<PAGE> 1
PRELIMINARY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A, AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (date of earliest event reported): May 7, 1996
USA WASTE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Commission file number 1-12154
DELAWARE 73-1309529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 LBJ FREEWAY, SUITE 300 - TOWER ONE
DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 383-7900
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The following statements of Western Waste Industries ("Western") are
incorporated by reference herein: (i) the audited consolidated balance
sheets as of June 30, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended June 30, 1995, together with the notes
thereto and the report of independent auditors dated August 25, 1995.
(b) Supplemental Consolidated Financial Statements
The supplemental consolidated financial statements and supplemental
condensed consolidated financial statements of the Company listed below
have been prepared to give retroactive effect to the merger with Western,
which has been accounted for by the pooling of interests method as
described in Notes 1 and 2 to the supplemental consolidated financial
statements. The supplemental consolidated balance sheets are as of
December 31, 1995 and 1994, and the related supplemental consolidated
statements of operations, stockholders' equity, and cash flows are for each
of the three years in the period ended December 31, 1995. The supplemental
condensed consolidated balance sheets are as of March 31, 1996 and December
31, 1995, the related supplemental condensed consolidated statements of
operations are for the three months ended March 31, 1996 and 1995, the
related supplemental condensed consolidated statement of stockholders'
equity is for the three months ended March 31, 1996, and the related
supplemental condensed consolidated statements of cash flows are for the
three months ended March 31, 1996 and 1995. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements
that do not include the date of consummation. These financial statements
do not extend through the date of consummation; however, they will become
the historical consolidated financial statements of the Company after
financial statements covering the date of consummation of the business
combinations are issued.
(c) Exhibits
23.1 Consent of Independent Accountants
23.2 Consent of Independent Auditors
23.3 Consent of Independent Auditors
2
<PAGE> 3
INDEX TO
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Supplemental Consolidated Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . 4
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 5
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 6
Supplemental Consolidated Balance Sheets as of
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 7
Supplemental Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . 8
Supplemental Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . 9
Supplemental Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . 11
Notes to Supplemental Consolidated Financial Statements . . . . . . . . . 13
(2) Supplemental Condensed Consolidated Financial Statements:
Supplemental Condensed Consolidated Balance Sheets (unaudited)
as of March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . 32
Supplemental Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended March 31, 1996 and 1995 . . . . 33
Supplemental Condensed Consolidated Statement of Stockholders' Equity
(unaudited) for the Three Months Ended March 31, 1996 . . . . . . . . 34
Supplemental Condensed Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended March 31, 1996 and 1995 . . . . 35
Notes to Supplemental Condensed Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
USA Waste Services, Inc.:
We have audited the supplemental consolidated balance sheets of USA Waste
Services, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related supplemental consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995. These supplemental consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits. We did not audit the financial
statements of Western Waste Industries or Chambers Development Company, Inc.,
both wholly-owned subsidiaries, which statements reflect 73 percent of
supplemental consolidated total assets as of December 31, 1994, and 75 percent
and 85 percent in 1994 and 1993, respectively, of supplemental consolidated
total revenues. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the
amounts included for Western Waste Industries and Chambers Development Company,
Inc., is based solely on the reports of the other auditors.
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 financial statements are free of
material misstatement. 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 and the reports of other auditors provide a reasonable basis for our
opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of USA Waste Services, Inc. and Western Waste Industries on May 7,
1996, which has been accounted for as a pooling of interests as described in
Notes 1 and 2 to the supplemental consolidated financial statements. Generally
accepted accounting principles proscribe giving effect to a consummated
business combination accounted for by the pooling of interests method in
financial statements that do not include the date of consummation. These
financial statements do not extend through the date of consummation; however,
they will become the historical consolidated financial statements of the
Company after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, based on our audits and the reports of other auditors, the
supplemental consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 23, 1996, except for Note 16,
as to which the date is June 22, 1996
4
<PAGE> 5
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Western Waste Industries:
We have audited the consolidated balance sheets of Western Waste Industries and
subsidiaries ("Western") as of June 30, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended (not presented separately herein). These financial statements
are the responsibility of Western's management. Our responsibility is to
express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 consolidated financial position of
Western at June 30, 1995 and 1994, and the consolidated results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 8 to Western's consolidated financial statements, in 1994
Western changed its method of accounting for income taxes, and as discussed in
Note 1 of Western's consolidated financial statements, in 1995 Western changed
its method of accounting for impairment of long-lived assets.
