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, 1995
------------------
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, 1996
--------------------------- ----------------------------------
Common Stock - No par value 14,741,072
Exhibit Index on Page 14
-1- <PAGE>
WESTERN WASTE INDUSTRIES
INDEX
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets
June 30, 1995 - Audited
December 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. . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . 13
-2- <PAGE>
PART 1. FINANCIAL INFORMATION
WESTERN WASTE INDUSTRIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1995 1995
-------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 6,484 $ 5,059
Receivables, less allowance of $1,738 in
June 1995 and $2,164 in December 1995 29,596 32,094
Supplies 3,320 3,706
Deferred income tax benefit 4,101 4,501
Prepayments and other 3,961 3,181
-------- --------
Total current assets 47,462 48,541
Property and equipment, net 196,972 206,219
Purchased routes, net 7,340 6,599
Goodwill, net 19,994 19,636
Other assets 21,605 16,123
-------- --------
$293,373 $297,118
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current instalments of long-term debt $ 1,308 $ 1,232
Accounts payable 9,159 7,969
Accrued payroll and related costs 3,885 4,007
Other current liabilities 17,822 16,687
-------- --------
Total current liabilities 32,174 29,895
Long-term debt, excluding current
instalments 78,882 75,823
Other liabilities 18,400 19,353
Deferred income taxes 3,696 2,718
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 14,612,599
and 14,671,999 shares respectively 79,614 80,565
Retained earnings 80,607 88,764
-------- --------
Total shareholders' equity 160,221 169,329
-------- --------
$293,373 $297,118
======== ========
The accompanying notes are an integral part of these statements.
-3- <PAGE>
WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1994 1995 1994 1995
------- ------ ------- -------
(dollars in thousands except share data)
Revenue $67,671 $68,039 $134,818 $137,778
------- ------- -------- --------
Costs and expenses:
Operating 48,226 50,063 97,370 101,493
Selling, general and
administrative 9,992 10,579 19,546 20,445
------- ------- -------- --------
Total costs and
expenses 58,218 60,642 116,916 121,938
------- ------- -------- --------
Income from operations 9,453 7,397 17,902 15,840
Nonoperating income
(expense):
Interest expense (1,401) (1,106) (2,539) ( 2,273)
Other (581) 266 (544) 619
------- ------- -------- --------
(1,982) ( 840) (3,083) ( 1,654)
------- ------- -------- --------
Income before income
taxes 7,471 6,557 14,819 14,186
Income taxes 3,324 2,825 6,594 6,029
------- ------- -------- --------
Net Income $ 4,147 $ 3,732 $ 8,225 $ 8,157
======= ======= ======== ========
Primary earnings per
common share: $ .27 $ .23 $ .53 $ .51
======= ======= ======== ========
Fully diluted earnings
per common share: $ .27 $ .23 $ .53 $ .49
======= ======= ======== ========
The accompanying notes are an integral part of these statements.
-4- <PAGE>
WESTERN WASTE INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(dollars in thousands)
Six Months Ended
December 31,
---------------------
1994 1995
------- -------
Operating Activities:
Net income $ 8,225 $ 8,157
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,983 13,183
Provision for losses on accounts
receivables 769 809
Uninsured claims 557 39
Employer portion - 401(k) contribution 308 344
Deferred income tax expense (benefit) 1,464 (1,378)
Loss on disposition of assets 1,084 85
Increase (decrease) in cash resulting
from changes in operating assets and
liabilities, excluding effects of
purchased businesses:
Receivables (3,849) (6,275)
Other assets (1,851) 3,592
Accounts payable ( 285) (1,190)
Other liabilities (1,460) 35
------- -------
Net cash provided by operating activities 17,945 17,401
Investing activities:
Purchases of property and equipment (17,341) (21,892)
Proceeds from disposition of assets 453 401
------- -------
Net cash used in investing activities (16,888) (21,491)
Financing activities:
Proceeds from borrowings 7,894 7,542
Principal payments on borrowings (14,725) ( 5,349)
Proceeds from issuance of stock 1,656 472
------- -------
Net cash provided by (used in)
financing activities (5,175) 2,665
------- -------
Decrease in cash and
short-term investments (4,118) ( 1,425)
Cash and short-term investments
at beginning of period 9,935 6,484
------- -------
Cash and short-term investments
at end of period $ 5,817 $ 5,059
======= =======
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 for the year ended June 30, 1995.
Certain reclassifications have been made in prior year
financial statements to conform to the current year presentation.
