SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2001
Commission File Number 000-31050
Waste Holdings, Inc.
(exact name of Registrant as specified in its charter)
North Carolina 56-0954929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3301 Benson Drive, Suite 601
Raleigh, North Carolina
(Address of principal executive offices)
27609
(Zip Code)
(919) 325-3000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value 13,338,318 shares
(Class) (Outstanding at November 9, 2001)
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, September 30,
2000 2001
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,401 $ 2,540
Accounts receivable - trade, less allowance for
uncollectible accounts (2000 - $1,957; 2001 - $1,971) 27,983 33,006
Accounts receivable - other 663 --
Accounts receivable-income tax, net 857 --
Inventories 1,778 1,602
Prepaid insurance 626 3,321
Prepaid expenses and other current assets 3,620 3,797
Deferred income taxes 1,183 1,254
------------ -------------
Total current assets 44,111 45,520
------------ -------------
Property and equipment, net 193,295 195,375
Intangible assets, net 66,547 68,746
Other noncurrent assets 3,795 6,831
------------ -------------
Total assets $ 307,748 $ 316,472
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4,008 $ 3,871
Current maturities of capital lease obligations 995 972
Accounts payable - trade 12,178 11,503
Income taxes payable, net -- 1,073
Accrued expenses and other liabilities 9,548 10,500
Deferred revenue 1,884 2,031
------------ -------------
Total current liabilities 28,613 29,950
------------ -------------
Long-term debt, net of current maturities 193,382 182,299
Long-term capital lease obligations 1,227 569
Noncurrent deferred income taxes 14,875 14,438
Closure/postclosure liabilities 2,725 3,763
Commitments and contingencies (Note 5) -- --
Shareholders' equity: (Note 3)
Common stock, no par value, shares authorized - 80,000,000 shares issued
and outstanding: 2000 - 13,119,171; 2001 - 13,338,318 37,037 38,164
Paid-in capital 7,245 7,245
Retained earnings 36,279 41,590
Note receivable - Liberty Waste (11,538) --
Shareholders' loans and other receivables (2,097) (1,546)
------------ -------------
Total shareholders' equity 66,926 85,453
------------ -------------
Total liabilities and shareholders' equity $ 307,748 $ 316,472
============ =============
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
PART 1 - FINANCIAL INFORMATION
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- -----------------------------------
2000 2001 2000 2001
--------------- --------------- --------------- ---------------
Revenues:
Service $ 62,289 $ 62,541 $ 181,034 $ 186,407
Equipment 477 245 1,262 948
--------------- --------------- --------------- ---------------
Total revenues 62,766 62,786 182,296 187,355
--------------- --------------- --------------- ---------------
Operating costs and expenses:
Operations 39,166 40,034 112,822 117,324
Equipment 251 144 758 709
Selling, general and administrative 10,207 9,562 28,715 28,159
Depreciation and amortization 6,880 7,364 19,538 22,042
Organizational costs - - - 570
Loss on sale of business unit - - 1,677 359
--------------- --------------- --------------- ---------------
Total operating costs and expenses 56,504 57,104 163,510 169,163
--------------- --------------- --------------- ---------------
Operating income: 6,262 5,682 18,786 18,192
--------------- --------------- --------------- ---------------
Interest expense 3,773 3,085 10,011 11,309
Interest income (370) (349) (1,078) (1,107)
Other income (25) (215) (143) (309)
--------------- --------------- --------------- ---------------
Total other expense, net 3,378 2,521 8,790 9,893
--------------- --------------- --------------- ---------------
Income before income taxes 2,884 3,161 9,996 8,299
Income tax expense 1,154 1,138 4,002 2,988
--------------- --------------- --------------- ---------------
Net income $ 1,730 $ 2,023 $ 5,994 $ 5,311
=============== =============== =============== ===============
Earnings per share
Basic $ 0.13 $ 0.15 $ 0.44 $ 0.40
Diluted $ 0.13 $ 0.15 $ 0.43 $ 0.40
Weighted-average number of shares outstanding
Basic 13,633 13,338 13,778 13,272
Diluted 13,815 13,361 13,999 13,281
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
PART 1 - FINANCIAL INFORMATION
WASTE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------
2000 2001
---------- ----------
Operating Activities:
Net income $ 5,994 $ 5,311
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,538 22,042