ERNST & YOUNG LLP
Long Beach, California
August 25, 1995, except for Note 8,
as to which the date is September 12, 1995
5
<PAGE> 6
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Chambers Development Company,
Inc:
We have audited the consolidated balance sheets of Chambers Development
Company, Inc. ("Chambers") and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1994 and 1993 (not presented separately
herein). These consolidated financial statements are the responsibility of
Chambers' 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Chambers and subsidiaries as of
December 31, 1994, and the results of their operations and their cash flows for
the years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
As discussed in Note B to Chambers' consolidated financial statements, Chambers
changed its method of accounting for contributions effective January 1, 1994.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 30, 1995
6
<PAGE> 7
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Par Value Amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,223 $ 36,645
Accounts receivable, net of allowance for doubtful
accounts of $6,430 and $5,490, respectively 90,427 78,361
Notes and other receivables 13,802 19,245
Deferred income taxes 20,101 4,101
Prepaid expenses and other 26,110 28,226
---------- ----------
Total current assets 168,663 166,578
Notes and other receivables 11,704 7,621
Property and equipment, net 799,512 720,529
Excess of cost over net assets of acquired businesses, net 108,664 86,877
Other intangible assets, net 34,127 31,592
Other assets 67,694 62,311
---------- ----------
Total assets $1,190,364 $1,075,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,333 $ 34,071
Accrued liabilities 48,618 59,053
Accrued shareholder litigation settlement -- 10,000
Deferred revenues 6,030 4,664
Current maturities of long-term debt 40,157 48,103
---------- ----------
Total current liabilities 135,138 155,891
Long-term debt, less current maturities 410,683 442,801
Accrued shareholder litigation settlement -- 75,300
Closure, post-closure, and other liabilities 84,438 76,731
Deferred income taxes 2,718 3,696
---------- ----------
Total liabilities 632,977 754,419
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value;
10,000,000 shares authorized; none issued -- --
Common stock, $.01 par value;
150,000,000 shares authorized;
87,030,697 and 72,476,473 shares issued, respectively 870 725
Additional paid-in capital 796,236 598,703
Accumulated deficit (237,900) (276,378)
Less treasury stock at cost, 138,810 and 149,285 shares,
respectively (1,819) (1,961)
---------- ----------
Total stockholders' equity 557,387 321,089
---------- ----------
Total liabilities and stockholders' equity $1,190,364 $1,075,508
========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
7
<PAGE> 8
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating revenues $731,000 $705,165 $639,239
-------- -------- --------
Costs and expenses:
Operating 428,331 428,701 388,727
General and administrative 101,268 108,885 104,121
Depreciation and amortization 83,519 83,044 74,223
Merger costs 25,073 3,782 --
Unusual items 4,733 8,863 2,672
-------- -------- --------
642,924 633,275 569,743
-------- -------- --------
Income from operations 88,076 71,890 69,496
-------- -------- --------
Other income (expense):
Shareholder litigation settlement
and other litigation related costs -- (79,400) (5,500)
Interest expense:
Nonrecurring interest (10,994) (1,254) --
Other (35,437) (38,153) (39,809)
Interest income 4,222 4,183 4,338
Other income, net 3,220 1,249 1,148
-------- -------- --------
(38,989) (113,375) (39,823)
-------- -------- --------
Income (loss) before income taxes 49,087 (41,485) 29,673
Provision for income taxes 1,744 17,610 16,112
-------- -------- --------
Net income (loss) 47,343 (59,095) 13,561
Preferred dividends -- 565 582
-------- -------- --------
Income (loss) available to common shareholders $ 47,343 $(59,660) $ 12,979
======== ======== ========
Earnings (loss) per common share $ .60 $ (0.82) $ 0.19
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 78,912 72,968 68,457
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
8
<PAGE> 9
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 9 $ 658 $560,900 $(225,757) $(1,526)
Common stock options exercised -- 4 4,246 -- --
Common stock issued to qualified defined
contribution plan -- 1 565 -- --
Common stock issued in acquisitions -- 13 4,786 -- --
Common stock purchased for treasury -- -- -- -- (1,332)
Preferred stock subscriptions collected -- -- 50 -- --
Common stock issued in private placement -- 6 4,742 -- --
Series D Preferred Stock issued 5 -- 5,212 -- --
Common stock warrants granted as
compensation -- -- 69 -- --
Common stock issued for preferred
stock dividends -- -- 154 (582) --
Change in Envirofil fiscal year -- -- -- 3,060 --
Cancellation of common stock -- (1) (969) -- --
Effect of elimination of purchase
of hauling company -- -- (722) (7,000) --
Net income -- -- -- 13,561 --
----- ----- -------- --------- -------
Balance, December 31, 1993 14 681 579,033 (216,718) (2,858)
Common stock options exercised -- 3 3,486 -- --
Common stock warrants exercised -- 3 148 -- --
Common stock issued to qualified defined
contribution plan -- 2 659 -- --
Common stock issued in acquisitions -- 16 14,506 -- --
Common stock issued from treasury upon
exercise of stock options -- -- (597) -- 897
Common stock issued for preferred
stock dividends -- 1 1,390 (565) --
Conversion of preferred stock into
common stock (14) 19 (5) -- --
Common stock issued to directors
as compensation -- -- 83 -- --
Net loss -- -- -- (59,095) --
----- ----- -------- --------- -------
</TABLE>
Continued
9
<PAGE> 10
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued
(In Thousands)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ -- $ 725 $598,703 $(276,378) $(1,961)
Common stock options exercised -- 3 2,822 -- --
Common stock warrants exercised -- 9 3,692 -- --
Common stock issued in acquisitions -- 43 37,916 -- --
Common stock issued from treasury
upon exercise of stock options -- -- (89) -- 142
Common stock issued for conversion of
subordinated debentures -- 37 46,704 -- --
Common stock issued in public offering -- 63 117,785 -- --
Common stock issued to directors as
compensation -- -- 25 -- --
Elimination of investment in Western
common stock -- (10) (11,322) (1) --
Change in Western fiscal year -- -- -- (8,864) --
Net income -- -- -- 47,343 --
-------- ----- -------- --------- -------
Balance, December 31, 1995 $ -- $ 870 $796,236 $(237,900) $(1,819)
======== ===== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
10
<PAGE> 11
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 47,343 $(59,095) $13,561
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 83,519 83,044 74,223
Deferred income taxes (16,978) 1,967 1,327
Net gains on disposal of assets (566) (710) 608
Interest earned on escrowed funds -- (415) (878)
Loss on municipal contract (950) (950) --
Adjustment for change in Envirofil fiscal year -- -- (930)
Adjustment for change in Western fiscal year (667) -- --
Change in assets and liabilities,
net of effects of acquisitions and divestitures:
(Increase) decrease in accounts receivable and
other receivables 5,291 (11,853) (9,765)
(Increase) decrease in prepaid expenses and other (2,399) (557) 1,191
(Increase) decrease in other assets (8,093) (3,434) 1,941
Increase (decrease) in refundable taxes -- (659) 16,049
(Increase) decrease in accounts payable and
accrued liabilities (14,239) 4,545 (14,722)
