SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22602
CONTINENTAL WASTE INDUSTRIES, INC.
(Exact name of small business issuer as specified in its
charter)
Delaware 11-2909512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
67 Walnut Avenue, Suite 103
Clark, New Jersey 07066
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(908) 396-0018
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past
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
6,364,228 shares of Common Stock, $.001 par value, were outstanding
as of August 10, 1995.
Transitional Small Business Disclosure Format Yes X No
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet - June 30, 1995 . . . . .3
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1995 and 1994 . . . . . . . .4
Condensed Consolidated Statements of Income -
Six Months Ended June 30, 1995 and 1994 . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 . . .. . . . . . .6
Notes to Condensed Consolidated Financial Statements. .. . .7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .. . .9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . .. . 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . .. . 12<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
June 30,
1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,794,547
Accounts and notes receivable - net 6,705,032
Other current assets 5,238,574
TOTAL CURRENT ASSETS 15,738,153
LANDFILL, PROPERTY AND EQUIPMENT - net 67,421,726
EXCESS COST OVER THE FAIR VALUE
OF NET ASSETS ACQUIRED - net 9,980,425
OTHER ASSETS 7,971,204
TOTAL ASSETS $101,111,508
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 786,393
Accounts payable 2,492,830
Other accrued liabilities 5,385,387
TOTAL CURRENT LIABILITIES 8,664,610
LONG-TERM DEBT, less current maturities 34,901,571
ACCRUED LANDFILL CLOSURE COSTS, less
current portion 6,856,722
OTHER LONG-TERM LIABILITIES 10,466,725
STOCKHOLDERS' EQUITY:
Common stock, $.001, authorized 10,000,000
shares, issued and outstanding 6,269,596 6,318
Additional paid-in capital 33,541,021
Retained earnings 7,146,640
Treasury stock (47,625 common shares) (472,099)
TOTAL STOCKHOLDERS' EQUITY 40,221,880
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,111,508
The accompanying notes to condensed consolidated financial statements
are an integral part of this balance sheet.<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
June 30
1995 1994
Revenue $10,769,885 $5,388,037
Costs and expenses:
Operating expenses 4,704,522 2,526,835
General and administrative expenses 1,712,004 732,580
Depreciation and amortization 1,398,791 837,069
Income from operations 2,954,568 1,291,553
Other income (expenses):
Interest expense, net (658,612) (307,778)
Other, net (31,148) (25,472)
Other income (expenses), net (696,175) (333,250)
Income before income taxes and
minority interest 2,264,808 958,303
Provision for income taxes (950,160) (421,653)
Net income $1,314,648 $ 536,650
Earnings per share:
Primary $0.19 $0.17
Fully diluted $0.19 $0.15
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Six Months Ended
June 30,
1995 1994
Revenue $20,478,298 $9,761,828
Costs and expenses:
Operating expenses 9,376,272 4,752,822
General and administrative expenses 2,983,937 1,387,829
Depreciation and amortization 2,758,981 1,497,549
Income from operations 5,359,108 2,123,628
Other income (expenses):
Interest expense, net (1,212,582) (599,926)
Other, net (85,658) (25,306)
Other income (expenses), net (1,298,240) (625,232)
Income before income taxes and
minority interest 4,060,868 1,498,396
Provision for income taxes (1,722,970) (659,294)
Net income $2,337,898 $ 839,102
Earnings per share:
Primary $0.34 $0.27
Fully diluted $0.33 $0.24
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
1995 1994
Cash flows from operating activities:
Net income $2,337,898 $ 839,102
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,758,981 1,497,549
Compensatory warrants 15,420 --
Changes in operating assets and liabilities:
Accounts and notes receivables, net (1,284,921) (802,521)
Other current assets (537,661) (160,320)
Accounts payable (543,353) (182,845)
Other current liabilities (204,615) 498,889
Other long-term liabilities 860,826 138,510
Other long-term assets (486,004) (424,697)
Net cash provided by operating activities 2,916,571 1,403,667