NOTE 2 - Proposed Merger
------------------------
On December 18, 1995, the Company entered into an Agreement
and Plan of Merger with USA Waste Services, Inc., and Riviera
Acquisition Corporation, a wholly owned subsidiary of USA Waste,
pursuant to which Riviera would merge with and into the Company
and USA Waste would issue 1.5 shares of its common stock for each
share of the Company's common stock on the effective date of the
merger. The merger would result in the Company becoming a wholly
owned subsidiary of USA Waste. The merger is subject to the
approval of shareholders of both the Company and USA Waste, both
companies' lenders, appropriate assurances as to the treatment of
the merger as a tax-free reorganization accounted for as a
pooling of interest, expiration of the waiting period under Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
certain other conditions. It is expected that the merger will be
completed in the spring of 1996.
NOTE 3 - 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:
-6- <PAGE>
Primary Fully Diluted
--------------- ------------------
Quarter ended December 31,
1994 15,440 15,440
1995 15,966 16,547
Six months ended December 31,
1994 15,546 15,546
1995 15,928 16,535
NOTE 4 - Long-term debt:
------------------------------
Long-term debt, which approximates market value, consists of
the following:
June 30, December 31,
1995 1995
----------- ------------
(dollars in thousands)
Notes payable to banks, unsecured $44,000 $41,000
Solid Waste Disposal Revenue Bonds,
Series 1994A 24,000 24,000
Solid Waste Disposal Revenue Bonds 8,200 8,200
Pollution Control Revenue Bonds 1,133 971
Other notes payable, secured and unsecured 2,857 2,884
-------- --------
Total long-term debt 80,190 77,055
Less current instalments 1,308 1,232
-------- --------
Long-term debt, excluding current
instalments $78,882 $75,823
=========== ===========
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 and/or at the
London Interbank Offered Rate (LIBOR) plus .75 to 2.0 per cent,
depending upon certain ratios. At December 31, 1995, all
borrowings were under the LIBOR option at a rate of 6.69%. 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. The Company is in the process of
negotiating a new agreement and therefore has not filed the
extension request. 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.
-7- <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Three and Six Months
Ended December 31, 1995 And 1994
--------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
1994 1995 1994 1995
---- ---- ---- ----
Revenue 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Operating 71.2 73.6 72.2 73.7
Selling, general
& administrative 14.8 15.5 14.5 14.8
----- ----- ----- -----
86.0 89.1 86.7 88.5
----- ----- ----- -----
Income from operations 14.0 10.9 13.3 11.5
Net nonoperating expense ( 3.0) ( 1.2) ( 2.3) ( 1.2)
----- ----- ----- -----
Income before income
taxes 11.0 9.7 11.0 10.3
Income taxes 4.9 4.2 4.9 4.4
----- ----- ----- -----
Net Income 6.1% 5.5% 6.1% 5.9%
===== ===== ===== =====
See below for explanations.
Revenue
-------
The following table reflects the contribution to revenue
for the three and six months ended December 31, 1995 and 1994 by
each of the principal lines of business of the Company.
Three Months Ended Six Months Ended
December 31, December 31,
1994 1995 1994 1995
----- ----- ----- -----
Collection Services 83% 85% 84% 84%
Landfill Operations 7 7 7 7
Recycling and
Waste Diversion 5 4 5 5
Transfer Stations
and Other 5 4 4 4
----- ----- ----- -----
100% 100% 100% 100%
====== ====== ====== ======
-8- <PAGE>
As the table below indicates, revenue growth for the three
and six months ended December 31, 1995 was due largely to price
changes. Components of the increase in revenue for the three and
six months ended December 31, 1995 over the same periods in the
prior year are as follows:
Three Six
Months Months
------ ------
Price changes .8 1.8
Volume changes (.4) .3
Purchased assets .1% .1%
------ ------
.5% 2.2%
====== ======
Revenue for the three and six months ended December 31,
1995, increased $368,000 and $2,960,000, respectively, which
represents .5% and 2.2% increases over the same periods in the
prior year. The increase for the three months ended December 31,
1996 over the same period in the prior year was due to increases
from municipal and open market contracts offset by a decrease in
recycling revenue (see discussion below). The increase for the
six months ended December 31, 1995 over the same period in the
prior year was due to increases from municipal and open market
contracts and increased revenue related to cleanup after
Hurricane Erin in Florida, offset by decreased revenue due to the
completion of a landfill construction project in Florida in
August 1995.
Recycling revenue for the quarter ended December 31, 1995
decreased $549,000 and $1,039,000 over the quarters ended
December 31, 1994 and September 30, 1995, respectively, as a
result of declining average market prices. The rate of decline
of recycling prices has slowed recently but as these prices are
subject to changing market conditions no assurance can be given
as to the future financial impact on operations.
