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: March 31, 1995
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-11264
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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 May 8, 1995
--------------------------- ----------------------------------
Common Stock - No par value 14,520,399
Exhibit Index on Page 14
-1- <PAGE>
WESTERN WASTE INDUSTRIES
INDEX
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets
June 30, 1994 - Audited
March 31, 1995 - 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 . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . 12
-2- <PAGE>
PART I. FINANCIAL INFORMATION
WESTERN WASTE INDUSTRIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, March 31,
1994 1995
-------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 9,935 $ 5,837
Receivables, less allowance of $1,611 in
June 1994 and $1,670 in March 1995 31,367 30,791
Supplies 3,349 3,369
Prepaid expenses 2,842 5,588
Other current assets 1,323 1,610
Deferred income tax benefit 5,319 4,306
------- -------
Total current assets 54,135 51,501
Property and equipment, net 185,598 194,666
Purchased routes, net 9,410 8,006
Goodwill, net 21,818 21,261
Other assets (Note 4) 13,720 26,821
-------- --------
$284,681 $302,255
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt $ 1,526 $ 1,329
Accounts payable 8,764 7,649
Accrued payroll and related costs 3,325 3,487
Other current liabilities 19,860 18,767
------- -------
Total current liabilities 33,475 31,232
Long-term debt, excluding current instalments (Note 3) 91,864 95,093
Other liabilities 17,218 18,116
Deferred income taxes 2,947 3,718
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
14,333,612 and 14,515,328 shares respectively 75,659 78,014
Retained earnings 63,518 76,082
-------- --------
Total shareholders' equity 139,177 154,096
-------- --------
$284,681 $302,255
======== ========
The accompanying notes are an integral part of these statements.
-3- <PAGE>
WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(dollars in thousands except share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -------------------
1994 1995 1994 1995
------- ------ ------- -------
Revenue $64,949 $67,638 $191,183 $202,456
------- ------- -------- --------
Costs and expenses:
Operating 47,971 49,214 143,843 146,584
Selling, general and
administrative 9,418 9,608 28,673 29,154
------- ------- -------- --------
Total costs and expenses 57,389 58,822 172,516 175,738
------- ------- -------- --------
Income from operations 7,560 8,816 18,667 26,718
Nonoperating income (expense):
Interest expense ( 947) (1,475) (2,778) ( 4,014)
Other ( 476) 477 ( 96) ( 67)
------- ------- -------- --------
(1,423) ( 998) (2,874) ( 4,081)
------- ------- -------- --------
Income before income taxes and
cumulative effect of
accounting change 6,137 7,818 15,793 22,637
Income taxes 2,762 3,479 7,021 10,073
------- ------- -------- --------
Income before cumulative effect
of accounting change 3,375 4,339 8,772 12,564
Cumulative effect of
accounting change - - 414 -
------- ------- -------- --------
Net Income $ 3,375 $ 4,339 $ 9,186 $ 12,564
======= ======= ======== ========
Primary and fully diluted
earnings per common share:
Income before cumulative
effect of accounting change $ .22 $ .28 $ .59 $ .81
Cumulative effect of
accounting change - - .03 -
------- ------- -------- --------
Net Income $ .22 $ .28 $ .62 $ .81
======= ======= ======== ========
The accompanying notes are an integral part of these statements.
-4- <PAGE>
WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(dollars in thousands)
Nine Months Ended
March 31,
------- -------
1994 1995
------- -------
Operating Activities:
Net income $ 9,186 $12,564
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,039 19,360
Provision for doubtful accounts 1,336 1,177
Uninsured claims 2,335 907
Employer portion - 401(k) contribution 410 489
Cumulative effect of accounting change (414) -
Deferred income taxes 960 1,784
Loss on disposition of assets 402 1,129
Changes in operating assets and liabilities,
net of effects of purchased businesses:
Increase in receivables (6,018) ( 601)
Decrease (increase) in other assets 1,994 (4,007)
Decrease in accounts payable (2,528) (1,115)
Decrease in other liabilities ( 756) ( 940)
------ ------
Net cash provided by operating activities 22,946 30,747
Investing activities:
Purchases of property and equipment (36,064) (28,252)
Proceeds from sale of fixed assets 303 825
------- -------
Net cash used in investing activities (35,761) (27,427)
Financing activities:
Proceeds from revolving lines of credit and
long-term borrowings, net of restricted cash 15,028 13,933
Principal payments on borrowings (1,175) (23,217)
Proceeds from issuance of stock 1,525 1,866
------- -------
Net cash provided (used) by
financing activities 15,378 ( 7,418)
------- -------
Increase (decrease) in cash and
short-term investments 2,563 (4,098)
Cash and short-term investments
at beginning of period 2,259 9,935
------- -------
Cash and short-term investments
at end of period $ 4,822 $ 5,837
======= =======
The accompanying notes are an integral part of these statements.