Cash flows from investing activities:
Capital expenditures (10,104,903) (4,518,388)
Cash paid for business (1,065,755) --
Cash paid for common and preferred stock
of minority interest (669,824) --
Cash held in escrow (937,571) (6,437)
Acquisition of landfill development project -- (1,498,248)
Net cash used in investing activities (12,778,053) (6,023,073)
Cash flows from financing activities:
Issuance of long-term debt 32,713,054 4,993,857
Payments on long-term debt (23,176,035) (2,194,308)
Deferred financing costs paid (716,871) --
Net borrowings under short-term
lines of credit -- (240,000)
Exercise of warrants for common stock 218,715 --
Issuance of common stock 305,479 2,476,250
Purchase of treasury stock (365,550) --
Net cash provided by financing activities 8,978,792 5,035,799
Net decrease in cash and cash equivalents (882,690) 416,393
Cash and cash equivalents, beginning of year 4,677,237 1,062,049
Cash and cash equivalents, end of period $3,794,547 $1,478,442
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
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 (consisting of normal
recurring accruals) have been included. Operating results for the
three and six months ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1995. For further information, refer to the financial
statements and footnotes thereto included in Continental Waste
Industries, Inc. ("the Company's") Form 10-KSB for the year ended
December 31, 1994.
Certain amounts in previously issued financial statements have been
reclassified to conform to 1995 classifications.
Note 2- Business Combinations and Equity Offering
During the second half of 1994, the Company purchased a majority
interest in Victory Waste Incorporated ("Victory") and G.E.M.
Environmental Management, Inc. ("GEM") which is a subsidiary of
Victory. As of June 30, 1995, the Company owns 100% of Victory and
100% of GEM with a final distribution to minority shareholders of
$816,302. The balance of the GEM shares were acquired pursuant to a
cash-out merger. The balance of the Victory shares were acquired as
a result of a cash-out reverse stock split. As of June 30, 1995, the
Company has issued 777,030 common shares ("Shares"), $3,395,000 in
cash and payables and contingent options with a fair market value of
approximately $2,520,000. There are also approximately 191,270
contingent Shares outstanding for the purchase of these companies.
During the second quarter of 1995, the Company purchased two hauling
and collection companies for a total of approximately $1.4 million.
In November 1994, the Company completed a public offering of
1,533,616 Shares (1,400,000 Shares were sold by the Company and
133,616 Shares were sold by certain stockholders of the Company).
The Company received approximately $11.6 million of net proceeds from
the sale of which approximately $3.1 million was used to redeem all
of the outstanding Series B preferred shares and pay related accrued
interest and dividends. The remaining $8.5 million was used for
general corporate purposes, which included working capital, capital
expenditures (primarily for the expansion of existing landfills) and
acquisitions.
Concurrent with the public offering, in order to eliminate the
accrual of any further dividends on the Series A preferred stock,
the Series A preferred stockholders agreed to and have converted the
425,200 Series A preferred shares into 425,200 Shares. The Company,
in consideration of the conversion, issued warrants to purchase
42,656 Shares at an exercise price of $9.50 to the holders of the
Series A preferred shares. The warrants expire in 1999.
Subsequent to June 30, 1995, the Company purchased two hauling and
collection companies and a recycling center for a total of
approximately $5.0 million in Indiana and Missouri. The Company
purchased a company in Mexico engaged in engineering and consulting,
landfill management and hauling and collection for a total of
approximately $1.4 million.
Note 3 - Earnings Per Share
Primary earnings per share for the periods are based upon the
weighted average number of common and common equivalent shares
outstanding during such periods, contingent shares and options
related to the Victory Waste acquisition and net income. Common
equivalent shares result from dilutive stock options and warrants.
