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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11264
WESTERN WASTE INDUSTRIES
(Exact name of registrant as specified in its charter)
California 95-1946054
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21061 S. WESTERN AVENUE TORRANCE, CALIFORNIA 90501
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (310) 328-0900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of January 31, 1994
Common Stock - No par value 14,223,294
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WESTERN WASTE INDUSTRIES
INDEX
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets
June 30, 1993 - Audited
December 31, 1993 - Unaudited 3
Consolidated Statements of Income - Unaudited 4
Consolidated Statements of Cash Flows - Unaudited 5
Notes to Consolidated Financial Statements -
Unaudited 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 12
SIGNATURES 14
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PART 1. FINANCIAL INFORMATION
WESTERN WASTE INDUSTRIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1993 1993
(Unaudited)
(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 2,259 $ 3,659
Receivables, less allowance of $1,354 in
June 1993 and $1,732 in December 1993 27,287 32,448
Supplies 3,059 2,890
Prepaid expenses 8,462 3,599
Other current assets 3,544 3,350
Deferred income tax benefit 4,959 3,859
Total current assets 49,570 49,805
Property and equipment, net 172,662 181,876
Purchased routes, net 11,424 10,286
Goodwill, net 22,556 22,203
Other assets 12,174 13,724
$268,386 $277,894
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt $ 1,728 $ 1,549
Accounts payable 8,935 8,168
Accrued payroll and related costs 3,780 4,334
Deferred revenue 510 498
Other current liabilities 21,356 18,976
Total current liabilities 36,309 33,525
Long-term debt, excluding current instalments 89,890 95,507
Other liabilities 18,092 17,096
Deferred income taxes 1,674 2,018
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value; 2,000,000
shares authorized; none issued or outstanding - -
Common stock, no par value; 50,000,000
shares authorized; issued and outstanding
13,866,561 and 14,218,233 shares respectively 71,844 73,360
Retained earnings 50,577 56,388
Total shareholders' equity 122,421 129,748
$268,386 $277,894
The accompanying notes are an integral part of these statements.
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WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENT OF INCOME - UNAUDITED
Three Months Ended Six Months Ended
December 31, December 31,
1992 1993 1992 1993
(dollars in thousands except share data)
<S> <C> <C> <C> <C>
Revenue $57,280 $63,323 $115,418 $126,234
Costs and expenses:
Operating 44,077 47,805 88,558 95,872
Selling, general
and administrative 8,692 9,612 17,518 19,255
Total costs and expenses 52,769 57,417 106,076 115,127
Income from operations 4,511 5,906 9,342 11,107
Nonoperating income
(expense):
Interest expense ( 905) ( 941) (1,794) (1,831)
Other 190 191 258 380
( 715) ( 750) (1,536) ( 1,451)
Income before income taxes
and cumulative effect of
accounting change 3,796 5,156 7,806 9,656
Income taxes 1,556 2,320 3,200 4,259
Income before cumulative
effect of accounting change 2,240 2,836 4,606 5,397
Cumulative effect of
accounting change - - - 414
Net income $ 2,240 $ 2,836 $ 4,606 $ 5,811
Primary and fully diluted earnings
per common share:
Income before cumulative effect
of accounting change $ .16 $ .19 $ .33 $ .37
Cumulative effect of
accounting change -- - .03
Net Income $ .16 $ .19 $ .33 $ .40
The accompanying notes are an integral part of these statements.
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WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Six Months Ended
December 31,
1992 1993
(dollars in thousands)
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Operating Activities:
Net income $ 4,606 $ 5,811
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,450 10,364
Bad debts expense 797 890
Uninsured claims 108 1,199
Employer portion - 401(k) contribution 202 233
Cumulative effect of accounting change -- ( 414)
Deferred income taxes ( 24) 1,858
Loss on disposition of assets 175 1
Changes in operating assets and liabilities,
net of effects of purchased businesses:
Increase in receivables (3,636) (6,051)
Decrease in other assets 1,026 3,590
Increase (decrease) in accounts payable 92 ( 767)
Decrease in other liabilities (621) (3,402)
Net cash provided by operating activities 12,175 13,312
Investing activities:
Purchases of property and equipment (14,864) (27,491)
Proceeds from sale of fixed assets 193 176
Net cash used in investing activities (14,671) (27,315)
Financing activities:
Proceeds from revolving lines of credit and
long-term borrowings 7,085 15,000
Principal payments on debt (3,249) ( 880)
Proceeds from issuance of stock 112 1,283
Net cash provided by financing activities 3,948 15,403
Increase in cash and short-term investments 1,452 1,400
Cash and short-term investments
at beginning of period 717 2,259
Cash and short-term investments
at end of period $ 2,169 $ 3,659
The accompanying notes are an integral part of these statements .
