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 March 31, 2004
Commission File Number 000-31050
Waste Industries USA, Inc.
(exact name of Registrant as specified in its charter)
| North Carolina | 56-0954929 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
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 | 13,500,659 shares | |
| (Class) | (Outstanding at May 14, 2004) |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
WASTE INDUSTRIES USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| December 31, 2003 |
March 31, 2004 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 4,127 | $ | 1,782 | ||||
| Accounts receivable - trade, less allowance for uncollectible accounts (2003 - $2,608; 2004 - $2,645) |
31,235 | 30,170 | ||||||
| Accounts receivable - other |
1,182 | 1,203 | ||||||
| Inventories |
1,427 | 1,548 | ||||||
| Prepaid insurance |
602 | 245 | ||||||
| Prepaid expenses and other current assets |
1,836 | 2,367 | ||||||
| Deferred income taxes |
1,350 | 1,248 | ||||||
| Total current assets |
41,759 | 38,563 | ||||||
| Property and equipment, net (Note 9) |
190,871 | 187,642 | ||||||
| Intangible assets, net (Note 2) |
90,122 | 90,482 | ||||||
| Restricted cash - bonds |
822 | 822 | ||||||
| Deferred financing costs |
2,834 | 2,631 | ||||||
| Other noncurrent assets |
4,120 | 4,344 | ||||||
| Total assets |
$ | 330,528 | $ | 324,484 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current maturities of long-term debt |
$ | 10,723 | $ | 10,733 | ||||
| Current maturities of capital lease obligations |
160 | 51 | ||||||
| Accounts payable - trade |
13,299 | 10,867 | ||||||
| Acquisition related obligations |
1,949 | 1,842 | ||||||
| Accrued interest payable |
1,408 | 1,431 | ||||||
| Accrued wages and benefits payable |
4,294 | 4,889 | ||||||
| Income taxes payable |
841 | 374 | ||||||
| Accrued expenses and other liabilities |
4,941 | 6,381 | ||||||
| Closure/post-closure liabilities |
816 | 4,915 | ||||||
| Derivative liabilities |
1,212 | 935 | ||||||
| Deferred revenue |
2,421 | 2,947 | ||||||
| Total current liabilities |
42,064 | 45,365 | ||||||
| Long-term debt, net of current maturities |
157,657 | 149,076 | ||||||
| Deferred income taxes |
18,240 | 18,151 | ||||||
| Closure/post-closure liabilities (Note 9) |
5,348 | 1,516 | ||||||
| Derivative liabilities (Note 6) |
260 | 540 | ||||||
| Commitments and contingencies (Note 7) |
— | — | ||||||
| Shareholders’ equity: (Note 5) |
||||||||
| Common stock, no par value, shares authorized - 80,000,000 shares issued and outstanding: December 31, 2003 - 13,492,402; March 31, 2004 - 13,497,168 |
39,139 | 39,171 | ||||||
| Paid-in capital |
7,342 | 7,342 | ||||||
| Retained earnings |
61,369 | 64,194 | ||||||
| Accumulated other comprehensive loss, net (Note 6) |
(891 | ) | (871 | ) | ||||
| Total shareholders’ equity |
106,959 | 109,836 | ||||||
| Total liabilities and shareholders’ equity |
$ | 330,528 | $ | 324,484 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
PART 1 – FINANCIAL INFORMATION
WASTE INDUSTRIES USA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenues: |
||||||||
| Service |
$ | 62,486 | $ | 69,021 | ||||
| Equipment sales |
447 | 219 | ||||||
| Total revenues |
62,933 | 69,240 | ||||||
| Operating costs and expenses: |
||||||||
| Operations |
40,212 | 45,551 | ||||||
| Equipment sales |
293 | 127 | ||||||
| Selling, general and administrative |
9,068 | 9,413 | ||||||
| Depreciation and amortization |
7,501 | 7,339 | ||||||
| Gain on sale of property and equipment |
(11 | ) | (117 | ) | ||||
| Total operating costs and expenses |
57,063 | 62,313 | ||||||
| Operating income |
5,870 | 6,927 | ||||||
| Interest expense (net) |
2,458 | 2,542 | ||||||
| Other income |
(15 | ) | (65 | ) | ||||
| Total other expense, net |
2,443 | 2,477 | ||||||
| Income before income taxes and cumulative effect of a change in account principle |
3,427 | 4,450 | ||||||
| Income tax expense |
1,240 | 1,625 | ||||||
| Income before cumulative effect of a change in accounting principle |
2,187 | 2,825 | ||||||
| Cumulative effect of a change in accounting principle, net of income tax benefit of $614 |
(1,067 | ) | — | |||||
| Net Income |
$ | 1,120 | $ | 2,825 | ||||
| Basic and diluted earnings per share: |
||||||||
| Before cumulative effect of a change in accounting principle |
$ | 0.16 | $ | 0.21 | ||||
| Cumulative effect of a change in accounting principle |
(0.08 | ) | — | |||||
| Net Income |
$ | 0.08 | $ | 0.21 | ||||
| Weighted-average number of common shares outstanding |
||||||||
| Basic |
13,405 | 13,493 | ||||||
| Diluted |
13,418 | 13,658 | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