Gain on sale of property and equipment (112) (91)
Loss on sale of business unit 1,677 359
Provision for deferred income taxes 2,012 (508)
Changes in operating assets and liabilities, net of effects
from acquisition and disposition of related businesses (5,711) (6,529)
---------- ----------
Net cash provided by operating activities 23,398 20,584
---------- ----------
Investing Activities:
Acquisitions of related business, net of cash acquired (43,964) (5,216)
Proceeds from disposal of a business unit 9,897 426
Proceeds from sale of property and equipment 536 321
Purchases of property and equipment (32,588) (22,291)
---------- ----------
Net cash used in investing activities (66,119) (26,760)
---------- ----------
Financing Activities:
Proceeds from issuance of long term debt 88,423 56,744
Principal payments of long-term debt (33,721) (67,964)
Principal payments of capital lease obligations (840) (681)
(Advances) repayments under shareholder loans and receivables, net (1,014) 551
Net proceeds from common stock issuance 36 18
Net proceeds from exercised options 1,328 1,109
Repurchase of common stock (11,006) --
Loan repayment from Liberty Waste -- 11,538
---------- ----------
Net cash provided by financing activities 43,206 1,315
---------- ----------
Increase (decrease) in cash and cash equivalents 485 (4,861)
Cash and cash equivalents, beginning of period 3,176 7,401
---------- ----------
Cash and cash equivalents, end of period $ 3,661 $ 2,540
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
WASTE HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. As applicable under such regulations,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the presentations and
disclosures in the financial statements included herein are adequate to make the
information not misleading. The financial statements reflect normal adjustments
which are necessary for a fair statement of the results for the interim periods
presented. Operating results for interim periods are not necessarily indicative
of the results for full years or the interim periods.
Waste Holdings is the successor interest to Waste Industries. Waste Holdings was
formed in September 2000 by Waste Industries for the purpose of becoming Waste
Industries' parent holding company. The holding company reorganization was
completed on March 31, 2001 upon the merger of Waste Industries into Waste
Industries MergeCo, LLC, a wholly owned subsidiary of Waste Holdings. Each share
of Waste Industries outstanding common stock was automatically converted into
one share of Waste Holdings common stock.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
Recent Developments
Purchase Acquisitions and Disposition:
During the nine months ended September 30, 2001, the Company made the
following acquisitions, which were accounted for as purchases, and a
disposition:
. On March 1, 2001, the Company acquired commercial routes in Memphis
and Nashville, Tennessee; Norfolk, Virginia; Augusta, Georgia; and
Pensacola, Florida for $5.0 million in cash from Allied Waste
Industries, Inc. The Memphis and Norfolk operations are tuck-ins to
existing operations and the Nashville, Augusta, and Pensacola
operations are in new markets.
. On May 15, 2001, the Company disposed of a business unit for $426,000
in cash and notes from Capital Cartage, Inc.
. On September 27, 2001, the Company acquired residential and commercial
routes from Andrews Garbage Service as a tuck-in to existing
operations in Crossville, Tennessee for approximately $216,000 in
cash.
The acquisitions were funded primarily with proceeds from the Company's
long-term revolving credit facilities.
Components of cash used for the acquisitions reflected in the unaudited
condensed consolidated statement of cash flows for the nine months ended
September 30, 2001 are as follows (in thousands):
Fair value of tangible assets acquired $ 1,805
Liabilities assumed (289)
Goodwill 3,700
--------
Total consideration paid, including direct cost, net of cash acquired $ 5,216
========
5
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS - (Continued)
In accordance with the purchase method of accounting, the purchase price has
been allocated to the underlying assets and liabilities based on their
respective fair values at the date of acquisition. These purchase price
allocations are preliminary estimates, based on available information and
certain assumptions management believes are reasonable. Accordingly, such
purchase price allocations are subject to finalization.