Increase (decrease) in accrued shareholder
litigation settlement (85,300) 85,300 --
Increase (decrease) in deferred revenues and
other liabilities 3,000 5,075 (2,002)
Other -- 1,099 580
-------- -------- --------
Net cash provided by continuing operations 9,961 103,357 81,183
Net cash used in operating activities of
discontinued operations -- -- (2,148)
-------- -------- --------
Net cash provided by operating activities 9,961 103,357 79,035
-------- -------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (8,283) (23,944) (44,522)
Capital expenditures (125,535) (117,064) (105,702)
Loans and advances to others (19,660) (7,504) (4,932)
Collection of loans and advances to others 4,880 1,785 1,607
Proceeds from sale of assets 7,952 17,857 38,227
Decrease (increase) in restricted funds 11,753 14,657 (404)
Proceeds from sale of investments 1,200 1,200 --
Other -- (199) (603)
Net investing activities of discontinued operations -- -- 4,500
-------- -------- --------
Net cash used in investing activities (127,693) (113,212) (111,829)
-------- -------- --------
</TABLE>
Continued
11
<PAGE> 12
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(In Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt $412,426 $ 62,935 $ 70,950
Principal payments on long-term debt (423,618) (78,182) (76,146)
Net proceeds from issuance of preferred stock -- -- 9,537
Net proceeds from issuance of common stock 119,572 2,617 16,400
Proceeds from exercise of common stock warrants 3,701 151 --
Proceeds from exercise of common stock options 1,964 492 30
Purchases of treasury stock -- -- (1,332)
Funds provided by replacement letters of credit -- -- 10,243
Elimination of investment in Western (12,569) -- --
Other (2,166) (627) (697)
-------- -------- --------
Net cash provided by (used in) financing activities 99,310 (12,614) 28,985
-------- -------- --------
Decrease in cash and cash equivalents (18,422) (22,469) (3,809)
Cash and cash equivalents at beginning of year 36,645 59,114 62,923
-------- -------- --------
Cash and cash equivalents at end of year $ 18,223 $ 36,645 $ 59,114
======== ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 45,737 $ 39,067 $ 40,501
Income taxes 28,202 17,074 12,155
Supplemental disclosure of non-cash investing
and financing activities:
Acquisition of property and equipment
through capital leases $ -- $ 408 $ 62
Conversion of subordinated debentures to common stock 49,000 -- --
Issuance of common stock for preferred stock dividends -- 1,390 154
Receivables from sale of businesses -- -- 4,056
Acquisitions of businesses:
Liabilities incurred or assumed 13,523 10,085 20,534
Common stock issued 29,147 14,522 4,800
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
12
<PAGE> 13
USA WASTE SERVICES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- USA Waste Services, Inc. and subsidiaries (the "Company") is
engaged in the non-hazardous solid waste management business and provides solid
waste management services, consisting of collection, transfer, disposal,
recycling, and other miscellaneous services to municipal, commercial,
industrial, and residential customers. The Company conducts operations through
subsidiaries in multiple locations nationwide.
Basis of presentation -- The supplemental consolidated financial statements of
the Company have been prepared to give retroactive effect to the merger with
Western Waste Industries ("Western") on May 7, 1996. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of the Company after
financial statements covering the date of consummation of the business
combination are issued.
Principles of consolidation -- The accompanying supplemental consolidated
financial statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of all material intercompany balances and
transactions. Investments in affiliated companies in which the Company owns 50%
or less are accounted for under the equity method or cost method of accounting,
as appropriate.
Use of estimates -- The preparation of the supplemental consolidated financial
statements in accordance with generally accepted accounting principles requires
the use of management's estimates and assumptions in determining the carrying
values of certain assets and liabilities and disclosure of contingent assets
and liabilities at the date of the supplemental consolidated financial
statements and the reported amounts for certain revenues and expenses during
the reporting period. Actual results could differ from those estimated.
Cash and cash equivalents -- Cash and cash equivalents consist primarily of
cash on deposit, certificates of deposit, money market accounts, and investment
grade commercial paper purchased with original maturities of three months or
less.
Restricted funds held by trustees -- Restricted funds held by trustees of
$21,291,000 and $38,954,000 at December 31, 1995 and 1994, respectively, are
included in other assets and consist principally of funds deposited in
connection with landfill closure and post-closure obligations, insurance escrow
deposits, and amounts held for landfill construction arising from industrial
revenue financings. Amounts are principally invested in fixed income
securities of federal, state, and local governmental entities and financial
institutions. The Company considers its landfill closure, post- closure, and
construction escrow investments to be held to maturity. The aggregate fair
value of these investments approximates their amortized costs. Substantially
all of these investments mature within one year. The Company's insurance
escrow funds are invested in pooled investment accounts that hold debt and
equity securities and are considered to be available for sale. The market
value of those pooled accounts approximates their aggregate cost at December
31, 1995.
Concentrations of credit risk -- Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
investments and accounts receivable. The Company places its cash investments
with high quality financial institutions and limits the amount of credit
exposure to any one institution. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically
diverse customers make up the Company's customer base, thus spreading the trade
credit risk. No single group or customer represents greater than 10% of total
accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures. The Company performs
in-depth credit evaluations for commercial and industrial customers and
performs ongoing credit evaluations of its customers' financial condition but
generally does not require collateral to support accounts receivable. The
Company maintains an allowance for doubtful accounts for potential credit
losses.
Interest rate swap agreements -- The Company uses interest rate swap agreements
to minimize the impact of interest rate fluctuations on floating interest rate
long-term borrowings. The differential paid or received on interest rate swap
13
<PAGE> 14
agreements is recognized as an adjustment to interest expense.
Property and equipment -- Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance, and repairs are charged to expense as incurred. When
property and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in current operations. Depreciation is provided over the
estimated useful lives of the related assets using the straight-line method.
The estimated useful lives are seven to thirty years for buildings and
improvements, three to twelve years for vehicles and machinery and equipment,
three to twelve years for containers, and three to ten years for furniture and
fixtures.
