Industrial Management from the University of Georgia and has
done graduate work in Accounting at Georgia Southwestern College.
29
<PAGE>
PAUL L. BRUNSWICK has served as a director of the Company since December
1999. Currently Mr. Brunswick is President of General Management Advisory. From
1992 to 1999, Mr. Brunswick served as Vice President and Chief Financial
Officer of GoodMark Foods, Inc., a public company that was acquired by ConAgra,
Inc. in July 1998. From 1987 to 1992, he served as Vice President and Chief
Financial Officer for CompuChem Corporation, a public company that was acquired
by Hoffman-La Roche in 1992. Mr. Brunswick has served on several company boards
of directors and is currently the President of the North Carolina Chapter of
the Financial Executives Institute and serves on the board of Life Experiences,
a nonprofit public service organization. He has previously served on the boards
of United Way and Junior Achievement. Mr. Brunswick holds a B.S. in Accounting
and an M.B.A. from Ohio State University.
Executive Officers
As of September 30, 2000, our executive officers were as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Lonnie C. Poole, Jr........ 63 Chairman, Chief Executive Officer and Director
Jim W. Perry............... 56 President, Chief Operating Officer and Director
Stephen C. Shaw............ 40 Chief Financial Officer, Secretary and Treasurer
</TABLE>
STEPHEN C. SHAW joined the company in 1985 and was appointed Chief Financial
Officer in November 1999. Mr. Shaw served as our Vice President, Finance from
1991 to 1999 and as our controller from 1985 to 1999. He is a Certified Public
Accountant and holds a B.S. in Business Administration from the University of
North Carolina at Chapel Hill. Mr. Shaw has more than 15 years' experience in
the solid waste industry.
Other Key Employees
The following table sets forth certain information concerning our other key
employees as of September 30, 2000:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Lonnie C. Poole, III........ 38 Vice President and Director of Support Services
Richard D. Lauck............ 54 Vice President--Carolinas Region
Thomas C. Cannon............ 50 Vice President--Georgia/Tennessee Valley Region
James J. Becher............. 50 Vice President--Mississippi Valley Region
</TABLE>
LONNIE C. POOLE, III has served as our Vice President, Director of Support
Services since 1995. From 1990 to 1995, he served as our Risk Management
Director. Mr. Poole holds a B.S. in Aerospace Engineering from North Carolina
State University. Mr. Poole is the son of Lonnie C. Poole, Jr. Mr. Poole has
more than 10 years' experience in the solid waste industry.
RICHARD D. LAUCK has served as a Vice President of the company since March
1998. From November 1995 until March 1998, he served as our Central Regional
Manager. Prior to joining Waste Industries, Mr. Lauck worked for 14 years with
Waste Management, Inc., where he held various operational positions including
General Manager, Vice President and Region Manager. Mr. Lauck holds a B.S.
degree, specializing in Marketing, from the University of Northern Colorado and
an M.S. from Colorado State University. Mr. Lauck has more than 18 years'
experience in the solid waste industry.
THOMAS C. CANNON has served as a Vice President of Waste Industries since
September 1998. Mr. Cannon joined us during our acquisition of TransWaste
Services, Inc. He holds a B.B.A. in Industrial Management from the University
of Georgia and has done graduate work in Accounting at Georgia Southwestern
College. Mr. Cannon has 6 years of experience in the solid waste industry.
30
<PAGE>
JAMES J. BECHER has served as a Vice President of the company since March
1998. He joined Waste Industries in 1986 as a Branch Manager. Mr. Becher holds
a B.A. in History from Guilford College in North Carolina. He has 14 years'
experience in the solid waste industry.
None of our executive officers, directors or other key employees is related
to any other executive officer, director or other such key employee, except
that Lonnie C. Poole, Jr. and Lonnie C. Poole, III are father and son.
Executive Compensation
Summary Compensation
The following table sets forth all compensation paid by Waste Industries for
services rendered to it in all capacities for the fiscal years ended December
31, 1997, 1998, and 1999 to its Chief Executive Officer and its other executive
officers who earned at least $100,000 in the respective fiscal year
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Stock
Name and Principal Fiscal Options All Other
Position Year Salary Bonus (Shares) Compensation(1)
------------------ ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr...... 1999 $ -- $ -- 26,833 $ --
Chairman and Chief
Executive Officer 1998 $ -- $ -- -- $ 4,200
1997 $224,324 $141,127 -- $42,632(2)
Jim W. Perry ............ 1999 $214,798 -- 22,979 $ 7,956
President 1998 $212,381 -- -- $15,132
1997 $201,676 $107,828 -- $42,760(2)
Stephen C. Shaw ......... 1999 $ 92,450 $ 19,747 3,000 $ 4,447
Chief Financial Officer,
Secretary and Treasurer
</TABLE>
--------
(1) Includes for Mr. Poole and Mr. Perry:
. profit sharing contributions of $4,511 in 1997;
. auto allowances of $4,200 in 1997 and 1998;
. life insurance premiums paid by us on executive group policy insurance
coverage in excess of $50,000 payable to the Named Executive Officer or
his family as follows: Mr. Poole, $2,488 in 1997; and Mr. Perry, $874,
$932 and $1,456 in 1997, 1998 and 1999, respectively;
. 401(k) Plan contributions in the following amounts for 1997, 1998 and
1999: Mr. Poole, $673, $0 and $0; and Mr. Perry, $2,375, $10,000 and
$6,500.
Includes for Mr. Shaw, in 1999:
. life insurance premiums of $67 paid by us on executive group policy
insurance coverage in excess of $50,000 payable to Mr. Shaw or his
family; and
. 401(k) Plan contributions of $4,380.
(2) Includes director's fees of $30,800.
31
<PAGE>
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values
The following table sets forth certain information concerning all grants of
stock options made during the year ended December 31, 1999 to the Named
Executive Officers:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options/SARs Exercise Appreciation for
Underlying Granted to or Base Option Term(1)
Options/SARs Employees in Price Expiration -----------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
---- ------------ ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lonnie C. Poole Jr...... 26,833 34.8% $16.78 April 2004 $124,505 $274,769
Jim W. Perry............ 22,979 29.7% $16.78 April 2004 $106,623 $235,305
Stephen C. Shaw......... 3,000 3.9% $15.25 April 2004 $ 12,630 $ 21,240
</TABLE>
--------
(1) Potential realizable value is based on the assumption that the common stock
will appreciate at the annual rate shown (compounded annually) from the
date of grant until the expiration of the option term. These amounts are
calculated for SEC-mandated disclosure purposes and do not reflect our
estimate of future stock prices.
The following table sets forth certain information concerning the number and
value of unexercised options held by the Named Executive Officers as of
December 31, 1999:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
Shares at December 31, 1999(#) December 31, 1999($)(2)
Acquired on Value ---------------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lonnie C. Poole, Jr..... -- $ -- 199,320 26,833 $1,233,392 $ --
Jim W. Perry............ -- $ -- 76,800 43,015 $ 475,238 $123,983
Stephen C. Shaw......... 2,000 $19,895 -- 9,875 $ 25,198 $ --
</TABLE>
--------
(1) Market value of our common stock on the exercise date, as quoted on the
Nasdaq Stock Market, minus the exercise price.
(2) Market value of our common stock at December 31, 1999 ($11.31 per share),
as quoted on the Nasdaq Stock Market, minus the exercise price. Options are
considered in-the-money if the market value of the shares covered thereby
is greater than the exercise price.
Compensation of Directors
In 1999, employee directors of Waste Industries received no compensation for
service as a member of the Board of directors. Non-employee directors (Paul L.
Brunswick, J. Gregory Poole, Jr. and Thomas F. Darden II) are entitled to
receive an annual retainer fee in cash or stock of Waste Industries equal in
value to $5,000, plus $500 in cash or stock at the option of the individual
director for attending each meeting of the Board of directors and each Board of
directors' committee meeting, in addition to reimbursement of out-of-pocket
expenses.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of directors consists of Paul L.
Brunswick, chairman, J. Gregory Poole, Jr. and Thomas F. Darden II, neither of
whom was at any time during the fiscal year ended December 31, 1999 or at any
other time an officer or employee of Waste Industries. Mr. Perry, President and
a
32
<PAGE>
director of Waste Industries, is also a member of the compensation committee of
Gregory Poole Equipment Company, of which J. Gregory Poole, Jr., a member of
the Compensation Committee, was the Chairman and Chief Executive Officer until
his retirement in March 1999. Mr. Poole also terminated his ownership interest
in Gregory Poole Equipment Company in March 1999. No other executive officer of
Waste Industries serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of the Board of directors or the Compensation Committee.
CERTAIN TRANSACTIONS
In December 1999, we made loans to Lonnie C. Poole, Jr., in the aggregate
principal amount of $500,000, and to Jim W. Perry, in the principal amount of
$150,000, as advances to pay premiums on life insurance policies purchased by
Mr. Poole and Mr. Perry. The loans are full recourse obligations of Mr. Poole
and Mr. Perry, and Mr. Poole and Mr. Perry are the sole and absolute owners of
the life insurance policies. The loans bear interest at 7% per annum and
premiums advanced under the loans (net of amounts Mr. Poole and Mr. Perry are
obligated to reimburse us for the economic benefit of the policies to them, as
determined for federal income tax purposes) are also secured by collateral
assignments of policy proceeds and the surrender value of the policies.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of shares of Waste Industries common stock as of September 30, 2000 by (i) each
person known by us to beneficially own more than 5% of the outstanding shares
of our common stock, (ii) each director of Waste Industries, (iii) each of the
Named Executive Officers and (iv) all directors and executive officers of Waste
Industries as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Percentage
Name(1) Owned Owned
------- ------------ ----------
<S> <C> <C>
Lonnie C. Poole, Jr.(2).............................. 4,786,879 36.5%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Lonnie C. Poole, III(3).............................. 2,891,952 22.1%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Scott J. Poole(4).................................... 2,905,763 22.2%
2408 Mt. Vernon Church Road
Raleigh, NC 27614
Jim W. Perry(5)...................................... 1,554,108 11.9%
3301 Benson Drive, Suite 601
Raleigh, NC 27609
Goldman Sachs Asset Management....................... 1,028,600 7.4%
1 New York Plaza
New York, NC 10004
J. Gregory Poole, Jr. (6)............................ 635,032 4.8%
Thomas C. Cannon(7).................................. 425,087 3.2%
Stephen C. Shaw(8)................................... 13,872 1.0%
Paul L. Brunswick.................................... 2,827 *
Thomas F. Darden II(9)............................... 2,000 *
All directors and executive officers as a group (7
persons)(10)........................................ 7,419,805 56.6%
</TABLE>
--------
*Less than one percent.
33
<PAGE>
(1) This table is based upon information supplied by officers, directors and
principal shareholders of Waste Industries and from Schedules 13D and 13G
filed with SEC. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, each of the
shareholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Share ownership in
each case includes shares issuable upon exercise of warrants and options
that may be exercised within 60 days after September 30, 2000 for purposes
of computing the percentage of common stock owned by such person but not
for purposes of computing the percentage owned by any other person.
Applicable percentages are based on 13,109,327 shares outstanding on
September 30, 2000.
(2) Includes 211,059 shares underlying vested options, 1,000 shares owned by
Mr. Poole's wife and 2,108,018 shares held by three grantor trusts of which
Lonnie C. Poole, III and Scott J. Poole, Mr. Poole's children, are
beneficiaries and/or trustees.
(3) Includes 67,975 shares underlying vested options, 936,760 shares held by a
trust of which Mr. Poole is a co-trustee and beneficiary and 936,758 shares
held by a trust of which he is a beneficiary with shared investment power.
(4) Includes 65,611 shares underlying vested options, 936,760 shares held by a
trust of which Mr. Poole is a co-trustee and beneficiary and 936,758 shares
held by a trust of which he is a beneficiary with shared investment power.
(5) Includes 106,889 shares underlying vested options.
(6) Includes 540,000 shares owned by Mr. Poole's three adult children and 2,520
shares held by Mr. Poole's children as custodian for his three
grandchildren. As to all of such shares, Mr. Poole disclaims beneficial
ownership.
(7) Includes 1,050 shares underlying vested options.
(8) Includes 7,312 shares underlying vested options.
(9) The shares are held in a custodial account managed by Mr. Darden's wife for
the benefit of Mr. Darden's son.
(10) Includes the shares (including shares underlying vested options) discussed
in footnotes (2) and (5)-(9).
