<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ALLWASTE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[Allwaste Logo] 5151 San Felipe Road, Suite 1600
Houston, Texas 77056-3609
(713) 623-8777
December 16, 1996
To the Stockholders of Allwaste, Inc.:
The Annual Meeting of Stockholders of the Company will be held on Friday,
January 17, 1997, at 1:00 p.m. (CST) at the Texas Commerce Center Auditorium,
601 Travis Street, Houston, Texas.
A notice of the Annual Meeting, proxy and Proxy Statement containing
information about the matters to be acted on at the Annual Meeting are
enclosed. The Company's audited consolidated financial statements, certain
general information, Selected Financial Data and Management's Discussion and
Analysis of Financial Condition and Results of Operations are contained in the
enclosed Appendix to the Proxy Statement as a separately-bound document to
facilitate retention as a reference source.
The Company's 1996 Annual Report, which is not a part of the enclosed
Proxy Statement, is also enclosed and contains our letter to stockholders, a
financial and operating review and outlook, condensed consolidated financial
statements, as well as additional information of interest to our stockholders.
Holders of shares of the Company's common stock are entitled to vote
at the Annual Meeting on the basis of one vote for each share held.
All stockholders of the Company are cordially invited to attend the Annual
Meeting. If you cannot attend, please assist us in preparing for the Annual
Meeting by promptly completing, signing and returning your proxy. Even though
you return your completed and signed proxy, you will still retain the right to
revoke your proxy designation at any time prior to the Annual Meeting and vote
in person at the Annual Meeting if you wish. The prompt return of proxies will
ensure a quorum and save the Company the expense of further solicitation.
Very truly yours,
R.L. NELSON, JR.
Chairman of the Board of Directors
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY WITHOUT DELAY.
NO POSTAGE IS REQUIRED ON THE ENCLOSED ENVELOPE
IF IT IS MAILED IN THE UNITED STATES.
<PAGE> 3
[Allwaste Logo] 5151 San Felipe Road, Suite 1600
Houston, Texas 77056-3609
(713) 623-8777
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 17, 1997
Notice is hereby given that the Annual Meeting of Stockholders of
Allwaste, Inc., a Delaware corporation (the "Company"), will be held at the
Texas Commerce Center Auditorium, 601 Travis Street, Houston, Texas, at 1:00
p.m. (CST) on Friday, January 17, 1997, for the following purposes:
1. To elect three Class I directors of the Company, such directors to
hold office until the third succeeding Annual Meeting of Stockholders after
their election (the 2000 Annual Meeting); and
2. To transact such other business as may properly be brought before
the Annual Meeting or any adjournment thereof.
Information with respect to the above matters is set forth in the
proxy statement that accompanies this notice. Only holders of record of shares
of the Company's common stock at the close of business on November 19, 1996
will be entitled to notice of and to vote at the Annual Meeting or any
postponement or adjournment thereof. A list of such stockholders will be open
to the examination of any stockholder during ordinary business hours, for a
period of ten days prior to the Annual Meeting, at the principal executive
offices of the Company, 5151 San Felipe Road, Suite 1600, Houston, Texas 77056.
All stockholders of the Company are invited to attend the Annual
Meeting. Please complete, sign and promptly return the enclosed proxy in the
envelope provided for such purpose.
By Order of the Board of Directors,
WILLIAM L. FIEDLER
SECRETARY
Houston, Texas
December 16, 1996
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY WITHOUT DELAY.
NO POSTAGE IS REQUIRED ON THE ENCLOSED ENVELOPE
IF IT IS MAILED IN THE UNITED STATES.
<PAGE> 4
[Allwaste Logo] 5151 San Felipe Road, Suite 1600
Houston, Texas 77056-3609
(713) 623-8777
December 16, 1996
PROXY STATEMENT
SOLICITATION, REVOCABILITY AND VOTING OF PROXIES
This proxy statement is furnished to the holders of record of the
common stock, par value $.01 per share (the "Common Stock"), of Allwaste, Inc.,
a Delaware corporation (the "Company"), in connection with the solicitation on
behalf of the Board of Directors of the Company of proxies for use at the
Annual Meeting of Stockholders to be held on January 17, 1997, and any
postponements or adjournments thereof, for the purpose of considering and
acting on the matters set forth in the accompanying notice of the Annual
Meeting. Proxy solicitation materials are first being mailed to stockholders on
or about December 16, 1996.
Shares of Common Stock represented by an unrevoked, properly executed
proxy delivered to the Company prior to or at the time of the Annual Meeting
will be voted in accordance with the instructions specified thereon. If no
instructions are specified on the proxy, shares represented thereby will be
voted: (i) for the election of the three nominees specified herein as Class I
directors of the Company; and (ii) in the discretion of the holder of the
proxy, on all other matters that may properly come before the Annual Meeting.
Any stockholder who has given a proxy may revoke his or her proxy by
executing a proxy bearing a later date or by delivering written notice of
revocation of his or her proxy executed in the same manner as the proxy to the
Secretary of the Company at the Company's executive offices at any time prior
to the Annual Meeting or any postponement or adjournment thereof. Prior to
exercise thereof with respect to any matter submitted to a vote of the
stockholders, any stockholder who attends the Annual Meeting or any
postponement or adjournment thereof in person may revoke any proxy previously
given and vote by ballot.
The presence of the holders of a majority of the issued and
outstanding shares of Common Stock entitled to vote at the Annual Meeting,
either in person or represented by a properly executed proxy, is necessary to
constitute a quorum for the transaction of business at the Annual Meeting. If
there are not sufficient shares represented in person or by proxy at the Annual
Meeting to constitute a quorum, the Annual Meeting may be postponed or
adjourned in order to permit further solicitation of proxies by the Company.
Proxies given pursuant to this solicitation and not revoked may be voted at any
postponement or adjournment of the Annual Meeting in the manner set forth
herein.
<PAGE> 5
The election of directors will be determined by a plurality of the
votes cast by holders of shares of Common Stock present in person or
represented by duly executed proxies, and the approval of any other matters
will require the affirmative vote of the holders of a majority of the shares
present in person or represented by duly executed proxies at the Annual Meeting
and entitled to vote on the subject matter, provided a quorum is present.
Accordingly, in the case of shares that are present at the Annual Meeting for
quorum purposes, not voting such shares for a particular nominee for director
(including by withholding authority on the proxy) will not operate to prevent
the election of such nominee if other stockholders vote for such nominee; an
abstention on any other proposal will have the effect of a vote against such
proposal; and a broker "non-vote" (which results when a broker holding shares
for a beneficial owner has not received timely voting instructions on certain
matters from such beneficial owner and does not vote) will have no effect on
the outcome of the vote on any of the proposals. Abstentions are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. New York Stock Exchange Rules provide that brokers holding shares
in street names for customers, who have not received voting instructions from
their customers, have discretion to give a proxy and vote on the election of
directors.
The total expense of the Annual Meeting, including the expense of
preparing and mailing proxy solicitation materials, will be borne by the
Company. In addition to solicitation of proxies by mail, certain directors,
officers, representatives and regular employees of the Company may solicit
proxies by telephone, telegram and personal interview. Such individuals will
not receive additional compensation from the Company for solicitation of
proxies, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Banks, brokers and others who hold shares of
the Company's Common Stock in nominee names also may be requested by the
Company to distribute proxy solicitation materials to beneficial owners and
will be reimbursed by the Company for reasonable out-of-pocket expenses which
they may incur in so doing. Brokers and other custodians, nominees and
fiduciaries also will be reimbursed by the Company for the reasonable expenses
they may incur in sending proxy solicitation materials to the beneficial owners
of the Company's Common Stock.
2
<PAGE> 6
VOTING SECURITIES, SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
All stockholders of record as of the close of business on November 19,
1996 will be entitled to notice of and to vote at the Annual Meeting. On
November 19, 1996, there were 36,828,024 shares of Common Stock issued and
outstanding and held of record by 2,402 persons. The Common Stock is the only
outstanding class of voting securities of the Company. Stockholders are
entitled to one vote for each share of Common Stock held by them on all matters
to be voted on at the Annual Meeting. Cumulative voting for the election of
directors is not permitted.
The following table sets forth information as of December 1, 1996 with
respect to the beneficial ownership of the Company's Common Stock by: (i) all
beneficial holders of 5% or more of the shares of the Company's issued and
outstanding Common Stock; (ii) each director and nominee for director of the
Company individually; (iii) each executive officer named in the Summary
Compensation Table set forth below under the heading "Executive Compensation";
and (iv) all directors, nominees for director and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
OPTIONS
SOLE VOTING AND EXERCISABLE SHARES HELD
INVESTMENT WITHIN UNDER 401(K)
NAME OF BENEFICIAL OWNER POWER 60 DAYS PLAN(1)
------------------------ --------------- ----------- -------------
<S> <C> <C> <C>
Heartland Group, Inc. . . . . 5,278,600 - 0 - - 0 -
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Merrill Lynch Asset . . . . . 2,210,500 - 0 - - 0 -
Management, L.P.(2)
Fund Asset Management, L.P.(2)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
R. L. Nelson, Jr. . . . . . . 1,021,456 - 0 -(3) 15,084
Robert M. Chiste . . . . . . 279,860 - 0 -(3) 2,331
Michael A. Baker . . . . . . - 0 - 15,000(3) - 0 -
John U. Clarke . . . . . . . 5,000 - 0 -(3) - 0 -
William E. Haynes . . . . . . - 0 - - 0 -(3) - 0 -
Robert L. Knauss . . . . . . - 0 - 12,500(3) - 0 -
Frank A. Rossi . . . . . . . 5,000 - 0 -(3) - 0 -
Thomas J. Tierney . . . . . . 20,000 30,000(3) - 0 -
T. Michael Young . . . . . . 2,000 - 0 -(3) - 0 -
David E. Fanta . . . . . . . 50,751 40,899(3) 9,524
James E. Rief . . . . . . . . 33,913 5,908(3) - 0 -
T. Wayne Wren, Jr. . . . . . 32,334 27,777 - 0 -
All directors, nominees for
director and executive officers as 1,477,861 153,722(7) 29,009
a group (14 persons) . . . .
</TABLE>
* Indicates less than 1.0%.
<TABLE>
<CAPTION>
OTHER BENEFICIAL TOTAL BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OWNERSHIP OF CLASS
------------------------ ---------------- ---------------- --------
<S> <C> <C> <C>
Heartland Group, Inc. . . . . - 0 - 5,278,600 14.34%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Merrill Lynch Asset . . . . . - 0 - 2,210,500 6.01
Management, L.P.(2)
Fund Asset Management, L.P.(2)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
R. L. Nelson, Jr. . . . . . . 2,000(4) 1,038,540 2.82
Robert M. Chiste . . . . . . 3,986(5) 286,177 *
Michael A. Baker . . . . . . 19,600(6) 34,600 *
John U. Clarke . . . . . . . - 0 - 5,000 *
William E. Haynes . . . . . . - 0 - - 0 - *
Robert L. Knauss . . . . . . - 0 - 12,500 *
Frank A. Rossi . . . . . . . - 0 - 5,000 *
Thomas J. Tierney . . . . . . - 0 - 50,000 *
T. Michael Young . . . . . . - 0 - 2,000 *
David E. Fanta . . . . . . . - 0 - 101,174 *
James E. Rief . . . . . . . . - 0 - 39,821 *
T. Wayne Wren, Jr. . . . . . - 0 - 60,111 *
All directors, nominees for
director and executive officers as
a group (14 persons) . . . . 25,886 1,686,478 4.58%
</TABLE>
* Indicates less than 1.0%.
(Footnotes on following page)
3
<PAGE> 7
(1) Share amounts included in this column represent shares allocated to the
employee through participation in the Allwaste Employee Retirement Plan (the
"401(k) Plan") according to a 401(k) Plan statement dated as of July 2, 1996,
with respect to which NationsBank Texas, N.A., the 401(k) Plan Trustee, has
sole voting power and the employee has sole investment power.
(2) Merrill Lynch Asset Management, L.P. d/b/a Merrill Lynch Asset Management
("MLAM") and Fund Asset Management, L.P. d/b/a Fund Asset Management ("FAM")
are indirect wholly-owned subsidiaries of Merrill Lynch & Co., Inc., which may
be deemed to share investment and voting authority with MLAM and FAM.
(3) On July 19, 1996, the Compensation Committee approved a stock option
exchange offer program (the "Exchange Offer"), pursuant to which all holders of
stock options under the Company's Amended and Restated 1989 Replacement
Non-Qualified Stock Option Plan (the "1989 Option Plan") were offered the
opportunity to exchange their existing outstanding option grants for new option
grants with a new exercise price of $4.81 per share, a new eight-year term and
a new four-year vesting schedule. See "Board Compensation Committee Report on
Executive Compensation -- Stock Option Exchanges" and "Executive Compensation
- -- Report of the Compensation Committee on 1996 Stock Option Exchange Program
- -- Ten Year Option/SAR Repricings."
(4) Represents shares of Common Stock held by Mr. Nelson as custodian with
respect to which Mr. Nelson possesses sole voting and investment power.
(5) Represents shares of Common Stock held by various members of Mr. Chiste's
family.
(6) Represents shares of Common Stock held in trust with respect to which Mr.
Baker serves as trustee and possesses sole voting and investment power.
(7) Includes all options to purchase shares of Common Stock which are
exercisable as of December 1, 1996 and become exercisable within the next 60
days, but excludes: (i) options to purchase 2,142,990 shares of Common Stock
granted to seven executive officers not currently exercisable and not
exercisable within the next 60 days (such other options become exercisable in
various annual installments through July 2000); and (ii) options to purchase an
aggregate of 247,500 shares of Common Stock granted to seven non-employee
directors not currently exercisable and not exercisable within the next 60 days
(such other options become exercisable in various annual installments through
July 2000).
ELECTION OF DIRECTORS
The business and affairs of the Company, as provided in Article Sixth
of the Company's Amended and Restated Certificate of Incorporation (the
"Charter"), are managed by the Board of Directors. Article Sixth of the Charter
provides that the total number of directors that will constitute the entire
Board will be not less than nine and not more than fifteen, and that the
directors shall be divided into three equal or nearly equal classes. The term
of office of Class I directors expires at this Annual Meeting of Stockholders
to be held January 17, 1997; the term of office of Class II directors expires
at the 1998 Annual Meeting of Stockholders (i.e., one year of the term
remaining); and the term of office of the Class III directors expires at the
1999 Annual Meeting of Stockholders (i.e., two years of the term remaining).
The Board of Directors currently consists of nine directors. Three
nominees, each of whom is an incumbent Class I Director, are proposed to be
elected at this Annual Meeting to serve for a three-year term to expire at the
2000 Annual Meeting of Stockholders and until their successors are chosen and
have qualified.
4
<PAGE> 8
VOTE REQUIRED
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock present in person or represented by duly executed
proxies at the Annual Meeting for the election of a given nominee is necessary
to elect such nominee as a director of the Company (i.e., the director nominees
receiving the greatest number of votes cast will be elected, regardless of the
number withheld from voting for the election of such director nominees),
provided a quorum is present. See "Solicitation, Revocability and Voting of
Proxies."
DIRECTORS AND NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
The following table sets forth with respect to each nominee named
herein and each director whose term of office will continue for a period after
the Annual Meeting: (i) the name and age of such person; (ii) the principal
occupation of such person; and (iii) the year during which such person first
became a director of the Company or of its predecessor. Three nominees are
proposed to be elected at this Annual Meeting, each of whom is an incumbent
Class I director and each of whom will serve, if elected, for a three-year term
to expire at the 2000 Annual Meeting of Stockholders and until his successor is
chosen and has qualified. The persons named as proxies in the accompanying
proxy, or their substitutes, will vote for the nominees for director who have
been designated as such by the Board of Directors. If, for any reason not
presently known, any nominee is not available for election, another person or
other persons who may be nominated will be voted for in the discretion of the
proxy holders.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---- --- -------------------- --------------
CLASS I -- NOMINEES; IF ELECTED, TERMS EXPIRE AT THE THIRD SUCCEEDING ANNUAL MEETING (2000)
<S> <C> <C> <C>
Michael A. Baker . . . . . . 51 Independent Business Consultant 1984
R. L. Nelson, Jr. . . . . . . 58 Chairman of the Board of Directors of 1978
the Company
Frank A. Rossi . . . . . . . 59 Chairman of FAR Holdings Company April 1996
CLASS II -- DIRECTORS WHOSE TERMS EXPIRE AT THE FIRST SUCCEEDING ANNUAL MEETING (1998)
Robert L. Knauss . . . . . . 65 President and Chief Executive Officer of 1988
Baltic International USA, Inc.
T. Michael Young . . . . . . 52 President and Chief Executive Officer of 1989
Hi-Lo Automotive, Inc.
Robert M. Chiste . . . . . . 49 President and Chief Executive Officer of 1995
the Company
CLASS III -- DIRECTOR NOMINEES FOR TERMS EXPIRING AT THE SECOND SUCCEEDING ANNUAL MEETING (1999)
Thomas J. Tierney . . . . . . 65 Chairman of the Board of Corporate 1990
Communications Center, Inc.
William E. Haynes . . . . . . 53 Independent Business Consultant July 1996
John U. Clarke . . . . . . . 44 Managing Director of Simmons & Company 1995
International
</TABLE>
5
<PAGE> 9
Michael A. Baker has served as a Director of the Company since
November 1984. From June 1989 to October 1991, Mr. Baker served as an officer
and director of Sanifill, Inc., a Houston-based landfill development company
founded by Mr. Baker and others, and he continued to serve as a member of the
Board of Directors of Sanifill through May 1992. Mr. Baker has served as a
Director of American Medical Response, Inc., a Boston-based company engaged in
the provision of a national ambulance service network, since February 1992 and
currently serves as an outside consultant to various private companies.
Raymond L. Nelson, Jr. is the principal founder and Chairman of the
Board of Directors of the Company. Since founding the Company, Mr. Nelson
served as its President, Chief Executive Officer and Chief Operating Officer
from time to time. Mr. Nelson has been involved in various aspects of the waste
industry for over 30 years. Prior to starting the Allwaste Services businesses
in January 1978, Mr. Nelson was a divisional Vice President of Browning-Ferris
Industries, Inc., a Houston-based waste services company, working in the areas
of acquisitions, operations and market development.
Frank A. Rossi became a Director of the Company in April 1996. Mr.
Rossi served Arthur Andersen LLP in various management capacities for over 35
years prior to his retirement in 1994, including serving as Managing Partner --
Chief Operating Officer. Mr. Rossi is currently the Chairman of FAR Holdings
Company, LLC, a Chicago-based private investment firm. He is also a director of
Affiliated Computer Services, Inc., a nationwide provider of information
technology services based in Dallas, Texas.
Robert M. Chiste, a Director of the Company since January 1995, became
President and Chief Executive Officer of the Company in October 1994. He served
as Chief Executive Officer and President of American National Power, Inc., a
successor company of Transco Energy Ventures Company (TEVCO), since its
creation in 1986 until October 1994. During the same period, he served as
Senior Vice President of Transco Energy Company. From 1981 to 1986, he served,
most recently, as a Senior Vice President of Enron Oil and Gas Corporation and
its predecessor. Mr. Chiste also serves as a director of Franklin Credit
Management Corp., a New York-based financial services company.
Robert L. Knauss became a Director of the Company in March 1988. Mr.
Knauss is President and Chief Executive Officer of Baltic International USA,
Inc., an aviation investments company based in Houston, Texas. Mr. Knauss
served as the Dean and Distinguished University Professor of the University of
Houston Law Center from 1981 to 1993. Mr. Knauss is also a director of The
Mexico Fund, Inc., an investment fund based in Mexico City; Equus II, Inc., an
investment fund based in Houston, Texas; and Air Baltic Corporation, an
international airline based in Riga, Latvia.
T. Michael Young became a Director of the Company in March 1989. Mr.
Young has served since October 1987 as the President and Chief Executive
Officer of Hi-Lo Automotive, Inc., a retailer of automotive supplies based in
Houston, Texas.
William E. Haynes became a Director of the Company in July 1996. From
1993 until his retirement in 1995, Mr. Haynes served as the President and
Chief Executive Officer of LYONDELL-CITGO Refining Company Ltd. Mr. Haynes
served in various senior management capacities for Lyondell-Citgo Petrochemical
Company from 1985 to 1993.