-5- <PAGE>
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/A for the year ended June 30, 1994.
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:
1994 1995
------ ------
Quarter ended March 31, 15,258 15,478
Nine months ended March 31, 14,947 15,520
NOTE 3 - Long-term debt:
------------------------
The Company's revolving line of credit (the "agreement"),
which currently matures on June 1, 1997, permits borrowings up to
$100,000,000. At the Company's option, borrowings under the agreement
bear interest at the bank's prime rate (9% at March 31, 1995, no
borrowings with this option) and/or at the London Interbank Offered
Rate (LIBOR) plus .75 to 2.0 per cent, depending upon certain ratios
(6.87% to 7.06%, including the .75% spread, at March 31, 1995, $60
million in borrowings). The agreement 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 the option to request an
extension of the revolving period and the termination date with the
approval of its banks. Subsequent to the filing of the current year
extension request, the Company began negotiations for a new agreement.
The agreement requires no compensating balances. Under the terms of
the agreement, the Company is subject to various debt covenants
-6- <PAGE>
including maintenance of certain financial ratios, and in addition, it
limits the amount of cash dividends.
During the second quarter of fiscal 1995 the Company issued,
through the California Pollution Control Financing Authority,
$24 million of tax exempt bonds (the "bonds") with a term of twelve
years. The bonds are subject to a mandatory sinking fund redemption
of $4,000,000 each October 1, over the period of 2001 to 2006. The
proceeds of the financing are restricted to fund certain projects,
including purchases of equipment, located in California counties. As
part of this financing, the Company established an irrevocable letter
of credit for the principal amount of $24 million plus 52 days accrued
interest on the bonds to guarantee repayment. The bonds bear interest
at a floating rate (3.94% as of March 31, 1995) which is set weekly by
a remarketing agent. Simultaneously with the tax exempt bond
financing, the Company entered into an interest rate swap agreement
with a major bank whereby the Company will pay a fixed rate of 6.29%
and the bank will pay the floating rate for a period of five years.
(See Note 5)
NOTE 4 - Other Assets:
---------------------
As of March 31, 1995, the Company had $12.1 million in
restricted cash combined with Other Assets on the Consolidated Balance
Sheet. This cash, which is related to the California Pollution
Control Bonds discussed above, is held in custody by a Trustee and is
restricted as to withdrawal or use. The Trustee reimburses the
Company for qualified expenditures. As of March 31, 1995, the Company
had incurred and paid for qualified expenditures of approximately
$6 million (included in Property, Plant and Equipment on the
Consolidated Balance Sheet) for which reimbursement had not yet been
requested. The Company expects to request and receive reimbursement
of this $6 million in the fourth quarter and the balance of $6.1
million in the following two quarters. Based upon current cash flow
from operations, and the receipt of the reimbursement proceeds
discussed above, the Company intends to reduce revolving credit
agreement borrowings by $12.1 million.
Note 5 - Interest Rate Risk Management:
--------------------------------------
The Company has used an interest-rate swap agreement to
effectively convert a portion of its floating rate debt to a fixed
rate basis, thus reducing the impact of interest-rate volatility on
future operations. Approximately 25% ($24 million) of the Company's
outstanding floating rate debt was subject to this interest-rate swap
agreement as of March 31, 1995.
The swap agreement requires the Company to pay a fixed rate
to a major bank, and the bank then pays the floating rate. The
Company records the fixed rate as interest expense (See Note 3).
-7- <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
--------------------
Revenue
-------
Revenue for the third quarter and first nine months of
fiscal 1995 increased $2,689,000 and $11,273,000, or 4% and 6%, as
compared with the same periods in the prior year. The increase
resulted primarily from price and volume changes.