Primary weighted average shares were 6,848,000 and 3,101,000 for the
six months ended June 30, 1995 and 1994, respectively, and 6,876,000
and 3,238,000 for the three months ended June 30, 1995 and 1994,
respectively.
Fully diluted earnings per share are similarly computed but include,
if dilutive, the effect of the Company's convertible Series A
preferred stock which was outstanding during the three and six months
ended June 30, 1994.
Fully dilutive weighted average shares were 6,961,000 and 3,526,000
for the six months ended June 30, 1995 and 1994, respectively, and
6,985,000 and 3,663,000 for the three months ended June 30, 1995 and
1994, respectively.
Note 4 - Supplemental Cash Flows Disclosure
Six Months Ended
June 30,
1995 1994
Cash paid during the period for:
Interest, net of interest capitalized $1,416,311 $576,981
Income taxes $1,233,011 $405,645
Common stock issued in settlement of
certain liabilities $ --- $ 93,297
Business acquisitions:
Common stock issued $ 96,688 $ --
Notes issued to sellers 244,284 --
Cash paid 1,065,755 --
Total consideration paid 1,406,727 --
Assets received 2,276,513 --
Liabilities assumed $ 869,786 $ --
Note 5 - Other Information
Selected balance sheet account disclosures follow:
June 30,
1995
Allowance for doubtful accounts $ 322,415
Accumulated depreciation and amortization
of property and equipment $10,331,557
Accumulated amortization of excess cost
over the fair value of net assets acquired $ 1,051,883
Note 6 - Debt
On March 28, 1995, the Company entered into a $45 million revolving
credit facility agreement (the "Revolver") with LaSalle National Bank
("LNB") expiring in March 1998. At June 30, 1995, the weighted
average interest rate of the outstanding Revolver was 9.2%. The
Revolver includes provisions for letters of credit up to $5.0
million. The Company also has a 1/2% fee on the average unused portion
of the Revolver and up to 2.0% on average outstanding letters of
credit. The Revolver is secured by all corporate assets and a pledge
of the stock of all subsidiaries. As of June 30, 1995, there was
$32,500,000 outstanding under the Revolver.
Under the Revolver, the Company is required to meet certain financial
covenants. As of June 30, 1995, the Company was in violation of one
such covenant. LNB has issued a waiver of noncompliance regarding
this covenant violation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Background:
Continental Waste Industries, Inc. (the "Company") provides
integrated non-hazardous waste management services through the
operation of landfills, transfer stations, and hauling companies in
selected urban, suburban and rural markets, primarily concentrated in
the central United States. The Company's objective is to continue to
expand as an integrated provider of nonhazardous solid waste
management services in selected markets in the United States and
Latin America. The Company's strategy for achieving this objective
is to expand in current marketplaces, acquire customer routes and
purchase new businesses.
Results of Operations
Quarter Ended June 30, 1995 Compared to Quarter Ended June 30, 1994
Revenue:
Revenue increased by $5.4 million, or 100%, from $5.4 million to
$10.8 million. The increase in revenue was primarily due to the
acquisition of Victory Waste Incorporated ("Victory") on July 1, 1994
($4.1 million), the acquisition of a Costa Rican landfill and hauling
operations during the third quarter of 1994, two additional hauling
and collection companies in the second quarter of 1995, and increased
waste collection.
Operating Expenses:
Operating expenses, including depreciation and amortization,
increased by $2.7 million from $3.4 million to $6.1 million in the
second quarter of 1995 compared with the same period in 1994 but
decreased as a percentage of revenue from 62.4% to 56.7%,
respectively. The percentage decrease was primarily due to operating
cost efficiencies achieved at both the landfill operations and the
hauling and collection operations and acquired companies experiencing
a lower percentage than the Company did in the prior year. The
dollar increase was primarily due to the acquisition of Victory.