6
<PAGE> 10
John U. Clarke became a Director of the Company in July 1995. Since
May 1996, Mr. Clarke has served as a Managing Director of Simmons & Company
International, an investment banking firm. From May 1995 to May 1996, Mr.
Clarke served as the President of Concept Capital Group, Inc., a Houston-based
financial and strategic advisory services firm. He served as Executive Vice
President -- Chief Financial and Administrative Officer of Cabot Oil & Gas
Corporation, a Houston-based independent natural gas producer, from August 1993
to February 1995. From April 1981 to May 1993, Mr. Clarke was employed with
Transco Energy Company, serving most recently as Senior Vice President and
Chief Financial Officer.
Thomas J. Tierney became a Director of the Company in February 1990.
Mr. Tierney also serves as Chairman of the Board of Directors of Corporate
Communications Center, Inc., a Dallas-based communications company, a position
he has held for the past 21 years. Mr. Tierney is also a Director of M/A/R/C,
Inc., a marketing research and services company based in Irving, Texas, and of
Comerica Bank -- Texas.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended August 31, 1996, the Board of Directors
held four meetings and acted 12 times by unanimous consent. During fiscal 1996,
each member of the Board of Directors attended at least 75% of all meetings of
the Board of Directors and committees of the Board of Directors of which such
director was a member.
There are four standing committees of the Board of Directors which
have the following described responsibilities and authority.
AUDIT COMMITTEE. The Audit Committee consists of T. Michael Young
(chairman), Robert L. Knauss and Thomas J. Tierney. The Audit Committee: (i)
makes recommendations to the Board of Directors with respect to the independent
auditors that conduct the annual examination of the Company's accounts; (ii)
approves major accounting policies; (iii) periodically reviews principal
internal controls and related organizational matters to assure that necessary
actions are taken to maintain a sound and modern system of financial controls;
(iv) reviews the scope of the annual examination of accounts and the division
of responsibilities between the external and internal auditors; (v)
periodically reviews the findings and recommendations of the external and
internal auditors; (vi) provides a means of communication between the Board of
Directors and accounting personnel, both external and internal; and (vii)
provides the directors with information and advice on matters pertaining to
accounting policies and financial controls. During fiscal 1996, the Audit
Committee held two meetings and took no action by unanimous written consent.
COMPENSATION COMMITTEE. The Compensation Committee consists of Robert
L. Knauss (chairman), Michael A. Baker and John U. Clarke. The Compensation
Committee periodically determines the amount and form of compensation and
benefits payable to all principal officers and certain other management
personnel. This committee also performs the duties of administration with
respect to the Company's stock option and management bonus plans and recommends
amendments or changes to such plans. The Compensation Committee assures that
effective succession planning is conducted for key management positions. During
fiscal 1996, the Compensation Committee held six meetings and acted 11 times by
unanimous written consent.
7
<PAGE> 11
EXECUTIVE COMMITTEE. The Executive Committee consists of R. L. Nelson,
Jr. (chairman), Robert M. Chiste and Thomas J. Tierney. During the intervals
between meetings of the Board of Directors, this committee may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Company, except with respect to extraordinary
matters such as taking action with respect to the amendment of the Charter, a
merger of the Company, a sale of all or substantially all of the Company's
assets, or the declaration of dividends. During fiscal 1996, the Executive
Committee did not meet and took no action by unanimous written consent.
NOMINATING COMMITTEE. The Nominating Committee consists of John U.
Clarke (chairman) and R.L. Nelson, Jr. The Nominating Committee reviews the
size and composition of the Board of Directors, apportions the directors into
classes, and makes recommendations with respect to nominations for the election
of directors. The Nominating Committee will consider suggestions from
stockholders for nominees to serve as directors, if such proposals are
submitted in writing to R. L. Nelson, Jr., 5151 San Felipe Road, Suite 1600,
Houston, Texas 77056-3609. During fiscal 1996, the Nominating Committee acted
three times by unanimous written consent.
COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 1996, fees for all directors
aggregated $103,000, including amounts paid for committee participation. In
fiscal 1996, non-employee directors of the Company received $2,500 for each
directors' meeting attended and $2,000 for each committee meeting attended.
Beginning with fiscal 1997, non-employee directors will receive: (i) $1,000 in
cash for each directors' meeting attended and $500 in cash for each committee
meeting attended; (ii) $15,000 in restricted stock each year, which shares will
vest at a rate of 25% per year; and (iii) an annual stock option grant to
purchase 7,500 shares of the Company's Common Stock (or 10,000 shares for an
initial grant to a new director) under the Company's 1989 Option Plan. In
addition, the Company reimburses the directors for all expenses relating to
attendance at meetings. The Company does not pay director fees to directors who
also are employees of the Company. No member of the Board of Directors was
compensated during fiscal 1996 for his service as a director of the Company
other than pursuant to the Company's standard compensation arrangements for
directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF EACH OF THE THREE NOMINEES FOR CLASS I DIRECTOR, SUCH DIRECTORS TO
SERVE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS.
8
<PAGE> 12
EXECUTIVE OFFICERS
The following table lists the name, age, position and period of
service with the Company or predecessor company of each executive officer of
the Company.
<TABLE>
<CAPTION>
SERVED AS
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION
---- --- ----- --------
<S> <C> <C> <C>
R. L. Nelson, Jr. . . . . 58 1978 Chairman of the Board of Directors
Robert M. Chiste . . . . 49 1994 President and Chief Executive Officer
David E. Fanta . . . . . 36 1995 Senior Vice President of Operations
T. Wayne Wren, Jr. . . . 48 1995(1) Senior Vice President -- Chief
Financial Officer and Treasurer
James E. Rief . . . . . . 53 1995 Senior Vice President of Technology &
Administration
William L. Fiedler . . . 38 1994 Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
Michael W. Ramirez . . . 39 1996 Vice President -- Controller
</TABLE>
- ------------------
(1) As noted below, Mr. Wren previously served as the Company's Vice
President and Chief Financial Officer from August 1991 to December 1993. Mr.
Wren then entered into a consulting agreement with the Company, pursuant to
which he rendered financial consulting services to the Company from January
1994 through June 1994.
For biographies of Messrs. Nelson and Chiste, see "Proposal No. 1 --
Election of Directors."
David Fanta became the Senior Vice President of Operations of the
Company in November 1995, having served as the Vice President -- Central Group
of Allwaste Environmental Services, Inc., a wholly-owned subsidiary of the
Company ("AES"), since September 1993. Mr. Fanta has served AES in various
capacities since 1985.
T. Wayne Wren, Jr. was elected as the Company's Senior Vice President
- -- Chief Financial Officer and Treasurer in March 1996, having served as the
Company's Vice President -- Chief Financial Officer since November 1995. From
January 1994 to November 1995, Mr. Wren served as an independent financial
consultant. He previously served as the Company's Vice President -- Chief
Financial Officer from August 1991 to December 1993. He also provided financial
consulting services to the Company pursuant to a consulting agreement from
January 1994 to June 1994. For approximately seven years prior to joining the
Company in August 1991, Mr. Wren served as Senior Vice President --
9
<PAGE> 13
Finance and Administration of Prairie Producing Company, an independent oil
company based in Houston, Texas.
James E. Rief was elected as the Company's Senior Vice President of
Technology & Administration in July 1995. Prior to joining the Company, Mr.
Rief served as the Director of Information Systems and Administration of Cabot
Oil & Gas Corporation from May 1994 to July 1995. He served as the Vice
President & Chief Information Officer of American Exploration Company, a
Houston-based energy company, from October 1990 to May 1994.
William L. Fiedler joined the Company in February 1990 as Senior
Counsel and became Vice President, General Counsel and Secretary in February
1994. Mr. Fiedler assumed the additional role as Corporate Compliance Officer
for the Company in February 1996.
Michael W. Ramirez was elected as the Company's Vice President --
Controller in February 1996 and has served AES in various capacities since
December 1990.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has employment agreements with all executive officers of
the Company that prohibit such officers from disclosing the Company's trade
secrets and generally restrict these individuals from competing with the
Company for a period of two years after their respective dates of termination
of employment. Each of the agreements provides for automatic renewal on an
annual basis at the end of its stated term. In the event that the Company
terminates any of these executive officers without "cause," the Company is
obligated to pay severance to such executive officer as follows: (i) Mr. Chiste
would be entitled to receive an amount equal to his base salary at the
then-current rate for 24 months after such termination; (ii) each of Messrs.
Fanta, Wren and Rief would be entitled to receive an amount equal to his base
salary at the then-current rate for 18 months after such termination; and (iii)
each of Messrs. Fiedler and Ramirez would be entitled to receive an amount
equal to his base salary at the then-current rate for 12 months after such
termination (such time periods for each executive officer are referred to
hereinafter as the "Severance Period"). Mr. Nelson's employment agreement
provides that he will be entitled to continue to receive an amount equal to his
base salary at the then-current rate through August 31, 1998 (the "Severance
Period" for Mr. Nelson) if his employment is terminated by the Company without
"cause" prior to such date. In the event of termination of one of these
executive officers without "cause," the Company is also obligated to pay to
such executive: (i) all accrued compensation owing as of the date of
termination, including any pro-rata bonus under the Company's incentive bonus
plan(s) (subject to the terms of such plans), deferred compensation and accrued
vacation pay; and (ii) an amount equal to the maximum monthly premium payment
to continue coverage for the executive and any eligible dependents under the
Company's health insurance plan multiplied by the applicable number of months
in the Severance Period for such executive. In addition, in connection with a
termination without "cause" of the employment of any of the foregoing executive
officers, the Company has also agreed that all outstanding stock options held
by such executive will be regranted under one of the Company's other stock
option plans, will continue to vest during the applicable Severance Period and
will remain exercisable until the earlier of the expiration of the option
according to its original terms under the Company's 1989 Option Plan or three
months after the conclusion of the applicable Severance Period. Mr. Chiste's
employment agreement also provides that the 126,316 shares of restricted stock
granted to Mr. Chiste under his employment agreement will continue to vest in
the event that Mr. Chiste's employment is terminated by the Company for reasons
other than "cause." These agreements provide also that in the event of a
without "cause" termination, a terminated executive will receive service credit
under the Company's
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<PAGE> 14
Supplemental Executive Retirement Plan (the "SERP") for the number of months of
the applicable Severance Period.
Each of the Company's executive officers entered into a severance
agreement in November 1996. Under these severance agreements, in the event of a
Change in Control of the Company (as defined) and in the event an executive
officer's employment with the Company is terminated during the Protected Period
(as defined) for reasons other than "cause" or the executive's death or
disability or by the executive for Good Reason (as defined), such executive
will be entitled to receive severance pay as follows: (i) each of Messrs.
Nelson, Chiste and Fanta would be entitled to receive an amount equal to his
base salary at the then-current rate for 36 months; (ii) each of Messrs. Wren
and Rief would be entitled to receive an amount equal to his base salary at the
then-current rate for 30 months; and (iii) each of Messrs. Fiedler and Ramirez
would be entitled to receive an amount equal to his base salary at the
then-current rate for 24 months (such time periods for each executive officer
are referred to hereinafter as the "Change in Control Severance Period"). In
addition, each of such executive officers would, under the foregoing
circumstances, be entitled to receive: (i) a specified percentage of his base
salary as annual bonus for the applicable Change in Control Severance Period;
(ii) all deferred and accrued compensation otherwise owing to such executive
under any of the Company's incentive or deferred compensation plans; (iii) an
amount equal to the maximum monthly premium payment to continue coverage for
the executive and any eligible dependents under the Company's health insurance
plan multiplied by the applicable number of months in the Change in Control
Severance Period for such executive; and (iv) service credit under the SERP for
the number of months of the applicable Change in Control Severance Period for
such executive. Under these agreements, on the occurrence of any Change in
Control event or commencement of a tender offer, vesting of all outstanding
stock option grants held by an executive officer will be accelerated and
restrictions on outstanding restricted stock grants held by an executive
officer will lapse. The Company is also required under the terms of these
severance agreements to make a "gross-up" payment to the executives if any
payments to such executives are subject to excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code").
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1994, the Company entered into a lease agreement with
R. L. Nelson, Jr., Chairman of the Board of Directors of the Company, for
approximately eight acres of land and improvements on which the Company's Deer
Park, Texas operations are located. This lease superseded the lease agreement
previously entered into between the Company and Mr. Nelson with respect to a
portion of such land and improvements. The primary term of the lease is five
years with automatic one-year extensions after the primary term unless either
party gives notice of termination ninety days prior to the end of the
then-current term. The base rental payable under the lease is $10,500 per
month. Under the terms of this lease agreement, the Company paid to Mr. Nelson
a total of $126,000 during the fiscal year ended August 31, 1996. Management
believes that the terms of this transaction were and are as favorable to the
Company as those available from an unrelated third party.
R. L. Nelson, Jr. received from the Company a loan in the amount of
$55,000 in April 1995 and a loan in the amount of $50,000 in December 1995,
both of which bore interest at the prime rate less one percent and matured on
August 31, 1996. The largest aggregate amount of Mr. Nelson's indebtedness
outstanding thereunder at any time during fiscal 1996 was $105,000. These loans
were repaid in full prior to maturity in August 1996.
11
<PAGE> 15
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors of the Company shall not be deemed incorporated by reference by any
general statement incorporating this proxy statement by reference into any
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
shall not be deemed filed under either of the Securities Act or the Exchange
Act except to the extent that the Company specifically incorporates this
information by reference.
OVERVIEW
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for supervising the development of and making recommendations to
the Board of Directors with respect to the Company's executive compensation
policies. In addition, the Committee approves compensation to be paid to the
President and Chief Executive Officer (the "CEO") and to each of the other
executive officers of the Company, based on recommendations of the CEO. The
Committee is composed entirely of independent outside directors of the Company,
none of whom are currently, nor have any of them ever been, officers or
employees of the Company.
The Committee also oversees all aspects of the Company's executive
compensation program, including many of the Company's employee benefit plans.
The Company currently maintains a variety of compensation and benefit plans in
which its executive officers may participate, including the Company's 1989
Option Plan, the 1996 Interim Management Bonus Plan (the "Interim Bonus Plan"),
the 1996 Interim Deferred Compensation Plan (the "Interim Deferred Plan") and
the Target 2000: One, Two, Four Plan (the "Target 2000 Plan"), each of which is
discussed in more detail below.
Effective September 1996, the Company adopted the Economic Value Added
("EVA(R)") integrated management system. EVA(R) is a registered trademark of
Stern Stewart & Co. ("Stern Stewart"), a New York-based financial consulting
firm (hereinafter, EVA(R) will be referred to as "EVA"). In October 1996, the
Compensation Committee adopted the Allwaste EVA Incentive Compensation Plan
(the "EVA Plan"), which will govern incentive bonus compensation payable to the
Company's executive officers and other key employees beginning in fiscal 1997.
The Company engaged Stern Stewart to assist the Company in implementation of
the EVA integrated management system, including development of the EVA Plan.
The Committee believes that EVA provides a strong correlation with stockholder
value and that the EVA Plan will best serve the Company's overall objective of
aligning the interests of the Company's management with its stockholders.
Because it requires management to share some of the Company's business risk
with the stockholders, EVA provides the opportunity for the upside potential
that results from the creation of value and, as a result, rewards long-term
continuous improvements in stockholder value. See " -- EVA Incentive
Compensation Plan."
ALLWASTE'S COMPENSATION PHILOSOPHY
The principles guiding the Allwaste executive compensation program are
designed to link executive compensation and stockholder value. The goals of the
program are: (i) to compensate employees in a manner that aligns the employees'
interests with the interests of the stockholders; (ii) to encourage
continuation of the Company's entrepreneurial spirit; (iii) to reward
executives for successful
12
<PAGE> 16
long-term strategic management; (iv) to recognize outstanding performance; and
(v) to attract and retain highly qualified and motivated executives.
Even prior to implementation of the EVA Plan, the Company believed
that compensation of the executive officers should be directly and materially
linked to objective measures of operating and performance criteria, and to
achieve this, compensation has historically been leveraged through annual
bonuses and stock option incentive awards. The Company's strategy with respect
to executive compensation includes establishing base salaries for executives at
a level somewhat below the industry average, while providing the opportunity to
achieve more aggressive bonuses which, when combined with base salary amounts,
give the Company's executives the potential to earn in excess of competitive
industry compensation if the specified performance goals are achieved. The
Company also grants to its executives and other key employees stock options at
current market value, which options have no monetary value to the executives
unless and until the market price of the Company's Common Stock increases. In
this manner, the Company's executives are well-compensated when the Company
achieves its operating and performance goals. On the other hand, in less
profitable years, an executive's pay is more likely than not below competitive
industry compensation. The mix of base salary, bonuses and stock option awards
reflects the Company's intention to link executive compensation to the
Company's operational performance and the price of its Common Stock. The
Company expects that it will continue to employ this basic strategy under the
EVA system in fiscal 1997.
The Revenue Reconciliation Act of 1993 restricts the ability of a
publicly-traded corporation to deduct compensation in excess of $1,000,000 paid
to its Chief Executive Officer and the four most highly-compensated executive
officers. Based on its current compensation structure, the Company does not
presently anticipate that any of its officers will reach this $1,000,000
threshold for the forseeable future.
FISCAL 1996 EXECUTIVE COMPENSATION PROGRAM
The components of the Company's fiscal 1996 executive compensation
program that were subject to the discretion of the Committee on an individual
basis include: (a) base salaries; (b) annual bonuses; (c) restricted stock
awards and (d) stock options.
BASE SALARY
In line with the Company's current policy with respect to the base
salaries of its executive officers, the Committee approved fiscal 1996 salaries
for each of the Company's executive officers that it believes are conservative
as compared to those for similar positions at comparable companies. In
general, the Committee has set base salary targets for executive positions at
amounts equal to a percentage less than average competitive compensation and
has applied an individual performance and experience factor to the base salary
targets to determine each executive's actual base salary, within a range of
plus/minus 20% of the targets. Mr. Nelson's base salary decreased by 3.33% to
$291,004 as a reflection of the corresponding decrease in Mr. Nelson's
responsibilities to the Company during fiscal 1996. Mr. Fanta's base salary
increased by 23% in the third month of fiscal 1996 to $185,000, which increase
reflects the increase in his responsibilities in connection with his promotion
from Vice President of one of the Company's operating groups to the Company's
Senior Vice President of Operations. The Company agreed to pay Mr. Wren, who
served as the Company's Chief Financial Officer on an interim basis beginning
in November 1995, $100,000 for a period of six months; however, Mr. Wren was
hired as a full-time employee of the Company prior to the conclusion of this
six-month period. When he was hired as a full-time employee of the Company and
elected as the Company's Senior Vice President -- Chief
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<PAGE> 17
Financial Officer and Treasurer in March 1996, the Committee approved a base
annual salary of $175,000 for Mr. Wren. For fiscal 1996, Mr. Rief's base salary
increased by 5.6% to $132,500. Prior to the end of fiscal 1996, the committee
commissioned a compensation study by Arthur Andersen LLP that was used in
setting base salaries and overall compensation packages for the Company's
senior executives for fiscal 1997 and beyond.
ANNUAL BONUS
Interim Bonus Plan. The Company expects to compensate its executives
for achievement of Company goals and, on attainment of established minimum
thresholds, individual performance goals. As a bridge to the EVA Plan, the
Committee approved the Interim Bonus Plan for bonuses payable with respect to
fiscal 1996. The Interim Bonus Plan provided that 75% of bonus awards payable
to the Company's executive officers would be based on objective factors and 25%
of such awards would be based on subjective factors. The objective portion of
each bonus award under the Interim Bonus Plan was equal to 75% of (i) the
amount of the participant's Bonus Pool (as defined below) multiplied by (ii)
the EPS Funding Percentage (as defined below). The subjective portion of each
bonus award under the Interim Bonus Plan was determined by reference to the
participant's performance and experience and was calculated by multiplying 25%
by each participant's Bonus Pool.