Disposal sites are stated at cost and amortized as airspace is consumed.
Disposal site costs include expenditures for acquisitions of land and related
airspace, engineering and permitting costs, and direct site improvement costs,
which management believes are recoverable. Interest cost is capitalized on
landfill construction projects and amortized as airspace is consumed. During
the years ended December 31, 1995, 1994, and 1993, interest costs were
$53,489,000 $44,204,000, and $44,212,000, respectively, of which $7,058,000,
$4,797,000, and $4,403,000 were capitalized, respectively, with respect to
landfills and facilities under construction.
Depreciation and amortization of property and equipment was $72,257,000,
$69,369,000, and $61,374,000 for the years ended December 31, 1995, 1994, and
1993, respectively.
Excess of cost over net assets of acquired businesses -- The excess of cost
over net assets of acquired businesses is being amortized on a straight-line
basis commencing on the dates of the respective acquisitions. Effective January
1, 1995, the Company changed the estimated useful life of excess of cost over
net assets of acquired businesses from 25 to 40 years to more appropriately
reflect the estimated period during which the benefit of the assets will be
realized. This change in accounting estimate had the effect of reducing
amortization expense and increasing net income by $1,488,000 and increasing
earnings per share by $0.02 in 1995. Accumulated amortization was $13,470,000
and $10,479,000 at December 31, 1995 and 1994, respectively. The Company
assesses whether the excess of cost over net assets acquired is impaired based
on the ability of the operation to which it relates to generate undiscounted
cash flows in amounts adequate to cover the future amortization of such assets.
If an impairment is determined, the amount of such impairment is calculated
based on the estimated fair value of the related asset.
Accounting for acquisitions -- The Company assesses each acquisition to
determine whether the pooling of interests or the purchase method of accounting
is appropriate. For those acquisitions accounted for under the pooling of
interests method, the financial statements of the acquired company are combined
with those of the Company at their historical amounts, and, if material, all
periods presented are restated as if the combination occurred on the first day
of the earliest year presented. For those acquisitions accounted for using the
purchase method of accounting, the Company allocates the cost of the acquired
business to the assets acquired and the liabilities assumed based on the
estimates of fair values thereof. These estimates are revised during the
allocation period as necessary when information regarding contingencies becomes
available to define and quantify assets acquired and liabilities assumed. The
allocation period varies for each acquisition, but generally does not exceed
one year. To the extent contingencies such as preacquisition environmental
matters, litigation and related legal fees, and preacquisition tax matters are
resolved or settled during the allocation period, such items are included in
the revised allocation of the purchase price. After the allocation period, the
effect of changes in such contingencies is included in results of operations in
the periods in which the adjustments are determined.
Other intangible assets -- Other intangible assets consist primarily of
customer lists, covenants not to compete, and licenses and permits. Other
intangible assets are recorded at cost and amortized on a straight-line basis
over three to forty years. Accumulated amortization was $43,238,000 and
$38,144,000 at December 31, 1995 and 1994, respectively.
Closure, post-closure, and other liabilities -- The Company has material
financial commitments for the costs associated with its future obligations for
closure and post-closure costs of landfills it operates or for which it is
otherwise responsible. While the precise amount of these future costs cannot be
determined with certainty, the Company has estimated that the aggregate final
closure and post-closure costs for all sites owned or operated as of December
31, 1995 will be approximately $115,945,000. As of December 31, 1995 and 1994,
the Company has accrued $55,732,000, and $48,170,000, respectively, for final
closure and post-closure
14
<PAGE> 15
costs of disposal facilities. The difference between the closure and
post-closure costs accrued as of December 31, 1995 and the total estimated
final closure and post-closure costs to be incurred will be accrued and charged
to expense as airspace is consumed such that the total estimated final closure
and post-closure costs will be fully accrued for each landfill at the time the
site stops accepting waste and is closed. The Company also expects to incur an
estimated $242,926,000 related to capping activities expected to occur during
the operating lives of these disposal sites. These costs are also being accrued
over the useful lives of the disposal sites as airspace is consumed.
The Company bases its estimates for these accruals on management's reviews,
performed not less than annually, including input from its engineers and
interpretations of current requirements and proposed regulatory changes. The
closure and post-closure requirements are established under the standards of
the U.S. Environmental Protection Agency's Subtitle D regulations as
implemented and applied on a state-by-state basis. Final closure and
post-closure accruals consider estimates for the final cap and cover for the
site, methane gas control, leachate management and groundwater monitoring, and
other operational and maintenance costs to be incurred after the site stops
accepting waste, which is generally expected to be for a period of up to thirty
years after final site closure. For disposal sites that were previously
operated by others, the Company assessed and recorded a closure and
post-closure liability at the time the Company assumed closure responsibility
based upon the estimated total closure and post-closure costs and the
percentage of airspace utilized as of such date. Thereafter, the difference
between the closure and post-closure costs accrued and the total estimated
closure and post-closure costs to be incurred is accrued and charged to expense
as airspace is consumed.
Income taxes -- Deferred income taxes are determined based on the difference
between the financial accounting and tax bases of assets and liabilities.
Deferred income tax expense represents the change during the period in the
deferred income tax assets and deferred income tax liabilities. Deferred tax
assets include tax loss and credit carryforwards and are reduced by a valuation
allowance if, based on available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Revenue recognition -- The Company recognizes revenues as services are
provided. Amounts billed and collected prior to services being performed are
included in deferred revenues.
Earnings per share -- Earnings per share computations are based on the weighted
average number of shares of common stock outstanding and the dilutive effect of
stock options and warrants using the treasury stock method. The dilutive effect
between primary and fully-dilutive earnings per share is less than 3% or is
anti-dilutive for all periods presented and is therefore not disclosed in the
accompanying supplemental consolidated statements of operations.
Cash Flows Information -- The supplemental consolidated statements of cash
flows provides information about changes in cash and excludes the effects on
non-cash transactions, principally related to business combinations.