The following unaudited pro forma results of operations for the nine months
ended September 30, 2000 and 2001 assume the acquisitions described above
occurred as of January 1, 2000 and 2001, after giving effect to certain
adjustments, including the amortization of the excess of cost over the
underlying assets (in thousands):
2000 2001
------ ------
Total revenues $ 184,785 $ 188,003
------------ -------------
Operating income 18,951 18,314
------------ -------------
Net income 6,045 5,371
------------ -------------
Earnings per common share:
Basic $ 0.44 $ 0.40
------------ -------------
Diluted $ 0.43 $ 0.40
------------ -------------
The pro forma financial information does not purport to be indicative of the
results of operations that would have occurred had the acquisition taken place
at the beginning of the periods presented or of future operating results.
Property and equipment are stated at cost. Depreciation expense is calculated on
the straight-line method over a period between 5 to 30 years. Goodwill is
amortized using the straight-line method over 25 to 40 years. These 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.
Certain 2000 financial statement amounts have been reclassified to conform with
the 2001 presentation.
2. EARNINGS PER SHARE
Basic and diluted earnings per share computations are based on the
weighted-average common stock outstanding and include the dilutive effect of
stock options using the treasury stock method. For the nine-month periods ended
September 30, 2000 and 2001, stock options of 156,934 and 483,795, respectively,
were excluded from the computations of diluted earnings per share because the
impact of their inclusion would be anti-dilutive.
3. SHAREHOLDERS' EQUITY
The Company issued 2,824 and 2,843 shares of Company common stock with a fair
value of approximately $39,000 and $19,000 for the nine-month periods ended
September 30, 2000 and 2001, respectively, that were recorded as director's
fees.
Stock options totaling 264,309 and 216,304 were exercised with net proceeds of
approximately $1.3 million and $1.1 million during the nine-month periods ended
September 30, 2000 and 2001, respectively.
During the nine-month period ended September 30, 2000, the Company completed its
stock repurchase program with the purchase of 1,000,000 shares of its common
stock at a cost of $11.0 million. Cash for the stock repurchase program was
funded by the Company's existing revolving credit facilities.
During the nine-month period ended September 30, 2001, the Liberty Waste note
receivable totaling $11.5 million was repaid.
6
4. LONG-TERM DEBT
On April 5, 2001, we closed on a variable rate development bond with Sampson
County ("Sampson facility"). This bond provides up to $33.7 million of income
tax exempt funding. As of September 30, 2001, an aggregate of approximately
$33.7 million was outstanding under the Sampson facility. The bonds are backed
by a letter of credit issued by Wachovia Bank & Trust as a participating lender
under our Fleet syndication. The average interest rate on outstanding borrowings
was approximately 2.43% at September 30, 2001.
As of September 30, 2001, the Company has drawn approximately $30.9 million from
the Sampson facility in order to repay funds borrowed from the Fleet syndication
used to finance the original Sampson County Landfill acquisition. The remaining
$2.8 million is classified as restricted cash within other non-current assets.
5. COMMITMENTS AND CONTINGENCIES
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 these
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.
The Company will have material financial obligations relating to disposal site
closure and long-term care obligations of landfill facilities which it had
acquired through the nine-month period ended September 30, 2001. The Company
provides accruals for future obligations (generally for a term of 30 to 40 years
after final closure of the landfill) based on engineering estimates of
consumption of permitted landfill airspace over the useful life of the landfill.
The Company's ultimate financial obligations for actual closing or post-closing
costs might 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 operations.
6. NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS No. 133 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. Management does not believe the Company has any derivative
instruments or hedging activities that are within the scope of SFAS No. 133 and,
accordingly, the adoption of SFAS No. 133 has not had a material impact on the
Company's consolidated financial statements.
In June 2001 the FASB approved SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 prospectively prohibits
the pooling of interest method of accounting for business combinations initiated
after June 30, 2001. The Company adopted SFAS No. 141 effective July 1, 2001.
The adoption did not have a material impact on the Company's consolidated
financial statements. SFAS No. 142 requires a company to cease amortizing
goodwill recorded on its books and records upon adoption on January 1, 2002. Any
goodwill resulting from acquisitions completed after June 30, 2001 will not be
amortized. SFAS No. 142 also establishes a new method of testing goodwill for
impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. The adoption of SFAS No. 142 will result in the Company's
discontinuation of amortization of its goodwill; however, the Company will be
required to test its goodwill for impairment under the new standard beginning in
the first quarter of 2002. During the nine months ended September 30, 2000 and
2001, the amortization of goodwill and other intangible assets totaled $1.9
million and $2.1 million respectively. The Company is currently evaluating the
provisions and the impact of SFAS 142 on the Company's consolidated financial
statements.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 standardizes the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. As a result, SFAS 143 will become effective for
the Company on January 1, 2003. The Company is currently evaluating the
provisions and the impact of SFAS 143 on the Company's consolidated financial
statements.