Each individual's bonus pool (the "Bonus Pool") under the Interim
Bonus Plan consisted of 80% of the Bonus Availability Percentage (as defined
below) attributable to such participant. The Interim Bonus Plan assigned a
bonus availability percentage to each participant (the "Bonus Availability
Percentage"), which Bonus Availability Percentage represented a percentage of a
participant's cumulative fiscal 1996 earnings and was progressively higher for
each of the executives based on the level of each executive's position. Mr.
Nelson was not a participant in the Interim Bonus Plan. The Interim Bonus Plan
provided for a Bonus Availability Percentage of 75% for each of Messrs. Fanta,
Wren and Rief. The Interim Bonus Plan provided for progressively higher funding
percentages based on corresponding progressively higher earnings per share
targets for the Company for fiscal 1996 (the "EPS Funding Percentage"). The
Company's performance goals under the Interim Bonus Plan, which were
established during the budgeting process, required the achievement of growth in
reported earnings per share over the prior fiscal year, measured against a
targeted range established at the beginning of the fiscal year by the Board of
Directors. If the Company had not achieved the minimum earnings per share
growth target, the Company would not have awarded bonus compensation to any of
the participants.
The Company achieved earnings per share for fiscal 1996 of $.27 per
share, which resulted in a 40% EPS Funding Percentage. Each of the executive
participants in the Interim Bonus Plan was awarded the full amount of the
subjective component of his fiscal 1996 bonus award. The aggregate bonus
payable to each of Messrs. Fanta, Wren and Rief for fiscal 1996 was $58,531,
$57,750 and $42,868, respectively. However, as discussed below, a portion of
these bonuses were subject to mandatory deferral under the provisions of the
Interim Bonus Plan, and, as also discussed below, could be subject to voluntary
deferral under the terms of the Interim Deferred Plan. See " -- Interim
Deferred Plan."
The Interim Bonus Plan required that each participant defer receipt
until November 1997 of 50% of the amount of his bonus award that exceeded
$5,000 (the "Deferred Portion"). The Interim Bonus Plan also provides that the
amount of the Deferred Portion may be increased or decreased by the ratio of
(i) the average closing price of the Company's Common Stock, as reported by the
New York Stock Exchange, Inc. (the "NYSE"), on the last trading day of each of
the months of June, July and August 1996 (which was $4.375), to (ii) the
average closing price of the Company's Common Stock, as reported by the NYSE,
on the last trading day of each of the months of June, July and August 1997
(the "Indexing Factor"). The Deferred Portion for each of Messrs. Fanta, Wren
and Rief was $26,765, $26,375 and $18,934, respectively.
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<PAGE> 18
Interim Deferred Plan. The Committee approved the terms of the
Company's Interim Deferred Plan in October 1996. Under the Interim Deferred
Plan, each member of the Company's 18-member management council (which includes
all of the executive officers of the Company) can elect to defer his entire
fiscal 1996 bonus award (the "Deferred Award") and can also elect to receive
shares of restricted Common Stock in lieu of cash with respect to either (i)
the Deferred Portion or (ii) the Deferred Award. Any management council member
that elects, pursuant to the Interim Deferred Plan, to receive shares of
restricted Common Stock in lieu of cash for the Deferred Portion will receive a
number of shares equal to the amount of the Deferred Portion, divided by the
closing price of the Common Stock on October 25, 1996 (the date of approval of
the Interim Deferred Plan) or $4.375, plus 10%. If a management council member
elects to receive shares of restricted Common Stock in lieu of cash for the
Deferred Award, he or she will receive a number of shares equal to the amount
of the Deferred Award, divided by $4.375, plus 20%. Messrs. Fanta and Wren have
elected to receive shares of restricted Common Stock in lieu of cash for the
Deferred Portion and will be entitled to receive 6,729 and 6,631 shares,
respectively, which shares will vest in full on January 1, 1998. Mr. Rief has
elected to defer his bonus award and receive shares of restricted Common Stock
for the Deferred Award and will be entitled to receive 11,758 shares, which
shares will vest in full on January 1, 1998.
RESTRICTED STOCK AWARDS
In fiscal 1996, the Committee approved the adoption of the Target 2000
Plan, a limited-purpose plan designed to encourage the Company's executive
officers and certain other key employees to invest in the Company's Common
Stock. Under the Target 2000 Plan, each participant was encouraged to purchase
shares of the Company's Common Stock, in an amount up to a designated
percentage of the participant's annual base salary (the "Qualifying Shares"),
and was granted shares of restricted stock in an amount equal to two times the
number of Qualifying Shares purchased by such participant. The Committee, in
its discretion under the 1989 Option Plan, also granted each participant in the
Target 2000 Plan a stock option to purchase a number of shares of Common Stock
equal to four times the number of Qualifying Shares purchased by a participant
in the open market. See " -- Stock Option Awards" below. Mr. Nelson was not a
participant in the Target 2000 Plan. Mr. Fanta purchased 12,374 Qualifying
Shares in November 1995, and the Committee approved a grant of 24,748 shares of
restricted stock for Mr. Fanta in December 1995. Mr. Wren became a participant
in the Target 2000 Plan in March 1996 when he was hired as a full-time employee
and elected as an officer of the Company. Mr. Wren purchased an aggregate of
9,721 Qualifying Shares, and in June 1996, the Committee approved a grant of
19,442 shares of restricted stock to Mr. Wren. Mr. Rief purchased 7,385
Qualifying Shares in November 1995, and in December 1995, the Committee
approved the grant of 14,770 shares of restricted stock to Mr. Rief. See " --
Stock Option Awards."
STOCK OPTION AWARDS
Stock option awards for executives other than the CEO are recommended
by the CEO and approved by the Committee. In October 1995, Messrs. Fanta and
Rief were awarded standard annual stock option grants under the 1989 Option
Plan to purchase 20,000 shares of Common Stock and 10,000 shares of Common
Stock, respectively. See "Executive Compensation -- Option/SAR Grants in Fiscal
1996." Mr. Rief elected to exchange this stock option under the Exchange
Program in July 1996. See " -- Stock Option Exchanges," "Executive Compensation
- -- Option/SAR Grants in Fiscal 1996" and "Executive Compensation -- Report of
the Compensation Committee on 1996 Stock Option Exchange Program." In March
1996, the Committee granted to Mr. Wren under the 1989 Option Plan a stock
option to purchase 100,000 shares of Common Stock as part of his overall
compensation package.
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<PAGE> 19
For fiscal 1996, the Committee used standard annual option grants as
adjustments in overall compensation for certain of the Company's executive
officers. Further, at the time of the annual option grants, Mr. Fanta was Vice
President of one of the Company's operating groups and thus did not receive his
annual grant in the capacity of a senior executive officer. In general, the
Committee applies a subjective, case-by-case individual performance and
experience factor to target option awards to determine each executive's actual
stock option award, within a range of plus/minus 20% of the target option
award.
In December 1995, the Named Executive Officers (as hereinafter
defined) were granted stock options under the 1989 Option Plan pursuant to the
Company's Target 2000 Plan, and as discussed above, the number of shares
underlying each such option grant was determined by multiplying the number of
Qualifying Shares purchased by an executive in the open market by four. See "
- -- Restricted Stock Awards" and "Executive Compensation -- Option/SAR Grants in
Fiscal 1996." In December 1995, the Committee granted stock options under the
1989 Option Plan to purchase 49,496 shares and 29,540 shares, respectively, at
an exercise price of $4.50 per share to Messrs. Fanta and Rief. In March 1996,
the Committee granted under the 1989 Option Plan to Mr. Wren a stock option to
purchase 38,884 shares of Common Stock at an exercise price of $4.50 per share.
The Committee may also, in its discretion, make supplemental stock option
awards to executives and others whose actions, in a specific transaction or
event, have resulted in an extraordinary contribution to the Company.
During the fiscal year ended August 31, 1996, the Committee granted to
the Named Executive Officers other than the CEO options to acquire an aggregate
of 277,920 shares of Common Stock at exercise prices ranging from $4.50 to
$4.75 per share (excluding options to acquire an aggregate of 550,000 shares
that were exchanged under the Exchange Program by the Named Executive Officers
other than the CEO). See "Executive Compensation -- Option/SAR Grants in Fiscal
1996." At August 31, 1996, the Named Executive Officers other than the CEO held
options covering an aggregate of 847,920 shares of Common Stock, of which
options to acquire an aggregate of 74,584 shares were vested and exercisable.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
BASE SALARY
Mr. Chiste's base salary in fiscal 1996 did not increase from the rate
of $275,000 set in fiscal 1995 under the terms of his employment agreement with
the Company. The base salary element of Mr. Chiste's total incentive
compensation package is designed to potentially represent a smaller percentage
of his total compensation, with annual bonus and stock option incentives
providing Mr. Chiste with a greater opportunity to increase his total
compensation if the Company achieves its performance and stock price
objectives, as compared to other CEOs in the industry. The Committee expects
that in evaluating potential increases to Mr. Chiste's salary in future years,
it will, as it does with other executive officers of the Company, use a
percentage of average competitive compensation as a base target salary and
subsequently apply an adjusting factor of plus/minus 20% based on subjective
individual performance and level of experience considerations.
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<PAGE> 20
ANNUAL BONUS
The Interim Bonus Plan provided a Bonus Availability Percentage of 90%
for Mr. Chiste. The categorized Bonus Availability Percentage is higher (90%)
for the CEO position than for other executives in recognition of the CEO's
increased responsibilities and greater control over the policies and goals of
the Company. Based on the 40% EPS Funding Percentage, Mr. Chiste received a
fiscal 1996 bonus award of an aggregate of $108,900, of which $51,950 is the
mandatory Deferred Portion. See " -- Fiscal 1996 Executive Compensation Program
- -- Annual Bonus" for a detailed description of the Interim Bonus Plan, the
funding of fiscal 1996 bonus awards thereunder and the Interim Deferred Plan.
Mr. Chiste was awarded the full amount of the subjective component of his bonus
award. Mr. Chiste has elected to defer his entire fiscal 1996 bonus award and
receive shares of restricted Common Stock for the Deferred Award and will thus
be entitled to receive 29,870 shares, which shares will vest in full on January
1, 1998. Mr. Chiste will be a participant in the Company's EVA Plan for fiscal
1997.
In recognition of Mr. Chiste's contributions in connection with the
Company's sale of its glass recycling operations in September 1995, the Company
amended its employment agreement with Mr. Chiste to provide for the grant to
Mr. Chiste of 126,316 shares of restricted stock in lieu of payment of an
aggregate of $600,000 in guaranteed cash bonus payments initially required
by the employment agreement. See " -- Restricted Stock Awards" below.
RESTRICTED STOCK AWARDS
Mr. Chiste's employment agreement required payment of a guaranteed
aggregate bonus of $875,000, with $275,000 of this amount being payable as an
initial signing bonus and $150,000 to be paid during each of the succeeding
four years. In recognition of Mr. Chiste's contributions in connection with the
Company's sale of its glass recycling operations in September 1995, the Company
amended its employment agreement with Mr. Chiste to provide for the issuance to
Mr. Chiste of 126,316 shares of Common Stock in lieu of the remaining cash
bonuses, with 25% of such shares of restricted stock vesting each year,
beginning in January 1997.
Mr. Chiste was a participant in the Company's Target 2000 Plan. See "
- -- Fiscal 1996 Executive Compensation Program -- Restricted Stock Awards."
Pursuant to the Target 2000 Plan, Mr. Chiste purchased 24,525 Qualifying Shares
in November 1995, and the Committee approved a grant of 49,050 shares of
restricted stock for Mr. Chiste in December 1995.
STOCK OPTION AWARDS
Mr. Chiste's participation in the Company's stock option program is on
the same general terms as other executive officers, although the amounts that
may potentially be granted to Mr. Chiste are larger as a result of his
position. As part of the Target 2000 Plan, Mr. Chiste was granted a stock
option to purchase 98,100 shares of Common Stock, at an exercise price of $4.50
per share, under the 1989 Option Plan during fiscal 1996. Mr. Chiste exchanged
this option, together with his fiscal 1995 option to purchase 600,000 shares of
Common Stock, under the Exchange Program. See " -- Stock Option Exchanges,"
"Executive Compensation -- Option/SAR Grants in Fiscal 1996" and "Executive
Compensation -- Report of the Compensation Committee on 1996 Stock Option
Exchange Program."
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<PAGE> 21
EVA INCENTIVE COMPENSATION PLAN
As part of the Company's implementation of the EVA integrated
management system, the Committee adopted the EVA Plan (which was designed with
the assistance of Stern Stewart) in October 1996 to govern incentive
compensation for the Company's executive officers and other designated key
employees beginning in fiscal 1997. The Committee's objective under the EVA
Plan is to provide employees with incentive compensation commensurate with the
level of the Company's operating performance in each fiscal year. That is, in a
year in which the Company performs well, the incentive bonus award under the
EVA Plan is designed to provide an employee with a higher total compensation
package compared with total compensation for a similarly-situated employee in a
peer company, and, conversely, a lower total compensation package in a year in
which the Company's performance is less than expected.
Bonuses payable under the EVA Plan will be determined based on
improvement in EVA. EVA is designed to evaluate a corporation's performance
from an investor's perspective by measuring in absolute dollar terms its net
operating profit after taxes, net of the cost of the capital employed to
generate that profit. EVA is equal to the difference between (i) net operating
profit after tax, defined as operating earnings adjusted to eliminate the
effect of, among other things, certain non-economic charges such as
amortization of goodwill, and (ii) a capital charge, defined as average capital
employed times the after-tax weighted average cost of capital for the year
(currently determined to be 10%).
EVA will be measured, individually, for each of the Company's
operating units and operating groups, as well as for the Company on a
consolidated basis. Bonuses under the EVA Plan will be awarded to each
participant based on the annual improvement in EVA. The EVA Plan will provide
bonuses on three levels: (i) employees of the Company's operating units and
groups of locations (areas); (ii) employees of the Company's operating groups;
and (iii) executive officers and other key corporate support personnel.
Employees of operating units will be evaluated based on annual EVA improvement
for both the specific location or area and for the operating group applicable
to such location or area. Operating group employees will be evaluated based on
annual EVA improvement for both their operating group and for the Company on a
consolidated basis. Incentive bonuses for the Company's executive officers and
other key corporate support personnel will be evaluated based on annual EVA
improvement for the Company on a consolidated basis.
In order to encourage a long-term commitment to the Company and its
stockholders from participants in the EVA Plan, the EVA Plan provides that
two-thirds of any positive balance accrued to an eligible participant be paid
to such participant within three months following the end of a plan year while
it requires that the remaining one-third be deferred for possible future
payout. A participant's deferred account balance is considered "at risk" in the
sense that in any year in which EVA performance results in a bonus amount which
is negative, the negative bonus amount is subtracted from his or her
outstanding deferred balance.
18
<PAGE> 22
STOCK OPTION EXCHANGES
In July 1996, the Compensation Committee adopted a stock option
exchange program (the "Exchange Program"). Under the terms of the Exchange
Program, individuals holding stock options under the 1989 Option Plan were
given the opportunity to exchange any of their outstanding option grants for
new grants to acquire the same number of shares at a new exercise price of
$4.81 per share, which new grants are subject to a new four-year vesting
schedule and have a new eight-year term.
The 1989 Option Plan is intended to attract and retain qualified
employees to the Company and encourage and reward superior performance. The
Compensation Committee decided to adopt the Exchange Program for a number of
reasons. The Committee believed that the Company was taking a new direction
with the strategic goals outlined in its Target 2000 Plan that was implemented
by the Company's senior management team. The Compensation Committee believed
that the decline in the market price of the Company's Common Stock during the
last two years below the exercise price of many previously-granted stock
options would impair employee morale as the Company moved toward its Target
2000 Plan goals and would thereby undermine the incentive purposes of the 1989
Option Plan. The Committee set the new exercise price for the exchanged options
at a premium to the market price of the Common Stock as of the date of grant,
which was $4.375 per share. The premium used by the Committee was equal to the
Company's currently determined cost of capital (10%), as a link to the
Company's EVA integrated management system. The Committee has consulted Arthur
Andersen LLP ("AA) in connection with the overall compensation study that was
undertaken by AA with respect to compensation packages for the Company's senior
executives for fiscal 1997 and beyond, and AA subsequently recommended that the
Committee consider adoption of the Exchange Program as part of the executive
compensation packages in order to provide a balanced compensation package for
these executives. Recognizing the reduced cash component of the overall
compensation packages under consideration for the senior executive officers,
the Committee determined that the Exchange Program could be incorporated into
these packages. Based on the Board's role in installing the Company's senior
management team and considering that participation would require directors to
forego a shorter vesting period and longer life of options exchanged in the
Exchange Program, the Committee also voted to allow the Company's directors to
participate in the Exchange Program. See also "Report of the Compensation
Committee on 1996 Stock Option Exchange Program."
Members of the Compensation Committee:
Robert L. Knauss (chairman)
Michael A. Baker
John U. Clarke
19
<PAGE> 23
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued for each of the Company's fiscal years ended
August 31, 1996, 1995 and 1994 to (i) the Company's Chief Executive Officer
(the "CEO"), and (ii) the four most highly compensated executive officers of
the Company other than the CEO, determined as of August 31, 1996 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
---------------------------- AWARDS
----------------------------
(A) (B) (C) (D) (F) (G) (I)
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
AWARD(S) OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(2) BONUS ($) ($) (#) ($) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Chiste(4) 1996 $275,000 $ - 0 -(5) $846,599(6) 796,200(7) $ 2,221
President and Chief Executive 1995 226,942 275,000(8) - 0 - 600,000 - 0 -
Officer 1994 - 0 - - 0 - - 0 - - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------------------
R. L. Nelson, Jr.(9) 1996 291,004 - 0 - - 0 - 440,000(10) 1,004
Chairman of the Board 1995 301,229 - 0 - - 0 - 200,000 3,878(11)
1994 286,282 201,800 - 0 - 90,000 3,048(12)
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta(13) 1996 179,332 31,765(14) 129,843(15) 149,496(16) 1,967
Senior Vice President of 1995 141,942 50,000 - 0 - 50,000 3,500
Operations 1994 107,527 84,531 - 0 - 30,000 3,873
- ------------------------------------------------------------------------------------------------------------------------------------
T. Wayne Wren, Jr.(17) 1996 85,397(18) 31,375(19) 107,551(20) 138,884 65,107
Senior Vice President -- 1995 - 0 - - 0 - - 0 - - 0 - - 0 -
Chief Financial 1994 55,430(21) - 0 - - 0 - 32,000 82,097
Officer and Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Rief(22) 1996 129,904 - 0 -(23) 109,428(24) 99,540(25) - 0 -
Senior Vice President of 1995 4,807 10,000 - 0 - 50,000 - 0 -
Technology & Administration 1994 - 0 - - 0 - - 0 - - 0 - - 0 -
</TABLE>
(1) Includes salary and/or bonus amounts deferred pursuant to Section
401(k) of the Code. Does not include the value of certain other
personal benefits to the Named Executive Officers that did not exceed
the lesser of $50,000 or 10% of each individual's total annual salary
and bonus shown in the table.
(2) Represents base salary amounts actually earned during the fiscal
periods. Annual base salary adjustments, if any, are effective on
November 1 of each year.
(3) Represents the amount of the Company's match for each Named Executive
Officer under the 401(k) Plan, a defined contribution plan which was
established effective October 1, 1990, as amended and restated
effective as of June 30, 1995, together with certain other
compensation as noted.
(4) Mr. Chiste was elected as the Company's President and Chief Executive
Officer, as of October 17, 1994.
(5) Under the Company's Interim Deferred Plan, Mr. Chiste elected to
receive shares of restricted stock in lieu of his entire fiscal 1996
bonus award and received 29,870 shares of restricted stock.
(6) At the end of fiscal 1996, Mr. Chiste held an aggregate of 175,366
shares of restricted stock having an aggregate market value, as of
August 31, 1996, of $723,385. Subsequent to the end of fiscal 1996,
Mr. Chiste received a grant of 29,870 shares of restricted stock in
lieu of payment of a cash bonus award under the Interim Bonus Plan.
These restricted shares had a market value of $141,883 on the date of
grant, November 1, 1996 (and would have been valued at $123,214 at
fiscal year-end). The Company does not expect that dividends will be
paid on any grants of restricted stock.