Operating Expenses
------------------
Operating expenses increased by $1,837,000 and $4,123,000 or
3.8% and 4.2% for the three and six months ended December 31,
1995, respectively, as compared to the same periods in fiscal
1995. The increase is primarily attributable to increased
disposal and payroll costs, partially offset by a decrease in
insurance related costs. Disposal costs increased primarily as a
result of increased use of third party versus Company owned
landfills. The Company is currently utilizing third party
landfills in order to maximize the value of remaining airspace at
Company owned landfills. Management believes increased disposal
fees generally can be recovered through increased prices but
there may be a lag between the time of the increase and the date
by which the cost is passed through.
-9- <PAGE>
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased by
$587,000 and $899,000 or 5.9% and 4.6% for the three and six
months ended December 31, 1995 as compared to the same periods in
the prior fiscal year. As a percentage of revenue these expenses
increased by .7% and .3% for the three and six months ended
December 31, 1995 as compared to the same periods in the prior
year. These increases occurred primarily as a result of the
Company awarding the Chief Executive Officer (CEO) of the Company
a $750,000 bonus in the current quarter offset in part by
decreased legal costs. The bonus of $750,000, which was awarded
to the CEO as a result of his and the Company's performance over
the past five years, was recommended by the Compensation
Committee and approved by the Board of Directors. Excluding this
one-time charge, these expenses, as a percentage of revenue,
would have been less than the same periods in the prior year.
Income Taxes
------------
The effective tax rate for fiscal 1996 is estimated to be
42.5% as compared to 44.5% for fiscal 1995. For the three and
six months ended December 31, 1995, the tax rates were 43% and
42.5% respectively, as compared to 44.5% for the same periods in
the prior year. The decrease results primarily from the
deductibility of previously nondeductible goodwill and a decrease
in other nondeductible items.
Liquidity and Capital Resources
-------------------------------
Working capital -
---------------
At December 31, 1995, working capital amounted to
$18,646,000 compared to $15,288,000 at June 30, 1995. The
current ratio was 1.6% at December 31, 1995 as compared to 1.5%
at June 30, 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 December 31, 1995), depending
upon certain ratios. Outstanding borrowings under the Company's
revolving credit agreement were $41 million at December 31, 1995.
The Company has an interest rate swap agreement to modify
the interest characteristics of certain debt with a current
floating rate of 4.4% 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 the swap agreement.
This swap agreement covers approximately 31% of outstanding
floating rate debt.
-10- <PAGE>
The Company's debt to equity ratio was .46 to 1.0 at
December 31, 1995 and .50 to 1.0 at June 30, 1995.
Capital resources -
-----------------
During the six months ended December 31, 1995, the Company
made expenditures of approximately $22 million for property and
equipment. The capital expenditure budget for fiscal year 1996
was established at $50 million, in anticipation of development
opportunities to provide new assets to support planned revenue
growth within all consolidated businesses and to provide for
normal replacement capital needs in the Company's core business
and acquisitions. The Company believes that cash provided by
operations, and cash available under its revolving credit
agreement will be sufficient for its capital expenditure
requirements.
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.
-11- <PAGE>
PART II. OTHER INFORMATION
Items 1 through 5
-----------------
Items 1, 2, 3, 4 and 5 are not applicable.
Item 6 - Exhibits and Report on Form 8-K
------------------------------------------
a. Exhibits -
Exhibit 27 Financial Data Schedule
b. Report on Form 8-K, Item 5 - In a report filed on
Form 8-K dated December 18, 1995, the Company reported
entering into an Agreement and Plan of Merger with USA
Waste Services, Inc., and Riviera Acquisition
Corporation, a wholly owned subsidiary of USA Waste,
pursuant to which Riviera would merge with and into
the Company. No financial statements were filed as
part of that report.
-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: FEBRUARY 13, 1995
---------------------
-13- <PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
-----------------------------------------------------------------
27 Financial Data Schedule 15
-14- <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 5,059
<SECURITIES> 0
<RECEIVABLES> 33,059
<ALLOWANCES> 2,164
<INVENTORY> 0
<CURRENT-ASSETS> 48,541
<PP&E> 315,713
<DEPRECIATION> 109,494
<TOTAL-ASSETS> 297,118
<CURRENT-LIABILITIES> 29,895
<BONDS> 75,823
0
0
<COMMON> 80,565
<OTHER-SE> 88,764
<TOTAL-LIABILITY-AND-EQUITY> 297,118
<SALES> 0
<TOTAL-REVENUES> 137,778
<CGS> 0
<TOTAL-COSTS> 101,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 809
<INTEREST-EXPENSE> 2,273
<INCOME-PRETAX> 14,186
<INCOME-TAX> 6,029
<INCOME-CONTINUING> 14,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,157
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.49
</TABLE>