7
In August 2001, Statement of Financial Accounting Standards No. 144 ("FAS 144"),
Accounting for the Impairment for Disposal of Long-Lived Assets was issued. This
statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This Statement supersedes FAS Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions of APB Opinion No.
30 Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). The Company is currently assessing, and
have not yet determined the impact of FAS 144 on the Company's consolidated
financial statements.
8
ITEM 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 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 the Company "believes," "anticipates," "expects" or words
of similar meaning. Similarly, statements that describe the Company's 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 including
general economic conditions, the ability to manage growth, the availability and
integration of acquisition targets, competition, geographic concentration,
weather conditions, government regulation and others set forth in the Company's
Form 10-K. 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.
OVERVIEW
Waste Holdings is a regional, vertically-integrated provider of solid waste
services. 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. As of September 30,
2001, we operated 42 collection operations, 24 transfer stations, approximately
100 county convenience drop-off centers, eight recycling facilities and ten
landfills in the southeastern U.S. We had revenues of $242.4 million and
operating income of $25.5 million in the year ended December 31, 2000, and
revenues of $187.4 million and operating income of $18.2 million for the nine
months ended September 30, 2001.
Our presence in growth markets in the southeastern U.S., including North
Carolina, Georgia and Virginia, has supported our internal growth. In addition,
from 1990 through the nine months ended September 30, 2001, we acquired 60 solid
waste collection or disposal operations. Current levels of population growth and
economic development in the southeastern U.S. and our strong market presence in
the region should provide us with an opportunity to increase our revenues and
market share. As we add customers in our existing markets, our density should
improve, which we expect will increase our collection efficiencies and
profitability.
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 September 30, 2001, 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 September 30, 2001, 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
9
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, insurance,
equipment maintenance and tipping fees paid to landfills. At September 30, 2001,
we owned, operated or transferred from 24 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 and
transportation costs. At September 30, 2001, we owned and/or operated ten
landfills. Operating expenses for these landfill operations include labor,
equipment, legal and administrative, ongoing environmental compliance, host
community taxes, 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 corporate
services, are expensed as incurred. Our policy is to charge to operating costs
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, or 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.
10
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2000 2001 2000 2001
------------- ------------ ----------- ------------
Total revenues 100.0% 100.0% 100.0% 100.0%
Service 99.2% 99.6% 99.3% 99.5%
Equipment 0.8% 0.4% 0.7% 0.5%
------------- ------------ ----------- ------------
Cost of operations 62.4% 63.8% 61.9% 62.6%
Cost of equipment sales 0.4% 0.2% 0.4% 0.4%
Selling, general and administrative 16.2% 15.2% 15.8% 15.0%
Depreciation and amortization 11.0% 11.7% 10.7% 11.8%
Loss on disposal of business unit 0.0% 0.0% 0.9% 0.2%
Startup and organizational costs 0.0% 0.0% 0.0% 0.3%
------------- ------------ ----------- ------------
Operating income 10.0% 9.1% 10.3% 9.7%
------------- ------------ ----------- ------------
Interest expense 5.4% 4.4% 4.9% 5.5%
Other income 0.0% -0.3% -0.1% -0.2%
------------- ------------ ----------- ------------
Income before income taxes 4.6% 5.0% 5.5% 4.4%
Income taxes 1.8% 1.8% 2.2% 1.6%
------------- ------------ ----------- ------------
Net income 2.8% 3.2% 3.3% 2.8%
============= ============ =========== ============
Three- and Nine-Month Periods Ended September 30, 2001 vs. Three- and Nine-Month
Periods Ended September 30, 2000
REVENUES. Total revenues remained stable at $62.8 million for the three-month
period ended September 30, 2001, compared to the same period in 2000, and
increased $5.1 million, or 2.8% for the nine-month period ended September 30,
2001, compared with the same period in 2000. The increase in the nine-month
period was attributable primarily to the following factors: (1) the effect of
seven businesses acquired during the year ended December 31, 2000 and contracts
acquired through September 30, 2001, resulting in a $7.8 million increase for
the nine-month period ended September 30, 2001, offset by the decrease in
revenues due to the loss on sale of a business unit of $4.7 million for the
nine-month period ended September 30 2001; and (2) the effect of prices and
collection volumes resulting from new municipal and commercial contracts and
residential subscriptions and annexation fees, resulting in an increase of $2.0
million for the nine-month period ended September 30, 2001.