Reclassifications -- Certain 1994 amounts have been reclassified to conform to
the 1995 presentation.
New accounting pronouncements -- In the second quarter of 1995, the Company
adopted Financial Accounting Standards Board Statement No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"). SFAS No. 121 required the Company to review long-lived
assets and certain identifiable intangibles to be held and used for impairment
whenever certain events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Under SFAS No. 121, if the sum of
the expected future undiscounted cash flows is less than the carrying amount of
the asset, an impairment loss is recognized. An impairment loss is measured as
the amount by which the carrying amount exceeds the fair value of the assets
(assets to be held and used) or fair value less cost to sell (assets to be
disposed of).
During 1995, the Company experienced significant competition in the greenwaste
market resulting in a decrease in price and volume and negative cash flows from
these operations. The Company believes that this environment will continue in
the foreseeable future. Accordingly, the Company evaluated the ongoing value
of the fixed assets, covenants, and goodwill associated with its greenwaste
operations. Based on this evaluation, and in accordance with the adoption of
SFAS No. 121, the Company determined that assets with a carrying value of
approximately $4,473,000 were impaired and wrote such assets down by
approximately $1,242,000 to their fair value. The Company obtained independent
appraisals of its fixed assets in order to determine fair value. The
impairment loss is included in operating expenses in the 1995 supplemental
consolidated statement of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123,
15
<PAGE> 16
Accounting for Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123
prescribes a fair value based method of determining compensation expense
related to stock-based awards granted to employees. The recognition provisions
of SFAS No. 123 are optional; however, entities electing not to adopt SFAS No.
123 are required, beginning in 1996, to make disclosures of pro forma net
income and earnings per share as if the recognition provisions of SFAS No. 123
had been applied. The Company does not plan to adopt the recognition
provisions of SFAS No. 123.
2. BUSINESS COMBINATIONS
On May 7, 1996, the Company consummated an Agreement and Plan of Merger (the
"Merger Agreement") to acquire Western through a merger transaction (the
"Western Merger") accounted for as a pooling of interests and, accordingly, the
accompanying financial information has been restated to include the accounts
and operations of Western for all periods presented. Under the terms of the
Merger Agreement, the Company issued 1.50 shares of its common stock for each
share of Western outstanding common stock. Prior to the Western Merger, the
Company owned approximately 4.1% of Western's outstanding shares (634,900
common shares), which were canceled on the Western Merger's effective date.
The Western Merger increased the Company's outstanding shares of common stock
by approximately 23,100,000 shares and the Company assumed options under
Western's stock option plans equivalent to approximately 5,200,000 underlying
Company shares of common stock.
In connection with the acquisition, Western changed its fiscal year end from
June 30 to December 31 to conform with the Company's year end. Western's
operating results for the six months ended June 30, 1995, were included in the
supplemental consolidated statements of operations for both of the years ended
December 31, 1995 and 1994. The following is a consolidated summary of
operations for Western for the six months ended June 30, 1995 (in thousands):
<TABLE>
<S> <C>
Operating revenues $136,123
Net income 8,864
</TABLE>
The supplemental consolidated financial statements for 1994 and 1993 have not
been restated for the change in Western's fiscal year. The supplemental
consolidated financial statements for 1994 and 1993 include Western for the
years ended June 30, 1995 and 1994, respectively.
In the second quarter of 1996, the Company expects to incur up to $35,000,000
in merger related costs associated with the Western Merger. In addition, the
Company will incur approximately $4,800,000 in benefits related to Western's
pre- merger retirement program during 1996.
On May 15, 1996, the Company consummated a merger agreement with Grand Central,
accounted for as a pooling of interests, pursuant to which the Company issued
2,067,605 shares of its common stock in exchange for all outstanding shares of
Grand Central. The Company has restated its previously issued financial
statements for the three months ended March 31, 1996 to include the accounts
and operations of Grand Central. Periods prior to 1996 were not restated as
combined results are not materially different from results as presented.
16
<PAGE> 17
The supplemental consolidated balance sheet at December 31, 1995 reflects the
combining of USA Waste and Western as of that date. The supplemental
consolidated balance sheet at December 31, 1994 reflects the combining of the
USA Waste balance sheet as of that date and Western balance sheet as of June
30, 1995. Combined and separate results of operations of the Company prior to
consummation of the merger ("USA Waste"), Western, and Grand Central for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
Grand
USA Waste Western Central Adjustments Combined
--------- -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1996 (unaudited):
Operating revenues $124,629 $ 68,441 $8,455 $ -- $201,525
Net income 20,516 4,703 1,538 15(a) 26,772
Year ended December 31, 1995:
Operating revenues $457,099 $273,901 -- $ -- $731,000
Net income 30,263 17,021 -- 59(a) 47,343
Year ended December 31, 1994
(Western as of June 30, 1995):
Operating revenues $434,224 $270,941 -- $ -- $705,165
Net income (loss) (76,278) 17,089 -- 94(a) (59,095)
Year ended December 31, 1993
(Western as of June 30, 1994):
Operating revenues $382,234 $257,005 -- $ -- $639,239
Net income 988 12,527 -- 46(a) 13,561
</TABLE>
(a) In February 1992, USA Waste acquired a 55% interest in a hauling
company from a third party in which Western owned the remaining 45%.
In March 1993, USA Waste acquired the remaining 45% interest in the
hauling company from Western. The combined financial information
reflects the combined company's 100% ownership of the acquired hauling
company as of February 1992. Western's earnings in minority interest
from February 1992 through March 1993 and the gain on sale to USA
Waste of $2,829,000 have been eliminated. The excess of cost over net
assets of acquired businesses, net of accumulated amortization,
recorded by USA Waste in February 1992, has also been eliminated.