(Footnotes continued on following page)
20
<PAGE> 24
(7) Includes: (i) the stock option to purchase 98,100 shares of Common
Stock granted to Mr. Chiste in December 1995; and (ii) the stock
option to purchase 600,000 shares of Common Stock granted to Mr.
Chiste in October 1994 and the stock option to purchase 98,100 shares
of Common Stock granted in December 1995, each of which was exchanged
under the Exchange Program. See "Board Compensation Committee Report
on Executive Compensation -- Stock Option Exchanges" and " -- Report
of the Compensation Committee on 1996 Stock Option Exchange Program."
(8) Represents a one-time signing bonus contemplated by the terms of Mr.
Chiste's employment agreement with the Company.
(9) Mr. Nelson served as the Company's Chairman of the Board, President,
Chief Executive Officer and Chief Operating Officer for the period
from September 1, 1994 to October 17, 1994, with $44,615 of his salary
attributable to that period. From October 17, 1994 through the
remainder of the 1995 fiscal year, Mr. Nelson served solely as the
Chairman of the Board.
(10) Mr. Nelson elected to exchange under the Exchange Program all three of
his outstanding stock options to purchase an aggregate of 440,000
shares of Common Stock. See "Board Compensation Committee Report on
Executive Compensation -- Stock Option Exchanges" and " -- Report of
the Compensation Committee on 1996 Stock Option Exchange Program."
(11) Includes $1,832 in imputed interest in connection with advances to Mr.
Nelson from the Company.
(12) Includes $1,078 in imputed interest in connection with advances to Mr.
Nelson from the Company.
(13) Mr. Fanta was elected as the Company's Senior Vice President of
Operations in November 1995. During fiscal years 1994 and 1995, Mr.
Fanta served as the Vice President -- Central Group.
(14) Represents the non-deferred cash component of Mr. Fanta's fiscal 1996
bonus award under the Interim Bonus Plan. Pursuant to the Interim
Deferred Plan, Mr. Fanta elected to receive shares of restricted stock
in lieu of the Deferred Portion of his fiscal 1996 bonus award.
(15) At the end of fiscal 1996, Mr. Fanta held an aggregate of 24,748
shares of restricted stock with an aggregate market value, as of
August 31, 1996, of $102,086. Subsequent to the end of fiscal 1996,
Mr. Fanta received a grant of 6,729 shares of restricted stock in lieu
of payment of a deferred bonus award under the Interim Bonus Plan in
cash. These restricted shares had a market value of $31,963 on the
date of grant, November 1, 1996 (and would have been valued at $27,757
at fiscal year-end). The Company does not expect that dividends will
be paid on any grants of restricted stock.
(16) Mr. Fanta was granted stock options to acquire an aggregate of 99,496
shares of Common Stock and elected to exchange under the Exchange
Program his outstanding fiscal 1995 stock option to purchase 50,000
shares of Common Stock. See "Board Compensation Committee Report on
Executive Compensation -- Stock Option Exchanges" and " -- Report of
the Compensation Committee on 1996 Stock Option Exchange Program."
(17) Mr. Wren was elected Senior Vice President -- Chief Financial Officer
and Treasurer in March 1996, having served as the Company's interim
Vice President -- Chief Financial Officer since November 1995. Mr.
Wren had previously served as an executive officer of the Company,
which service included part of fiscal 1994. See "Executive Officers."
(Footnotes continued on following page)
21
<PAGE> 25
(18) Does not include the $63,845 paid to Mr. Wren as consulting fees
during fiscal 1996 while he acted as interim Chief Financial Officer
for the Company, which amount is included herein under the column "All
Other Compensation."
(19) Represents the non-deferred cash component of Mr. Wren's fiscal 1996
bonus award under the Interim Bonus Plan. Pursuant to the Interim
Deferred Plan, Mr. Wren elected to receive shares of restricted stock
in lieu of the Deferred Portion of his fiscal 1996 bonus award.
(20) At the end of fiscal 1996, Mr. Wren held an aggregate of 15,982 shares
of restricted stock with an aggregate market value, as of August 31,
1996, of $65,926. Subsequent to year end, Mr. Wren received a grant of
6,631 shares of restricted stock in lieu of payment of a deferred
bonus under the Interim Bonus Plan in cash. These restricted shares
had a market value of $31,497 on the date of grant, November 1, 1996
(and would have been valued at $27,353 at fiscal year-end). The
Company does not expect that dividends will be paid on any grants of
restricted stock.
(21) Does not include $80,000 paid to Mr. Wren as consulting fees from
January 1994 through June 1994, which amount is included herein under
the column "All Other Compensation."
(22) Mr. Rief was elected as the Company's Senior Vice President of
Technology & Administration in July 1995.
(23) Under the Company's Interim Deferred Plan, Mr. Rief elected to receive
shares of restricted stock in lieu of his entire fiscal 1996 bonus
award and received 11,758 shares of restricted stock.
(24) At the end of fiscal 1996, Mr. Rief held an aggregate of 14,770 shares
of restricted stock with an aggregate market value, as of August 31,
1996, of $60,926. Subsequent to year end, Mr. Rief received a grant of
11,758 shares of restricted stock in lieu of payment of a cash bonus
under the Interim Bonus Plan. These restricted shares had a market
value of $55,851 on the date of grant, November 1, 1996 (and would
have been valued at $48,502 at fiscal year-end). The Company does not
expect that dividends will be paid on any grants of restricted stock.
(25) During fiscal 1996, Mr. Rief was granted stock options to acquire an
aggregate of 39,540 shares of Common Stock and elected to exchange
under the Exchange Program two of his outstanding stock options (one
of which was granted in fiscal 1996) to purchase an aggregate of
60,000 shares of Common Stock. See "Board Compensation Committee
Report on Executive Compensation -- Stock Option Exchanges" and " --
Report of the Compensation Committee on 1996 Stock Option Exchange
Program."
22
<PAGE> 26
The following table sets forth certain information regarding option grants in
the last fiscal year to the Named Executive Officers:
OPTION/SAR GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
- ------------------------------------------------------------------------------------------- --------------------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(2) FISCAL 1996 ($/SH) DATE 5% ($) 10% ($)
- ---------------- -------------- ------------ -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Chiste 98,100(2)(4) 3.17%(3) $4.50 6/15/2000 $ 108,550 $ 237,193
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Chiste 698,100(4) 22.56 (5) 4.81 7/19/2004 1,603,229 3,840,012
- ------------------------------------------------------------------------------------------------------------------------------------
R. L. Nelson, Jr. 440,000(6) 14.22 (7) 4.81 7/19/2004 1,010,487 2,420,291
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta 20,000(2) 0.65 (8) 4.75 4/26/2000 23,360 51,044
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta 49,496(2) 1.60 (9) 4.50 6/15/2000 54,768 119,675
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta 30,000(2) 0.97 (10) 4.50 7/19/2000 33,196 72,536
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta 50,000(11) 1.62 (12) 4.81 7/19/2004 114,828 275,033
- ------------------------------------------------------------------------------------------------------------------------------------
T. Wayne Wren, Jr. 100,000(2) 3.23 (13) 4.38 9/01/2000 208,887 500,320
- ------------------------------------------------------------------------------------------------------------------------------------
T. Wayne Wren, Jr. 38,884(2) 1.26 (14) 4.50 9/05/2000 83,544 200,103
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Rief 10,000(2) 0.32 (15) 4.75 4/26/2000 11,680 25,522
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Rief 29,540(2) 0.95 (16) 4.50 6/15/2000 32,687 71,424
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Rief 60,000(17) 1.94 (18) 4.81 7/19/2004 137,794 330,040
</TABLE>
(1) The potential realizable value through the expiration date of options
has been determined assuming that the per share market price of Common
Stock appreciates at the indicated rate, compounded annually over the
term of each option, with the exercise price of the options subtracted
from such appreciated share price. These values have been determined
based on assumed rates of appreciation and are not intended to
forecast the possible future appreciation, if any, of the price or
value of the Company's Common Stock. The actual value, if any, an
executive may realize will depend on the excess of the stock price on
the date the option is exercised over the exercise price. No gain to
the optionees is possible without an increase in the stock price.
(2) Under the terms of the 1989 Option Plan, the Committee retains
discretion, subject to 1989 Option Plan limits, to modify the terms of
outstanding options and to reprice the options. The Company has not
granted any stock appreciation rights. Each of these options were
granted under the 1989 Option Plan and become exercisable according to
a standardized vesting schedule: 20% vests six months after the date
of grant; 25% vests eighteen months after the date of grant; 25% vests
thirty months after the date of grant; and 30% vests forty-two months
after the date of grant. The options expire fifty-four months after
the date of grant. The exercise price per share for these options was
equal to the fair market value per share as of the date of grant. The
exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares and tax withholding
obligations may be satisfied by withholding of the underlying shares,
subject to certain conditions.
(3) Represents the percentage of options granted to employees in fiscal
1996, including the 2,251,961 shares underlying options that were
exchanged under the Exchange Program in July 1996. During the fiscal
year ended August 31, 1996, the Company granted under the 1989 Option
Plan to employees stock options to purchase an aggregate of 1,130,114
shares of Common Stock, of which options to purchase 287,526 shares of
Common Stock were exchanged in the Exchange Program. This option grant
represents 8.68% of stock options to purchase 1,130,114 shares that
were granted to employees during fiscal 1996 (excludes those exchanged
in the Exchange Program).
(Footnotes continued on following page)
23
<PAGE> 27
(4) In December 1995, Mr. Chiste was granted a stock option to purchase
98,100 shares of Common Stock at an exercise price of $4.50 per share.
In July 1996, Mr. Chiste elected to exchange this option, together
with a fiscal 1995 stock option to purchase 600,000 shares of Common
Stock at an exercise price of $6.50 per share, under the Exchange
Program for new grants at an exercise price of $4.81 per share, a new
four-year vesting schedule and an eight-year term. See " -- Report of
the Compensation Committee on 1996 Stock Option Exchange Program."
(5) Represents the percentage of options granted to employees in fiscal
1996, including the options to purchase 2,251,961 shares that were
exchanged under the Exchange Program. As noted in note 3 to this
table, a stock option to purchase 98,100 of the shares that was
exchanged and included in this line item was initially granted in
fiscal 1996 and represented 3.17% of the total options granted
(including all those exchanged under the Exchange Program). The stock
option to purchase 600,000 shares of Common Stock that was exchanged
and included in this line item represents 19.39% of the options
granted to employees in fiscal 1996 (including those exchanged) and
26.64% of the options to purchase an aggregate of 2,251,961 of shares
of Common Stock exchanged under the Exchange Program.
(6) In July 1996, Mr. Nelson elected to exchange his three outstanding
stock option grants under the Exchange Program for new grants at an
exercise price of $4.81 per share, a new four-year vesting schedule
and an eight- year term. See " -- Report of the Compensation Committee
on 1996 Stock Option Exchange Program."
(7) Represents the percentage of options granted to employees in fiscal
1996, including the options to purchase 2,251,961 shares that were
exchanged under the Exchange Program. As noted above in note 6, three
outstanding option grants (none of which were made in fiscal 1996) to
purchase an aggregate of 440,000 shares of Common Stock were exchanged
under the Exchange Program and represent 19.54% of the options to
purchase an aggregate of 2,251,961 shares that were exchanged under
the Exchange Program.
(8) Represents 1.77% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(9) Represents 4.38% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(10) Represents 2.65% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(11) In July 1996, Mr. Fanta elected to exchange under the Exchange Program
a fiscal 1995 stock option to purchase 50,000 shares at an exercise
price of $6.50 per share for a new grant at an exercise price of $4.81
per share, a new four-year vesting schedule and an eight-year term.
See " -- Report of the Compensation Committee on 1996 Stock Option
Exchange Program."
(12) Represents 2.22% of the options to purchase an aggregate of 2,251,961
shares of Common Stock that were exchanged under the Exchange Program.
(13) Represents 8.85% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(Footnotes continued on following page)
24
<PAGE> 28
(14) Represents 3.44% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(15) Represents 0.88% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(16) Represents 2.61% of the options granted to employees during fiscal
1996, excluding those exchanged under the Exchange Program.
(17) In October 1995, Mr. Rief was granted a stock option to purchase
10,000 shares of Common Stock at an exercise price of $4.75 per share.
In July 1996, Mr. Rief elected to exchange this option, together with
a fiscal 1995 stock option to purchase 50,000 shares at an exercise
price of $5.25 per share, under the Exchange Program for new grants at
an exercise price of $4.81 per share, a new four-year vesting schedule
and an eight-year term. See " -- Report of the Compensation Committee
on 1996 Stock Option Exchange Program."
(18) Represents 2.66% of the options to purchase an aggregate of 2,251,961
shares of Common Stock that were exchanged under the Exchange Program.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND FISCAL 1996 YEAR-END OPTION/SAR VALUES
The following table sets forth certain information regarding (i) stock
options exercised by the Named Executive Officers during the fiscal year ended
August 31, 1996; (ii) the number of shares of Common Stock underlying
unexercised options held by each of the Named Executive Officers on August 31,
1996; and (iii) the value, at August 31, 1996, of exercisable and unexercisable
"in-the-money" stock options held by each of the Named Executive Officers:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS AT
1996 YEAR-END (#) FISCAL 1996 YEAR-END ($)(1)
---------------------------------------------------------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ---------- ------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Chiste - 0 - - 0 - - 0 - 698,100 - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------------------
R. L. Nelson, Jr. - 0 - - 0 - - 0 - 440,000 - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------------------
David E. Fanta - 0 - - 0 - 40,899 138,597 $2,625 $1,125
- ------------------------------------------------------------------------------------------------------------------------------------
T. Wayne Wren - 0 - - 0 - 27,777 111,107 - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------------------
James E. Rief - 0 - - 0 - 5,908 83,632 - 0 - - 0 -
</TABLE>
(1) Options are "in-the-money" if the closing market price of the
Company's Common Stock exceeds the exercise price of the options. The
value of "in-the-money" unexercised options set forth in the foregoing
table represents the difference between the exercise price of such
options and the closing sales price of the Company's Common Stock on
August 30, 1996, as reported by the New York Stock Exchange, Inc.,
$4.125 per share.
25
<PAGE> 29
REPORT OF THE COMPENSATION COMMITTEE ON
1996 STOCK OPTION EXCHANGE PROGRAM
In July 1996, the Compensation Committee adopted a stock option
exchange program (the "Exchange Program"). Under the terms of the Exchange
Program, individuals holding stock options under the 1989 Option Plan were
given the opportunity to exchange any of their outstanding option grants for
new grants to acquire the same number of shares at a new exercise price of
$4.81 per share, which new grants are subject to a new four-year vesting
schedule and have a new eight-year term. For a full explanation of the details
and reasons for the Exchange Program, see "Board Compensation Committee Report
on Executive Compensation -- Stock Option Exchanges."
The following table sets forth information regarding outstanding stock
options that were exchanged by any of the Company's executive officers (former
and current) during the period beginning September 1, 1986 to August 31, 1996
under the Exchange Program.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
SECURITIES LENGTH OF
UNDERLYING MARKET PRICE ORIGINAL
NAME DATE NUMBER OF OF STOCK AT EXERCISE PRICE NEW EXERCISE OPTION TERM
OPTIONS/SARS TIME OF AT TIME OF PRICE ($)(1) REMAINING AT
REPRICED OR REPRICING OR REPRICING OR TIME OF
AMENDED (#) AMENDMENT ($) AMENDMENT ($) REPRICING OR
AMENDMENT
(IN YEARS)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Robert M. Chiste 7/19/96 600,000 $4.50 $6.50 $4.81 2.09
President and Chief Executive
Officer
Robert M. Chiste 7/19/96 98,100 $4.50 $4.50 $4.81 3.11
President and Chief Executive
Officer
R. L. Nelson, Jr. 7/19/96 150,000 $4.50 $5.50 $4.81 .07
Chairman of the Board
R. L. Nelson, Jr. 7/19/96 90,000 $4.50 $4.00 $4.81 1.09
Chairman of the Board
R. L. Nelson, Jr. 7/19/96 200,000 $4.50 $6.50 $4.81 2.09
Chairman of the Board
David E. Fanta 2/12/91(2) 5,400(3) $5.50 $5.625 $5.50 .01
Senior Vice President of Operations
David E. Fanta 7/19/96 50,000 $4.50 $6.50 $4.81 2.09
Senior Vice President of Operations
James E. Rief 7/19/96 50,000 $4.50 $5.25 $4.81 3.07
Senior Vice President of Technology
& Administration
James E. Rief 7/19/96 10,000 $4.50 $4.75 $4.81 3.11
Senior Vice President of Technology
& Administration
William L. Fiedler 2/12/91(2) 2,500(4) $5.50 $8.50 $5.50 4.04
Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
William L. Fiedler 7/19/96 5,000 $4.50 $5.50 $4.81 .07
Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
William L. Fiedler 7/19/96 40,000 $4.50 $5.125 $4.81 2.00
Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
William L. Fiedler 7/19/96 7,500 $4.50 $6.50 $4.81 2.09
Vice President, General Counsel,
Secretary and Corporate Compliance
Officer
Michael W. Ramirez(5) 7/19/96 3,000 $4.50 $5.50 $4.81 .07
Vice President -- Controller
Michael W. Ramirez 7/19/96 7,000 $4.50 $6.50 $4.81 2.09
Vice President -- Controller
</TABLE>
26
<PAGE> 30
(1) The exercise price of $4.81 for new options granted in exchange for
existing options under the Exchange Program was determined by the
closing sales price of the Common Stock of $4.375 per share, as
reported by the New York Stock Exchange, on July 18, 1996 (the day
preceding the meeting of the Compensation Committee at which new
replacement options were granted), plus 10% (which represents the
Company's cost of capital under the new EVA integrated management
system being implemented in fiscal 1997).
(2) In February 1991, the Compensation Committee adopted a stock option
exchange program that gave any employee (other than executive officers
and directors of the Company) holding a stock option with an exercise
price greater than $5.50 (the then current market price of the
Company's Common Stock) to exchange such option for a new stock option
to purchase a number of shares of Common Stock equal to the number of
shares of Common Stock underlying outstanding options at a given price
multiplied by the result of dividing $5.50 by the exercise price for
such group of options.
(3) As granted, this stock option gave Mr. Fanta the right to purchase
5,400 shares of Common Stock, and as repriced with the new exercise
price of $5.50, this option gave Mr. Fanta the right to purchase 5,280
shares of Common Stock. This option was not exercised and expired on
August 12, 1995.
(4) As granted, this stock option gave Mr. Fiedler the right to purchase
2,500 shares of Common Stock, and as repriced with the new exercise
price of $5.50, this option gave Mr. Fiedler the right to purchase
1,618 shares of Common Stock. This option was not exercised and
expired on August 12, 1995.
(5) Mr. Ramirez is the Company's Vice President -- Controller. See
"Executive Officers."
Members of the Compensation Committee:
Robert L. Knauss (Chairman)
Michael A. Baker
John U. Clarke
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons holding more than 10% of a registered class of the
Company's equity securities to file with the Securities and Exchange Commission
(the "SEC") and the New York Stock Exchange, Inc. initial reports of ownership,
reports of changes in ownership and annual reports of ownership of Common Stock
and other equity securities of the Company. Such directors, officers and
greater-than-ten- percent stockholders are also required to furnish the Company
with copies of all such filed reports.
Based solely on review of the copies of such reports furnished to the
Company during and with respect to the period from September 1, 1995 through
August 31, 1996, Mr. Chiste was late in filing a Form 4 covering one grant of
restricted stock.
27
<PAGE> 31
PERFORMANCE GRAPH
The stock performance graph which follows shall not be deemed
incorporated by reference by any general statement incorporating this proxy
statement by reference into any filing under the Securities Act or under the
Exchange Act and shall not be deemed filed under either of such Acts except to
the extent that the Company specifically incorporates this information by
reference.