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WESTERN WASTE INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of presentation:
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. All adjustments made to the
interim financial statements were of a normal recurring nature. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended June 30, 1993.
NOTE 2 - Earnings per share:
Primary and fully diluted earnings per share are computed on the
basis of the weighted average number of shares outstanding plus the
common stock equivalents which would arise from the exercise of stock
options using the treasury stock method.
The average number of shares (in thousands) used for primary and
fully diluted calculations were as follows:
Fully
Quarter ended December 31, Primary Diluted
1992 13,977 13,985
1993 14,857 14,857
Six months ended December 31,
1992 13,923 13,977
1993 14,725 14,725
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NOTE 3 - Long-term borrowings:
The Company has a $100 million unsecured revolving line of credit
agreement (Agreement) with its banks. The Agreement, which currently
matures on April 1, 1998, has a $16.5 million quarterly commitment
reduction commencing March 1, 1996. On or before the first day of
October of each year, the Company has an option to extend the revolving
period and the termination date for a period of one year, with the
approval of its banks. At the Company's option, borrowings under the
agreement bear interest at the bank's prime rate and/or at the London
Interbank Offered Rate (LIBOR) plus .75% to 2.0%, (1.25% at December 31,
1993), depending upon certain ratios. This Agreement requires no
compensating balances. Under the terms of the Agreement, the Company is
subject to various debt covenants, including maintenance of certain
financial ratios, and in addition, it limits the amount of cash
dividends. Under certain conditions the banks may elect, between
December 28, 1993 and February 26, 1994, to reduce their commitment by
$10 million. Outstanding borrowings under the Company's Agreement were $85
million at December 31, 1993. Interest on this debt averaged 4.8% for
the six months ended December 31, 1993.
NOTE 4 - Cumulative effect of accounting change:
Effective July 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by FASB Statement No. 109, "Accounting for Income
Taxes". Under the liability method, deferred tax liabilities and assets
are determined based on the difference between financial reporting and
tax basis of assets and liabilities, using the enacted tax rates in
effect for the year in which the differences are expected to reverse.
Taxes previously accrued will be adjusted for changes in tax rates as
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they become effective as opposed to when the taxes were recorded. The
cumulative effect of adopting Statement 109 was not material to the
consolidated financial statements. As permitted under the new rules,
prior year financial statements have not been restated.
Significant components of deferred tax assets and liabilities, as
restated effective July 1, 1993, are as follows (in thousands):
Deferred tax assets:
Self insurance $ 4,402
Write down of investment in G.I. Industries 2,400
Reserve for landfill related costs 3,094
Reserve for loss on municipal contract 2,460
Reserve for litigation settlements 1,230
Reserve for properties 1,435
Reserve for disposal of a division 813
Reserve for bad debts 556
Other, net 438
Total deferred tax assets 16,828
Deferred tax liabilities:
Tax over book depreciation 10,497
Land exchange 1,465
Prepaid expenses 446
Other 721
Total deferred tax liabilities 13,129
Net deferred taxes $ 3,699
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
Revenue
Revenue for the second quarter of fiscal 1994 increased $6,043,000
or 11% as compared with the same quarter in fiscal 1993 and revenue for
the first six months of fiscal year 1994 increased $10,816,000 or 9% as
compared with the prior year period. The increase in revenue resulted
from price and volume changes with most of the increase being related to
new operations in San Jose and Sunnyvale, California.
Costs of Operation
Operating expenses, consisting primarily of wages and benefits for
operating personnel, insurance costs, fuel costs, disposal site fees and
equipment operating costs, increased $3,728,000 or 8% for the current
quarter, and $7,314,000 or 8% for the first six months, over the
comparable periods in the prior fiscal year. As a percentage of
revenue, these expenses decreased from 76.9% to 75.5% for the current
quarter and from 76.7% to 75.9% for the first six months of fiscal 1994,
as compared to the same periods in fiscal 1993. Operating costs
decreased as a percentage of revenue due to (i) an increase in the
volume of out-of-county waste, at the Company's El Sobrante California
landfill site, which has lower operating costs and (ii) revenue growth
resulting from rate increases.