COST OF OPERATIONS. Cost of operations increased $0.9 million, or 2.2%, and $4.5
million, or 4.0%, respectively, for the three- and nine-month periods ended
September 30, 2001, compared to the same periods in 2000. The increase for the
three-month period was attributed to the following: (1) a $0.3 million increase
in labor costs and associated expenses, (2) a $1.5 million increase in insurance
expense and (3) a $0.3 million increase in fleet maintenance costs and general
costs associated with acquisitions of new businesses during the period. These
increases were offset by a decrease in landfill and disposal fees of $1.2
million. The increase for the nine-month period was attributed to the following:
(1) a $1.1 million increase in labor costs and associated expenses, (2) a $3.9
million increase in insurance expense, (3) a $1.6 million increase in fleet
maintenance costs and $1.0 million in general costs associated with acquisitions
of new businesses during the period and (4) a $1.0 million increase in landfill
maintenance costs. For the nine-month period ended September 30, 2001, these
increases were offset by a decrease in landfill and disposal fees of $4.1
million. Total cost of operations as a percentage of revenues increased to 63.8%
from 62.4% and to 62.6% from 61.9% for the three- and nine-month periods ended
September 30, 2001 and 2000, respectively.
SG&A. SG&A decreased $0.6 million, or 6.3%, and decreased $0.6 million, or 1.9%,
respectively, for the three- and nine-month periods ended September 30, 2001,
compared with the same periods in 2000. The decreases were primarily
attributable to an increased management focus and evaluation of expenditures.
SG&A as a percentage of revenues decreased to 15.2% from 16.2% and to 15.0% from
15.8% for the three- and nine-month periods ended September 30, 2001 and 2000,
respectively.
11
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.5
million, or 7.0%, and $2.5 million, or 12.8%, respectively, for the three- and
nine-month periods ended September 30, 2001, compared to the same periods in
2000. Depreciation and amortization, as a percentage of revenues, increased to
11.7% from 11.0% and to 11.8% from 10.7%, respectively, for the three- and
nine-month periods ended September 30, 2001 and 2000. The primary components of
this increase were (1) the increase in equipment acquired for operation at the
landfills and (2) the effect of additional depreciation related to the seven
businesses acquired during the year ended December 31, 2000 and the two
businesses acquired during the nine-month period ended September 30, 2001.
INTEREST EXPENSE. Interest expense (net of interest income) decreased $0.7
million, or 19.6%, and increased $1.3 million, or 14.2%, respectively, for the
three- and nine-month periods ended September 30, 2001, compared to the same
periods in 2000. The decrease for the three-month period was primarily due to a
decrease in our total outstanding debt. The increase for the nine-month period
was primarily due to the higher level of average outstanding indebtedness for
(1) businesses acquired in 2000 and 2001 and (2) the debt incurred to fund our
stock repurchase plan completed in the third quarter of 2000.
INCOME TAX EXPENSE. Income tax expense remained relatively stable for the
three-month period ended September 30, 2001 compared to the same period in 2000.
For the nine-month period ended September 30, 2001, income tax expense decreased
$1.0 million, or 25.3%. The decrease was due to (1) a decline in income before
taxes and (2) a decrease in the effective tax rate of approximately 4.0% (from
40.0% to 36.0%) for the nine-month period ended September 30, 2001. The decrease
in the effective tax rate was due to the reorganization of our corporate legal
structure completed in the quarter ended March 31, 2001.