The line graph below compares the yearly percentage change in the
Company's Common Stock against the cumulative total return of (i) the S&P 500
and (ii) peer group companies selected in good faith for the Company's five
most recently completed fiscal years, assuming the investment of $100 on
September 1, 1991 and the reinvestment of all dividends since that date to
August 31, 1996. The data used was obtained from published sources and is
believed to be accurate.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
<TABLE>
<CAPTION>
================================================================================
1991 1992 1993 1994 1995 1996
================================================================================
<S> <C> <C> <C> <C> <C> <C>
Allwaste, Inc. $100 $ 97.87 $ 82.98 $112.77 $ 91.49 $ 70.21
- --------------------------------------------------------------------------------
S&P 500 $100 $107.92 $124.34 $131.14 $159.27 $189.10
- --------------------------------------------------------------------------------
Peer Group(1)(2) $100 $ 89.37 $ 89.36 $115.19 $130.05 $120.88
================================================================================
</TABLE>
The Company's Common Stock performance shown by the above graph is
not necessarily indicative of future Common Stock performance. The total return
on investment (change in the year-end stock price plus reinvested dividends)
for each of the periods for the Company, the S&P 500 and the peer group
companies is based on the stock price or composite index at August 31, 1991.
- ---------------
(1) The above graph compares the performance of the Company with the S&P
500 and a group of peer industrial and environmental services
companies, not including the Company, with the investment weighted
based on average annual market capitalization. Other companies in the
peer group are as follows: Allied Waste Industries, Inc.; Astrotech
International Corporation; Browning-Ferris Industries, Inc.; C.H.
Heist Corp.; IMCO Recycling Inc.; Mid-American Waste Systems, Inc.;
Republic Waste Industries, Inc.; Serv-Tech, Inc.; Team, Inc.; USA
Waste Services, Inc.; and Wellman, Inc.
(2) During the fiscal year ended August 31, 1996, (i) Western Waste
Industries was acquired by Sanifill, Inc. and Sanifill, Inc.
subsequently merged with USA Waste Services, Inc.; (ii) the assets of
Laidlaw, Inc. relating to its waste management division were acquired
by Allied Waste Industries, Inc.; and (iii) Horsehead Resource
Development Company, Inc. went private. Each of Western Waste
Industries, Sanifill, Inc., Laidlaw, Inc. (Class B shares), and
Horsehead Resource Development Company, Inc. were included in the
stock performance graph in the Company's proxy statement last year.
28
<PAGE> 32
ADDITIONAL INFORMATION
The Company's audited consolidated financial statements for the fiscal
year ended August 31, 1996 are included in the enclosed Appendix to this Proxy
Statement. The Appendix also contains the information required by the SEC to be
included in the annual report to securityholders.
REPORT ON FORM 10-K
The Company filed its Annual Report on Form 10-K for the year ended
August 31, 1996 with the SEC on November 26, 1996. A copy of the report,
including any financial statements and schedules and a list describing any
exhibits not contained therein, may be obtained without charge by any
stockholder. Written requests for copies of the report should be directed to
Stockholder Services, Allwaste, Inc., 5151 San Felipe Road, Suite 1600,
Houston, Texas 77056-3609.
OTHER MATTERS
Representatives of Arthur Andersen LLP, the Company's independent
public accountants for the fiscal year ended August 31, 1996, are expected to
be present at the Annual Meeting and will have the opportunity to make a
statement, if they so desire, and will have the opportunity to respond to
appropriate questions from those attending the Annual Meeting.
The cost of solicitation of proxies will be borne by the Company.
Proxy cards and materials will also be distributed to the beneficial owners of
Common Stock through brokers, custodians, nominees and other similar parties,
and the Company expects to reimburse such parties for their expenses in
connection with such distribution.
The Board of Directors knows of no matters that are expected to be
presented at the Annual Meeting other than those described in this proxy
statement. Should any other matter properly come before the Annual Meeting,
however, it is intended that the persons named in the form of proxy
accompanying this proxy statement, acting thereunder, will vote in accordance
with their best judgment on such matters.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal to be presented by a stockholder at the Company's 1998
Annual Meeting of Stockholders must be received by the Company no later than
August 14, 1997, so that it may be considered by the Company for inclusion in
its proxy statement and form of proxy relating to that Annual Meeting.
WILLIAM L. FIEDLER
SECRETARY
Houston, Texas
December 16, 1996
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY WITHOUT DELAY.
NO POSTAGE IS REQUIRED ON THE ENCLOSED ENVELOPE
IF IT IS MAILED IN THE UNITED STATES.
29
<PAGE> 33
APPENDIX TO ALLWASTE, INC. PROXY STATEMENT RELATING TO
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JANUARY 17, 1997
ALLWASTE, INC.
GENERAL AND FINANCIAL INFORMATION
FISCAL YEAR 1996
DESCRIPTION OF BUSINESS
Allwaste, Inc. provides integrated industrial and environmental services
and acts as an outsourcing provider of on-site facility processes and services,
primarily in the United States, Canada and Mexico. Unless the context otherwise
requires, references to the "Company" or "Allwaste" refer to Allwaste, Inc., a
Delaware corporation incorporated on August 21, 1986, and its subsidiaries,
affiliates and predecessors. The Company provides to its industrial and
commercial customers a range of industrial and environmental services,
including: on-site industrial cleaning and waste management services (including
hydroblasting and gritblasting and air-moving and liquid vacuuming); waste
transportation and processing; wastewater services; site remediation;
maintenance services; turnaround and outage services; container cleaning and
repair services; emergency spill response services; and other general plant
support services.
While the Company has historically focused on achieving growth through
acquisitions, the Company has, in recent years, shifted its focus to emphasize
increased internal growth. The Company has focused on realizing increased
internal growth primarily by developing new outsourcing and co-sourcing
opportunities with its customers and expanding the number of service lines
offered to customers by each of its operating locations through its AllQuest
Enterprises companies (as discussed below), providing solution-oriented and
preventive services that focus on improving customer efficiency and
profitability, transferring technology and knowledge among the Company's
various operating locations, implementing national marketing programs that
target major industries served by the Company, introducing services in new
geographic areas and developing services that address environmental concerns
associated with new products. The Company's ALLIES(R) program stresses
collaboration between the Company and its customers by focusing on creating
flexible and innovative solutions to a customer's problems and emphasizing the
Company's services as an economically-efficient outsourcing alternative that
can maximize a customer's competitive role in the emerging global market.
In recognition of the new outsourcing and co-sourcing opportunities with
its customers identified through its ALLIES(R) program, the Company created
AllQuest Enterprises, Inc. ("AllQuest Enterprises"). AllQuest Enterprises
enables the Company to expand the bundle of available service lines offered to
its customers by its operating locations and to create new outsourcing and
co-sourcing opportunities with its customers. AllQuest Enterprises is comprised
of the following early-stage companies: AllQuest Water Resources, Inc.;
AllQuest Technologies, Inc.; AllQuest Pipeline Services, Inc.; AllQuest Energy
Services, Inc.; Allies Staffing, Inc.; and AllQuest Capital, Inc.
COMMON STOCK PRICES AND DIVIDENDS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "ALW." The following table sets forth the range of high and low per
share sales prices for the Company's Common Stock for the Company's two most
recently completed fiscal years:
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fiscal 1995 --
First quarter ended November 30, 1994 $ 7.500 $ 5.875
Second quarter ended February 28, 1995 6.125 4.750
Third quarter ended May 31, 1995 6.375 5.125
Fourth quarter ended August 31, 1995 5.875 5.000
Fiscal 1996 --
First quarter ended November 30, 1995 $ 5.500 $ 4.125
Second quarter ended February 29,1996 5.500 4.125
Third quarter ended May 31, 1996 4.625 3.875
Fourth quarter ended August 31, 1996 4.750 4.000
</TABLE>
According to the Company's transfer agent, on November 19, 1996, there
were 2,402 holders of record of the Company's Common Stock.
-1-
<PAGE> 34
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's credit facility prohibits the payment of cash
dividends.
DIRECTORS
R. L. Nelson, Jr. Chairman of the Board, Allwaste
Robert M. Chiste President and Chief Executive Officer, Allwaste
Michael A. Baker Independent Business Consultant
John U. Clarke Managing Director, Simmons & Company
International
William E. Haynes Independent Business Consultant
Robert L. Knauss President and Chief Executive Officer, Baltic
International USA, Inc.
Frank A. Rossi Chairman, FAR Holdings Company
Thomas J. Tierney Chairman of the Board, Corporate Communications
Center, Inc.
T. Michael Young President and Chief Executive Officer,
Hi-Lo Automotive, Inc.
EXECUTIVE OFFICERS
R. L. Nelson, Jr. Chairman of the Board
Robert M. Chiste President and Chief Executive Officer
David E. Fanta Senior Vice President of Operations
T. Wayne Wren, Jr. Senior Vice President -- Chief Financial Officer
and Treasurer
James E. Rief Senior Vice President of Technology &
Administration
William L. Fiedler Vice President, General Counsel, Secretary and
Corporate Compliance Officer
Michael W. Ramirez Vice President -- Controller
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1996, filed with the Securities and Exchange Commission on
November 26, 1996, excluding exhibits thereto, may be obtained without charge
by writing to Dana Flores, Investor Relations, Allwaste, Inc., 5151 San Felipe,
Suite 1600, Houston, Texas 77056.
-2-
<PAGE> 35
SELECTED FINANCIAL DATA
The Selected Financial Data below includes the accounts of all companies
acquired through August 31, 1996. These companies, all of which were acquired
in transactions accounted for as purchases during the past five years, are
included from their respective dates of acquisition. For all periods presented,
the selected financial data reflects the Company's former glass recycling
operations as a discontinued operation.
The Selected Financial Data should be read in conjunction with the
accompanying Consolidated Financial Statements and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
For the Years Ended August 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 382,165 $ 344,245 $ 286,861 $ 243,591 $ 182,214
Cost of operations 286,412 254,596 204,492 173,844 125,886
--------- --------- --------- --------- ---------
Gross profit 95,753 89,649 82,369 69,747 56,328
Write-downs of operating equipment -- 6,908 -- -- --
Selling, general and administrative expenses 77,011 72,976 59,020 53,033 40,408
Interest expense (9,581) (8,785) (5,617) (4,798)
(3,984)
Interest income and other income (expense), net 3,401 (3,097) (818) 1,250 276
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before income
tax provision and minority interest 12,562 (2,117) 16,914 13,166 12,212
Income tax provision (6,030) (2,170) (6,725) (5,465) (4,885)
Minority interest 82 408 407 -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations 6,614 (3,879) 10,596 7,701 7,327
Discontinued Operations
Income from discontinued operations, net of
applicable income taxes -- 2,773 2,501 2,464 4,218
Gain on sale of glass recycling operations, net of
applicable income taxes 3,764 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 10,378 $ (1,106) $ 13,097 $ 10,165 $ 11,545
========= ========= ========= ========= =========
Net income (loss) per common share
Continuing operations $ . 17 $ (.10) $ .29 $ .21 $ .21
Discontinued operations $ . 10 $ .07 $ .07 $ .07 $ .12
--------- --------- --------- --------- ---------
Net income (loss) per common share $ .27 $ (.03) $ .36 $ .28 $ .33
========= ========= ========= ========= =========
Weighted average common shares outstanding 39,055 38,805 36,852 36,307 35,330
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital $ 18,742 $ 26,925 $ 25,579 $ 12,233 $ 14,692
Property and equipment, net 128,973 131,098 108,956 89,730 71,707
Total assets 337,187 372,233 309,263 259,965 196,001
Long-term obligations 132,467 172,948 134,630 101,041 72,865
Shareholders' equity 130,946 128,291 121,218 105,196 90,038
Cash dividends declared per common share -- -- -- -- --
</TABLE>
-3-
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For all periods presented, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" reflects the Company's former
glass recycling operations as a discontinued operation. For information
regarding acquisitions and divestitures made by the Company, refer to Notes 2
and 3, respectively, of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Net cash provided by operating activities was $33.0
million and $38.1 million during fiscal 1996 and 1995, respectively. In fiscal
1996, net income was $10.4 million, which included $31.5 million in
depreciation and amortization, a gain of $3.8 million from the sale of the
Company's glass recycling operations and $1.1 million in gain on sales of
property and equipment. The Company reduced accounts receivable which provided
$4.5 million of cash. The Company achieved this reduction in accounts
receivable by lowering the Company's days sales outstanding through increased
collection efforts. The Company also reduced capital spending in fiscal 1996,
resulting in a decrease in accounts payable of $9.6 million.
Net working capital was $18.7 million at August 31, 1996, which was down
from $26.9 million at August 31, 1995. This decrease was primarily due to both
the previously discussed reduction in accounts receivable and increased current
income tax liability due to the Company's higher net income in fiscal 1996. The
Company's current ratio was 1.3 to 1 at August 31, 1996, which was down
slightly from 1.4 to 1 the prior year. The Company had uninvested cash of $2.4
million at August 31, 1996, which was significantly lower than the $4.0 million
of uninvested cash held by the Company at the end of fiscal 1995.
INVESTING ACTIVITIES. The Company generated cash of $12.0 million from
its investing activities in fiscal 1996, compared with using $68.4 million in
fiscal 1995. On September 1, 1995, the Company sold its glass recycling
operations for consideration (as adjusted) consisting of: cash of $41.5
million, $8.0 million of redeemable preferred stock and a $6.6 million
subordinated note receivable. The Company used the proceeds received in this
transaction to reduce outstanding debt. In fiscal 1995, the $68.4 million used
in investing activities was primarily attributable to capital expenditures of
$47.2 million and cash payments of $19.3 million, net of cash acquired, for the
acquisition of businesses.
During fiscal 1996, the Company purchased four businesses for $2.1
million in cash, net of cash acquired, and promissory notes of $0.2 million.
The Company acquired 13 companies during fiscal 1995, which required $19.3
million in cash, net of cash acquired, and debt of $6.4 million. Also, the
Company spent $3.0 million to purchase investments in fiscal 1996. The Company
paid $2.6 million of this $3.0 million to acquire a 10% interest in The Safe
Seal Company, Inc., which specializes in valve repair and leak sealing.
Capital expenditures during fiscal 1996 and fiscal 1995 were $27.5
million and $47.2 million, respectively. The Company made capital expenditures
in the current year predominately to purchase operating equipment for expansion
of existing service lines and to replace older equipment. The Company was able
to reduce its capital spending in fiscal 1996 primarily due to increased
monitoring of equipment usage, transfers of underutilized owned equipment from
lower volume, lower margin locations to higher margin, higher volume locations
and the use of short-term equipment rentals. Also, the Company constructed a
new container services facility at a total cost of $3.7 million in fiscal 1995,
contributing to higher capital spending for fiscal 1995. Expenditures for
fiscal 1997 are anticipated to be approximately $25.0 million. The Company's
fiscal 1997 capital expenditure program will be funded from a combination of
cash flows from operating activities and through the utilization of the
Company's revolving credit facility.
FINANCING ACTIVITIES. In fiscal 1996, the Company used cash of $46.3
million in financing activities, compared with cash of $31.4 million provided
during 1995. The Company's total short-term and long-term debt decreased
significantly by $37.8 million to $128.1 million at August 31, 1996 from $165.9
million at August 31, 1995. Included in the aforementioned long-term debt, the
Company's revolving credit facility decreased by $32.3 million to $87.8 million
at August 31, 1996 from $120.1 million at the end of fiscal 1995. This decrease
enabled the Company to considerably reduce long-term debt as a percentage of
capitalization to 48% at August 31, 1996 from 56% at August 31, 1995. This was
a significant decrease considering the use of $9.2 million to repurchase shares
of the Company's Common Stock. During the year ended August 31, 1996, the
Company also repurchased $1.1 million of its convertible subordinated
debentures at 85% of their face value and paid $4.6 million on other long-term
borrowings that were predominantly associated with business acquisitions from
previous years.
In July 1995, the Board of Directors authorized the Company to
repurchase, over a two year period, up to 5,000,000 shares of the Company's
Common Stock, either on the open market or in privately negotiated
transactions.
-4-
<PAGE> 37
During the year ended August 31, 1996, the Company spent $9.2
million to repurchase 2,075,900 shares of its Common Stock at an average cost
of $4.44 per share. Subsequent to August 31, 1996, the Company has repurchased
1,029,400 additional shares of its Common Stock at an average cost of $4.67 per
share. Future repurchases of the Company's Common Stock will be dependent upon
prevailing market conditions and other investment opportunities. Also, the
Company received $0.7 million in proceeds from issuance of shares of Common
Stock, predominantly from the exercise of options to purchase 164,600 shares of
Common Stock under the Company's Amended and Restated 1989 Replacement
Non-Qualified Stock Option Plan.
The Company's credit facility consists of a revolving credit agreement
with a group of banks. This agreement, as last amended in August 1996, provides
an unsecured $160 million revolving line of credit to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. Available
borrowing capacity under this agreement was $39.0 million at November 15, 1996.
Borrowing availability is subject to the Company maintaining certain minimum
financial ratios as set forth in the agreement. The Company anticipates that
its credit facilities are adequate to fund its financing needs.
Management believes it has adequate capital resources available from
internally generated funds, treasury shares and from the short-term and
long-term capital markets to meet anticipated working capital needs, planned
capital expenditures and to take advantage of new opportunities requiring
capital.
RESULTS OF OPERATIONS
OVERVIEW. Allwaste, Inc. provides integrated industrial and environmental
services and acts as an outsourcing provider of on-site facility processes and
services, primarily in the United States, Canada and Mexico. With the
completion of the sale of the Company's glass recycling operations in September
1995, the Company combined the prior industry segments of environmental
services and container services into a single operation.
Net income from continuing operations for fiscal 1996 was $6.6 million,
compared with a net loss of $3.9 million in fiscal 1995 and net income of $10.6
million in fiscal 1994. Net income (loss) per common share from continuing
operations was $.17, $(.10) and $.29 for fiscal 1996, 1995 and 1994,
respectively.
The following table identifies certain relationships with consolidated
revenue as percentages:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Costs and Expenses:
Cost of operations (74.9) (74.0) (71.3)
----- ----- -----
Gross profit 25.1 26.0 28.7
Write-downs of operating equipment -- (2.0) --
Selling, general and administrative (20.2) (21.2) (20.5)
expenses
Interest expense (2.5) (2.5) (2.0)
Interest income and other income
(expense), net 0.9 (0.9) (0.3)
----- ----- -----
Income (loss) from continuing
operations before income tax
provision and minority interest 3.3 (0.6) 5.9
Income taxes (1.6) (0.6) (2.3)
Minority interest 0.0 0.1 0.1
----- ----- -----
Net income (loss) from continuing
operations 1.7% (1.1%) 3.7%
===== ===== =====
</TABLE>
-5-
<PAGE> 38
1996 COMPARED WITH 1995. The Company's revenues for fiscal 1996 increased
to $382.2 million, compared with $344.2 million in fiscal 1995. Revenue growth
from acquisitions accounted for $22.3 million or 59% of this growth. Almost
half of this acquisition growth was attributable to a sewer restoration company
acquired in May 1995. The Company had internally generated revenue growth of
$15.7 million during fiscal 1996, which was primarily attributable to the
Company's excavation/remediation company located in Birmingham, Alabama. This
operation, the Company's largest, benefited from a significant increase in pulp
and paper and quarry work in fiscal 1996. Increased demand for the Company's
services by the offshore oil and gas exploration industry in the Gulf of Mexico
area also contributed to this internal revenue growth. Revenue growth was also
strong in the Company's facilities that serve the United States and Canadian
automobile industry. These increases in revenue were partly offset by the
decreases in revenue generated by the Company's facilities that service the
Pacific coast refining industries and by the Company's transportation services.
Gross operating profit increased to $95.8 million in fiscal 1996 from
$89.6 million in fiscal 1995. Gross operating profit as a percentage of gross
revenues decreased in fiscal 1996 to 25% from 26% in fiscal 1995. This decrease
was primarily attributable to a general softness in the market for the
Company's container cleaning and repair services and to the higher volume of
lower margin subcontract work, which was predominately attributable to the
Company's excavation and site remediation operations.