On June 30, 1995, the Company consummated the acquisition of Chambers
Development Company, Inc. ("Chambers"), pursuant to which the Company acquired
a 100% ownership interest in Chambers. Under the terms of the merger
agreement, approximately 27,800,000 shares of the Company's common stock were
issued in exchange for all outstanding shares of Chambers Common Stock and
Class A Common Stock. The acquisition was accounted for as a pooling of
interests and, accordingly, the accompanying supplemental consolidated
financial statements include the accounts and operations of Chambers for all
periods presented. Related to this acquisition, the Company incurred
$25,073,000 in merger costs in the second quarter of 1995.
The results of operations for Chambers prior to consummation of the merger for
the restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995 Years Ended December 31,
-------------- ------------------------
(unaudited) 1994 1993
---- ----
<S> <C> <C> <C>
Operating revenues $54,734 $257,989 $288,481
Net income (loss) (5,269) (90,244) 8,303
</TABLE>
On August 11, 1995 and November 13, 1995, the Company consummated mergers
accounted for as poolings of interests, pursuant to which the Company issued
800,000 and 1,787,502 shares of its common stock, respectively, in exchange for
all outstanding shares of the acquired companies. Periods prior to
consummation of these acquisitions were not restated to include the accounts
and operations of the acquired companies as combined results are not materially
different from the results as presented.
On May 27, 1994, the Company consummated a merger agreement with Envirofil,
Inc. ("Envirofil"), pursuant to which the Company acquired Envirofil. Under
the terms of the agreement, approximately 9,700,000 shares of the Company's
common stock were issued in exchange for all outstanding shares of Envirofil
common stock. The acquisition was
17
<PAGE> 18
accounted for as a pooling of interests and, accordingly, the accompanying
supplemental consolidated financial statements include the accounts and
operations of Envirofil for all periods presented. Costs related to the
acquisition of $3,782,000 were charged to expense in the quarter in which the
acquisition was consummated.
On May 1, 1993, the Company acquired all of the outstanding common stock of
Custom Disposal Services, Inc., ("Custom") in exchange for 262,231 shares of
its common stock. At the time of its acquisition, Custom was controlled by
affiliates of the Company. The acquisition was accounted for in a manner
similar to a pooling of interests; however, periods prior to consummation were
not restated to include the accounts and operations of Custom as the combined
results are not materially different form the results as presented. On
September 30, 1994, the Company sold substantially all of Custom's assets.
During 1995 and 1994, the Company consummated several acquisitions that were
accounted for under the purchase method of accounting. Results of operations of
companies that were acquired and subject to purchase accounting are included
from the dates of the acquisitions. The total costs of acquisitions accounted
for under the purchase method were $52,334,000 and $49,033,000 in 1995 and
1994, respectively. The excess of the aggregate purchase price over the fair
value of net assets acquired in 1995 and 1994 was approximately $22,873,000 and
$23,957,000, respectively.
The following summarized pro forma results of operations assumes 1995 and 1994
acquisitions accounted for as purchases occurred at the beginning of 1994 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Operating revenues $749,368 $743,650
Net income (loss) 48,904 (56,847)
Earnings (loss) per common share 0.61 (0.76)
</TABLE>
3. DIVESTITURES
In late 1992, Chambers initiated a program to divest certain businesses that
did not meet strategic and performance objectives. Under this program,
Chambers completed a series of asset sales to various parties in 1993 and 1994.
During 1993, Chambers sold a transfer station, five collection and hauling
businesses, and a parcel of land for $20,669,000 in cash and received another
$996,000 in cash with respect to a development project in California. These
sales resulted in a net gain of $7,101,000. Additionally, on December 31, 1993,
Chambers sold its two transfer stations in Morris County, New Jersey, to the
Morris County Municipal Utilities Authority ("MCMUA") for $9,500,000 in cash,
which resulted in a deferred gain of $3,950,000. Simultaneous with entering
into the agreement for the sale of these transfer stations, Chambers and the
MCMUA amended their operating and disposal service agreement, pursuant to which
Chambers operates the transfer stations and provides waste disposal services,
reducing the rates charged for such services in 1994 and 1995. As a result of
the interrelationship of the sale of the transfer stations and the operating
and disposal service agreement, the gain on sale was deferred and recognized in
1994 as services were provided. As part of the agreement of sale, the Company
will continue to operate the transfer stations and provide waste disposal
services until Morris County's long-term solid waste system is in operation or
until December 31, 1996, if later. During 1994, Chambers sold a recycling
operation, a building, and a parcel of land for $2,089,000 in cash. The losses
incurred as a result of these sales were charged to a previously established
allowance for divestiture losses.
The following are summarized operating results of the businesses that were sold
during 1994 and 1993, included in income from operations on the supplemental
consolidated statements of operations. These results exclude the two transfer
stations in Morris County, New Jersey, that the Company will continue to
operate and the net gain from divestitures of $7,101,000 included in unusual
items for the year ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1994 1993
------ ------
<S> <C> <C>
Operating revenues $9,264 $17,829
Income from operations 398 444
</TABLE>
18
<PAGE> 19
Chambers recorded a loss reserve in 1992 for estimated losses on the
disposition of certain of its businesses. The loss reserve reflected the
expected loss from the disposition of net assets, anticipated operating losses
from the measurement date through the expected dates of disposal, and estimated
disposal costs. Approximately $2,299,000 in operating losses incurred by these
businesses during 1994 and 1993 and $1,484,000 of losses on divestitures
incurred in 1994 and 1993 have been charged against the loss reserve.
Approximately $3,689,000 was charged to the loss reserve in 1994 and 1993 as a
result of writing down assets to their net realizable values. Loss reserves of
$7,689,000, consisting principally of provisions previously recorded for
expected losses on the disposition of the businesses subsequently retained,
have been reversed and are included in unusual items in 1994 and 1993 (see Note
11).