MARKET FOR COMMON STOCK
Our common stock trades on the Nasdaq National Market under the symbol
"WWIN". After the reorganization, the common stock of Waste Holdings will
continue to trade on the Nasdaq National Market under the symbol "WWIN". The
following sets forth the quarterly high and low bid prices for the years
indicated as reported by Nasdaq. These prices are based on quotations between
dealers, which do not reflect retail mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
1998
First quarter............................................. $21 1/4 $15 1/4
Second quarter............................................ $22 3/4 $16 1/8
Third quarter............................................. $ 24 $ 19
Fourth quarter............................................ $25 5/8 $16 1/2
1999
First quarter............................................. $19 1/2 $12 13/16
Second quarter............................................ $18 13/16 $14 7/8
Third quarter............................................. $18 1/4 $12 3/8
Fourth quarter............................................ $14 3/4 $10 1/4
2000
First quarter............................................. $12 7/8 $ 9 1/2
Second quarter............................................ $11 1/4 $ 8 1/4
Third quarter............................................. $11 3/4 $ 7 1/2
Fourth quarter (through October 10, 2000)................. $ 7 7/8 $ 7
</TABLE>
34
<PAGE>
As of September 30, 2000, the number of record holders of our common stock
was 105 and we believe that the number of beneficial owners was more than 400.
DIVIDEND POLICY
Since its conversion from S corporation to C corporation status in
connection with and prior to its initial public offering in June 1997, Waste
Industries has never paid a cash dividend on its common stock and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
Our credit facilities contain covenants that restrict the payment of cash
dividends. The ability of Waste Holdings to pay dividends will be affected by
the ability of its subsidiaries to pay dividends.
35
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto included elsewhere in the proxy
statement-prospectus. The consolidated statement of operations data set forth
below with respect to the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 are derived
from, and are referenced to, the audited consolidated financial statements of
the company included elsewhere in this proxy statement-prospectus. The
consolidated statement of operations data set forth below with respect to the
years ended December 31, 1995 and 1996 and the consolidated balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from financial statements
not included in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------- -----------------------
1999 2000
1995(1) 1996(1) 1997(1) 1998 1999 (unaudited) (unaudited)
------- -------- -------- -------- -------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Service revenues........ $96,051 $104,509 $127,581 $169,527 $213,384 $ 99,891 $118,745
Equipment sales......... 2,080 1,769 1,601 1,732 1,335 500 785
------- -------- -------- -------- -------- -------- --------
Total revenues.......... 98,131 106,278 129,182 171,259 214,719 100,391 119,530
Cost of service
operations............. 57,806 66,542 79,775 105,633 133,923 62,234 73,691
Cost of equipment
sales.................. 1,646 1,240 1,171 1,268 821 294 478
------- -------- -------- -------- -------- -------- --------
Total cost of
operations............. 59,452 67,782 80,946 106,901 134,744 62,528 74,169
Selling, general and
administrative......... 18,713 18,990 23,105 26,386 31,196 14,753 18,501
Depreciation and
amortization........... 8,939 9,307 11,797 16,981 22,298 10,462 12,658
Merger costs and start-
up costs............... -- -- -- 926 432 -- --
Loss on sale of
collection operations.. -- -- -- -- -- -- 1,677
------- -------- -------- -------- -------- -------- --------
Operating income........ 11,027 10,199 13,334 20,065 26,049 12,648 12,525
Interest expense........ (2,399) (2,497) (3,021) (4,812) (8,653) (3,935) (6,238)
Interest income......... 430 194 312 93 1,287 526 707
Other income............ -- 612 322 538 441 152 119
------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 9,058 8,508 10,947 15,884 19,124 9,391 7,113
Income taxes (2)........ -- -- 7,011 5,606 7,100 3,475 2,848
------- -------- -------- -------- -------- -------- --------
Net income.............. $ 9,058 $ 8,508 $ 3,936 $ 10,278 $ 12,024 $ 5,916 $ 4,265
======= ======== ======== ======== ======== ======== ========
Earnings per share:
Basic................... $ 0.85 $ 0.80 $ 0.34 $ 0.80 $ 0.88 $ 0.43 $ 0.31
======= ======== ======== ======== ======== ======== ========
Diluted................. $ 0.85 $ 0.78 $ 0.33 $ 0.77 $ 0.86 $ 0.42 $ 0.30
======= ======== ======== ======== ======== ======== ========
Pro forma income before
income taxes (2)....... $ 9,058 $ 8,508 $ 10,947 $ 15,884
Pro forma income taxes
(2).................... 3,632 3,434 4,202 5,803
------- -------- -------- --------
Pro forma net income
(2).................... $ 5,426 $ 5,074 $ 6,745 $ 10,081
======= ======== ======== ========
Pro forma earnings per
share (2):
Basic................... $ 0.51 $ 0.48 $ 0.58 $ 0.78
======= ======== ======== ========
Diluted................. $ 0.51 $ 0.47 $ 0.56 $ 0.76
======= ======== ======== ========
Weighted-average shares
outstanding:
Basic................... 10,625 10,660 11,709 12,875 13,707 13,632 13,850
======= ======== ======== ======== ======== ======== ========
Diluted................. 10,660 10,880 12,068 13,266 14,051 13,995 14,107
======= ======== ======== ======== ======== ======== ========
Other Operating Data:
Net cash provided by
operating activities... $18,717 $ 17,340 $ 22,949 $ 27,927 $ 28,890 $ 13,007 $ 14,622
Net cash used in
investing activities... (8,912) (15,688) (59,284) (57,097) (70,001) (47,170) (48,974)
Net cash provided by
(used in) financing
activities............. (9,336) (1,973) 35,431 31,659 40,622 34,192 35,106
EBITDA (3).............. 20,396 20,312 25,765 37,584 48,788 23,262 26,979
Balance Sheet Data:
Cash and cash
equivalents............ $ 2,400 $ 2,145 $ 1,176 $ 3,665 $ 3,176 $ 3,694 $ 3,930
Working capital
(deficit).............. 2,214 1,998 1,635 6,943 7,815 10,319 5,917
Property and equipment,
net.................... 36,700 43,233 65,044 88,801 138,523 125,313 173,702
Total assets............ 54,167 63,140 113,417 176,201 249,204 228,301 292,819
Long-term debt and
capital lease
obligations, net of
current maturities..... 28,349 34,526 50,788 86,465 139,700 131,859 170,984
Shareholders' equity.... $14,554 $ 15,138 $ 41,167 $ 64,662 $ 70,141 $ 64,694 $ 73,806
</TABLE>
-------
(1) On June 16, 1998, we exchanged 21,344 shares of our common stock (with a
fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters, Inc. On June 30, 1998, we exchanged 330,000
shares
36
<PAGE>
of our common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of Reliable Trash Services,
Inc. On August 28, 1998, we exchanged 388,311 shares of our common stock
(with a fair value of approximately of $8.5 million) for all of the issued
and outstanding shares of common stock of Railroad Avenue Disposal, Inc.
These business combinations have been accounted for as poolings-of-
interests. Accordingly, we have restated our previously issued consolidated
financial statements as of and for each of the four years in the period
ended December 31, 1997.
(2) For each of the fiscal years presented through 1996 (and for the period
from January 1, 1997 to May 8, 1997), Waste Industries was an S corporation
and, accordingly, was not subject to federal and certain state corporate
income taxes. Additionally, certain companies acquired in pooling-of-
interests transactions were previously taxed as S corporations. The pro
forma information has been computed as if we were subject to federal and
all applicable state corporate income taxes for each of the periods
presented assuming the tax rate that would have applied had we been taxed
as a C corporation. For a more detailed discussion see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
(3) EBITDA is defined as income before income taxes plus interest expense (net
of interest income) and depreciation and amortization. EBITDA should not be
considered an alternative to (i) operating income or net income (as
determined in accordance with GAAP) as an indicator of our operating
performance or (ii) cash flows from operating activities (as determined in
accordance with GAAP) as a measure of operating performance or liquidity.
However, we have included EBITDA data (which is not a measure of financial
performance under GAAP) because we understand that such data is commonly
used by certain investors to evaluate a company's performance in the solid
waste industry. Furthermore, we believe that EBITDA data is relevant to an
understanding of our performance because it reflects our ability to
generate cash flows sufficient to satisfy our debt service, capital
expenditure and working capital requirements. We therefore interpret the
trends that EBITDA depicts as one measure of our operating performance.
However, funds depicted by the EBITDA measure may not be available for debt
service, capital expenditures or working capital due to legal or functional
requirements to conserve funds or other commitments or uncertainties.
EBITDA, as measured by us, might not be comparable to similarly titled
measures reported by other companies. Therefore, in evaluating EBITDA data,
investors should consider, among other factors: the non-GAAP nature of
EBITDA data; actual cash flows; the actual availability of funds for debt
service, capital expenditures and working capital; and the comparability of
our EBITDA data to similarly titled measures reported by other companies.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and notes thereto included in this proxy statement-prospectus for
the year ended December 31, 1999 and the six months ended June 30, 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 we "believe", "anticipate,"
"expect" or words of similar import. Similarly, statements that describe our
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 this
proxy statement-prospectus under the heading "BUSINESS OF WASTE INDUSTRIES".
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 dates of the respective financial statements and we undertake 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. Waste Industries was founded by members of the current senior
management team in 1970. 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. At
June 30, 2000, we operated 41 collection operations, 23 transfer stations,
approximately 100 county convenience drop-off centers, eight recycling
facilities and nine landfills in the southeastern U.S. We 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.
Our presence in high-growth markets in the southeastern U.S., including
North Carolina, Georgia and Virginia, has supported our internal growth. From
1990 through June 30, 2000, we acquired, either by merger or asset purchase, 56
solid waste collection or disposal operations. Fifty-one of these acquisitions
were accounted for as purchases. Accordingly, the results of operations of
these acquired businesses have been included in our financial statements only
from the respective dates of acquisition and have affected period-to-period
comparisons of our operating results. The 1998 acquisition of ECO Services,
Inc. and Air Cargo Services, Inc., which were both common control mergers, and
the 1998 acquisitions of Railroad Avenue Disposal, Inc., Reliable Trash
Service, Inc. and Dumpsters, Inc., which were all pooling-of-interests
transactions, have been included in our financial statements for all periods
presented. We anticipate that a significant part of our future growth will come
from acquiring additional solid waste collection, transfer and disposal
businesses and, therefore, we expect that additional acquisitions could
continue to affect period-to-period comparisons of our operating results.
Current levels of population growth and economic development in the
southeastern U.S. and our strong market presence in the region should provide
an opportunity to increase out revenues and market share. As we add customers
in existing markets, our density should improve, which we expect will increase
our collection efficiencies and profitability.
From 1986 until May 8, 1997, Waste Industries was subject to taxation under
Subchapter S of the Internal Revenue Code. As a result, during that time our
net income for federal and certain state income tax purposes, was reported by
and taxable directly to our shareholders, rather than to the company. Primarily
to provide funds for tax obligations payable by our shareholders on account of
our income in 1996 and 1997, we made cash
38
<PAGE>
distributions of approximately $1.8 million to our shareholders. In connection
with our conversion from S corporation to C corporation status in May of 1997,
we effected an S corporation distribution (consisting of approximately $1.5
million in cash payments) to our S corporation shareholders. The remaining S
corporation retained earnings of approximately $8.5 million have been
reclassified to additional capital. Our S corporation status was terminated on
May 9, 1997 and, accordingly, we became fully subject to federal and state
income taxes on that date.