Selling, general and administrative expenses increased $920,000 or
11% for the current quarter and $1,737,000 or 10% for the first six
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months of fiscal 1994 over comparable periods of the prior fiscal year.
As a percentage of revenue, these expenses remained constant at 15% for
the quarter and six months ended December 31, 1993, as compared to the
same periods in the prior fiscal year.
The effective tax rates were 45% and 44% for the second quarter and
first six months of fiscal 1994, respectively, which would have been 45%
for both periods without the benefit of the change in federal income tax
rates which occurred during the first quarter of fiscal 1994, as
compared to 41% for the same periods last year. The increase in the
effective tax rates was due primarily to the increase in federal tax
rates and the reduction of available tax credits, as compared to the
prior year.
Liquidity and Capital Resources
Working capital -
At December 31, 1993, working capital amounted to $16,280,000
compared to $13,261,000 at June 30, 1993. The current ratio was 1.4 and
1.5 at June 30, 1993 and December 31, 1993, respectively.
As of December 31, 1993, the Company has an unsecured revolving
credit agreement, which provides for borrowings up to $100 million. At
the Company's option, borrowings under the agreement bear interest at
the bank's prime rate and/or at the London Interbank Offered Rate
(LIBOR) plus .75% to 2.0%, (1.25% at December 31, 1993), depending upon
certain ratios. Outstanding borrowings under the Company's revolving
credit agreement were $85 million at December 31, 1993.
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The Company's debt to equity ratio was .75 to 1.0 at December 31,
1993 and June 30, 1993.
Capital resources -
During the six months ended December 31, 1993, the Company made
capital expenditures of approximately $19 million for property and
equipment other than that purchased through acquisition of other
companies. The Company estimates that total capital expenditures for
fiscal 1994, including acquisitions, will be approximately $40 to $50
million. The Company believes that cash provided by operations, cash
available under its revolving credit agreement and cash from other
external sources will be sufficient for its financing needs.
Inflation -
Generally, inflation has had a minor impact on the Company's
operations for the periods referred to above as most of the Company's
collection operations are under contracts that provide for rate
adjustments based upon increases in the consumer price index. These
contracts reduce the Company's vulnerability to inflation. However, in
the case of rapid changes in costs such as fuel and disposal costs, rate
increases may lag behind cost increases.
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PART II. OTHER INFORMATION
Items 1 through 5
Items 2,3,4 and 5 are not applicable.
Item 1. Legal Proceedings.
As previously reported in the Company's Form 10-K Report for the
fiscal year ended June 30, 1993, the Company was served on October 13,
1993 with a class action suit entitled Croyden Associates, on behalf of
itself and all other similarly situated plaintiffs vs Western Waste
Industries and Kosti Shirvanian, Defendants, Case No. CV-93 6126 KN in
the United States District Court, Central District of California. The
complaint is a class action suit evolving out of the discontinuance of
the merger negotiations between the Company and Browning-Ferris
Industries ("BFI"), alleging that the Company violated federal
securities laws and as a result the plaintiffs and all other persons or
entities that bought Company stock during the period of September 2,
1993 through October 7, 1993, were damaged. Two other cases entitled,
Isaac Myer, on behalf of himself and all other similarly-situated
plaintiffs vs Western Waste Industries and Kosti Shirvanian and Neil
Haltrecht, on behalf of himself and all other similarly-situated
plaintiffs vs Western Waste Industries and Kosti Shirvanian were filed
recently and an Agreement for Stipulation and Proposed Order for
consolidating these cases and the original Croyden Associates case has
been requested. The complaints are essentially identical to the
complaint in the Croyden Associates case. The Company continues to
believe that the cases have no merit and the Company intends to
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vigorously defend these actions and move for summary dismissal as soon
as practical.
In addition to the above-described litigation, there are number of
claims and suits pending against the Company 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. In the opinion of management, the
uninsured liability, if any, under these claims and suits would not
materially affect the financial position of the Company.
Items 6 - Exhibits and Report on Form 8-K
a. Exhibits - None
b. Report on Form 8-K - There was no report on Form 8-K filed
during the quarter ended December 31, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned as both a duly authorized officer and as the
Chief Financial Officer of the registrant.
WESTERN WASTE INDUSTRIES
By: LAWRENCE F. MCQUAIDE
Lawrence F. McQuaide
Executive Vice President,
Finance
Date: February 9, 1994