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Disposal sites, including costs incurred for expansion
projects in process of $57,940 and $48,346, respectively $ 569,101 $ 498,327
Vehicles 180,571 145,915
Machinery and equipment 94,201 91,549
Containers 110,950 97,508
Buildings and improvements 85,654 73,598
Furniture and fixtures 22,222 19,960
Land 81,356 80,505
---------- ----------
1,144,055 1,007,362
Less accumulated depreciation and amortization 344,543 286,833
---------- ----------
$ 799,512 $ 720,529
========== ==========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1994
-------- --------
<S> <C> <C>
Credit facility:
Revolving credit facility $ 51,613 $ 98,000
Term loan facility 215,835 --
Western credit facility 41,000 44,000
Senior Notes, interest at 11.45% -- 133,501
Senior Notes, interest at 11.95% -- 17,929
8 1/2 % Convertible Subordinated Debentures -- 49,000
Industrial revenue bonds, variable interest rates
(4.40% to 6.29% at December 31, 1995), principal
payable in annual installments, maturing in
1996-2007, enhanced by letters of credit 115,421 122,133
Other 26,971 26,341
-------- --------
450,840 490,904
Less current maturities 40,157 48,103
-------- --------
$410,683 $442,801
======== ========
</TABLE>
The aggregate estimated payments, including scheduled minimum maturities, of
long-term obligations outstanding at December 31, 1995 for the five years
ending December 31, 1996 through 2000 are: 1996--$40,157,000;
1997--$87,681,000; 1998--$53,306,000; 1999--$61,168,000; and
2000--$124,662,000.
On May 7, 1996, in connection with the acquisition of Western, the Company
replaced its existing credit facility with a $750,000,000 senior revolving
credit facility ("Credit Facility") and retired amounts outstanding under
Western's credit facility. The Credit Facility was used to refinance existing
bank loans and letters of credit and will be used to fund additional
acquisitions and for working capital. The Credit Facility is available for
standby letters of credit of up to $300,000,000. Loans under the Credit
Facility bear interest at a rate based on the Eurodollar rate plus a spread not
to exceed 0.75% per annum (spread initially set at 0.405% per annum). The
Credit Facility requires a facility fee not to
19
<PAGE> 20
exceed 0.375% per annum on the entire available Credit Facility (facility fee
initially set at 0.22% per annum). The Company's liquidity will be enhanced by
the Credit Facility as the financial covenants are less restrictive and
principal reductions are not required for a three-year period.
On October 6, 1995, the Company completed a public offering of 6,345,625 shares
of its common stock, priced at $19.625 per share. The net proceeds of
approximately $118,000,000 were primarily used for the repayment of debt.
Approximately 75% of the proceeds were applied to the credit facility and the
remainder was redrawn as the Company's needs dictated for use in the expansion
of its business, including acquisitions.
In September 1992, the Company, in an underwritten public offering, issued
$49,000,000 of 8 1/2% Convertible Subordinated Debentures ("debentures") due
October 15, 2002, with interest payable semi-annually. The debentures were
convertible into the Company's common stock at any time on or before maturity,
unless previously redeemed, at $13.25 per share, subject to adjustment in
certain events. The Company had an option to redeem the debentures, in whole or
in part, at any time on or after October 15, 1995, at an original redemption
price of 105.67% of the principal amount, declining to par over the term of the
debentures. Between November 3, 1995 and December 1, 1995, the Company
converted the remaining balance of the debentures of approximately $42,300,000
into approximately 3,193,000 shares of the Company's common stock. The
unamortized premium of $1,983,000 as of December 1, 1995, was recorded as a
reduction to additional paid-in capital. Earlier in 1995, approximately
$6,700,000 of debentures had been converted into approximately 505,000 shares
of the Company's common stock.
If the aforementioned public offering and subordinated debenture conversion
transactions had occurred on January 1, 1995, earnings per share would have
increased by $0.03 for the year ended December 31, 1995 due to a reduction in
interest expense resulting from the retirement of long-term debt. Weighted
average shares would have been 86,908,000.
The credit facility existing at December 31, 1995, which was entered into on
June 30, 1995, in connection with the acquisition of Chambers, consists of a
$550,000,000 financing agreement consisting of a $300,000,000 five-year
revolving credit and letter of credit facility and a $250,000,000 term loan
facility. On June 30, 1996, the Company borrowed $370,000,000, of which
$267,448,000 was outstanding at December 31, 1995, the proceeds of which were
used to refinance outstanding indebtedness under the Company's revolving credit
facility, retire the 11.45% and 11.95% Senior Notes of Chambers, and finance
the Chambers' shareholder litigation settlements discussed in Note 12 and
certain other costs related to the merger with Chambers. Borrowings under the
credit facility were collateralized by all the capital stock and intercompany
receivables of the Company and its subsidiaries. Revolving credit loans under
the credit facility were limited to $180,000,000 less the amount of any future
industrial revenue bonds enhanced by letters of credit under the credit
facility. Loans bore interest at a rate based on the Eurodollar rate or the
prime rate, plus a spread not to exceed 1.75% per annum (7.31% at December 31,
1995). The credit facility could also be used for letters of credit purposes
with variable fees from 0.5% to 1.75% per annum (1.50% at December 31, 1995)
charged on amounts issued. A commitment fee of up to 0.5% per annum was
required on the unused portion of the credit facility.
In August 1995, the Company entered into a three year interest rate swap
agreement whereby the Company fixed a maximum interest rate on $125,000,000 of
its credit facility. The interest rate was a fixed annual rate of
approximately 5.9% plus the applicable spread over the Eurodollar rate (not to
exceed 1.75% per annum) as determined under the credit facility (7.40% at
December 31, 1995).
Western's credit facility consisted of a revolving line of credit and permitted
borrowings up to $100,000,000. At Western's option, borrowings under the
credit facility bore interest at the bank's prime rate and/or at the London
Interbank Offered Rate (LIBOR) plus 0.75% to 2.0% per annum, depending upon
certain financial ratios of Western (6.69% at December 31, 1995). A commitment
fee of 0.375% per annum was required on the unused portion of the credit
facility. Western's credit facility was paid off on May 7, 1996. Under the
terms of the credit facility, Western was subject to various debt covenants
including maintenance of certain financial ratios, and in addition, was limited
in the amount of cash dividends it could pay.