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, 2000, 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 provide consistent cash flow during the term of the contract
since we are paid regularly by the local government. At June 30, 2000, 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,
equipment maintenance and tipping fees paid to landfills. At June 30, 2000, we
owned, operated or transferred from 23 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. At June
30, 2000, we owned and operated 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 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
39
<PAGE>
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 ("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 (certain items have been reclassified for
presentation purposes only):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
------------------- -----------------------
1997 1998 1999 1999 2000
----- ----- ----- ----------- -----------
(1) (1) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
Service revenues................. 98.8 99.0 99.4 99.5 99.3
Equipment sales.................. 1.2 1.0 0.6 0.5 0.7
----- ----- ----- ----- -----
Total cost of operations......... 62.7 62.4 62.8 62.3 62.0
Selling, general and
administrative.................. 17.8 15.4 14.5 14.7 15.5
Depreciation and amortization.... 9.1 9.9 10.4 10.4 10.6
Merger and start-up costs........ -- 0.5 0.2 0.0 0.0
Loss on sale of collection
operations...................... -- -- -- -- 1.4
----- ----- ----- ----- -----
Operating income................. 10.4 11.8 12.1 12.6 10.5
Interest expense................. (2.3) (2.8) (4.0) 3.4 4.6
Interest and other income........ 0.5 0.3 0.8 (0.2) (0.1)
----- ----- ----- ----- -----
Income before income taxes....... 8.6 9.3 8.9 9.4 6.0
Income taxes .................... 3.4 3.4 3.3 3.5 2.4
Net income ...................... 5.2% 5.9% 5.6% 5.9% 3.6%
</TABLE>
--------
(1) For the period from January 1, 1997 to May 8, 1997, Waste Industries was an
S corporation and, accordingly, was not subject to federal and certain
state corporate income taxes. Additionally, certain companies acquired by
us in pooling-of-interests transactions were previously taxed as S
corporations. The pro forma information has been computed as if we were
subject to federal and all applicable state corporate income taxes for each
of the periods presented assuming the tax rate that would have applied had
we been taxed as a C corporation.
Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999 (unaudited)
Revenues. Total revenues increased approximately $19.1 million, or 19.1%,
for the six-month period ended June 30, 2000, as compared with the same period
in 1999. This increase was attributable primarily to the
40
<PAGE>
following factors: (1) the effect of 17 businesses acquired during the year
ended December 31, 1999 and five 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. Total cost of operations increased $11.6 million, or
18.6%, to $74.2 million from $62.5 million, for the six-month period ended June
30, 2000, as compared to the same period in 1999. This increase was
attributable primarily to the following factors: (1) loss on the sale of asset;
(2) the effect of 15 businesses acquired during the year ended December 31,
1999 and five businesses 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 $3.7 million, or 25.4%, for the six-month period ended
June 30, 2000, as compared with the same period in 1999. As a percentage of
revenues, SG&A increased from 14.7% to 15.5% during the six-month period ended
June 30, 2000, as compared with the same period in 1999, due primarily to
stand-alone acquisitions in 1999 and 2000 requiring higher costs to operate.
Depreciation and Amortization. Depreciation and amortization increased $2.2
million, or 21.0%, for the six-month period ended June 30, 2000, compared to
the same period in 1999. Depreciation and amortization, as a percentage of
revenues, increased 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.
Interest Expense. Interest expense (net of interest income) increased $2.1
million, or 62.2%, for the six-month period ended June 30, 2000, compared to
the same period in 1999. The increase was primarily due to the higher level of
our average outstanding indebtedness as well as a higher interest rate related
to our purchases of assets of businesses acquired.
Income Tax Expense. Income tax expense decreased $0.6 million, or 18.0%, for
the six-month period ended June 30, 2000, compared to the same period in 1999.
The decrease was 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 $1.7 million, or 27.9%, for the six-month
period ended June 30, 2000, compared to the same period in 1999. The decrease
was primarily attributable to an increase in interest expense (net of interest
income) of $2.1 million for the six-month period ended June 30, 2000 compared
to the same period in 1999.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Revenues. Total revenues increased $43.4 million, or 25.4%, to $214.7
million in 1999 from $171.3 million in 1998. This increase was primarily
attributable to the following two factors: (1) the effect of a full year of
revenues from the 13 businesses acquired in 1998, as well as a partial year of
results from 15 businesses acquired in 1999; and (2) increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions, totaling approximately 7%. Price increases in 1999 for solid
waste collection and disposal services contributed approximately 2% to 1999
revenues.
Cost of Operations. Total cost of operations increased $27.8 million to
$134.7 million in 1999 from $106.9 million in 1998. The principal reason for
the increase was the addition of new customers and contracts during the year,
including those from the acquisition of new businesses acquired during 1998 and
1999. Total cost of operations as a percentage of revenues increased to 62.8%
in 1999 from 62.4% in 1998.
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<PAGE>
SG&A. SG&A expenses increased $4.8 million to $31.2 million in 1999 from
$26.4 million in 1998. As a percentage of revenues, SG&A decreased to 14.5% in
1999 from 15.4% in 1998. This decrease was primarily the result of synergy
achieved through acquisitions.
Merger and Start-Up Costs. Merger costs totaled approximately $818,000 and
$327,000 at December 31, 1998 and 1999 and consisted primarily of professional
fees. We incurred nonrecurring start-up costs related to deployment of service
equipment and personnel associated with a new service contract of approximately
$108,000 and $105,000, respectively. These merger and start-up costs had been
expended at December 31, 1998 and 1999.
Depreciation and Amortization. Depreciation and amortization increased by
$5.3 million to $22.3 million in 1999 from $17.0 million for the prior year.
The principal reason for the increase was depreciation of the additional
property and equipment acquired and put into service due to higher collection
volumes, and depreciation of the additional assets of businesses acquired
during 1998 and 1999. Depreciation and amortization, as a percentage of
revenues, increased to 10.4% in 1999 from 9.9% in 1998, primarily as a result
of acquisitions in 1998 and 1999.
Interest Expense. Interest expense (net of interest income) increased $2.6
million to $7.4 million in 1999 from $4.7 million in 1998. This increase was
due to the higher level of average annual outstanding indebtedness. Interest
expense (net of interest income) as a percentage of revenues increased to 3.4%
in 1999 from 2.8% in 1998.
Income Tax Expense. Certain companies acquired by us in pooling-of-interests
transactions in 1998 were previously taxed as S corporations. 1998 pro forma
net income and earnings per share amounts have been computed as if we were
subject to federal and all applicable state corporate income taxes for each
period presented. Income taxes increased $1.3 million, or 22.4%, to $7.1
million in 1999 from $5.8 million in pro forma income taxes in 1998. Our
effective tax rate increased to 37.1% in 1999 from a pro forma effective tax
rate of 36.5% in 1998. This increase was primarily attributable to
nondeductible goodwill amortization and reduced tax credits. As a percentage of
revenues, income taxes decreased to 3.3% in 1999 from 3.4% in 1998.
Net Income. Net income increased $1.9 million, or 19.3%, to $12.0 million in
1999 from pro forma net income of $10.1 million in 1998. This increase was
primarily attributable to the increase in revenues and the decrease in SG&A as
a percentage of sales, as discussed above. As a percentage of revenues, net
income decreased to 5.6% in 1999 from 5.9% in pro forma net income 1998.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenues. Total revenues increased $42.1 million, or 32.6%, to $171.3
million in 1998 from $129.2 million in 1997. This increase was primarily
attributable to the following two factors: (1) the effect of a full year of
revenues from the seven businesses acquired in 1997, as well as a partial year
of results from 13 businesses acquired in 1998; and (2) increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions, totaling approximately 11%. Price increases in 1998 for our
solid waste collection and disposal services contributed approximately 1% to
1998 revenues.
Cost of Operations. Total cost of operations increased $26.0 million to
$106.9 million in 1998 from $80.9 million in 1997. The principal reason for the
increase was the addition of new customers and contracts during the year,
including those from the acquisition of new businesses acquired during 1997 and
1998. Total cost of operations as a percentage of revenues decreased to 62.4%
in 1998 from 62.7% in 1997.
SG&A. SG&A expenses increased $3.3 million to $26.4 million in 1998 from
$23.1 million in 1997. As a percentage of revenues, SG&A decreased to 15.4% in
1998 from 17.8% in 1997. This decrease was primarily the result of synergy
achieved through acquisitions.
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<PAGE>
Merger and Start-Up Costs. Merger costs related to pooling-of-interests
transactions totaled approximately $818,000 and consisted primarily of
professional fees. During 1998, we incurred nonrecurring start-up costs related
to deployment of service equipment and personnel associated with a new service
contact of approximately $108,000. These merger and start-up costs had been
expended at December 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased by
$5.2 million to $17.0 million in 1998 from $11.8 million for the prior year.
The principal reason for the increase was depreciation of the 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, increased to 9.9% in 1998 from 9.1% in 1997, primarily as a result of
acquisitions in 1997 and 1998.
Interest Expense. Interest expense (net of interest income) increased $2.0
million to $4.7 million in 1998 from $2.7 million in 1997. This increase was
due to the higher level of average annual outstanding indebtedness, partially
offset by a decrease in interest rates. Interest expense (net of interest
income) as a percentage of revenues increased to 2.8% in 1998 from 2.1% in
1997.
Pro Forma Income Taxes. From 1986 until May 9, 1997, Waste Industries was
subject to taxation under Subchapter S of the Internal Revenue Code. As a
result, during that time our net income for federal and certain state income
tax purposes, was reported by and taxable directly to our shareholders, rather
than to the company. Our S corporation status was terminated on May 9, 1997
and, accordingly, we became fully subject to federal and state income taxes on
that date. In accordance with the provisions of SFAS No. 109, "Accounting For
Income Taxes", the financial statements give effect to the recognition of
deferred tax assets of $800,000 and the assumption of a deferred tax liability
of $5,100,000 as a result of our S corporation election.
Additionally, certain companies acquired in pooling-of-interests
transactions were previously taxed as S corporations. Pro forma net income and
earnings per share amounts have been computed as if we were subject to federal
and all applicable state corporate income taxes for each period presented.
Pro forma income taxes increased $1.6 million, or 38.1%, to $5.8 million in
1998 from $4.2 million in 1997. Our pro forma effective tax rate decreased to
36.5% in 1998 from 38.4% in 1997. This decrease was primarily attributable to
state-targeted jobs tax credits, which we had not been historically qualified
to receive. As a percentage of revenues, pro forma income taxes remained flat
at 3.4%.
Pro Forma Net Income. Pro forma net income increased $3.4 million, or 50.7%,
to $10.1 million in 1998 from $6.7 million in 1997. This increase was primarily
attributable to the increase in revenues and the decrease in SG&A as a percent
of sales, as discussed above. As a percentage of revenues, pro forma net income
increased to 5.9% in 1998 from 5.2% in 1997.
Liquidity and Capital Resources
Our working capital at June 30, 2000 was $5.9 million, $7.8 million at
December 31, 1999, and $6.9 million at December 31, 1998. 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 facility 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 2000. As of June 30, 2000, 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, subject to renewal.
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<PAGE>
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. ("Fleet"), 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, 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 was $28.9 million for 1999, $27.9
million for 1998, and $22.9 million for 1997. 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 was $69.1 million for 1999, $57.0
million for 1998, and $58.7 million for 1997. Net cash used in investing
activities totaled $49.0 million for the six months ended June 30, 2000,
compared to $47.2 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. We intend to fund our planned 2000
capital expenditures principally through internally generated funds and
borrowings under existing credit facilities. In addition, we anticipate that we
might require substantial additional capital expenditures to facilitate our
growth strategy of acquiring solid waste collection and disposal businesses. As
an owner of and potential acquirer of additional new landfill disposal
facilities, we might also be required to make significant expenditures to bring
newly acquired disposal facilities into compliance with applicable regulatory
requirements, obtain permits for newly acquired disposal facilities or expand
the available disposal capacity at any such newly acquired disposal facilities.
The amount of these expenditures cannot be currently determined, because they
will depend on the nature and 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 was $40.6 million for 1999, $31.7
million for 1998, and $35.4 million for 1997. 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 an $11.5 million loan to Liberty Waste Lending
Company, LLC, a subsidiary of Waste Industries, 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, we 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 our total
debt (including capital leases) to total capitalization was 71.2%, compared to
67.6% at December 31, 1999.
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
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<PAGE>
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.
Quantitative and Qualitative Disclosure of Market Risks
Quantitative Disclosures. We currently utilize no material derivative
financial instruments which expose us to significant market risk. We are
exposed to cash flow and fair value risk due to changes in interest rates with
respect to our long-term debt. The table below presents principal cash flows
and related weighted average interest rates of our long-term debt at December
31, 1999 by expected maturity dates. Fair values have been determined based on
quoted market prices as of December 31, 1999.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
------ ------ ------ ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate
7.28%................. $3,571 $3,571 $3,571 $ 3,571 $ 3,571 $ 7,145 $ 25,000
6.96%................. -- -- 3,571 3,571 3,571 14,287 25,000
6.84%................. 3,571 3,571 17,858 25,000
7.00%................. 2,255 376 318 59 49 132 3,189
Variable Rate
8.44%................. -- -- -- -- -- 65,000 65,000
$5,826 $3,947 $7,460 $10,772 $10,762 $104,422 $143,189
</TABLE>
Our market risk exposure has not changed materially during the six months
ended June 30, 2000.