Selling, general and administrative ("SG&A") expenses decreased, as a
percentage of revenues, to 20% in fiscal 1996, from 21% in fiscal 1995, while
SG&A expenditures increased by $4.0 million to $77.0 million. Incremental SG&A
expense of $5.3 million relates to acquisitions of businesses and start-up
operations subsequent to 1994. SG&A relating to existing locations decreased
$2.6 million. The Company adopted a cost reduction initiative in the first half
of fiscal 1996. This plan focused on the improvement of profitability, the
creation of shareholder value and enhanced efforts to provide more
cost-effective, value-added services to the Company's large industrial customer
base. Elements of the plan included a work force reduction of approximately 170
employees nationwide, a consolidation of 11 field offices and the realignment
of certain management functions. In conjunction with this plan, the Company
recorded a restructuring charge of $1.3 million which was related to employee
severance costs, outplacement assistance, office consolidation and other
related costs.
Interest expense increased $0.8 million to $9.6 million in fiscal 1996
compared with $8.8 million in fiscal 1995 as a result of higher debt levels in
the first half of fiscal 1996.
Interest income and other income (expense), net was $3.4 million in
fiscal 1996 compared to ($3.1) million in fiscal 1995. The income was primarily
related to interest and dividends of $1.3 million earned on the subordinated
note receivable and preferred stock acquired in the sale of the Company's glass
recycling operations. Also, the Company recognized income from gain on sales of
property and equipment and dividends earned on the investment in The Safe Seal
Company, Inc.
The Company's effective income tax rate for the year ended August 31,
1996 was 48%. The effective tax rate was higher than the statutory federal rate
of 35% primarily due to the effect of the nondeductibility of a portion of meal
and entertainment expenses, the nondeductible amortization of a portion of the
Company's goodwill, state income taxes and Canadian earnings which are taxed at
a higher statutory rate.
1995 COMPARED WITH 1994. Revenues for fiscal 1995 increased 20% to $344.2
million, compared with $286.9 million in fiscal 1994, and approximately 57% of
this revenue growth was internally generated. This internally generated growth
of $32.6 million was primarily attributable to higher levels of service work
provided to the refining and petrochemical industries in the Southeastern
United States and to increased activity in the oil and gas exploration and
production industry in the Gulf of Mexico which was partially offset by
decreased activity in the refining industry in the Pacific coast region. This
growth also reflected increased market penetration of the Louisiana pulp and
paper industry, a significant public works contract in Alabama and increased
wastewater pretreatment revenue. Revenue growth from acquisitions of $24.8
million in fiscal 1995 resulted from the companies acquired during fiscal 1994
and 1995.
Gross profit, as a percentage of revenues, decreased by 3% to 26% of
revenues in fiscal 1995 compared with 29% in fiscal 1994. This decrease was due
to higher volumes of lower-margin subcontract and disposal revenues and a
significant loss on a governmental transportation project. Lower volumes and
lower prices in the Pacific coast refinery market and the nonrecurrence of high
margin spill response work resulting from the severe earthquake in southern
California in January 1994 also adversely affected gross margins.
-6-
<PAGE> 39
During fiscal 1995, the Company recorded write-downs in recognition of
the permanent impairment of certain operating assets totaling $6.9 million. The
affected assets included certain operating equipment in Mexico and California,
a wastewater pretreatment facility, equipment relating to two small businesses
which were exited and various owned facilities.
The Company's SG&A expenses, as a percentage of revenue, remained
constant at 21% of gross revenues for fiscal years 1995 and 1994. SG&A expenses
increased 24% to $73.0 million in fiscal 1995 from $59.0 million in fiscal
1994. Approximately 30% of this increase was attributable to incremental
expenses relating to acquisitions completed subsequent to fiscal 1993. A
significant part of the remaining increase is attributable to higher bad debt
expenses, the write-off of unrealizable organizational costs relating to a
realignment of the Company's Mexico joint ventures and higher legal and
professional fees. The Company also increased its staffing during this time
period to support its sales, safety and compliance programs and to maintain
strong financial systems and controls. These increases in SG&A were partially
offset by lower costs relating to the Company's management incentive
compensation plans.
Interest expense increased $3.2 million from fiscal 1994 to fiscal 1995.
The primary reason for the increase was higher average debt levels at higher
average interest rates which were required to fund the previously discussed
acquisitions and capital expenditures in fiscal 1995.
Interest income and other income (expense), net in fiscal 1995 is
primarily attributable to $1.0 million in allowances provided for a note
receivable and the write-off of the Company's remaining investment of $2.0
million in previously-owned businesses. Also, the Company settled a lawsuit for
$0.6 million related to its previously discontinued asbestos abatement
business.
The Company's effective tax rate was 40% for the year ended August 31,
1994. The effective tax rate was higher than the statutory federal rate of 35%
primarily due to the effects of nondeductible amortization of goodwill, state
income taxes and Canadian earnings which are taxed at a higher statutory rate.
In fiscal 1995, the Company recorded a tax provision of $2.2 million despite a
pretax loss of $2.1 million. The provision was attributable to the
nondeductibility of the above mentioned items, nondeductible meals and
entertainment expenses and valuation allowances relating to the Company's
Mexico joint ventures.
FLUCTUATIONS IN RESULTS OF OPERATIONS.
Certain customers have varying levels of demand for the Company's
services based on the time of the year. Most of the Company's service lines
tend to be slowest in the winter months (the Company's second quarter).
Services provided to electric utility customers are typically performed in the
fall and spring when demand for electricity is reduced and maintenance work can
be performed more efficiently. Likewise, services provided to refining and
petrochemical customers tend to be greater in the fall and spring when most
planned turnarounds at customer plants occur. See also Note 15 of Notes to
Consolidated Financial Statements for quarterly financial data. In addition,
the Company's acquisition program can affect not only future results and rates
of growth but also previously reported results because of restatements if
acquisitions are accounted for as poolings-of-interests.
The impact of inflation on the Company has been minimal.
ENVIRONMENTAL PROCEEDINGS
In November 1996, the West Virginia Department of Environmental
Protection (the "West Virginia DEP") issued a draft consent order against one
of the Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995. The Company
voluntarily remediated this spill in December 1995. The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements. The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response. Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order. The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's
results of operations or financial position.
-7-
<PAGE> 40
NEW FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company). This statement established criteria for
recognizing, measuring and disclosing impairments of long-lived assets,
identifiable intangibles and goodwill. The Company will adopt SFAS No. 121 in
the first quarter of fiscal year 1997; however, management does not expect that
the adoption will have a material effect on the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company). This statement
allows entities to choose between a new fair value based method of accounting
for employee stock options or similar equity instruments and the current
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
expects to continue accounting for employee stock options and similar equity
instruments in accordance with APB Opinion No. 25. The pro forma effect for
fiscal 1996 has not yet been determined.
OUTLOOK FOR 1997
The Company has clearly defined the industrial customer as the focus of
its business strategy. The Company's fiscal 1996 sale of its glass recycling
operations has allowed it to narrow its focus on providing services to the
industrial customer and provide additional capital for expansion of this core
business and developing opportunities independently or through partnering
arrangements in the areas of water and wastewater management, energy services,
contract labor services and, through its investment in The Safe Seal Company,
Inc., leak sealing and valve restoration services. The Company will continue to
evaluate its complement of services offered and allocate capital accordingly.
While the Company has historically focused on achieving growth through
acquisitions, the Company has, in recent years, shifted its focus to emphasize
increased internal growth. The Company has focused on realizing increased
internal growth primarily by developing new outsourcing and co-sourcing
opportunities with its customers and expanding the number of service lines
offered to customers by each of its operating locations, providing
solution-oriented and preventive services that focus on improving customer
efficiency and profitability, transferring technology and knowledge among the
Company's various operating locations, implementing national marketing programs
that target major industries served by the Company, introducing services in new
geographic areas and developing services that address environmental concerns
associated with new products. The Company's ALLIES(R) program stresses
collaboration between the Company and its customers by focusing on creating
flexible and innovative solutions to a customer's problems and emphasizing the
Company's services as an economically-efficient outsourcing alternative that
can maximize a customer's competitive role in the emerging global market. In
recognition of the new outsourcing and co-sourcing opportunities with its
customers identified through this program, the Company created AllQuest
Enterprises, Inc. ("AllQuest Enterprises"). AllQuest Enterprises enables the
Company to expand the bundle of available service lines offered to its
customers by its operating locations and to create new outsourcing and
co-sourcing opportunities with its customers. AllQuest Enterprises is comprised
of the following early-stage start-up companies: AllQuest Water Resources,
Inc.; AllQuest Technologies, Inc.; AllQuest Pipeline Services, Inc.; AllQuest
Energy Services, Inc.; Allies Staffing, Inc.; and AllQuest Capital, Inc.
The Company is also focusing on cost control and gross margin expansion
through fiscal 1997. The Company intends to implement selected price increases
when market conditions permit and as a by-product of value-added selling
efforts. The Company anticipates savings resulting from the restructuring in
fiscal 1996 and ongoing cost-reduction initiatives to positively affect its
results of operations in fiscal 1997.
A significant amount of the Company's revenues from its services are
generated on an as needed basis or from irregularly scheduled customer
turnarounds and outages. The Company is also affected by business cycles
experienced by its industrial customer bases and by changes in environmental
laws and regulations or by changes in the interpretation or enforcement of such
laws and regulations. The Company's customers have a significant capacity in
the short-term to defer industrial cleaning, maintenance and disposal services.
Deferrals can occur either due to a reduction in maintenance or capital funds,
customer budget restraints or, conversely, increased demand for a customer's
products that make it impractical to perform cleaning and maintenance on
anticipated schedules. These factors make it difficult to predict, from year to
year, the demand for the Company's services.
-8-
<PAGE> 41
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain sections of this Report, specifically the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may include "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to management's
current expectations regarding the future results of operations or financial
condition of the Company. These forward-looking statements may be identified by
the use of forward-looking terminology such as "may," "will," "believe,"
"anticipate," "should," or comparable terms or the negative thereof. These
statements are based solely on data currently available, which data is subject
to change as a result of changes in conditions and should not therefore be
viewed as assurance regarding the Company's future performance. These
statements involve risks and uncertainties that could cause the actual results
to differ materially from those described in the statements. In addition to the
risks and uncertainties specifically described in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Outlook for Fiscal 1997," these forward-looking statements may also
be affected by the following risks and uncertainties: the effect of economic
and market conditions; the impact of costs, insurance recoveries and
governmental, judicial and other third party interpretation and determination
in connection with legal and environmental proceedings; and the impact of
current, pending or future legislation or regulations (collectively, the
"Cautionary Statements"). Although the Company believes that the expectations
reflected in any forward-looking statements contained herein are reasonable, it
can give no assurance that such expectations will prove to have been correct.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements contained herein.
-9-
<PAGE> 42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Allwaste, Inc.:
We have audited the accompanying Consolidated Balance Sheets of Allwaste, Inc.
(a Delaware corporation) and subsidiaries as of August 31, 1996 and 1995, and
the related Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended August 31, 1996.
These Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Consolidated Financial Statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Consolidated Financial
Statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Allwaste, Inc. and
subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 15, 1996
-10-
<PAGE> 43
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
August 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,436 $ 4,029
Receivables, net of allowance for doubtful accounts 75,114 80,065
Prepaid expenses 3,796 3,609
Deferred taxes and other current assets 11,170 10,216
--------- ---------
Total current assets 92,516 97,919
--------- ---------
INVESTMENTS 11,030 --
PROPERTY AND EQUIPMENT, at cost 248,280 230,291
Less -- Accumulated depreciation (119,307) (99,193)
--------- ---------
128,973 131,098
--------- ---------
GOODWILL, net of accumulated amortization 88,032 88,122
NOTES RECEIVABLE 13,517 4,893
OTHER ASSETS 3,119 4,050
NET ASSETS OF DISCONTINUED OPERATIONS -- 46,151
--------- ---------
Total assets $ 337,187 $ 372,233
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,250 $ 28,737
Accrued liabilities:
Payroll and related benefits 9,911 8,282
Workers' compensation insurance 14,751 11,686
Other insurance 6,381 5,550
Income taxes and other current liabilities 17,232 13,368
Current maturities of long-term and convertible subordinated debt 6,249 3,371
--------- ---------
Total current liabilities 73,774 70,994
--------- ---------
LONG-TERM DEBT, net of current maturities 87,971 120,535
CONVERTIBLE SUBORDINATED DEBT, net of current maturities 33,924 41,972
DEFERRED INCOME TAXES AND OTHER LIABILITIES 10,572 10,441
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, 500,000 shares authorized, none issued or outstanding -- --
Common Stock, $.01 par value, 100,000,000 shares authorized,
39,799,029 and 39,609,429 shares issued in 1996 and 1995, respectively 398 396
Additional paid-in capital 55,699 54,958
Retained earnings 84,163 73,999
--------- ---------
140,260 129,353
Less:
Treasury Stock, at cost, 1,945,805 and 250,000 shares in 1996
and 1995, respectively (8,561) (1,062)
Unearned compensation related to outstanding restricted Common Stock (753) --
--------- ---------
Total shareholders' equity 130,946 128,291
--------- ---------
Total liabilities and shareholders' equity $ 337,187 $ 372,233
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-11-
<PAGE> 44
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended August 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES $ 382,165 $ 344,245 $ 286,861
COST OF OPERATIONS 286,412 254,596 204,492
--------- --------- ---------
Gross profit 95,753 89,649 82,369
WRITE-DOWNS OF OPERATING EQUIPMENT - 6,908 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 77,011 72,976 59,020
INTEREST EXPENSE (9,581) (8,785) (5,617)
INTEREST INCOME 1,041 402 484
OTHER INCOME (EXPENSE), net 2,360 (3,499) (1,302)
--------- --------- ---------
Income (loss) from continuing operations before
income tax provision and minority interest 12,562 (2,117) 16,914
INCOME TAX PROVISION (6,030) (2,170) (6,725)
MINORITY INTEREST, net of taxes 82 408 407
--------- --------- ---------
Income (loss) from continuing operations 6,614 (3,879) 10,596
Discontinued Operations
Income from discontinued operations, net of applicable income taxes - 2,773 2,501
Gain on sale of glass recycling operations, net of
applicable income taxes 3,764 - -
--------- --------- ---------
Net income (loss) $ 10,378 $ (1,106) $ 13,097
========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ .17 $ (.10) $ .29
Discontinued operations .10 .07 .07
--------- --------- ---------
Net income (loss) per common share $ .27 $ (.03) $ .36
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-12-
<PAGE> 45
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
------------------
Number Additional Share-
of Paid-In Retained Treasury Unearned holders'
Shares Amount Capital Earnings Stock Compensation Equity
------- ------- -------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August 31, 1993 36,740 $ 367 $ 43,097 $ 61,732 $ $ $ 105,196
Net income -- -- -- 13,097 -- -- 13,097
Issuance of Common Stock for
purchased businesses 934 9 4,093 -- -- -- 4,102
Issuance of Common Stock
pursuant to stock option plans
and related tax benefits 67 -- 292 -- -- -- 292
Treasury Stock acquired in lawsuit
settlement -- -- -- -- (1,062) -- (1,062)
Change in cumulative
translation adjustment -- -- -- (407) -- -- (407)
------ ----- -------- -------- ----------- ----------- ---------
BALANCE, August 31, 1994 37,741 376 47,482 74,422 (1,062) -- 121,218
Net loss -- -- -- (1,106) -- -- (1,106)
Issuance of Common Stock for
acquired businesses 1,432 15 5,079 810 -- -- 5,904
Issuance of Common Stock
pursuant to stock option plans
and related tax benefits 436 5 2,397 -- -- -- 2,402
Change in cumulative
translation adjustment -- -- -- (127) -- -- (127)
------ ----- -------- -------- ----------- ----------- ---------
BALANCE, August 31, 1995 39,609 396 54,958 73,999 (1,062) -- 128,291
Net income -- -- -- 10,378 -- -- 10,378
Issuance of Common Stock for
previously acquired business 25 -- 128 -- -- -- 128
Issuance of Common Stock
pursuant to stock option plans
and related tax benefits 165 2 638 -- -- -- 640
Issuance of treasury shares -- -- (25) -- 1,714 (925) 764
Compensation expense -- -- -- -- -- 172 172
Purchase of Treasury Stock -- -- -- -- (9,213) -- (9,213)
Change in cumulative
translation adjustment -- -- -- (214) -- -- (214)
------ ----- -------- -------- ----------- ----------- ---------
BALANCE, August 31, 1996 39,799 $ 398 $ 55,699 $ 84,163 $ (8,561) $ (753) $ 130,946
====== ===== ======== ======== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-13-
<PAGE> 46
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended August 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,378 $ (1,106) $ 13,097
Reconciliation of net income (loss) to cash
provided by operating activities:
Depreciation 28,639 25,715 20,635
Amortization 2,909 2,611 2,824
Write-downs of operating equipment -- 6,908 --
Gain on sale of glass recycling operations, net of taxes (3,764) -- --
Allowances on notes receivable -- 1,000 790
Write-downs of investments -- 1,950 950
Amortization of unearned compensation - restricted stock 172 -- --
Gain on purchases of convertible subordinated debentures (153) -- --
Gain on sales of property and equipment (1,081) (777) (146)
Equity in losses of unconsolidated partnership -- -- 2,805
Gain on sale of Common Stock investment -- -- (2,688)
Common Stock received in lawsuit settlement -- -- (1,062)
Change in assets and liabilities, net of effect
of acquisitions accounted for as purchases:
Receivables 4,545 (10,787) (9,412)
Prepaid expenses, deferred taxes
and other current assets (112) (2,309) (2,556)
Notes receivable and other assets (1,602) 722 (3,310)
Accounts payable (9,556) 8,278 (13)
Accrued liabilities 2,187 7,170 (2,067)
Deferred income taxes and other liabilities 366 (1,259) 1,521
-------- -------- --------
Cash provided by operating activities 32,928 38,116 21,368
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations 41,500 -- --
Additions to property and equipment (27,541) (47,193) (34,145)
Proceeds from sales of property and equipment 3,249 2,394 2,112
Purchase of investments (3,030) -- --
Payments for acquisitions accounted for as purchases, net
of cash acquired of $123, $1,337 and $241 (2,145) (19,320) (7,468)
Proceeds from sale of investment in marketable security -- -- 2,982
Cash used in discontinued operations -- (4,233) (7,013)
-------- -------- --------
Cash provided by (used in) investing activities 12,033 (68,352) (43,532)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock 665 2,279 292
Net increase (decrease) in revolving credit facility (32,309) 35,670 32,910
Net decrease in other long term borrowings (4,575) (6,577) (10,469)
Purchases of convertible subordinated debentures (908) -- --
Purchases of Treasury Stock (9,213) -- --
-------- -------- --------
Cash provided by (used in) financing activities (46,340) 31,372 22,733
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES (214) (127) (407)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,593) 1,009 162
CASH AND CASH EQUIVALENTS, beginning of year 4,029 3,020 2,858
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 2,436 $ 4,029 $ 3,020
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-14-
<PAGE> 47
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Description of business
Allwaste, Inc. ("Allwaste" or the "Company") provides integrated
industrial and environmental services and acts as an outsourcing provider of
on-site facility processes and services, primarily in the United States, Canada
and Mexico. The Company, through its operating subsidiaries and affiliates,
provides to its industrial and commercial customers a range of industrial and
environmental services, including: on-site industrial and waste management
services (including hydroblasting and gritblasting and air-moving and liquid
vacuuming); waste transportation and processing; wastewater services; site
remediation; maintenance services; turnaround and outage services; container
cleaning and repair services; emergency spill response services; and other
general plant support services.
Principles of consolidation and basis of presentation
The Consolidated Financial Statements include the accounts of Allwaste,
Inc. and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. For all periods presented, the Consolidated Financial Statements
and Notes to Consolidated Financial Statements reflect the Company's glass
recycling operations as a discontinued operation, as discussed in Note 3.
Additionally, certain prior year amounts have been reclassified to conform with
the fiscal 1996 presentation.
Revenue recognition
Revenues are recorded as services are performed. Revenues derived from
services provided under fixed-price contracts are recognized on a
percentage-of-completion basis, using the cost-to-cost method. If it is
determined that a contract may result in a loss, a provision for the loss is
accrued at that time.
Property and equipment
Property and equipment are carried at cost and depreciated over the
estimated useful life of the asset using the straight-line method. The costs of
major improvements are capitalized. Expenditures for maintenance, repairs and
minor improvements are expensed as incurred. When property and equipment are
sold or retired, the cost and related accumulated depreciation are removed and
the resulting gain or loss is included in results of operations.