General and Administrative Expenses:
General and administrative expenses increased by $979,000 from
$733,000 to $1.7 million and increased as a percentage of revenues
from 13.6% to 15.9%. The percentage increase was a result of
acquired companies experiencing a higher percentage than the Company
did in the prior year. The dollar increase was primarily due to the
acquisition of Victory.
Interest Expense, Net:
Interest expense was $308,000 for the second quarter of 1994 compared
to $659,000 for the same period in 1995. The increase was due
primarily to increased levels of debt assumed or incurred in the
acquisition of Victory and the other acquisitions previously
mentioned and the financing of capital expenditures.
Provision for Income Taxes:
The provision for income taxes increased by $528,000 from $422,000 to
$950,000 as a result of a higher income level partially offset by a
lower effective tax rate in 1995.
Net Income:
For the reasons discussed above, the Company's net income increased
by $778,000 from $537,000 to $1.3 million.
Preferred Stock Dividends:
Series A and Series B Preferred Stock dividends had been suspended
since April 1, 1993, by agreement with the holders of such stock. In
November 1994, all of the outstanding shares of the Series A and
Series B preferred shares were converted into common shares and
redeemed, respectively.
Results of Operations
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30,
1994
Revenue:
Revenue increased by $10.7 million, or 110%, from $9.8 million to
$20.5 million. The increase in revenue was
primarily due to the acquisition of Victory Waste Incorporated
("Victory") on July 1, 1994 ($7.1 million), increased
landfill activity, the acquisition of a Costa Rican landfill and
hauling operations during the third quarter of 1994, two additional
hauling and collection companies in the second quarter of 1995, and
increased waste collection.
Operating Expenses:
Operating expenses, including depreciation and amortization,
increased by $5.8 million from $6.3 million to $12.1 million in the
first half of 1995 compared with the same period in 1994 but
decreased as a percentage of revenue from 64.0% to 59.3%,
respectively. The percentage decrease was primarily attributable to
the economics of scale in the Company's landfill and collection
operations achieved through higher activity levels which improved the
percentage relationship and acquired companies experiencing a lower
percentage than the Company did in the prior year. The dollar
increase was primarily due to the acquisition of Victory.
General and Administrative Expenses:
General and administrative expenses increased by $1.6 million from
$1.4 million to $3.0 million and increased as a percentage of
revenues from 14.2% to 14.6%. The percentage increase was a result
of acquired companies experiencing a higher percentage than the
Company did in the prior year. The dollar increase was primarily due
to the acquisition of Victory.
Interest Expense, Net:
Interest expense was $600,000 for the first half of 1994 compared to
$1.2 million for the same period in 1995. The increase was due
primarily to increased levels of debt assumed or incurred in the
acquisition of Victory and the other acquisitions previously
mentioned and the financing of capital expenditures.
Provision for Income Taxes:
The provision for income taxes increased by $1.1 million from
$659,000 to $1.7 million as a result of a higher income level
partially offset by a lower effective tax rate in 1995.
Net Income:
For the reasons discussed above, the Company's net income increased
by $1.5 million from $839,000 to $2.3 million.
Preferred Stock Dividends:
Series A and Series B Preferred Stock dividends had been suspended
since April 1, 1993, by agreement with the holders of such stock. In
November 1994, all of the outstanding shares of the Series A and
Series B preferred shares were converted into common shares and
redeemed, respectively.
Changes in Financial Condition, Liquidity and Capital Resources
The Company's cash requirements consist principally of working
capital, payments of principal and interest on its outstanding
indebtedness and capital expenditures. At June 30, 1995, the Company
had working capital of $7.1 million, and its cash and cash
equivalents balance was $3.8 million. The growth in working capital
is primarily attributable to the 1994 public and private offerings of
its common stock ($16.5 million in 1994), the exercise of warrants
for common stock ($1.2 million in 1994), and the refinancing of the
Company's debt by entering into a $45 million long-term revolving
credit facility agreement in March 1995.