Qualitative Disclosures. Our primary exposure relates to:
. interest rate risk on long-term and short-term borrowings,
. the impact of interest rate movements on our ability to meet interest
expense requirements and exceed financial covenants, and
. the impact of interest rate movements on our ability to obtain adequate
financing to fund future acquisitions.
We manage interest rate risk on outstanding long-term and short-term debt
through the use of fixed and variable rate debt. While we cannot predict the
impact interest rate movements will have on existing debt, we continue to
evaluate our financial position on an ongoing basis.
DESCRIPTION OF CAPITAL STOCK
The authorized capital of Waste Industries and Waste Holdings is the same,
consisting of 80,000,000 shares of common stock, no par value per share, and
10,000,000 shares of undesignated preferred stock, par value $0.01 per share.
The provisions of the articles of incorporation of Waste Industries and Waste
Holdings are the same. The articles of incorporation of Waste Holdings are
attached to this proxy statement-prospectus as Appendix B. The following
discussion of common and preferred stock applies to both Waste Industries and
Waste Holdings.
Common Stock
As of the record date, , 2000, assuming no exercise of
options, there were shares of common stock outstanding of Waste
Industries. After the reorganization is effected, it is expected that the same
number of shares of common stock of Waste Holdings will be outstanding. The
holders of the common stock are entitled to one vote fore each share held of
record on all matters submitted to a vote of shareholders. Holders of the
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors out of funds legally available therefor. In the event
of liquidation, dissolution or winding up of Waste Industries, holders of the
common stock are entitled to share ratably on all assets remaining after
payment of all
45
<PAGE>
liabilities. The outstanding shares of the common stock are fully paid and
nonassessable. No preemptive rights, conversion rights, redemption rights or
sinking fund provisions are applicable to the common stock.
Preferred Stock
No shares of preferred stock of Waste Holdings are outstanding and, after
the reorganization, there will be no shares of preferred stock of Waste
Holdings outstanding. Our board of directors is authorized, without further
shareholder action, to issued preferred stock in one or more series and to fix
the voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms, including sinking fund
provisions, and certain other rights and preferences, of the preferred stock.
Although there is no current intention to do so, our board of directors, may,
without shareholder approval, issue shares of a class of series of preferred
stock with voting and conversion rights which could adversely affect the voting
power or dividend rights of the holders of common stock and may have the effect
of delaying, deferring or preventing a change in control of the company.
Certain Statutory Provisions
The North Carolina Business Corporation Act contains a "Shareholder
Protection Act" which, with certain exceptions discussed below, requires
approval of certain business combinations between a North Carolina corporation
and any beneficial holder of more than 20% of the voting shares of the
corporation by the holders of at least 95% of the voting shares of the
corporation. Business combinations subject to the approval requirement include
any merger or consolidation of the corporation with or into any other
corporation, the sale or lease of all or any substantial part of the
corporation's assets to, or any payment, sale or lease to the corporation or
any subsidiary thereof or in exchange for securities of the corporation of any
assets (except assets having an aggregate fair market value of less than $5
million) of any other entity. The principal exception to the special voting
requirement applies to business combinations that satisfy various complex
statutory provision, including provisions relating to the fairness of the price
and the constituency of the board of directors. In addition, the special voting
requirement shall not be applicable to any corporation if (i) the corporation
was not a public corporation at the time such other entity acquired in excess
of 10% of the voting shares; (ii) the corporation adopted an amendment to its
bylaws or provided in its original articles of incorporation providing that the
provisions shall not apply to it in accordance with the statue; or (iii) the
business combination in questions was the subject of an existing agreement of
the corporation on April 23, 1987. In addition, corporations with fewer than
2,000 shareholders of record and those whose stock is not listed on a national
securities exchange are exempt form the special voting requirement. We have not
"opted out" of the Shareholder Protection Act and it remains applicable to us
and to Waste Holdings.
Certain North Carolina public corporations are also subject to the "The
North Carolina Control Share Acquisition Act". This law provides that shares
acquired in a transaction that would cause the acquiring person's voting
strength to meet or exceed any of three thresholds (20%, 33.3% or a majority)
of voting power have no voting rights unless granted by a majority vote of all
the outstanding shares of the corporation (not including interested shares)
entitled to vote for the election of directors. "Interested shares" means the
shares of a corporation beneficially owned by (i) any person who has acquired
or proposes to acquire control shares in a control share acquisition; (ii) any
officer of the corporation; or (ii) any employee of the covered corporation who
is also a director of the corporation. This provision empowers an acquiring
person to require the North Carolina corporation to hold a special meeting of
shareholders to consider the matter within 50 days of its request. We have not
"opted out" of The North Carolina Control Share Acquisition Act and it remains
applicable to us and to Waste Holdings.
These provisions were designed to deter certain takeovers of North Carolina
corporations.
46
<PAGE>
Transfer Agent and Registrar
The transfer agent for the common stock of Waste Industries is, and of Waste
Holdings after the reorganization will be, Continental Stock Transfer & Trust
Company, New York, New York.
Bylaws
The bylaws of Waste Industries and Waste Holdings are practically identical.
The bylaws of Waste Holdings are attached to this proxy statement-prospectus as
Appendix C. The only differences, other than a few technical changes to reflect
current law and practice, are as follows.
The Chief Executive Officer of Waste Holdings may call a special meeting of
shareholders, as can the President, Secretary, Chairman and the board of
directors, whereas the Chief Executive Officer has no such right under the
bylaws of Waste Industries.
The bylaws of Waste Holdings require any shareholder who wishes to present a
proposal at a meeting of shareholders to give Waste Holdings between 50 and 90
days notice before the meeting of the business the shareholders wishes to
present. No such requirement is in the bylaws of Waste Industries. This
provision may make it more difficult for shareholders to bring a matter before
a meeting which could make it more difficult to vote new members onto the board
of directors or to effect a sale of Waste Holdings.
The bylaws of Waste Holdings set the board of directors at between five and
nine members with the exact number to be set by the shareholders or the board
of directors. The bylaws of Waste Industries sets the number of directors at a
minimum of three, with the exact number to be set by the shareholders.
DEADLINE FOR SHAREHOLDER PROPOSALS
Waste Holdings expects to hold its next annual meeting in May 2001.
Shareholders having proposals they desire to present at the 20001 annual
meeting of shareholders of the company should, if they desire that such
proposals be included in our proxy statement relating to such meeting, submit
such proposals in time to be received by us at our principal executive offices
in Raleigh, North Carolina, not later than January 1, 2000. To be included, all
such submissions must comply with the requirements of Rule 14a-8 adopted under
the Exchange Act and the board of directors directs your close attention to
that Rule. In addition, management's proxy holders will have discretion to vote
proxies given to them on any shareholder proposal of which we do not have
notice prior to March 16, 2001. Proposals should be mailed to Secretary, Waste
Industries, Inc., 3301 Benson Drive, Suite 601, Raleigh, North Carolina 27609.
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999, included in
this proxy statement-prospectus and the related financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
OPINIONS
The legality of the shares of common stock of Waste Holdings to be issued in
the reorganization will be passed upon for Waste Holdings by Wyrick Robbins
Yates & Ponton LLP, Raleigh, North Carolina.
47
<PAGE>
Certain tax consequences of the reorganization have been passed upon by
Deloitte & Touche LLP.
OTHER MATTERS
As of the date of this proxy statement-prospectus, we are not aware of any
matters that will be presented for action at the special meeting. However, if
any other matters properly come before the special meeting, the persons named
in the accompanying proxy intend to exercise the discretion conferred by the
proxy to vote in accordance with their judgment on such matters.
48
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999, and June 30,
2000 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999, and the six months ended June 30, 1999 and 2000
(unaudited).............................................................. F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999, and the six months ended June 30, 1999 and 2000
(unaudited).............................................................. F-5
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of Waste Industries, Inc. and
Subsidiaries Raleigh, North Carolina
We have audited the accompanying consolidated balance sheets of Waste
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
1999, and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Waste Industries, Inc. and
Subsidiaries at December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America.
/S/ DELOITTE & TOUCHE LLP
RALEIGH, NORTH CAROLINA
FEBRUARY 29, 2000
F-2
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30,
December 31, December 31, 2000
1998 1999 (unaudited)
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents including
restricted cash of $379 in 1998
(Note 4)............................... $ 3,665 $ 3,176 $ 3,930
Accounts receivable--trade, less
allowance for uncollectible accounts
(1998--$700; 1999--$921; 2000--$846)... 16,835 26,756 27,287
Inventories............................. 1,334 1,624 1,800
Prepaid expenses and other current
assets................................. 1,589 3,017 6,074
Deferred income taxes (Note 12)......... 494 910 816
-------- -------- --------
Total current assets.................... 23,917 35,483 39,907
-------- -------- --------
PROPERTY AND EQUIPMENT, net (Notes 2 and
3)...................................... 88,801 138,523 173,702
INTANGIBLE ASSETS, net (Note 2).......... 61,543 71,458 73,583
OTHER NONCURRENT ASSETS.................. 1,940 3,740 5,627
-------- -------- --------
TOTAL ASSETS............................. $176,201 $249,204 $292,819
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt
(Note 4)............................... $ 1,877 $ 5,826 $ 10,295
Current maturities of capital lease
obligations (Note 5)................... 1,042 995
Accounts payable trade.................. 10,171 13,355 8,886
Accrued expenses and other liabilities
(Note 8)............................... 2,995 4,083 11,057
Income taxes payable (Note 12).......... 188 1,487 689
Deferred revenue........................ 1,743 1,875 2,068
-------- -------- --------
Total current liabilities............... 16,974 27,668 33,990
-------- -------- --------
LONG-TERM DEBT, net of current maturities
(Note 4)................................ 86,465 137,363 169,125
LONG-TERM CAPITAL LEASE OBLIGATIONS, net
of current maturities (Note 5).......... 2,337 1,859
NONCURRENT DEFERRED INCOME TAXES (Note
12)..................................... 7,838 10,105 12,005
CLOSURE/POSTCLOSURE LIABILITIES (Note
9)...................................... 262 1,590 2,034
COMMITMENTS AND CONTINGENCIES (Notes 5, 7
and 9)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Common stock, no par value, 80,000,000
shares authorized, shares issued and
outstanding: 1998--13,380,905; 1999--
13,854,355; 2000--13,865,139........... 41,148 46,700 46,521
Paid-in capital......................... 7,245 7,245 7,245
Retained earnings....................... 16,596 28,620 32,885
Note receivable--Liberty Waste.......... (11,538) (11,538)
Shareholders' loans and receivables..... (327) (886) (1,307)
-------- -------- --------
Total shareholders' equity.............. 64,662 70,141 73,806
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $176,201 $249,204 $292,819
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, 1999 June 30, 2000
1997 1998 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues....... $127,581 $169,527 $213,384 $99,891 $118,745
Equipment sales........ 1,601 1,732 1,335 500 785
-------- -------- -------- ------- --------
Total revenues......... 129,182 171,259 214,719 100,391 119,530
-------- -------- -------- ------- --------
OPERATING COSTS AND
EXPENSES:
Operations............. 79,775 105,633 133,923 62,234 73,691
Equipment sales........ 1,171 1,268 821 294 478
Selling, general and
administrative
(Notes 5 and 8)....... 23,105 26,386 31,196 14,753 18,501
Depreciation and
amortization.......... 11,797 16,981 22,298 10,462 12,658
Merger, start-up and
refinancing costs
(Note 2).............. -- 926 432 --
Loss on sale of
collection
operations............ -- -- -- -- 1,677
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 115,848 151,194 188,670 87,743 107,005
-------- -------- -------- ------- --------