Interest paid in connection with the construction of major facilities and
equipment is capitalized. The capitalized interest is recorded as a part of the
related asset and is depreciated over the asset's estimated useful life.
Capitalized interest related primarily to expansions and improvements at
container service facilities was $0.1 million, $0.3 million and $0.1 million
for the years ended August 31, 1996, 1995 and 1994, respectively.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the
net tangible and identifiable intangible assets of acquired businesses
accounted for under the purchase method of accounting and is amortized on a
straight-line basis over a period of 40 years. Subsequent to purchase, the
Company continually evaluates whether events or circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. When
factors indicate that goodwill should be evaluated for possible impairment, the
Company uses an estimate of the acquired business' undiscounted future cash
flows compared to the carrying value of goodwill to determine whether goodwill
is deemed to be impaired. Management believes there have been no events or
circumstances which warrant revision to the remaining useful life or which
affect the recoverability of the Company's recorded goodwill. Accumulated
amortization of goodwill as of August 31, 1996 and 1995 was $9.1 million and
$6.6 million, respectively.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, the Company provides deferred income taxes for the tax effects of
temporary differences between the financial reporting and income tax bases of
the Company's assets and liabilities.
<PAGE> 48
Environmental expenditures
Environmental expenditures are expensed or capitalized based upon their
future economic benefit. Costs which improve a property, as compared with the
condition of the property when originally constructed or acquired, and costs
which prevent future environmental contamination are capitalized. Costs related
to environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are recorded when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.
Minority interest
The Company owns an aggregate 60% joint venture interest in each of two
companies in Mexico, and a Mexican company owns the remaining 40% interest in
each entity. One of the companies performs various industrial services,
including site remediation and aboveground storage tank cleaning services. The
primary operations of the other company are underground storage tank testing
services.
For financial reporting purposes, the joint ventures' assets and
liabilities are consolidated with those of the Company. The Mexican company's
minority interests, $0.5 million and $0.4 million at August 31, 1996 and 1995,
respectively, are included in the Company's Consolidated Balance Sheets in
deferred income taxes and other liabilities. The joint venture experienced
pre-tax losses of $0.3 million, $1.2 million and $0.9 million in fiscal 1996,
1995 and 1994, respectively.
Per share amounts
Per share amounts are calculated based on the weighted average number of
common and common equivalent shares outstanding for each year (see Note 13).
Foreign currency translation
The Company's Canadian and Mexican subsidiaries maintain their books and
records in Canadian dollars and Mexican pesos, respectively. Assets and
liabilities of these operations are translated into United States ("U.S.")
dollars at the exchange rate in effect at the end of each accounting period;
and, income and expense accounts are translated at the average exchange rate
prevailing during the respective period. Gains and losses resulting from such
translation are included in retained earnings. Gains and losses from
transactions in foreign currencies are credited or charged to operations
currently and are not material.
Investment activity
In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II Incorporated
("Equus"). As partial consideration for the sale, the Company received $8.0
million of redeemable Series A preferred stock. The stock is redeemable by SHI
beginning in 2002. This investment is recorded using the cost method and is
included in investments in the accompanying Consolidated Balance Sheets (See
Note 3).
In October 1995, the Company acquired a 10% interest in The Safe Seal
Company, Inc. ("Safe Seal") which specializes in valve repair and leak sealing.
This $2.6 million investment consists of 20,000 shares of redeemable Class A
preferred stock, 422,000 shares of common stock and warrants to purchase common
shares and is recorded using the cost method.
For most of fiscal 1994, the Company owned a 40% interest in a wastewater
pretreatment facility and recorded such investment using the equity method of
accounting. Prior to increasing its ownership interest in late fiscal 1994 to
100%, the Company's equity in losses of this partnership was $1.8 million for
the year ended August 31, 1994 and were included in other income (expense), net
in the accompanying Consolidated Statements of Operations. Additionally, in
fiscal 1994, the Company recorded $1.0 million in losses relating to its
investment in this facility which is recorded in other income (expense), net in
the accompanying Consolidated Statements of Operations.
The Company acquired 181,000 shares of Sanifill, Inc. ("Sanifill"), a
publicly traded corporation involved in the collection and disposal of solid
waste, pursuant to a private offering in 1989 at an average cost of $1.62 per
share. In November 1993, the Company sold all of its shares of Sanifill. The
sale resulted in a pretax gain for fiscal year 1994 of $2.7 million which is
reflected in other income (expense), net in the accompanying Consolidated
Statements of Operations.
<PAGE> 49
Fiscal 1995 special charges
During fiscal 1995, the Company recorded special charges of $11.9
million. Such charges include $6.9 million of charges classified as write-downs
of operating equipment in the accompanying Consolidated Statements of
Operations. These write-downs related to the permanent impairment of certain
operating equipment in Mexico and California, a wastewater pretreatment
facility, equipment relating to two small businesses exited and various owned
facilities held for sale. Included in SG&A expenses in the accompanying
Consolidated Statements of Operations are $1.1 million of charges primarily
representing the write-off of organizational expenses relating to the Mexico
joint ventures. The Consolidated Statements of Operations also reflect $0.6
million in interest expense relating to the write-off of previously unamortized
loan costs in connection with the bank amendment to the revolving credit
facility completed in August 1995. Other income (expenses), net in the
accompanying Consolidated Statements of Operations reflects $3.6 million in
charges relating to an allowance provided for a note receivable and the
write-off of the Company's remaining investment in IAM/Environmental, Inc.
("IAM") and another previously-owned business, as well as the settlement of a
lawsuit related to the previously discontinued asbestos abatement business. The
write-off related to IAM of $2.0 million reduced the Company's carrying value
in this investment to zero. Certain of the charges relating to the Mexico joint
venture are partially offset by the minority interest effect of such charges.
Cash flow reporting
Highly liquid debt instruments with an original maturity of three months
or less are considered to be cash equivalents. Cash payments for interest
during the years ended August 31, 1996, 1995 and 1994 were $9.6 million, $10.0
million and $6.3 million, respectively, and cash payments for income taxes
during the years ended August 31, 1996, 1995 and 1994 were $4.9 million, $4.5
million and $8.4 million, respectively.
New financial accounting standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company). This statement established criteria for
recognizing, measuring and disclosing impairments of long-lived assets,
identifiable intangibles and goodwill. The Company will adopt SFAS No. 121 in
the first quarter of fiscal year 1997; however, management does not expect that
the adoption will have a material effect on the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company). This statement
allows entities to choose between a new fair value based method of accounting
for employee stock options or similar equity instruments and the current
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
expects to continue accounting for employee stock options and similar equity
instruments in accordance with APB Opinion No. 25. The pro forma effect for
fiscal 1996 has not yet been determined.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the Company's estimates.
(2) ACQUISITIONS --
Under the purchase method of accounting, the results of acquired
businesses are included with the Company's results from their respective
acquisition dates. The following table summarizes the Company's business
acquisitions accounted for under the purchase method (dollars in thousands):
<TABLE>
<CAPTION>
Businesses Cash and Convertible Shares of Total
Purchased Promissory Notes Subordinated Notes Common Stock Consideration
---------- ---------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1996 4 $ 2,445 $ -- -- $ 2,445
Fiscal 1995 13 23,231 4,985 1,426,096 36,766
Fiscal 1994 9 7,875 534 934,290 12,511
</TABLE>
<PAGE> 50
The allocations of the purchase price to the fair market value of the net
assets acquired in the fiscal 1996 acquisitions are based on preliminary
estimates of fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
As an integral part of each of the above acquisitions, all former
shareholders signed non-compete agreements and key management entered into
agreements with the Company to continue managing these businesses.
In connection with two acquisitions made prior to fiscal 1996, the
Company agreed to make contingent payments to the former owners over periods up
to five years based on formulas in the respective acquisition agreements. At
the Company's option, these payments may be made in either cash or common stock
of the Company. At August 31, 1996, the maximum aggregate amount of contingent
payments was $3.2 million. In management's opinion, based on the current
performance levels of the individual acquisitions involved, the ultimate
settlement of these contingent payment obligations is likely to be
substantially less than the $3.2 million maximum aggregate. Approximately $0.3
million in contingent payments were made during 1996. Amounts earned under the
terms of these agreements are recorded as additional goodwill and amortized
over the remaining amortization period.
(3) DISCONTINUED OPERATIONS --
In September 1995, the Company sold its glass recycling operations to SHI,
a company formed by Equus. In October 1996, the Company and Equus finalized an
agreement with respect to certain post-closing issues which were unresolved on
the date of the sales transaction. The total consideration, as adjusted, was
$56.1 million, including $41.5 million in cash, $8.0 million of redeemable
Series A preferred stock redeemable beginning in 2002, and a $6.6 million
subordinated note receivable due in 2002. The redeemable Series A preferred
stock dividend is $.065 per share for the period prior to September 1, 1996 and
$.06 per share thereafter. The subordinated note receivable interest rate is
11% for the period prior to September 1, 1996 and 10.5% thereafter. The
agreement also provided that all dividends and interest due prior to August 31,
1997 will not be paid when due, but "paid in kind" in the form of two 8.036%
subordinated notes issued September 30, 1996 and June 30, 1997 in the amounts
of $1.3 million and $0.9 million, respectively. Principal on these two notes
will be due on November 30, 2002. At August 31, 1996, the Company had accrued
$0.5 million for dividends and $0.8 million for interest which is reflected in
other income (expense) in the accompanying Consolidated Statements of
Operations. The Company also received warrants to purchase shares of SHI common
stock, providing the Company the right to own up to approximately 33% of the
outstanding stock of SHI. The Company may receive additional consideration in
the form of an adjustment to the purchase price in the event that Equus'
internal rate of return, as defined, exceeds certain predetermined targets. The
amount of such additional consideration, if any, is not presently determinable.
The Company recorded a gain on the sale of its glass recycling operations of
$3.8 million, net of estimated applicable income taxes of $1.6 million, in the
first quarter of fiscal 1996. Revenues of the glass recycling operations, net
of intercompany sales, were $70.0 million and $63.2 million for the fiscal
years ended August 31, 1995 and 1994, respectively.
The net assets of the glass recycling operations consisted of the
following as of August 31, 1995 (in thousands):
Net working capital $ 7,726
Property and equipment, net 21,335
Goodwill and other assets 19,264
Long-term debt 440
Deferred income taxes and other 1,734
Income from discontinued operations in the Consolidated Statements of
Operations is presented net of allocated interest expense of $1.6 million and
$1.0 million and net of applicable income taxes of $1.8 million and $1.6
million for fiscal years 1995 and 1994, respectively. The interest was
allocated based upon the net assets of the glass recycling operations in
relation to the Company's consolidated net assets plus general corporate debt.
<PAGE> 51
(4) RECEIVABLES --
Receivables included in current assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
August 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Trade accounts $ 76,378 $ 80,619
Employees 567 996
Other 489 2,133
-------- --------
77,434 83,748
Less -- Allowance for doubtful accounts (2,320) (3,683)
-------- --------
$ 75,114 $ 80,065
======== ========
</TABLE>
Notes receivable recorded as non-current assets consisted of the
following (in thousands):
<TABLE>
<CAPTION>
August 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Notes receivable from employees $ 2,702 $ 2,483
Notes receivable from sale of discontinued
asbestos abatement operation 2,888 2,888
Notes receivable from sale of discontinued
glass recycling operations:
Subordinated note receivable 6,610 --
Accrued interest and dividends 1,285 --
Notes receivable from sale of other businesses 350 790
Other 682 522
-------- --------
14,517 6,683
Less -- Loss reserves (1,000) (1,790)
-------- --------
$ 13,517 $ 4,893
======== ========
</TABLE>
(5) PROPERTY AND EQUIPMENT--
The principal categories and estimated useful lives of property and
equipment were as follows (dollars in thousands):
<TABLE>
<CAPTION>
August 31,
Estimated ---------------------
Useful Lives 1996 1995
------------ ---------- --------
<S> <C> <C> <C>
Land $ 6,412 $ 6,226
Building and improvements 10 - 30 years 34,421 28,127
Service equipment and related vehicles 2 - 20 years 188,309 178,162
Other 3 - 10 years 19,138 17,776
--------- ---------
248,280 230,291
Less: accumulated depreciation (119,307) (99,193)
--------- ---------
Property and equipment, net $ 128,973 $ 131,098
========= =========
</TABLE>
<PAGE> 52
(6) DEBT --
Long-term debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
August 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Revolving credit agreement $ 87,770 $ 120,079
Notes payable to individuals in connection with
acquisitions of businesses (see Note 2), banks and financial
institutions, weighted average interest rate of 8.4% at August 31,
1996, payable in various installments through 1999 385 1,142
--------- ---------
88,155 121,221
Less -- Current maturities (184) (686)
--------- ---------
$ 87,971 $ 120,535
========= =========
</TABLE>
Revolving credit agreement
In December 1993, the Company entered into a revolving credit agreement
with a group of banks. This agreement, as amended most recently in August 1996,
provides an unsecured $160 million revolving credit line to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. Interest on
outstanding borrowings is charged, at the Company's option, at the banks' prime
rate (8 1/4% at August 31, 1996), adjusted Eurodollar Rate or the banks'
reserve adjusted certificate of deposit rate (CD rate) plus 0% to 1.625% as
determined by the calculation of the debt to cash flow ratio (as defined). A
commitment fee of .25% is payable on the unused portion of the line. Three of
the banks participating in the revolving credit agreement have also extended to
the Company uncommitted, short-term lines of credit with interest rates which
may be more favorable to the Company than those available under the revolving
credit agreement. As of August 31, 1996, the Company had $87.8 million
outstanding under the revolving credit agreement and the uncommitted lines of
credit and had utilized $30.1 million of the facility for letters of credit to
secure certain insurance obligations and performance bonds. Under the terms of
the agreement, the Company must maintain a minimum fixed charge coverage ratio
(as defined) and certain other minimum financial ratios. Borrowing availability
is subject to the Company meeting minimum leverage and other ratios. Management
believes it is in compliance with all applicable covenants under the revolving
credit agreement as of August 31, 1996. As of November 15, 1996, available
borrowing capacity, as defined under the agreement, was $39.0 million. The
credit agreement prohibits the payment of cash dividends.
Maturities of long-term debt outstanding at August 31, 1996 are as
follows (in thousands):
For the year ending August 31 --
1997 $ 184
1998 191
1999 10,982
2000 21,943
2001 21,943
Thereafter 32,912
-------
$88,155
=======
In August 1996, the Company purchased a three year interest rate cap
agreement of 7.0% on $30,000,000 from two of the banks which participate in the
Company's revolving credit agreement. Quarterly payments under the agreement
are based on the difference between a floating rate based on a three-month
LIBOR and the cap rate. The cost was $0.3 million and is being amortized over
the term of the agreement.
<PAGE> 53
Convertible subordinated debt
Convertible Subordinated Debentures
In June 1989, the Company completed a public offering of $30.0 million of
7.25% Convertible Subordinated Debentures due June 1, 2014 (the "Debentures");
net proceeds to the Company were $28.7 million. Direct offering costs related
to the Debentures are included in other assets in the accompanying Consolidated
Balance Sheets and are being amortized over the term of the Debentures. The
Debentures are convertible by the holder, at any time, into shares of the
Company's Common Stock at a price of $11.94 per share and are redeemable for
cash at the option of the Company. The Debentures provide for annual mandatory
sinking fund payments equal to 5% of the aggregate principal amount of the
Debentures issued, commencing June 1, 1999. Interest is payable semi-annually,
on June 1 and December 1. In fiscal 1996, the Company repurchased $1.1 million
of these Debentures at 85% of face value. The related gain of $0.2 million was
included in interest expense in the accompanying Consolidated Statements of
Operations.
In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings. The
agreement modified the $30.0 million of 7.25% fixed rate debt to LIBOR plus
.24% debt, which was reset quarterly. On May 31, 1995, the Company terminated
the agreement and is amortizing the $0.5 million received as a reduction of
interest expense on a straight-line basis over the remaining term of the
original swap.
Convertible Subordinated Notes
At August 31, 1996, the Company had outstanding $11.1 million of
convertible subordinated notes to former owners of certain acquired businesses
(the "Notes") which were issued as partial consideration of the acquisition
purchase price. The Notes bear interest, payable quarterly, at a weighted
average rate of 6.2% and are convertible by the holder into shares of the
Company's Common Stock at a weighted average price of $7.24 per share. The
Notes are redeemable for cash or the Company's Common Stock at the option of
the Company at any time after one year of issuance.
Maturities of the Notes outstanding at August 31, 1996 are as follows (in
thousands):
For the year ending August 31 --
1997 $ 6,065
1998 4,985
-------
$11,050
=======
(7) INCOME TAXES --
The Company and its U.S. subsidiaries file a consolidated federal income
tax return. Acquired entities file appropriate tax returns through their
respective acquisition dates (absent certain administrative elections) and,
thereafter, are included in the Company's consolidated return. Foreign income
taxes consist primarily of Canadian federal and provincial taxes attributable
to the Company's Canadian subsidiaries.
Foreign pretax book income (loss) net of certain intercompany interest
expense and other items was $0.5 million (consisting of a Mexican loss of $0.2
million and Canadian income of $0.7 million,) ($0.4 million) and $1.2 million
for the years ended August 31, 1996, 1995 and 1994, respectively.
<PAGE> 54
Federal, state and foreign income tax provisions (benefits) are as
follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended August 31,
-------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal --
Current $ 4,941 $ 6,536 $ 1,327
Deferred 706 (6,260) 3,819
------- ------- -------
5,647 276 5,146
------- ------- -------
State --
Current 1,034 1,494 584
Deferred (448) (430) 179
------- ------- -------
586 1,064 763
------- ------- -------
Foreign --
Current 290 667 840
Deferred (493) 163 (24)
------- ------- -------
(203) 830 816
------- ------- -------
$ 6,030 $ 2,170 $ 6,725
======= ======= =======
</TABLE>
The differences in the income taxes provided and the amount determined by
applying the U.S. federal statutory rate to income before income taxes are
summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax at statutory rate 35% 35% 35%
Effect of valuation allowance 1 (55) --
State income taxes, net of benefit for federal
deduction 3 (33) 3
Effect of meals and entertainment limitation 4 (21) --
Effect of other nondeductible amortization
of goodwill 4 (16) 2
Effect of other nondeductible expenses 1 (7) --
Foreign income taxes at higher rates -- (3) 1
Other -- (3) (1)
---- ---- ----
48% (103)% 40%
==== ==== ====
</TABLE>
Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes. The sources of these temporary differences and
related tax effect were as follows (in thousands):
<TABLE>
<CAPTION>
For the Years Ended August 31,
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Depreciation and amortization $ 2,417 $ 901 $ 1,361
Accruals and reserves not deductible
until paid 1,031 (5,186) 1,926
Write-downs of assets -- (1,580) --
Sale of certain leasing operations (141) (305) (222)
Sale of glass recycling operations (2,932) -- --
Other, net (610) (357) 909
------- ------- -------
Total deferred income
tax provision (benefit) $ (235) $(6,527) $ 3,974
======= ======= =======
</TABLE>
<PAGE> 55
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Consolidated Balance Sheets,
current and non-current deferred tax assets and liabilities are netted within
each tax jurisdiction. The following table sets forth the gross deferred tax
assets (liabilities) recorded as of August 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Current deferred tax assets $ 8,681 $ 8,512
Non-current deferred tax assets 3,383 5,003
Valuation allowance (1,230) (1,156)
-------- -------
Total deferred tax assets 10,834 12,359
-------- -------
Non-current deferred tax
liabilities (13,238) (14,998)
-------- -------
Net deferred tax liabilities $ (2,404) $(2,639)
======== =======
</TABLE>
The Company is required to record valuation allowances for deferred tax
assets which management believes it is more likely than not that the tax asset
will not be realized. Accordingly, the Company established valuation allowances
against certain deferred tax assets: primarily those attributable to the
Company's net operating losses of its joint ventures in Mexico.
Prepaid income taxes of $0.7 and $1.2 million are included in prepaid
expenses at August 31, 1996 and 1995, respectively.