Cash Flow from Operating Activities:
During the six months ended June 30, 1995 and 1994, net cash provided
by operating activities was $2.9 million and $1.4 million,
respectively. This increase is primarily due to higher earnings
(excluding the effect of noncash charges) in the first half of 1995
versus the same period in 1994, and long-term liabilities increasing
more in the first half of 1995 versus the same prior year period.
These were offset by accounts receivable and other current assets
increasing more in the first half of 1995 compared with the same
prior year period and net accounts payable and accrued expenses
decreasing more in the first half of 1995 versus 1994.
Cash Flow from Investing Activities:
During the six months ended June 30, 1995 and 1994, the Company made
capital expenditures of approximately $10.1 million and $4.5 million,
respectively, for landfill expansions, equipment additions and a
landfill development project in 1994. The Company expects total
expenditures for 1995 will be approximately $15.0 million to $17.0
million.
Cash Flow from Financing Activities:
Cash flows from financing activities were approximately $9.0 million
and $5.0 million during the first half of 1995 and 1994,
respectively. The increases were due to the effect of new
indebtedness and common stock issued upon the exercise of certain
warrants in the first half of 1994.
On March 28, 1995, the Company entered into a $45 million revolving
credit facility agreement (the "Revolver") with LaSalle National Bank
("LNB") expiring in March 1998. At June 30, 1995, the weighted
average interest rate of the outstanding Revolver was 9.2%. The
Revolver includes provisions for letters of credit up to $5.0
million. The Company also has a 1/2% fee on the average unused portion
of the Revolver and up to 2.0% on average outstanding letters of
credit. The Revolver is secured by all corporate assets and a pledge
of the stock of all subsidiaries. As of June 30, 1995, there was
$32.5 million outstanding under the Revolver.
Under the Revolver, the Company is required to meet certain financial
covenants. As of June 30, 1995, the Company was in violation of one
such covenant. LNB has issued a waiver of noncompliance regarding
this covenant violation.
During the first half of 1995, 29,635 shares of common stock were
issued upon the exercise of certain warrants for $218,715.
The Company believes that cash from operating activities, cash on
hand, additional borrowings under the Revolver, issuance of
additional debt, and access to capital markets, including public and
private placement offerings, will be sufficient to: (i) finance its
planned 1995 development projects and capital expenditures; (ii) meet
its 1995 operating cash requirements; and (iii) meet expected debt
service obligations during the next two years.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 22, 1995, the Company held its annual meeting of
stockholders. All voting shares approved the selection of Arthur
Andersen LLP as independent accountants of the Company for fiscal
year ending December 31, 1995, with 4,005,416 in favor, 1,400 against
and 1,700 votes abstaining. All voting shareholders approved
amending the Company's Articles of Incorporation to provide for a
Stock Option Plan, with 3,524,146 in favor, 420,070 against and 3,800
abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
None.
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: August 14, 1995
By: /s/ Michael J. Drury
MICHAEL J. DRURY
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet at June 30, 1995 and Consolidated
Statement of Operations for the six months ended June 30, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,794,547
<SECURITIES> 0
<RECEIVABLES> 7,027,447
<ALLOWANCES> 322,415
<INVENTORY> 0
<CURRENT-ASSETS> 15,738,153
<PP&E> 77,753,283
<DEPRECIATION> 10,331,557
<TOTAL-ASSETS> 101,111,508
<CURRENT-LIABILITIES> 8,664,610
<BONDS> 34,901,571
<COMMON> 6,318
0
0
<OTHER-SE> 40,215,562
<TOTAL-LIABILITY-AND-EQUITY> 101,111,508
<SALES> 0
<TOTAL-REVENUES> 20,478,298
<CGS> 0
<TOTAL-COSTS> 15,119,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,297,995
<INCOME-PRETAX> 4,060,868
<INCOME-TAX> 1,722,970
<INCOME-CONTINUING> 2,337,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,337,898
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
</TABLE>