OPERATING INCOME........ 13,334 20,065 26,049 12,648 12,525
-------- -------- -------- ------- --------
Interest expense (Note
4).................... 3,021 4,812 8,653 3,935 6,238
Interest income........ (312) (93) (1,287) (526) (707)
Other (Note 7)......... (322) (538) (441) (152) (119)
-------- -------- -------- ------- --------
Total other expense,
net.................. 2,387 4,181 6,925 3,257 5,412
-------- -------- -------- ------- --------
INCOME BEFORE INCOME
TAXES.................. 10,947 15,884 19,124 9,391 7,113
INCOME TAX EXPENSE (Note
12):
Current and deferred... 2,711 5,606 7,100 3,475 2,848
Effect of change in tax
status................ 4,300 -- -- -- --
-------- -------- -------- ------- --------
NET INCOME.............. $ 3,936 $ 10,278 $ 12,024 $ 5,916 $ 4,265
======== ======== ======== ======= ========
EARNINGS PER SHARE
(As Adjusted--Notes 6
and 12):
Basic.................. $ 0.34 $ 0.80 $ 0.88 $ 0.43 $ 0.31
Diluted................ $ 0.33 $ 0.77 $ 0.86 $ 0.42 $ 0.30
INCOME BEFORE INCOME
TAXES
(Note 12).............. $ 10,947 $ 15,884
PRO FORMA INCOME TAXES
(Note 12).............. 4,202 5,803
-------- --------
PRO FORMA NET INCOME
(Note 12).............. $ 6,745 $ 10,081
======== ========
PRO FORMA EARNINGS PER
SHARE
(Notes 6 and 12)
Basic.................. $ 0.58 $ 0.78
Diluted................ $ 0.56 $ 0.76
WEIGHTED-AVERAGE NUMBER
OF SHARES OUTSTANDING
(Notes 6 and 12)
Basic.................. 11,709 12,875 13,707 13,632 13,850
======== ======== ======== ======= ========
Diluted................ 12,068 13,266 14,051 13,995 14,107
======== ======== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, 1999 June 30, 2000
1997 1998 1999 (unaudited) (unaudited)
------------ ------------ ------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............ $ 3,936 $ 10,278 $ 12,024 $ 5,916 $ 4,265
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 11,797 16,981 22,298 10,462 12,658
Gain on sale of
property and
equipment............ (212) (305) (298) (57) (91)
Effect of change in
tax status........... 4,300 -- -- -- --
Loss on sale of
collection
operations........... -- -- -- -- 1,677
Provision for
deferred income
taxes................ 804 2,240 1,451 355 1,994
Change in
closure/postclosure
liabilities.......... 41 (13) 731 922 444
Changes in assets and
liabilities, net of
effects from
acquisitions of
related businesses:
Accounts
receivable--trade.. (1,431) 418 (7,208) (4,622) 353
Inventories......... 1,335 (492) (290) (214) (230)
Prepaid and other
current assets..... (137) (948) (1,386) (1,811) (3,097)
Other noncurrent
assets............. (560) (92) (853) (442) (1,847)
Accounts payable--
trade.............. 2,158 1,726 1,912 1,970 (2,427)
Federal and state
income taxes
payable............ 445 (257) 1,299 544 (798)
Accrued expenses and
other liabilities.. 316 (1,823) (1,201) (8) 1,276
Deferred revenue.... (403) 122 (442) (8) 445
-------- --------- --------- ------- -------
Net cash provided
by operating
activities....... 22,389 27,835 28,037 13,007 14,622
-------- --------- --------- ------- -------
INVESTING ACTIVITIES:
Proceeds (loss) from
sale of property and
equipment............ 809 649 721 (6) 252
Proceeds from
disposal of
collection
operations........... -- -- -- -- 9,897
Purchases of property
and equipment........ (24,095) (30,005) (34,935) (19,970) (19,148)
Acquisition of
related business,
net of cash
acquired............. (35,438) (27,649) (34,934) (27,194) (39,975)
-------- --------- --------- ------- -------
Net cash used in
investing
activities....... (58,724) (57,005) (69,148) (47,170) (48,974)
-------- --------- --------- ------- -------
FINANCING ACTIVITIES:
Proceeds from
issuance of long-
term debt............ 40,119 114,995 186,809 79,518 51,409
Principal payments on
long-term debt....... (23,772) (82,527) (135,143) (37,171) (15,178)
Debt issuance costs... (1,323) -- --
Principal payments on
capital lease
obligations.......... (906) -- (525)
Repayments of loans
and receivables from
shareholders......... 33 127 91 91 --
Advances under
shareholder loans
and receivables...... (55) (147) (650) -- (421)
Net proceeds from
common stock
issuance............. 23,158 3,250 3,250 2
Net proceeds from
exercise of stock
options.............. 34 44 161
Repurchase of common
stock................ -- -- -- -- (342)
Cash distributions to
S-Corporation
shareholders......... (4,124) (790) -- --
Loan to Liberty
Waste................ (11,538) (11,538) --
Other................. 72 1 (2) (2) --
-------- --------- --------- ------- -------
Net cash provided
by financing
activities....... 35,431 31,659 40,622 34,192 35,106
-------- --------- --------- ------- -------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS........... (904) 2,489 (489) 29 754
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 2,080 1,176 3,665 3,665 3,176
-------- --------- --------- ------- -------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 1,176 $ 3,665 $ 3,176 $ 3,694 $ 3,930
======== ========= ========= ======= =======
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION (IN
THOUSANDS)--
Cash paid for
interest............. $ 2,440 $ 4,926 $ 8,530 $ 3,349 $ 6,037
======== ========= ========= ======= =======
Cash paid for taxes... $ 1,445 $ 3,623 $ 4,301 $ 2,498 $ 1,653
======== ========= ========= ======= =======
</TABLE>
F-5
<PAGE>
Supplemental Schedule of Noncash Transactions--
During 1997, the Company issued common stock with a fair value of
approximately $1,275,000 as partial consideration for certain business
acquisitions. Also during 1997, the Company reclassified undistributed
S Corporation earnings to paid-in capital as a result of the Company
terminating its S Corporation election on May 9, 1997.
On March 31, 1998, the Company exchanged 320,555 shares of its common stock
(with a fair value of $6,125,000) 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, who are also Company
shareholders, owned substantially all of the common stock of ECO and ACS.
Accordingly, all 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 No. 16. The Company's financial
statements have been restated to include the accounts and operations for all
periods presented.
On June 16, 1998, the Company exchanged 21,344 shares of its common stock
(with a fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters, Inc. On June 30, 1998, the Company exchanged 330,000
shares of its common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of Reliable Trash Services, Inc.
On August 28, 1998, the Company exchanged 388,311 shares of its common stock
(with a fair value of approximately of $8.5 million) for all of the issued and
outstanding shares of common stock of Railroad Avenue Disposal, Inc. These
business combinations have been accounted for as poolings-of-interests.
During 1998, the Company exchanged 729,204 shares of common stock with a
fair value of approximately $14.0 million as partial consideration for certain
business acquisitions.
During 1999, the Company issued 281,250 shares of common stock with a fair
value of approximately $4.5 million as partial consideration for certain
business acquisitions.
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited as to June 30, 1999 and 2000 Information)
Years Ended December 31, 1997, 1998 and 1999
1. Basis of Presentation and Accounting Policies
Business Operations--Waste Industries, Inc. (the "Company") is a regional
solid waste services company providing solid waste collection, transfer,
recycling, processing and disposal services to customers in North Carolina,
South Carolina, Alabama, Georgia, Mississippi, Tennessee, Virginia and Florida.
Basis of Presentation--The Company's consolidated financial statements
include its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated. The Company's revenues and income are
derived principally from one industry segment, which includes the collection,
transfer, recycling, processing and disposal of municipal solid waste and
industrial wastes.
Significant Accounting Policies--The significant accounting policies are
summarized below:
a. Cash and Cash Equivalents--For the purposes of presentation in the
financial statements, cash equivalents include highly liquid investments with
original maturities of three months or less.
b. Inventories--Inventories consist of (i) trucks and containers held for
sale and (ii) operating materials and supplies held for use and are stated at
the lower of cost or market (less costs to sell) using the specific-
identification method of costing.
c. Property and Equipment--Property and equipment are stated at cost.
Depreciation expense is calculated on the straight-line method. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment.... 5 to 10 years
Furniture, fixtures and
vehicles.................. 5 to 10 years
Building................... 30 years
</TABLE>
Landfill costs, including engineering and other professional fees, are
amortized using the units-of-production method, which is calculated using the
total units of airspace filled during the year in relation to total estimated
permitted airspace capacity. The determination of airspace usage and remaining
airspace is an essential component in the calculation of landfill asset
depletion. This determination is performed by independent surveyors conducting
annual topographic surveys, using aerial survey techniques, of the Company's
landfill facilities to determine remaining airspace in each landfill. The
surveys are reviewed by the Company's independent engineers and its accounting
staff.
Engineering and legal fees paid to third parties incurred to obtain a
disposal facility permit are capitalized as landfill costs and amortized over
the estimated related airspace capacity. These costs are not amortized until
the permit is obtained and operations have commenced. If the Company determines
that the facility cannot be developed, these costs are charged to expense.
d. Intangible Assets--Intangible assets primarily consist of goodwill,
customer lists and noncompete and consulting agreements acquired in business
combinations. Intangible assets are net of accumulated amortization and consist
of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Goodwill.................................................. $60,793 $70,859
Customer lists............................................ 27 14
Noncompete agreements..................................... 723 585
------- -------
Intangible assets......................................... $61,543 $71,458
======= =======
</TABLE>
F-7
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
Customer lists are amortized using the straight-line method over 5 to 10
years. Noncompete agreements are amortized using the straight-line method over
the lives of the agreements. Goodwill is amortized using the straight-line
method, generally over 15 to 40 years. Such 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. Accumulated amortization was approximately $28,748,000
and $31,638,000 at December 31, 1998 and 1999 respectively.
Should events or circumstances occur subsequent to the acquisition of a
business which bring into question the realizable value or impairment of the
related goodwill or other intangible assets, the Company will evaluate the
remaining useful life and balance of goodwill and make appropriate adjustments.
See also note 1.F.
e. Other Noncurrent Assets--Included in other noncurrent assets are debt
issue costs relating to the new borrowings (see Note 4). Debt issue costs are
amortized to interest expense using the effective interest method over the life
of the related debt.
f. Long-lived Assets--In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, long-lived assets are reviewed for
impairment on a market-by-market basis whenever events or changes in the
circumstances indicate that the carrying amount of an asset may not be
recoverable. If an evaluation is required, the projected future net cash flows
on an undiscounted basis attributable to each market would be compared to the
carrying value of the long-lived assets (including an allocation of goodwill,
if appropriate) of that market. If an impairment is indicated, the amount of
the impairment is measured based on the fair value of the asset. The Company
also evaluates the remaining useful lives to determine whether events and
circumstances warrant revised estimates of such lives.
g. Disposal Site Closure and Long-term Care--The Company has financial
obligations relating to closure and post-closure costs (long-term care) or
remediation of disposal facilities it operates or for which it is or may become
responsible. While the precise amounts of these future obligations cannot be
determined, at December 31, 1999, the Company estimates the total costs to be
approximately $16,019,000 for remediation, final closure of its current
operating facilities and post-closure monitoring costs pursuant to applicable
regulations (generally for a term of 30 years after final closure). The
Company's estimate of these costs is expressed in current dollars and is not
discounted to reflect anticipated timing of future expenditures. The Company
accrued approximately $262,000 and $1,590,000 for such projected costs at
December 31, 1998 and 1999, respectively. The Company will provide additional
accruals based on engineering estimates of airspace consumption over the useful
lives of the facilities.
h. Earnings Per Share and Pro Forma Information--In 1997, the Company
adopted SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires the
presentation of both basic and diluted earnings per share, regardless of
materiality unless per share amounts are equal.
The pro forma information has been computed as if the Company were subject
to federal and all applicable state corporate income taxes for each of the
periods presented assuming the tax rate that would have been applied had the
Company been taxed as a C Corporation. Additionally, certain companies acquired
in pooling-of-interests transactions were previously taxed as S Corporations.
Pro forma net income and earnings per share amounts have been computed as if
the Company were subject to federal and all applicable state corporate income
taxes for each period presented.