Operating Expenses
------------------
Operating expenses, consisting primarily of wages and
benefits for operating personnel, insurance costs, fuel costs,
disposal site fees and equipment operating costs, increased $1,243,000
and $2,741,000 for the third quarter and first nine months of fiscal
1995, respectively, over the comparable periods in the prior fiscal
year. As a percentage of revenue, these expenses decreased from 73.9%
to 72.8% and from 75.2% to 72.4% for the third quarter and first nine
months, respectively, of fiscal 1995, as compared to the same periods
in fiscal 1994. The decrease in operating expenses as a percentage of
revenue was due primarily to revenue growth discussed above in
combination with the Company's overall profit improvement efforts.
Selling, General and Administrative Expenses
--------------------------------------------
As a percentage of revenue, selling, general and
administrative expenses decreased from 14.5% to 14.2% and from 15.0%
to 14.4% for the third quarter and first nine months of fiscal 1995,
respectively, over comparable periods in the prior fiscal year. The
decrease in selling, general and administrative expenses as a
percentage of revenue occurred primarily as a result of revenue growth
discussed above in combination with the Company's concerted effort to
improve margins and profit.
Interest Expense
----------------
Interest expense increased $528,000 and $1,236,000 for the
third quarter and first nine months of fiscal 1995, respectively, as
compared to the same periods in the prior fiscal year. The increase
was due primarily to increases in average overall borrowing rates.
Interest rates on the Company's revolving credit agreement averaged
6.4% for the nine months ended March 31, 1995 versus 4.8% for same
period in the prior fiscal year.
-8- <PAGE>
Nonoperating income (expense) - Other
-------------------------------------
Nonoperating income (expense) - Other included interest
income of $179,000 and a net loss on disposal of assets of $655,000
for the quarter ended March 31, 1994. For the quarter ended March 31,
1995 this line item contained $522,000 of interest income and a net
loss of $45,000 on disposal of assets. The interest income in the
current fiscal quarter relates primarily to the restricted cash
discussed in Note 4.
Income Taxes
------------
The effective tax rates were 44.5% for the third quarter and
first nine months of fiscal 1995, respectively, as compared to 45.0%
and 44.5% for the same periods in the prior fiscal year.
Liquidity and Capital Resources
-------------------------------
Working capital -
---------------
At March 31, 1995, working capital amounted to $20,269,000
compared to $20,660,000 at June 30, 1994. The current ratio was 1.6
at June 30, 1994 and March 31, 1995.
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%, (.75% at March 31, 1995), depending upon certain ratios.
Outstanding borrowings under the Company's revolving credit agreement
were $60 million at March 31, 1995.
During the second quarter of fiscal 1995 the Company issued,
through the California Pollution Control Financing Authority,
$24 million of tax exempt bonds (the "bonds") with a term of twelve
years. The bonds are subject to mandatory sinking fund redemption of
$4,000,000 each October 1, over the period of 2001 through 2006. The
proceeds of the financing are restricted to fund certain projects,
including purchases of equipment, located in California counties. As
part of this financing, the Company established an irrevocable letter
of credit for the principal amount of $24 million plus 52 days accrued
interest on the bonds to guarantee repayment.
The bonds bear interest at a floating rate (3.94% as of
March 31, 1995) which is set weekly by a remarketing agent.
Simultaneously, as part of the overall tax exempt bond financing,
the Company entered into an interest rate swap agreement with a
major bank, with a term of five years. The Company entered into
this interest rate swap agreement to modify the interest
characteristics of this debt from a floating rate to a fixed rate
of 6.29%. The Company's objective with this swap agreement is to
minimize the impact of increases in interest-rates over the term of
-9- <PAGE>
the swap agreement. The Company has entered into only this interest
rate swap (See Note 3 and 5).
As of March 31, 1995, the Company had $12.1 million in
restricted cash combined with Other Assets on the Consolidated Balance
Sheet. This cash, which is related to the California Pollution
Control Bonds discussed above, is held in custody by a Trustee and is
restricted as to withdrawal or use. The Trustee reimburses the
Company for qualified expenditures. As of March 31, 1995, the Company
had incurred and paid for qualified expenditures of approximately
$6 million (included in Property, Plant and Equipment on the
Consolidated Balance Sheet) for which reimbursement had not yet been
requested. The Company expects to request and receive reimbursement
of this $6 million in the fourth quarter and the balance of
$6.1 million in the following two quarters. Based upon current cash
flow from operations, the receipt of the reimbursement proceeds
discussed above, and estimated capital expenditures, the Company
intends to reduce revolving credit agreement borrowings by $12.1
million.