NET INCOME. Net income increased $0.3 million, or 16.9%, for the three-month
period ended September 30, 2001, and decreased $0.7 million, or 11.4%, for the
nine-month period ended September 30, 2001, compared to the same periods in
2000. The increase for the three-month period ended September 30, 2001 was
primarily related to a decrease in interest expense and income tax expense. The
decrease for the nine-month period ended September 30, 2001 was primarily
attributable to increased insurance expense, landfill maintenance costs and
accrual expenses and interest expense (net of interest income) offset by a
decrease in income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital at September 30, 2001 was $15.6 million compared to $15.5
million at December 31, 2000. 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 facilities 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 2001. As of September 30, 2001, 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, all subject to renewal.
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., 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 1.5% to 2.5% 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 September 30, 2001, an aggregate of approximately $84
million was outstanding under the Fleet credit facility, and the average
interest rate on outstanding borrowings was approximately 5.70%.
12
Net cash provided by operating activities decreased $2.8 million to $20.6
million for the nine-month period ended September 30, 2001, compared to net cash
provided by operating activities of $23.4 million for the nine-month period
ended September 30, 2000. This decrease was caused principally by a reduction in
net income of $0.7 million, an increase in non-cash depreciation and
amortization of $2.5 million, an increase in working capital of $0.8 million,
and the remainder related to a decrease in deferred income taxes.
Net cash used in investing activities decreased $39.4 million to $26.8 million
for the nine-month period ended September 30, 2001, compared to $66.1 million
for the nine-month period ended September 30, 2000. This decrease was caused
principally by a lower level of acquisitions of related businesses of $38.7
million, a decrease in proceeds from the sale of a business unit of $9.5 million
and a decrease in capital expenditures of $10.3 million.
We currently expect capital expenditures for 2001 to be approximately $24.0
million, compared to $42.3 million in 2000. In 2001, we expect to use
approximately $6.5 million for vehicle and equipment additions and replacements,
approximately $8.7 million for landfill site and cell development, approximately
$6.0 million for support equipment and approximately $2.8 million for
facilities, additions and improvements. We expect to fund our planned 2001
capital expenditures principally through internally generated funds and
borrowings under existing credit facilities. As an owner 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. We expect we would fund any
capital expenditures to acquire solid waste collection and disposal business, to
the extent we could not fund such acquisitions with our common stock, and any
regulatory expenses for newly acquired disposal facilities through borrowings
under our existing credit facilities.
Net cash provided by financing activities decreased $41.9 million to $1.3
million for the nine-month period ended September 30, 2001, compared to $43.2
million for the nine-month period ended September 30, 2000. The decrease was
primarily attributable to decreased borrowings (net of repayments) of $65.9
million offset by (1) an increase of repayments of $11.5 million from Liberty
Waste, (2) a decrease of $11.0 million due to repurchases of our outstanding
common stock in 2000 and (3) a decrease in shareholder loans and receivables of
$1.5 million.
At September, 2001, we had approximately $187.7 million of long-term and
short-term borrowings outstanding (including capital lease obligations) and
approximately $41.0 million in letters of credit. At September 30, 2001, the
ratio of our total debt (including capital lease obligations) to total
capitalization was 68.7%, compared to 74.9% at December 31, 2000.
Prepaid insurance increased approximately $2.7 million to $3.3 million at
September 30, 2001 from $0.6 million at December 31, 2000, due primarily to the
prepayment of our annual insurance premium for auto liability and physical
damage coverage and workers' compensation coverage. This payment was made in
advance in order to obtain a lower insurance rate.
Other non-current assets increased approximately $3.0 million at September 30,
2001 from $3.8 million at December 31, 2000, due primarily to an increase of
restricted cash totaling $4.9 million from the issuance of the Sampson facility,
offset by the receipt of bond proceeds totaling $1.7 million.
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 seasonality
reflects the lower volume of waste generated 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure has not changed materially from the exposure as
disclosed in our 2000 Annual Report on Form 10-K.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See exhibit index
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SIGNATURE
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 thereunto duly authorized.
Dated: November 13, 2001 Waste Holdings, Inc.
(Registrant)
By: /s/ D. Steve Grissom
-------------------------------
D. Steve Grissom
Chief Financial Officer
(Principal Financial Officer)
15
WASTE HOLDINGS, INC.
EXHIBIT INDEX
Third Quarter 2001
Exhibit Number Exhibit Description
-------------- -------------------
11 Computation of Earnings Per Share
16