F-8
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
Basic earnings per share computations are based on the weighted-average
common stock outstanding. Diluted earnings per share 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 Company's initial
public offering). For the year ended December 31, 1997 no stock options were
excluded from the computation of diluted earnings per share because all stock
options were dilutive. For the years ended December 31, 1998 and 1999, 70,937
and 250,061 stock options, respectively, were excluded from the computations of
diluted earnings per share because the impact of their inclusion would be anti-
dilutive. For the six months ended June 30, 1999 and 2000, 189,156 and 217,208
stock options, respectively, were excluded from the computations of diluted
earnings per share because the impact of their inclusion would be anti-
dilutive. Common stock outstanding used to compute the weighted-average shares
was retroactively adjusted for the exchange of shares resulting from the merger
of affiliated companies, for the conversion of nonvoting to voting stock, and
for the 1-for-2.5 reverse stock split as discussed in Note 6.
i. Stock Option Plan--The Company accounts for employee stock compensation
in accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Under
APB No. 25, the total compensation expense is equal to the difference between
the award's exercise price and the intrinsic value at the measurement date,
which is the first date that both the exercise price and number of shares to be
issued is known.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires disclosures
of stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are, however, permitted to continue to
apply APB No. 25. The Company applies APB No. 25 to its stock-based
compensation awards to employees and discloses the required information by SFAS
No. 123 (Note 11).
j. Deferred Revenue--Deferred revenue consists of collection fees billed in
advance. Revenue is recognized as services are provided.
k. Income Taxes--From 1986 until May 8, 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.
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 that date. In accordance with the provisions of SFAS No. 109, ACCOUNTING FOR
INCOME TAXES, the financial statements give effect to the recognition of
deferred tax assets of $800,000 and the assumption of a deferred tax liability
of $5,100,000 as a result of the Company's S Corporation election on May 9,
1997. Deferred income taxes (benefits) are provided on temporary differences
between financial statement carrying values and the tax basis of assets and
liabilities.
l. New Accounting Standards--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. This Statement 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. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
F-9
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
1. Basis of Presentation and Accounting Policies--(Continued)
forecasted transaction, or (c) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is required to be adopted in fiscal 2001.
The Company has not determined if the adoption of SFAS No. 133 will have a
material impact on its consolidated financial statements.
m. Use of Estimates--In preparing financial statements that conform with
generally accepted accounting principles, management must use estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and amounts of revenue and expenses reflected during the reporting
period. Actual results could differ from those estimates.
n. Reclassifications--Certain 1997 and 1998 financial statement amounts have
been reclassified to conform with the 1999 presentation.
2. Acquisitions
On March 31, 1998, the Company exchanged 320,555 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, who are also Company shareholders, owned substantially all
of the common stock of ECO and ACS. Accordingly, all 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 No. 16. The Company's financial statements were previously restated to
include the accounts and operations for all periods presented.
Pooling-of-Interests Transactions--During 1998, the Company completed the
following pooling-of-interests transactions:
. On June 16, 1998, the Company exchanged 21,344 shares of its common
stock with a fair value of approximately $449,000 for all the issued and
outstanding share of common stock of Dumpsters, Inc. ("Dumpsters"),
based in Memphis, Tennessee and engaged in the industrial solid waste
collection in Shelby County, Tennessee.
. On June 30, 1998, the Company exchanged 330,000 shares of its common
stock with a fair value of approximately $7.4 million for all of the
issued and outstanding shares of common stock of Reliable Trash Service,
Inc. ("RTS"), a Maryland corporation based in Columbia, Maryland and
engaged in the solid waste collection business in Tidewater Virginia.
. On August 28, 1998, the Company acquired, in exchange for 388,311 shares
of Company common stock valued at approximately $8.5 million, all of the
outstanding stock of Railroad Avenue Disposal, Inc. ("RAD"), a
Mississippi corporation that owns and operates a Class I rubbish pit in
northwest Mississippi.
The merger costs related to these pooling-of-interests transactions totaled
approximately $818,000 at December 31, 1998 and consisted primarily of
professional fees. All of these amounts had been expended at December 31, 1998.
F-10
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
2. Acquisitions--(Continued)
Purchase Transactions--During 1997, 1998, 1999, and the six months ended
June 30, 2000 the Company acquired 7, 8, 15, and 5 waste collection and
disposal services businesses, respectively, to expand its operations. The
assets acquired and liabilities assumed were accounted for by the purchase
method of accounting and include the following (in thousands):
<TABLE>
<CAPTION>
June 30,
2000
1997 1998 1999 (unaudited)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Tangible Net Assets Acquired:
Accounts receivable................... $ 1,902 $ 3,363 $ 2,713 $ 2,104
Inventories........................... 38 -- -- --
Prepaid expenses and other current
assets............................... 12 25 42 --
Property and equipment................ 8,933 8,763 22,251 28,278
Landfill assets....................... -- -- 12,449 1,911
Accounts payable and accrued
expenses............................. (42) (1,040) (4,557) (3,870)
Deferred revenue...................... (511) (597) (574) --
Notes payable......................... (848) (3,290) (3,181) --
Capital lease obligations............. -- -- (4,506) --
------- ------- ------- -------
Total net tangible assets acquired.. 9,484 7,224 24,637 28,423
Intangible Assets:
Noncompete agreements................. 159 504 101 6
Customer lists, contracts and
goodwill............................. 27,070 33,948 14,648 11,545
------- ------- ------- -------
Total acquisition costs................. $36,713 $41,676 $39,386 $39,974
======= ======= ======= =======
</TABLE>
Purchase price allocations for certain 1999 acquisitions have not been
finalized, pending receipt of valuations and other information. Net acquisition
costs in 1997 include the issuance of 63,634 shares of the Company's common
stock with a fair value of $1,275,000 as partial consideration for certain
business acquisitions. Net acquisition costs in 1998 include the issuance of
729,204 shares of the Company's common stock with a fair value of $14.0 million
as partial consideration for certain business acquisitions. Net acquisition
costs in 1999 include the issuance of 281,250 shares of the Company's common
stock with a fair value of $4.5 million as partial consideration for certain
business acquisitions. The Company primarily used borrowings under its
revolving credit facilities to fund the various purchase acquisitions.
Related to the above acquisitions, the Company entered into noncompete
agreements with the former owners of these businesses. These amounts are being
amortized on a straight-line basis over the terms of the agreements (generally
5 years).
2000 Acquisitions (Unaudited)
Subsequent to December 31, 1999, the Company had the following acquisitions
on March 1, 2000, we acquired Trashbusters, LLC for approximately $861,000 in
cash. This tuck-in acquisition further expands our existing operations in our
Easley, South Carolina facility, which serves the Greenville/Spartanburg area.
On March 23, 2000, we 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 us with our seventh landfill.
On March 23, 2000, we acquired substantially all of the assets of 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.
F-11
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
2. Acquisitions--(Continued)
On May 30, 2000, through an asset swap, we acquired the Sampson County
Landfill, a municipal solid waste landfill in Roseboro, North Carolina, and a
collection operation as a tuck-in to our existing Fayetteville, North Carolina
operation, from Allied Waste Industries for $28.9 million in cash.
Simultaneously, we sold our collection operations in Ooltewah, Tennessee and
Dalton, Georgia to Allied Waste Industries for $10.5 million in cash. This
acquisition provides us with our eighth landfill.
The following unaudited pro forma results of operations assume the
transactions described above occurred as of January 1, 1998, 1999 and 2000
after giving effect to certain adjustments, including the amortization of the
excess of cost over the underlying assets and as if the Company were subject to
federal and all applicable state corporate income taxes for the period assuming
the tax rate that would have applied had the Company been taxed as a C
Corporation (in thousands):
<TABLE>
<CAPTION>
June 30,
1999 2000
1998 1999 (unaudited)
-------- -------- -----------------
<S> <C> <C> <C> <C>
Total revenues............................. $199,010 $225,527 $109,918 $126,392
Operating income........................... 24,979 28,243 15,763 14,807
Net income................................. 11,905 12,914 6,983 4,867
Earnings per common share:
Basic...................................... $ 0.89 $ 0.93 $ 0.51 $ 0.35
Diluted.................................... $ 0.86 $ 0.91 $ 0.50 $ 0.34
</TABLE>
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.
Other -- The Company incurred nonrecurring start-up costs related to a new
service contract of approximately $108,000 and $105,000 at December 31, 1998
and 1999, respectively. These costs related to the deployment of service
equipment and personnel. All of these amounts had been expended at December 31,
1998 and 1999.
3. Property and Equipment
Property and equipment consist of the following at December 31, 1998 and
1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land, land improvements and buildings.................. $ 15,575 $ 22,426
Landfills and associated land.......................... 1,753 15,789
Machinery and equipment................................ 137,106 180,126
Furniture, fixtures and vehicles....................... 3,046 4,210
In-process equipment................................... 1,326 1,210
-------- --------
Total property and equipment....................... 158,806 223,761
Less accumulated depreciation.......................... 70,005 85,238
-------- --------
Property and equipment, net............................ $ 88,801 $138,523
======== ========
</TABLE>
F-12
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
3. Property and Equipment--(Continued)
In-process equipment includes equipment not placed in service at year end.
Landfill costs include land held for development, representing various
landfill properties with an aggregate cost of approximately $1,340,000 and $-0-
at December 31, 1998 and 1999, respectively, which is not being amortized.
4. Long-term Debt
Long-term debt consist of the following at December 31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Bank Credit Facilities:
BB&T................................................... $36,000 $ --
Prudential............................................. 50,000 75,000
BankBoston............................................. -- 65,000
Other installment notes payable, interest ranging from 1%
to 7%................................................... 1,956 2,910
Present value of noncompete agreement liabilities with
the former shareholders of related businesses acquired,
due in various monthly installments through 2002........ 386 279
------- --------
Total notes payable...................................... 88,342 143,189
Less current portion..................................... 1,877 5,826
------- --------
Long-term portion........................................ $86,465 $137,363
======= ========
</TABLE>
On November 9, 1999, the Company entered into a revolving credit agreement
with a syndicate of lending institutions for which Fleet National Bank,
formerly known as Bank Boston, N.A. ("Fleet") acts as agent. This new credit
facility provides up to $200 million through November 2004. The Company has
drawn approximately $55 million on the new facility to terminate and pay off
its Branch Banking & Trust ("BB&T") facility. 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,
Prudenital Insurance Company of America ("Prudential") shares in the collateral
pledged under the Fleet credit facility. In addition, the Company's
subsidiaries have guarantied 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 1.5% to 2.5% for
Eurodollar rate borrowings. The Fleet facility requires the Company to maintain
certain financial ratios and satisfy other predetermined 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 December 31, 1999, an aggregate of approximately $65.0
million was outstanding under the Fleet credit facility, and the average
interest rate on outstanding borrowings was approximately 8%.
As of December 31, 1999, the Company had fully drawn three of the Prudential
$25 million term facilities, leaving the Company with an uncommitted shelf
facility of $25 million. The Prudential credit facilities require the Company
to maintain certain financial ratios, such as debt to earnings and fixed
charges to earnings, and satisfy other predetermined requirements, such as
minimum net worth, net income and deposit
F-13
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
4. Long-term Debt--(Continued)
balances. Interest on the three Prudential term facilities is paid quarterly,
based on a fixed rate of 7.28%, 6.96% and 6.84%, respectively. Of the Company's
committed Prudential facilities, $25 million mature in April 2006, $25 million
mature in June 2008, and $25 million mature in February 2009, subject to
renewal.
At December 31, 1999, the Company was in compliance with all Fleet loan
agreement covenants. Under the agreement, there is no compensating balance
requirement and no dividend payments are permitted. At December 31, 1998 the
Company had a compensating balance arrangement with BB&T for $379,000.
Annual aggregate principal maturities at December 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
2000............................................................. $ 5,826
2001............................................................. 3,947
2002............................................................. 7,460
2003............................................................. 10,772
2004............................................................. 10,762
Thereafter....................................................... 104,422
--------
Total............................................................ $143,189
========
</TABLE>
5. Leases
The Company leases certain property and equipment under both capital and
operating leases. Gross property and equipment recorded under capital leases
and the related accumulated amortization were approximately $4,506,000 and
($744,000), respectively, at December 31, 1999. The Company had not entered
into capital leases prior to 1999.
Future minimum lease payments as of December 31, 1999 for capital and
operating leases that have initial or remaining terms in excess of one year are
as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000................................................. $ 1,184 $ 1,917
2001................................................. 1,119 1,386
2002................................................. 853 1,152
2003................................................. 461 1,044
2004................................................. 165 971
Thereafter........................................... -- 6,275
------- -------
Total minimum lease payments......................... 3,782 $12,745
======= =======
Less amount representing interest (ranging from 5.25%
to 6.96%)........................................... (403)
-------
3,379
Less current portion................................. (1,042)
-------
Long term lease obligation........................... $ 2,337
=======
</TABLE>
F-14
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
5. Leases--(Continued)
The total rental expense for all operating leases for the years ended
December 31, 1997, 1998 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Buildings and sites........................................ $ 887 $1,216 $1,474
Trucks and equipment....................................... 1,898 2,209 1,310
------ ------ ------
Total...................................................... $2,785 $3,425 $2,784
====== ====== ======
</TABLE>
Direct rental expense is included in cost of operations in the statements of
operations and indirect rental expense is included in selling, general and
administrative in the statements of operations.