The Company's debt to equity ratio was .63 to 1.0 at
March 31, 1995 and .67 to 1.0 at June 30, 1994. If the Company had
received the $6 million reimbursement mentioned above, prior to
March 31, 1995, and used these proceeds to reduce their revolving
credit agreement borrowings, the debt to equity ratio would have been
.59 to 1.0.
In the quarter ended March 31, 1995, the Company charged
$422,000 of landfill related costs against its landfill development
reserve established in fiscal 1993. Based upon facts presently known
to it, the Company believes that the balance of this reserve,
($3,565,000 at March 31, 1995), is adequate to cover any risks related
to ongoing developmental activities.
Capital resources -
-----------------
During the nine months ended March 31, 1995, the Company
made capital expenditures of approximately $28 million for property
and equipment. The Company estimates that total capital expenditures
for fiscal 1995 will be approximately $35 million. The Company
believes that cash provided by operations, cash provided by its
$24 million tax-exempt financing and cash available under its
revolving credit agreement will be sufficient for its capital
expenditure requirements. In addition, the Company is exploring
various municipal contract opportunities. As part of the Company's
renewed acquisition program, several potential acquisitions are being
considered. Such acquisitions, if completed, will be financed
utilizing cash, debt or stock. In April 1995, the Company filed an
S-4 shelf Registration Statement covering 3,000,000 shares of common
stock, worth approximately $50,000,000 at current prices, with the
Securities and Exchange Commission which will become effective in May
1995. The shares may be issued by the Company from time to time in
connection with the acquisition of solid waste businesses. 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 cash acquisition financing needs.
-10- <PAGE>
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.
PART II. OTHER INFORMATION
Items 1 through 5
-----------------
Items 1, 2, and 5 are not applicable.
Item 3 - Legal Proceedings
On or about February 2, 1995, a complaint was filed in a
taxpayer lawsuit entitled David Sarosi, et al. vs County of Riverside,
--------------------------------------------
et al., Riverside County Superior Court Case No. 261315. The
------
complaint does not name the Company as a defendant. The plaintiffs
allege that the County and the other defendants, in connection with a
contract with the Company, regarding the operation and management of
the El Sobrante Landfill (the "Landfill") located within the County
(the "Agreement"), engaged in various improper actions, including the
unlawful sale of public property, wasting public funds, and making an
unconstitutional gift of public property and funds. The complaint
seeks an order voiding the Agreement and an injunction ordering the
defendants to pay to the county allegedly unlawful revenues earned
from the Landfill, to cease further dumping at the Landfill of out-
of-county waste, return of alleged windfall profits and limiting
dumping fees charged to incounty residents. The complaint also seeks
general damages of $10 million and special and punitive damages,
attorneys' fees and costs. The Company believes the taxpayer suit is
based upon erroneous assumptions and that there are valid defenses
available to the County to each of the claims asserted in the
complaint.
Item 4 - Results of Votes of Security Holders
On January 27, 1995 the Company held its annual meeting of
stockholders. In addition to election of the three directors listed
in the Company's proxy materials, the Company's stockholders voted on
the following matters:
1. Approval of an amendment to the Bylaws to permit
the Board of Directors to determine the specific
number of directors within a range of five to
-11- <PAGE>
nine. The stockholders approved this proposal by
a vote of 9,656,399 to 2,267,418 with 17,553
abstaining.
2. Approval of amendments to the 1992 Stock Option
Plan. The stockholders approved this proposal by
a vote of 9,302,585 to 2,613,382 with 25,403
abstaining.
3. Approval to ratify the appointment of Ernst &
Young, LLP as independent auditors for the fiscal
year ending June 30, 1995. The stockholders
approved this proposal by a vote of 11,902,932 to
23,671 with 14,767 abstaining.
There were no broker non-votes on any of the above matters.
Item 6 - Exhibits and Report on Form 8-K
----------------------------------------
a. Exhibits -
Exhibit 27, Financial Data Schedule
b. Report on Form 8-K - There was no report on Form 8-K filed
during the quarter ended March 31, 1995.
-12- <PAGE>
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: /s Lawrence F. McQuaide
---------------------------
LAWRENCE F. MCQUAIDE
EXECUTIVE VICE PRESIDENT,
FINANCE
Date: MAY 15, 1995
----------------------------
-13- <PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description No.
----------------------------------------------------------------------
27 Financial Data Schedule 15
-14- <PAGE>
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<PERIOD-END> MAR-31-1995
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0
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