(8) SHAREHOLDERS' EQUITY --
Preferred Stock
The Company can issue up to 500,000 shares of Preferred Stock, none of
which are issued or outstanding. The Board of Directors is authorized to
provide for the issuance of the Preferred Stock in series, to establish the
number of shares to be included in each such series and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof. This includes, among other
things, any voting rights, conversion privileges, dividend rates, redemption
rights, sinking fund provisions and liquidation rights which shall be superior
to the Common Stock. No holder of Preferred Stock will have preemptive rights.
Stock option plans
In January 1995, the Company's stockholders approved the Amended and
Restated 1989 Replacement Non-Qualified Stock Option Plan (the "Plan"), which
increased the number of shares issuable under the Plan from 3,000,000 shares to
4,500,000 shares. Under the Plan and notwithstanding certain restrictions
placed upon grants of options to persons subject to Section 16(a) of the
Securities Exchange Act of 1934, through August 31, 1999, all forfeited,
expired and exercised options automatically become available for grants of new
options under the Plan; therefore, the number of granted option shares plus
those remaining available for grant shall remain constant at 4,500,000 through
such date. Stock options are granted under the Plan at an exercise price which
equals the fair market value of the Common Stock on the date of grant or on the
date which marks the occurrence of the event pursuant to which the options are
granted.
In July 1996, the compensation committee of the Board of Directors
approved a stock option exchange offer program (the "Exchange Program"),
pursuant to which all holders of stock options under the Plan were offered the
opportunity to exchange existing outstanding option grants for new option
grants with a new exercise price of $4.81 per share, a new eight-year term and
a new four-year vesting schedule. Options to purchase an aggregate of 2,251,961
shares of Common Stock (of which, options to purchase an aggregate of 287,526
shares were initially granted during fiscal 1996) were exchanged under the
Exchange Program.
At August 31, 1996, options to purchase 3,419,878 shares were outstanding
under the Plan at prices ranging from $3.88 to $6.75 per share, of which
options to purchase 404,568 shares were exercisable. Subsequent to August 31,
1996, options to purchase an additional 949,950 shares were granted under the
Plan at the per share exercise price of $4.25.
In October 1992, the Company's Board of Directors adopted a supplemental
option plan ("Supplemental Plan") to enable the Company to fulfill obligations
to former employees. A total of 1,500,000 shares are issuable under the amended
Supplemental Plan. At August 31, 1996, options to purchase 1,018,812 shares
were outstanding under the
<PAGE> 56
Supplemental Plan at prices ranging from $4.00 to
$10.88 per share, of which options to purchase 689,818 shares were exercisable.
Subsequent to August 31, 1996, there were no options granted under the
Supplemental Plan.
The following table summarizes aggregate stock option activity of both
the Company's stock option plans for each of the three years ended August 31:
<TABLE>
<Caption
1996 1995 1994
-------------- --------------- -------------
<S> <C> <C> <C>
Options outstanding, beginning of year 4,220,271 3,422,925 3,153,791
Granted 2,440,601 1,895,400 871,740
Exercised (164,600) (430,526) (66,377)
Forfeited and canceled (2,057,587) (667,528) (536,229)
-------------- --------------- -------------
Options outstanding, end of year 4,438,685 4,220,271 3,422,925
============== =============== =============
Option prices per share:
Granted $ 4.00 - 6.50 $ 4.00 - 6.25 $ 4.00- 6.75
Exercised $ 0.50 - 4.25 $ 4.00 - 5.88 $ 4.00- 5.63
Forfeited and canceled $ 4.00 - 10.88 $ 4.00 - 12.19 $ 4.00- 12.19
</TABLE>
Treasury Stock
In July 1995, the Board of Directors of the Company approved a Stock
Repurchase Plan which authorizes management of the Company to repurchase up to
5,000,000 shares of Common Stock, either on the open market or in privately
negotiated transactions, at prevailing market prices over a two year period. As
of August 31, 1996, 2,075,900 shares of Common Stock had been repurchased under
the plan at an average price of $4.44 per share. During fiscal 1996, the
Company used 380,095 of these treasury shares for incentive plans, employment
agreements and various other uses. Subsequent to August 31, 1996, the Company
has repurchased 1,029,400 additional shares of its Common Stock at an average
cost of $4.67 per share. Future repurchases of the Company's Common Stock will
be dependent on prevailing market conditions and other investment
opportunities.
In October 1993, the Company reached a settlement of a lawsuit with a
former owner of an acquired business and other parties. In exchange for a full
and complete release of all claims against the parties, the Company received
$1.0 million in cash and 250,000 shares of the Company's Common Stock. This
transaction resulted in a gain of $1.4 million, net of related fiscal 1994
legal expenses, which is reflected in other income (expense), net in the
Consolidated Statements of Operations.
Stockholder Rights Plan
The Company's Stockholder Rights Plan (the "Rights Plan"), adopted in
August 1996, is designed to deter coercive or unfair takeover tactics and to
prevent a person or group from gaining control of the Company without offering
a fair price to all stockholders.
All stockholders of record on August 15, 1996 were issued, for each share
of Common Stock held, one "right" entitling them to purchase from the Company
one-thousandth of a share of Series One Junior Participating Preferred Stock of
the Company at an exercise price of $20 (the "Rights"). The Rights are
distributable on the earlier of: 10 days (the "Shares Acquisition Date") after
a public announcement that a person or group has acquired beneficial ownership
of 15% or more of the Company's Common Stock (an "Acquiring Person") or 10
business days after a person or group commences a tender or exchange offer upon
consummation of which such person or group would, if successful, beneficially
own 20% or more of the Company's outstanding Common Stock.
The Company will generally be entitled to redeem the Rights in full, at
$.01 per Right, at any time until close of business up to 10 days following the
Shares Acquisition Date. The Rights will expire on August 5, 2006, unless
redeemed earlier by the Company's Board of Directors.
<PAGE> 57
If a person (and its affiliates) becomes the beneficial owner of 20% or
more of the outstanding shares of the Common Stock (a "Flip-In Triggering
Event"), each Right (other than those Rights held by an Acquiring Person or its
transferees, which Rights are void) becomes exercisable for shares of the
Company's Common Stock having a value of twice the exercise price of such
Rights. Alternatively, in the event the Company is involved in a merger or
other business combination in which the Company would not be the surviving
corporation or its Common Stock is changed or converted, or it sells 50% or
more of its assets or earning power to another person or group, each Right
would entitle the holder to purchase, at the Right's then current exercise
price, common shares of such other person or group having a value of twice the
exercise price of the Right.
(9) COMMITMENTS AND CONTINGENCIES --
Lease commitments
The Company has entered into various operating lease agreements,
primarily for office space, service facilities and service equipment utilized
for operations. Minimum annual rental payments under noncancellable operating
leases as of August 31, 1996 were as follows (in thousands):
For the year ending August 31 --
1997 $ 5,324
1998 4,528
1999 3,385
2000 2,268
2001 1,400
Thereafter 4,444
----------
$ 21,349
==========
Rental expense under operating leases was $16.0 million, $15.1 million
and $11.8 million for the years ended August 31, 1996, 1995 and 1994,
respectively. These amounts include a service facility leased from the
Company's Chairman of the Board of Directors, for which rental expense was $0.1
million for each of the years ended August 31, 1996, 1995 and 1994.
Legal matters
In the normal course of its operations, the Company can become involved
in a variety of legal disputes. Currently, the Company is a defendant in
several legal proceedings, including workers' compensation matters and minor
business disputes, the majority of which are being handled or are expected to
be handled by the Company's insurance carriers. As a company that handles and
transports hazardous waste, the Company is involved in various administrative
and court proceedings under environmental laws and regulations relating to
permit applications, operating authorities and alleged liabilities related to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended. Management of the Company believes that a decision adverse to
the Company in any one or in all of these proceedings would not have a material
effect on the financial position or the results of operations of the Company.
Insurance
The Company maintains workers' compensation insurance for its employees
and other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible" or
retrospective policies in which the Company, in many cases, is responsible for
the payment of incurred claims up to specified individual and aggregate limits,
over which a third party insurer is contractually liable for any additional
payment of such claims. Accordingly, the Company bears significant economic
risks related to these coverages. On a continual basis, and as of each balance
sheet date, the Company records an accrual equal to the estimated costs
expected to result from incurred claims plus an estimate of claims incurred but
not reported as of such date based on the best available information at such
date. However, the nature of these claims is such that actual development of
the claims may vary significantly from the estimated accruals. All changes in
the accrual estimates are accounted for on a prospective basis and can have a
significant impact on the Company's financial position or results of
operations.
<PAGE> 58
Insurance for environmental accidents and pollution has historically been
expensive and difficult to obtain. The Company currently maintains insurance
for environmental accidents and pollution relating to the performance of
services at certain customer locations. To date, the Company has not incurred
material fines, penalties or liabilities for pollution, environmental damage or
toxic torts. However, in the event a claim is successful against the Company
for pollution or toxic tort liability for which the Company is only partially
insured or completely uninsured, there could be a material adverse effect on
the Company's financial position or results of operations.
Environmental Proceedings
In November 1996, the West Virginia Department of Environmental
Protection (the "West Virginia DEP") issued a draft consent order against one
of the Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995. The Company
voluntarily remediated this spill in December 1995. The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements. The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response. Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order. The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's
results of operations or financial position.
Other matters
In August 1995, the Company entered into an agreement with Resource
Recovery Techniques of Arizona, Inc. ("RRT"), a start-up operation that was in
the process of constructing a wastewater treatment facility located in Phoenix,
Arizona (the "Facility"). As part of the agreement, the Company caused the
issuance of a Letter of Credit in the amount of $4.2 million for the benefit of
holders of tax exempt bonds (the "Bonds") issued to finance the construction of
the Facility. The Letter of Credit is subject to draw under the terms of a
certain Trust Indenture and Reimbursement Agreement executed in conjunction
with the issuance of the Bonds. As consideration, the Company was issued
warrants, with 10 year terms, to purchase 10% of the common stock of RRT and
upon the occurrence of certain conditions, an additional 15% of the common
stock of RRT.
(10) RETIREMENT PLANS --
Effective October 1, 1990, the Company established a defined contribution
employee benefit plan, the Allwaste Retirement Savings Plan, which covered
substantially all full-time non-union U.S. employees having at least one year
of service. On July 1, 1995, the Company adopted the Allwaste Employee
Retirement Plan (the "Retirement Plan"), which amended and restated the
Allwaste Retirement Savings Plan. Eligible employees may contribute up to 15%
of their compensation, subject to certain Internal Revenue Code limitations.
The Company matches 50% of each participant's contributions up to 3% of
eligible compensation. Retirement Plan participants may select among six
investment options, one of which is the Company's Common Stock. At August 31,
1996, the Retirement Plan held 626,723 shares of the Company's Common Stock
(market value of $2.6 million) which represented 24.3% of the Retirement Plan's
assets. In addition to the Plan, the Company maintains three other defined
contribution employee benefit plans which cover a small group of union
employees. Defined contribution expense related to all plans for the Company
was $0.8 million, $0.6 million and $0.5 million for fiscal years 1996, 1995 and
1994, respectively.
(11) INCENTIVE PLANS --
On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan (the "Incentive Plan") for certain key employees
("Participants") of the Company. Under this plan, each Participant that
purchased shares of the Company's Common Stock, based on a designated
percentage of the Participant's annual salary (the "Qualifying Shares"), was
granted a number of shares of restricted Common Stock equal to two times the
number of Qualifying Shares purchased by the Participant. On completion of the
purchases by a Participant, the Compensation Committee, in exercise of its
discretion and under the Company's Amended and Restated 1989 Replacement
Non-qualified Stock Option Plan, granted to such Participant an option to
purchase a number of shares of Common Stock equal to four times the number of
Qualifying Shares purchased by the Participant. Shares of Common Stock issued
under this Incentive Plan are treasury shares. At August 31, 1996, 203,366
shares of restricted Common Stock and options to purchase 423,464 shares of
Common Stock have been granted to Participants. Additionally, 3,460 shares of
restricted Common Stock were earned and not yet issued. The Company does not
contemplate that any additional restricted shares will be issued under the
Incentive Plan or that any options to purchase shares of Common Stock will be
granted under the Plan in relation to purchases of Qualifying Shares pursuant
to the Incentive Plan.
<PAGE> 59
The value of restricted shares awarded under this Incentive Plan during
fiscal 1996 was $0.9 million. These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a
separate component of Shareholders' Equity. Unearned compensation is being
amortized to expense over a predominately four year vesting period and amounted
to $0.2 million for the year ended August 31, 1996.
During fiscal 1996, the Company adopted an Interim Management Bonus Plan
("Interim Plan") for eligible personnel, as defined. Under this Interim Plan,
eligible personnel may receive bonus payments contingent upon the Company
meeting or exceeding certain predetermined earnings levels, as determined by
the Compensation Committee of the Board of Directors, and individual
performance. At August 31, 1996, compensation earned and recorded in operating
expense was $1.0 million.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS --
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to do
so.
The Company's notes receivable are estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Long-term investments are based on the carrying value of the asset.
The Company's long-term debt and convertible subordinated debt are
estimated based on quotations obtained from broker-dealers who make markets in
these and similar securities. The bank credit facilities are based on floating
interest rates and, as such, the carrying amount is a reasonable estimate of
fair value.
Letters of credit are based on the face amount of the related obligations
and performance bonds.
Interest rate cap agreements are based on quotes from the market makers
of these instruments and represent the amounts that the Company would expect to
receive to terminate the agreements.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
August 31,
-----------------------------------------------------------
1996 1995
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Notes receivable $ 13,517 $ 13,120 $ 4,893 $ 4,428
Long-term investments 11,030 11,030 -- --
Long-term debt and convertible
subordinated debentures 128,144 123,064 165,878 162,126
Letters of credit -- 30,090 -- 25,072
Interest Rate Cap Agreement 270 377 -- --
</TABLE>
<PAGE> 60
(13) NET INCOME (LOSS) PER COMMON SHARE --
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and equivalents
outstanding during the year as shown below (in thousands, except per share
data):
<TABLE>
<CAPTION>
For the Years Ended August 31,
----------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations,
net of income taxes $ 6,614 $ (3,879) $ 10,596
Discontinued Operations
Income from discontinued operations, net of
applicable income taxes -- 2,773 2,501
Gain on sale of glass recycling operations, net of
applicable income taxes 3,764 -- --
-------- -------- --------
Net income (loss) $ 10,378 $ (1,106) $ 13,097
======== ======== ========
Shares outstanding, beginning
of year 39,609 37,741 36,740
Weighted average number of common shares outstanding:
Stock options, treasury stock method 63 290 188
Purchased companies,
including earnouts 25 816 132
Exercise of stock options 113 208 4
Treasury stock and other, net (755) (250) (212)
-------- -------- --------
Total weighted average common
shares outstanding 39,055 38,805 36,852
======== ======== ========
Net income (loss) per common share:
Continuing operations $ .17 $ (.10) $ .29
Discontinued operations .10 .07 .07
-------- -------- --------
Net income (loss) per common share $ .27 $ (.03) $ .36
======== ======== ========
</TABLE>
Fully diluted net income per common share is not presented for any period
as it is not materially different from the above primary calculations.
Common stock equivalents include stock options to purchase Common Stock.
The convertible subordinated debt is not a common stock equivalent and does not
have a material dilutive effect on net income (loss) per common share for any
of the three years presented.
<PAGE> 61
(14) BUSINESS OPERATIONS AND GEOGRAPHIC INFORMATION --
The primary business of the Company involves the provision of on-site
industrial cleaning and waste management services (including hydroblasting and
gritblasting and air moving and liquid vacuuming), waste transportation and
processing, wastewater services, site remediation, maintenance services,
turnaround and outage services, container cleaning and repair services,
emergency spill response services and other general plant support services to
the industrial customer. The Company's operations are located in the United
States, Canada and Mexico, as summarized below (in thousands):
<TABLE>
<CAPTION>
United
States Canada Mexico Total
------ ------ ------ -----
1996 -- <S> <C> <C> <C>
Revenues $347,484 $ 32,952 $ 1,729 $ 382,165
Operating income (loss) 16,978 2,120 (356) 18,742
Total assets 320,222 16,522 443 337,187
1995 --
Revenues $322,644 $ 20,484 $ 1,117 $ 344,245
Operating income (loss) 11,253 1,375 (2,863) 9,765
Total assets 359,507 12,257 469 372,233
1994 --
Revenues $263,210 $ 22,611 $ 1,040 $ 286,861
Operating income (loss) 22,165 2,690 (1,506) 23,349
Total assets 297,063 9,578 2,622 309,263
</TABLE>
<PAGE> 62
(15) QUARTERLY FINANCIAL DATA (UNAUDITED) --
The table below sets forth consolidated operating results by fiscal
quarter for the years ended August 31, 1996 and 1995, excluding the Company's
discontinued glass recycling operations (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1996 --
Revenues $ 99,798 $ 88,278 $ 98,731 $ 95,358
Gross profit 26,744 18,659 25,621 24,729
Net income (loss)
Continuing operations 2,715 (1,357) 2,583 2,673
Discontinued operations 3,764 -- -- --
--------- --------- ---------- -----------
$ 6,479 $ (1,357) $ 2,583 $ 2,673
========= ========= ========== ===========
Net income (loss) per common share
Continuing operations $ .07 $ (.03) $ .07 $ .07
Discontinued operations .09 -- -- --
--------- --------- ---------- -----------
$ .16 $ (.03) $ .07 $ .07
========= ========= ========== ===========
1995 --
Revenues $ 82,591 $ 78,433 $ 86,638 $ 96,583
Gross profit 22,846 20,903 23,384 22,516
Net income (loss)
Continuing operations 2,926 1,507 2,170 (10,482)
Discontinued operations 794 825 872 282
--------- --------- ---------- -----------
$ 3,720 $ 2,332 $ 3,042 $ (10,200)
========= ========= ========== ===========
Net income (loss) per common share
Continuing operations $ .08 $ .04 $ .06 $ (.27)
Discontinued operations .02 .02 .02 .01
--------- --------- ---------- -----------
$ .10 $ .06 .08 $ (.26)
========= ========= ========== ===========
</TABLE>
Due to changes in weighted average common shares outstanding, the sum of
the quarterly per share amounts for fiscal 1996 and 1995 do not equal earnings
(loss) per share for the respective years.
<PAGE> 63
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE> 64
ALLWASTE, INC.
This Proxy is Solicited on Behalf of the Board of Directors
ALLWASTE INC. -- COMMON STOCK PROXY -- for the Annual Meeting of
Stockholders at 1:00 p.m., January 17, 1997, at Texas Commerce Center
Auditorium, 601 Travis Street, Houston, Texas.
The undersigned hereby appoints R. L. Nelson, Jr. and Robert M. Chiste, or
either of them, with full power of substitution, as Proxies to vote the Common
Stock of the undersigned at the above stated Annual Meeting and any adjournments
thereof, on the matters set forth in the Notice of Annual Meeting and Proxy
Statement, as follows:
(Continued and to be signed on reverse side)
<PAGE> 65
/X/ Please mark your
votes as in this
example.
<TABLE>
<S> <C> <C> <C>
FOR WITHHOLD Incumbent Class I nominees are:
ALL NOMINEES AUTHORITY Michael A. Baker
1. Election of / / / / R. L. Nelson, Jr.
Directors - Frank A. Rossi
for the terms
set forth in the attached
Proxy Statement.
</TABLE>
FOR ALL NOMINEES, except the following:_________________
2. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Annual Meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, IT WILL BE
VOTED FOR ALL NOMINEES IN PROPOSAL 1, AND WITH THE DISCRETION OF THE PROXY OR
PROXIES, ON ANY OTHER BUSINESS.
Any proxy heretofore given by the undersigned with respect to such Common Stock
is hereby revoked.
Receipt of the Notice of the Annual Meeting and Proxy Statement is hereby
acknowledged.
Do you plan to attend the Annual Meeting? Yes / / No / /
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<TABLE>
<S> <C> <C>
SIGNATURE_____________________ _________________________ DATE____________, 19__
Signature if held jointly
</TABLE>
Note: (Joint owners must EACH sign. Please sign EXACTLY as your name(s)
appear(s) on this card. When signing as attorney, trustee, executor,
administrator, guardian or corporate officer, please give your FULL
title.)