F-15
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
6. Shareholders' Equity
Shareholders' equity consisted of the following for the years ended December
31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
Note
Shares Shareholders' Receivable
---------------------- Common Paid-In Loans And Retained Liberty
Authorized Outstanding Stock Capital Receivables Earnings Waste
---------- ----------- ------- ------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... 80,000 10,660 $ 2,687 $ -- $(285) $12,702 $ --
Net income.............. -- -- -- -- -- 3,936 --
Issuances of stock,
net.................... -- 1,992 24,433 -- -- -- --
Reclassification of
undistributed
S Corporation
earnings............... -- -- -- 8,500 -- (8,500)
Capital contribution.... -- -- -- 20 -- -- --
Subchapter S
distributions.......... -- -- -- -- -- (2,304) --
Increase in
shareholders' loans and
receivables............ -- -- -- -- (22) -- --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1997................... 80,000 12,652 27,120 8,520 (307) 5,834
Net income.............. -- -- -- -- -- 10,278 --
Issuances of stock,
net.................... 729 14,026
Subchapter S
distributions.......... -- -- -- -- -- (790) --
Reclassification of S-
Corporation deficit.... -- -- (1,275) -- 1,275
Increase in
shareholders' loans and
receivables............ -- -- -- (20)
Other................... -- -- 2 -- -- (1) --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1998................... 80,000 13,381 41,148 7,245 (327) 16,596
Net income.............. -- -- -- -- -- 12,024 --
Issuances of stock,
net.................... 464 7,699
Exercise of stock
options................ -- 9 34 -- -- --
Issue of Liberty Waste
receivable ............ (11,538)
Fair value adjustment
related to stock issued
in business purchase
transaction............ (2,181)
Increase in
shareholders' loans and
receivables............ -- -- -- -- (559) -- --
------ ------ ------- ------ ----- ------- --------
Balance, December 31,
1999................... 80,000 13,854 $46,700 $7,245 $(886) $28,620 $(11,538)
====== ====== ======= ====== ===== ======= ========
</TABLE>
F-16
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
6. Shareholders' Equity--(Continued)
In April 1997, the Company's Board of Directors authorized a 1-for-2.5
reverse stock split and the conversion of all nonvoting common shares to voting
common shares. The Board of Directors also approved an increase in the
authorized capital of common stock from 4,020,395 shares to 80,000,000 shares
and canceled the nonvoting common shares outstanding. The common stock
previously had a par value of $.0380286 per share and was converted to no par
common stock. All share and per share information in the consolidated financial
statements has been adjusted to give retroactive effect to the reverse stock
split and conversion of nonvoting stock.
In April 1997, the Company's Board of Directors also authorized 10,000,000
shares of $0.01 par value preferred stock. Such shares have not been issued.
The Board of Directors can establish the series, the designation and number of
shares to be issued and the rights, preferences, privileges and restrictions of
the shares of each series, and to determine the voting powers, if any, of such
shares.
In June 1997, the Company completed an initial public offering in which it
issued 1,605,200 shares of common stock at a price of $13.50 per share
resulting in net proceeds after deduction of underwriting discounts and
commissions and other offering expenses to the Company of approximately $19.1
million. The proceeds from the offering were used to repay revolving bank debt.
In July 1997, the Company's underwriters exercised their option to purchase
an additional 322,500 shares. The net proceeds after deduction of underwriting
discounts and commissions and other offering expenses to the Company were
approximately $4.0 million. The Company used the proceeds to repay revolving
bank debt.
During 1997, the Company issued 63,634 shares of common stock with a fair
value of $1,275,000 as partial consideration for certain business acquisitions.
Also during 1997, the Company reclassified undistributed S Corporation
earnings to additional capital as a result of the Company terminating its S
Corporation election on May 9, 1997.
On March 31, 1998, the Company exchanged 320,555 shares of its common stock
(with a fair value of $6,125,000) for all of the issued and outstanding shares
of common stock of ECO and ACS.
On June 16, 1998, the Company exchanged 21,344 shares of its common stock
(with a fair value of $449,000) for all of the issued and outstanding shares of
common stock of Dumpsters. On June 30, 1998, the Company exchanged 330,000
shares of its common stock (with a fair value of $7.4 million) for all of the
issued and outstanding shares of common stock of RTS. On August 28, 1998, the
Company exchanged 388,311 shares of its common stock (with a fair value of $8.5
million) for all of the issued and outstanding shares of common stock of RAD.
These business combinations have been accounted for as poolings-of-interests.
See Note 2.
On August 28, 1998, the Company issued 22,474 shares of Company common stock
with a fair value of approximately $500,000 as partial consideration for the
stock of Greater Atlanta Sanitation, Inc. On September 10, 1998, the Company
issued 706,730 shares of Company common stock with a fair value of
approximately $13.5 million as partial consideration for the stock of
TransWaste Services, Inc. In 1999 and upon completion of a valuation of the
restricted stock issued in this transaction, the Company decreased common stock
and goodwill by an adjustment of $2.2 million.
F-17
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
6. Shareholders' Equity--(continued)
Certain companies acquired in 1998 accounted for as pooling-of-interests
transactions were previously taxed as S Corporations. The S Corporation
elections were effectively terminated on their respective acquisition dates.
Consequently, the Company reclassified a net S Corporation deficit to
additional capital as a result of the termination of the S Corporation
elections.
During 1999, the Company loaned Liberty Waste Services, LLC ("Liberty")
$11,538,000 under a senior subordinated note purchase agreement due December
31, 2001. Interest is payable annually at the rate of 11% per annum. The
Company also received an option to purchase ("Option") any subsidiary of
Liberty that operates a landfill or a waste disposal business within a 75 miles
radius of a landfill owned by one of the Liberty subsidiaries or any other
waste disposal business wherever located if the Company's funds loaned under
the note purchase agreement are used, directly or indirectly, to purchase,
develop or operate such business (a "Business Unit"). The Option will be
exercisable for an eighteen month period beginning July 1, 2000. The exercise
price for each Business Unit will equal seventy-five (75%) percent of the
Company's market capitalization multiple times the Business Unit's annualized
EBITDA, less the Business Unit's funded debt assumed by the Company, as defined
in the note purchase agreement.
Assuming Liberty's existing senior indebtedness is paid in full, principal
in the amount of $2,884,500 is payable upon each closing, if any, of the
acquisition or merger by the Company of a Business Unit from Liberty, or the
sale by Liberty to a third party if the Company elects not to exercise its
option with respect to a certain Business Unit, for a purchase price in excess
of $5.0 million. Any unpaid principal balance and accrued but unpaid interest
will be due and payable in full on December 31, 2001.
During 1999, the Company sold 183,000 shares of the Company's common stock
with a fair value of approximately $3.3 million to Liberty.
During 1999, the Company issued 281,250 shares of Company common stock with
a fair value of approximately $4.5 million as partial consideration for certain
business acquisitions.
During the six months ended June 30, 2000, the Company issued 527 shares of
Company common stock with a fair value of approximately $5,000 was recorded as
director's fees.
During the six months ended June 30, 2000, 36,657 stock options were
exercised. The net proceeds approximated $161,000.
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, we had
purchased 35,600 shares at an average price of $9.60 per share.
7. Related Party Transactions
Shareholder loans, included in shareholders' equity of the accompanying
consolidated balance sheets, are notes receivable (including unpaid interest
thereon) from shareholders of $261,603, $134,939 and $694,226 at December 31,
1997 and 1998 and 1999, respectively. The notes bear interest at an annual rate
of 7% and are payable on demand. Shareholders' receivables, included in the
shareholders' equity of the accompanying consolidated balance sheets, are from
a related company owned by certain shareholders and officers of the Company.
These receivables of $44,860, $191,712 and $191,709 at December 31, 1997, 1998
and 1999, respectively, are interest-free and are payable on demand.
F-18
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
7. Related Party Transactions--(Continued)
The Company has other related party transactions pertaining to the leasing
of office space and equipment from officers of the Company and from other
partnerships and corporations controlled by these officers, the sale and
leasing of equipment and vehicles to affiliated companies, and the providing of
management and accounting services and technical advice to other companies
affiliated by common shareholder interests (other affiliated companies). All of
the transactions are on terms comparable to those with third parties, and are
immaterial individually and in the aggregate.
8. Benefit Plans
401(K) Profit Sharing And Retirement Plan--The Company has a 401(k) Savings
and Retirement Plan and Trust ("401(k)" or the "Plan") for the benefit of its
full time employees who have more than one year of service and are over 21
years of age. The plan also benefits employees of certain related parties
through separate funding arrangements. Employees make contributions to this
retirement plan under a 401(k) pre-tax contribution plan and by the Company
through 401(k) matching contributions and discretionary profit sharing
contributions. The discretionary profit sharing contribution is made annually
as determined by management based on the Company's financial performance.
Effective October 1, 1997, the Company amended the Plan to discontinue the
profit sharing contribution and increase the employer's matching contribution
percentage. The Company's matching contributions to the 401(k) plan were
$256,772, $509,967 and $667,799 for the years ended December 31, 1997, 1998 and
1999, respectively. The Company's profit sharing contribution was $284,994 for
the year ended December 31, 1997. Contributions by the Company are included in
operating costs and expenses in the accompanying statements of operations.
Self-insured Medical Plan--The Company has a self-insured plan for employee
medical benefits. The plan covers all full-time employees of the Company
beginning on the 91st day of employment. The Company pays premiums for its
employees and dependents and withholds from employees additional amounts for
the premium balance. As claims are processed by the plan's third-party
administrator, the insurance carrier requests funds from the Company. The
Company maintains stop loss coverage for the plan. The Company's expense
relating to the plan for 1997, 1998 and 1999 was $149,226, $246,163 and
$239,580, respectively.
9. 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.
Landfill closure and post-closure costs include estimated costs to be
incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. The Company
estimates these future cost requirements based on its interpretation of the
technical standards of the Environmental Protection Agency's Subtitle D
regulations.
While the precise amounts of these future obligations cannot be determined,
at December 31, 1999, the Company estimates the total costs to be approximately
$16.0 million for remediation, final closure of its operating facilities and
post-closure monitoring costs. The Company's estimate of these costs is
expressed in current dollars and is not discounted to reflect anticipated
timing of future expenditures. The Company had accrued approximately $262,000
and $1,590,000 for such projected costs at December 31, 1998 and 1999,
F-19
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
9. Contingencies--(Continued)
respectively. The Company provides accruals for these future costs (generally
for a term of 30 years after final closure of any landfill), and will provide
additional accruals for these and other landfills the Company may acquire or
develop in the future, based on engineering estimates of consumption of
airspace over the useful lives of such facilities. There can be no assurance
that the Company's ultimate financial obligations for actual closure or post-
closure costs will not 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 operation.
In September 1999, the Company filed a lawsuit against one of its municipal
customers concerning payment of a promissory note and accounts receivable for
services the Company rendered to the customer. The customer has denied
liability for the indebtedness and has asserted counterclaims against the
Company. The Company strongly believes the counterclaims are groundless, and
that the receivables from the customer are valid. The Company does not believe
the outcome of this matter will have a material adverse impact on the Company's
financial position or results of operations.
10. Letters of Credit
At December 31, 1998 and 1999, the Company has entered into irrevocable
letters of credit totaling approximately $540,500 and $1,444,000, respectively.
According to the terms of the $200 million Fleet facility, the availability of
funds on that facility are reduced by the lesser of outstanding letters of
credit or $15 million. (Note 4).