PART 1 – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | 1,120 | $ | 2,825 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
7,501 | 7,339 | ||||||
| Gain on sale of property and equipment |
(11 | ) | (117 | ) | ||||
| Cumulative effect of a change in accounting principle |
1,067 | — | ||||||
| Stock compensation expense |
5 | 5 | ||||||
| (Benefit) provision for deferred income taxes |
(624 | ) | 1 | |||||
| Changes in operating assets and liabilities, net of effects from acquisition of related businesses |
538 | 55 | ||||||
| Net cash provided by operating activities |
9,596 | 10,108 | ||||||
| Investing Activities: |
||||||||
| Acquisition of related businesses, net of cash acquired |
(4,090 | ) | (430 | ) | ||||
| Acquisition liabilities |
465 | (107 | ) | |||||
| Proceeds from sale of property and equipment |
882 | 760 | ||||||
| Purchases of property and equipment |
(6,544 | ) | (4,020 | ) | ||||
| Net cash used in investing activities |
(9,287 | ) | (3,797 | ) | ||||
| Financing Activities: |
||||||||
| Proceeds from issuance of long-term debt |
5,000 | 3,000 | ||||||
| Principal payments of long-term debt |
(4,550 | ) | (11,571 | ) | ||||
| Principal payments of capital lease obligations |
(124 | ) | (109 | ) | ||||
| Financing costs |
— | (3 | ) | |||||
| Net proceeds from exercised options |
5 | 27 | ||||||
| Net cash provided by (used in) financing activities |
331 | (8,656 | ) | |||||
| Increase (decrease) in cash and cash equivalents |
640 | (2,345 | ) | |||||
| Cash and cash equivalents, beginning of period |
1,734 | 4,127 | ||||||
| Cash and cash equivalents, end of period |
$ | 2,374 | $ | 1,782 | ||||
| Non Cash Investing Activity - Restricted Cash - Bonds |
$ | — | $ | 822 | ||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for interest |
$ | 2,093 | $ | 2,380 | ||||
| Cash paid for taxes |
$ | 239 | $ | 2,116 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
WASTE INDUSTRIES USA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND RECENT DEVELOPMENTS
Basis of Presentation
The unaudited 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 accounting principles generally accepted in the United States of America 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 that 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 other interim periods.
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, 2003.
Recent Developments
Purchase Acquisitions:
During the three-month period ended March 31, 2004, the Company made the following acquisitions:
Effective January 1, 2004, the Company acquired American Disposal for approximately $76,000 in cash. This tuck-in acquisition provides residential services to existing operations in the Myrtle Beach, South Carolina market.
On January 31, 2004, the Company purchased L&M Sanitation for approximately $120,000 in cash. This tuck-in acquisition of residential services expands our customer base in our existing operations in eastern North Carolina.
On March 31, 2004, the Company acquired M&M Sanitation for approximately $234,000 in cash. This acquisition of residential services is a tuck-in to our existing operations in the Easley, South Carolina market.
These acquisitions were funded primarily with cash from operations.
As of March 31, 2004, the recorded purchase price allocation for these acquisitions was as follows (in thousands):
| Tangible Net Assets Acquired at Fair Value: |
||||
| Accounts receivable |
$ | 29 | ||
| Property and equipment |
136 | |||
| Liabilities assumed |
(160 | ) | ||
| Total net tangible assets acquired |
5 | |||
| Intangible Assets Acquired at Fair Value: |
||||
| Customer lists |
148 | |||
| Contracts |
2 | |||
| Goodwill |
275 | |||
| Total net assets acquired at fair value |
$ | 430 | ||
5
In accordance with the Statement of Financial Accounting Standards, or (“SFAS”), No. 141, Business Combinations, 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 that management believes are reasonable. Accordingly, these purchase price allocations are subject to finalization.
The following unaudited pro forma results of operations for the three-month periods ended March 31, 2003 and 2004 assume the acquisitions described above occurred as of January 1, (in thousands):
| 2003 |
2004 | |||||
| Total revenues |
$ | 63,106 | $ | 69,310 | ||
| Operating income |
5,930 | 6,952 | ||||
| Net income before cumulative effect of a change in accounting principle |
2,219 | 2,837 | ||||
| Cumulative effect of a change in accounting principle |
1,067 | — | ||||
| Net income |
$ | 1,152 | $ | 2,837 | ||
| Earnings per common share basic and | ||||||