F-20
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
11. Stock Option Plan
The Company's 1997 Stock Plan (the "Stock Plan") was adopted by the
Company's Board of Directors in April 1997 and approved by the Company's
shareholders prior to completion of the Company's public offering. A total of
1,800,000 shares of common stock have been reserved for issuance under the
Stock Plan. At the same time that the Stock Plan was adopted, the Board
terminated the Company's Employee Non-Qualified Stock Option Plan (the "Option
Plan"; together with the Stock Plan the "Plans") as to future grants. The Stock
Plan provides for grants of "incentive stock options,"within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors), and each of the Plans
provides for grants of nonstatutory options to employees and consultants. The
Stock Plan also allows for the grant of purchase rights. The Plans are
administered by the Compensation Committee of the Board of Directors. The Stock
Plan will terminate in April 2007, unless sooner terminated by the Board of
Directors. Options, under the Plans, have been retroactively adjusted for the
exchange of shares resulting from the merger of affiliated companies on April
1, 1996, for the stock dividend of nine nonvoting shares for each voting share
in 1995, and for the 1-for-2.5 reverse stock split and the conversion of all
nonvoting shares to common shares, each effected prior to consummation of the
Company's public offering. A summary of the status of the Plans as of December
31, 1997, 1998 and 1999 and changes during the years ending on those dates is
as follows:
OPTION PLAN
<TABLE>
<CAPTION>
Weighted-
Average Shares
---------------
Share Price
------- ------
<S> <C> <C>
Balance, December 31, 1996 and 1997...................... 6,000 $ 5.10
Granted.................................................. 138,697 14.37
Forfeitures.............................................. (4,948) 19.69
------- ------
Balance, December 31, 1998............................... 659,749 8.49
Granted.................................................. 127,387 18.05
Forfeitures.............................................. (13,311) 14.07
Exercised................................................ (9,200) 3.66
------- ------
Balance, December 31, 1999............................... 764,625 $ 9.55
======= ======
</TABLE>
The following table summarizes information about the Company's Plans at
December 31, 1999:
<TABLE>
<CAPTION>
Exercisable
--------------------
Weighted Weighted Weighted
Range of Number of Average Average Average
Exercise Shares Remaining Exercise Number Exercise
Prices Outstanding Life Price of Prices
-------- ----------- --------- -------- Shares --------
<S> <C> <C> <C> <C> <C>
$5.13 514,564 1.25 $ 5.13 396,800 $ 5.13
$15.25-$16.78 67,887 9.3 $15.80 -- --
$17.88 50,000 4.5 $17.88 50,000 $17.88
$19.69-$20.81 132,174 8.3 $20.11 -- --
</TABLE>
F-21
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
11. Stock Option Plan--(Continued)
The Company applies ABP No. 25 and related Interpretations in accounting for
the Plans. Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plan been determined based on the fair value at
the grant dates for awards under the Plans consistent with the method of SFAS
No. 123, the Company's net income, pro forma net income and pro forma earnings
per share for the years ended December 31, 1998 and 1999 would have been
reduced to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Net Income:
As reported.............................................. $10,278 $12,024
Pro forma--for SFAS No. 123.............................. 10,043 11,182
Pro Forma Net Income:
As reported.............................................. 10,081
Pro forma--for SFAS No. 123.............................. 9,846
Pro Forma Earnings Per Share:
Basic:
As reported.............................................. $ 0.78 $ 0.88
Pro forma--for SFAS No. 123.............................. $ 0.76 $ 0.82
Diluted:
As reported.............................................. $ 0.76 $ 0.86
Pro forma--for SFAS No. 123.............................. $ 0.74 $ 0.80
</TABLE>
No stock options were granted in 1997 and previously issued grants had fully
vested; accordingly, pro forma amount have not been presented for 1997. As
permitted under SFAS No. 123, the fair value of options granted under the
Company's plan during 1998 and 1999 was estimated on the Black-Scholes option-
pricing model using the following assumptions:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Weighted-average grant-
date fair value of
options granted........ $16.33 $12.64
Weighted-average
expected lives
(years)................ 3.24 7.28
Risk-free interest
rate................... 5.50% 5.24%
Volatility.............. 39.00% 51.00%
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost might not be representative of that expected in future years.
12. Income Taxes
From 1986 until May 8, 1997, the Company was subject to taxation under
Subchapter S of the Code. 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. In accordance with SFAS No. 109, the
financial statements give effect to the recognition of deferred tax assets of
$800,000 and the assumption of a deferred tax liability of $5.1 million as a
result of the termination of the Company's S Corporation election on May 8,
1997.
F-22
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
12. Income Taxes--(Continued)
The balance of deferred income tax assets and liabilities at December 31,
1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Current deferred income tax assets (liabilities) relate
to:
Allowance for bad debts.............................. $ 281 $ 570
Accrued vacation..................................... 240 191
Accruals to related parties.......................... 14 --
Accrued health benefits.............................. (87) 140
Other accruals not currently deductible.............. 46 9
------ -------
Net current deferred tax assets........................ $ 494 $ 910
====== =======
Noncurrent deferred income tax liabilities relate to:
Basis and depreciation differences................... $7,728 $10,049
Other................................................ 110 56
------ -------
Net noncurrent deferred tax liabilities................ $7,838 $10,105
====== =======
</TABLE>
The components of income tax expense for May 9, 1997 to December 31, 1997
and for the years ended December 31, 1998 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Current income taxes:
Federal............................................. $1,628 $2,807 $4,716
State............................................... 262 559 933
------ ------ ------
Total current income taxes.......................... 1,890 3,366 5,649
Deferred income taxes............................... 821 2,240 1,451
------ ------ ------
Total............................................... $2,711 $5,606 $7,100
====== ====== ======
</TABLE>
The following is a reconciliation of income taxes at the Federal statutory
rate (34%) to actual taxes provided for each of the three years in the period
ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Federal tax at the statutory rate.................... $3,722 $5,401 $6,502
State income taxes, net of federal tax benefit....... 311 528 791
Goodwill amortization................................ 6 -- --
Other................................................ 87 (116) (193)
------ ------ ------
4,126 5,813 7,100
Less federal taxes at the statutory rates for the
period from January 1 to May 8, 1997 and for the
periods companies acquired in poolings-of-interests
were taxed as S Corporations........................ 1,415 207 --
------ ------ ------
Total................................................ $2,711 $5,606 $7,100
====== ====== ======
</TABLE>
F-23
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited as to June 30, 1999 and 2000 Information)
13. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Total revenues........................ 1998 $39,340 $41,527 $44,804 $45,588
1999 47,537 52,855 56,471 57,856
Gross profit.......................... 1998 14,687 15,390 16,281 18,000
1999 18,200 19,663 20,809 21,303
Net income............................ 1998 2,379 2,649 2,875 2,375
1999 2,852 3,065 2,955 3,152
Pro forma net income (1).............. 1998 $ 2,353 $ 2,559 $ 2,815 $ 2,354
Earnings per share:
Basic................................. 1998(1) $ 0.19 $ 0.20 $ 0.22 $ 0.18
1999 0.21 0.22 0.21 0.23
Diluted............................... 1998(1) 0.18 0.20 0.21 0.17
1999 $ 0.21 $ 0.22 $ 0.21 $ 0.22
Weighted average number of shares
outstanding:
Basic................................. 1998 12,652 12,652 12,817 13,381
1999 13,502 13,761 13,854 13,854
Diluted............................... 1998 13,038 13,048 13,218 13,766
1999 13,860 14,124 14,203 14,157
</TABLE>
(1) See Note 1.H.
14. Subsequent Events (Unaudited)
On September 18, 2000 the Company completed its stock repurchase program
with the purchase of 1,000,000 shares of its common stock at a cost of $10.9
million. Cash for the stock repurchase program was funded by the Company's
existing Fleet facility.
* * * * * * * * * *
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Registrant's Articles of Incorporation and Bylaws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent permitted
by Section 55-8-30(e) of the North Carolina Business Corporation Act (the
"Business Corporation Act"), and (ii) require the Registrant to indemnify its
directors and officers to the fullest extent permitted by Sections 55-8-50
through 55-8-58 of the Business Corporation Act, including circumstances in
which indemnification is otherwise discretionary. Pursuant to Sections 55-8-51
and 55-8-57 of the Business Corporation Act, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate the directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under the Business
Corporation Act. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions that the director believes to be contrary to the best
interests of the Registrant or its shareholders, for any transaction from which
the director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Registrant or its
shareholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its shareholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, for
improper transactions between the director and the Registrant and for improper
distributions to shareholders and loans to directors and officers. These
provisions do not affect a director's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.
The Registrant's Bylaws require the Registrant to indemnify its directors
and officers against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Registrant and
with respect to any proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Registrant's Bylaws also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Registrant maintains liability insurance insuring its officers and
directors against liabilities that they may incur in such capacities.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger and Reorganization.
3.1 Articles of Incorporation.
3.2 Bylaws.
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.
8.1 Tax Opinion of Deloitte & Touche LLP.
10.1(a) 1997 Stock Plan.
10.2(a) Note Purchase and Private Shelf Agreement with The Pruden-
tial I Company of America dated April 3, 1996.
10.3(b) Note Purchase and Private Shelf Agreement with the Pruden-
tial I Company of America dated as of June 30, 1998.
10.4(c) Senior Subordinated Loan and Security Agreement dated Febru-
ary 2, 1999 between Liberty Waste Lending Company, LLC, a
subsidiary of the Registrant, and Liberty Waste Services,
LLC and its direct and indirect subsidiaries.
10.5(c) Option Agreement dated February 2, 1999 between the Regis-
trant Liberty Waste Services, LLC.
10.6(d) Revolving Credit Agreement dated as of November 9, 1999 by
and among the Registrant and its subsidiaries, the lending
institutions party thereto, BankBoston, N.A., as Administra-
tive Agent, BancBoston Robertson Stephens Inc., as Arranger,
and Branch Banking and Trust Company, as Documentation
Agent.
11.1(e) Computation re earnings per share.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
23.2 Consent of Wyrick Robbins Yates & Ponton LLP (contained in
Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
99.1 Form of Proxy.
</TABLE>
--------
(a) Incorporated by reference to the similarly numbered Exhibit to the
Registrant's Registration Statement on
Form S-1 (File No. 333-25631).
(b) Incorporated by reference to the similarly numbered Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
(c) Incorporated by reference to the similarly numbered Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998.
(d) Incorporated by reference to the similarly numbered Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999.
(e) Incorporated by reference to the similarly numbered Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Independent Auditors'
Report
No other schedules have been included because the information required to be
set forth therein is not applicable.
II-2
<PAGE>
Item 22. Undertakings
The undersigned registrant hereby undertakes as follows:
(a)
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person or the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on this 12th day of October 2000.
Waste Holdings, Inc.
/s/ Lonnie C. Poole, Jr.
By: _________________________________
Lonnie C. Poole, Jr.
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Lonnie C.
Poole, Jr. and Stephen C. Shaw, and each of them, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any related Registration
Statements filed pursuant to Rule 462(b) promulgated under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Lonnie C. Poole, Jr. Director, Chairman and October 12, 2000
______________________________________ Chief Executive Officer
Lonnie C. Poole, Jr. (Principal Executive
Officer)
/s/ Stephen C. Shaw Chief Financial Officer October 12, 2000
______________________________________ and Treasurer (Principal
Stephen C. Shaw Financial and Accounting
Officer)
/s/ Jim W. Perry Director and President October 12, 2000
______________________________________
Jim W. Perry
Director October , 2000
______________________________________
J. Gregory Poole, Jr.
Director October , 2000
______________________________________
Thomas F. Darden II
/s/ Thomas C. Cannon Director October 12, 2000
______________________________________
Thomas C. Cannon
/s/ Paul L. Brunswick Director October 12, 2000
______________________________________
Paul L. Brunswick
</TABLE>
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Waste Industries, Inc. and
Subsidiaries Raleigh, North Carolina
We have audited the consolidated financial statements of Waste Industries,
Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1999, and for
each of the three years in the period ended December 31, 1999, and have issued
our report thereon dated February 29, 2000; such report is included elsewhere
in this Registration Statement. Our audits also included the financial
statement schedule of Waste Industries, Inc. and Subsidiaries, listed in Item
21. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
February 29, 2000
<PAGE>
WASTE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Charges to Write-offs/ Balance
1/1/97 Expense Payments 12/31/97
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...... $648 $ 642 $ (382) $ 908
Accrued closure and post-closure
costs............................... 234 41 -- 275
<CAPTION>
Balance Charges to Write-offs/ Balance
12/31/97 Expense Payments 12/31/98
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...... $908 $ 747 $ (955) $ 700
Accrued closure and post-closure
costs............................... 275 -- (13) 262
<CAPTION>
Balance Charges to Write-offs/ Balance
12/31/98 Expense Payments 12/31/99
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...... $700 $1,242 $(1,021) $ 921
Accrued closure and post-closure
costs............................... 262 1,328 -- 1,590
</TABLE>