The Company and Western have completed several tax exempt industrial revenue
bond issues totaling $115,421,000 with terms ranging up to fifteen years. The
bonds are subject to annual sinking fund redemptions and proceeds of the issues
are restricted fund certain assets of the projects. The bonds are supported by
irrevocable letters of credit and bear interest at floating rates (4.40% to
6.29% at December 31, 1995) with rates reset weekly by a remarketing agent. An
interest rate swap agreement with approximately four years remaining at
December 31, 1995 has fixed the rate at 6.29% on
20
<PAGE> 21
$24,000,000 of these bonds.
Chambers accrued nonrecurring interest expense of $10,994,000 and $1,254,000 in
1995 and 1994, respectively, as a result of amendments to its credit facility
and Senior Notes in November 1994. Chambers proratably accrued the extension
fees, the expected refinancing premium, and other charges expected to be
incurred upon consummation of its merger with USA Waste.
Letters of credit have been provided to the Company supporting industrial
revenue bonds, performance of landfill closure and post-closure requirements,
insurance contracts, and other contracts. Letters of credit outstanding at
December 31, 1995 aggregated $156,622,000.
6. PREFERRED STOCK
The Board of Directors is authorized to issue preferred stock in series, and
with respect to each series, to fix its designation, relative rights (including
voting, dividend, conversion, sinking fund, and redemption rights), preferences
(including dividends and liquidation), and limitations. The Company currently
has no issued or outstanding preferred stock.
7. COMMON STOCK OPTIONS AND WARRANTS
In accordance with the Company's 1990 Stock Option Plan (the "1990 Plan"),
options to purchase 900,000 shares of the Company's common stock may be granted
to officers, directors, and key employees. In accordance with the Company's
1993 Stock Option Incentive Plan, as amended (the "1993 Plan"), options to
purchase 6,500,000 shares of the Company's common stock may be granted to
officers, directors, and key employees. Options are granted under the 1990 and
1993 Plans at an exercise price which equals or exceeds the fair market value
of the common stock on the date of grant, with various vesting periods, and
expire up to ten years from the date of grant. No options are available for
future grant under the 1990 Plan.
In March 1993, Envirofil adopted the Envirofil Employees' 1993 Stock Option
Plan (the "1993 Envirofil Plan"). Under the 1993 Envirofil Plan, options could
be granted to purchase 600,000 shares of the Company's common stock. The 1993
Envirofil Plan terminates in January 2003. Options were granted under the 1993
Envirofil Plan at an exercise price which equaled or exceeded the fair market
value of the common stock at the date of grant, with various vesting periods
and expiration dates up to ten years from date of grant. On May 27, 1994,
Envirofil had outstanding options to purchase 443,182 shares under the 1993
Envirofil Plan, which were assumed by the Company. No additional options may be
issued under such plan.
Chambers had two plans under which stock options for the purchase of its Class
A common stock could be granted: the 1993 Stock Incentive Plan (the "1993
Chambers Plan") and the 1991 Stock Option Plan for Non-Employee Directors (the
"Chambers Directors' Plan"). The maximum number of shares of Chambers Class A
common stock available for grant under the 1993 Chambers Plan in each calendar
year was equal to one percent of the total number of outstanding shares of
Chambers Class A common stock as of the beginning of the year plus any shares
then reserved but not subject to grant under Chambers' terminated 1988 Stock
Option Plan (the "1988 Chambers Plan"). Any unused shares available for grant
in any calendar year were carried forward and available for award in succeeding
calendar years. Under the terms of the 1993 Chambers Plan, options were granted
at fair market value on the date of grant, but in no event were options granted
at less than the stock's par value, with various vesting periods, and expire up
to ten years from date of grant.
Under the Chambers Directors' Plan, options could be granted to purchase
150,000 shares of Chambers Class A common stock. The Chambers Directors' Plan
stipulates that each person serving as a director and who was not employed by
Chambers was automatically granted options for the purchase of 2,000 shares of
Chambers Class A common stock on the third business day following each annual
stockholders' meeting. In addition, each nonemployee director at the effective
date of the plan was granted options to purchase 2,000 shares of Chambers Class
A common stock for each year previously served on Chambers' Board of Directors.
As a result of the merger, all unexpired and unexercised options under the 1993
Chambers Plan, the 1988 Chambers Plan, and the Chambers Directors' Plan
converted to options to purchase shares of the Company's common stock, as
adjusted, subject to the same terms and conditions as provided under the
Chambers Plans. No additional options may be issued under such plans.
21
<PAGE> 22
Western maintained three stock option plans ("Western Plans") which allowed key
employees and directors of Western the right to purchase shares of its common
stock. At December 31, 1995, options were available for future grants under
only one of the plans, the 1992 Stock Option Plan ("1992 Western Plan"). The
option could be designated as incentive or non- qualified in nature, at the
discretion of the Compensation Committee of Western's Board of Directors,
though only employees are eligible to receive incentive stock options. Western
had reserved 2,000,000 shares under its Incentive Stock Option Plan (ISOP) and
an additional 2,000,000 shares under its Non-Qualified Stock Option Plan. In
addition, the 1992 Western Plan reserved 2,000,000 shares which were to be
designated as either qualified or non-qualified. The Western Plans provided
for the granting of options at a purchase price of at least 100% of the fair
market value on the date the options were granted. Options were generally
exercisable in installments beginning one year after the grant date. As a
result of the Western Merger, all unexpired and unexercised options under the
Western Plans converted to options to purchase shares of the Company's common
stock, as adjusted, subject to the same terms and conditions as provided under
the Western Plans. No additional options may be issued under such plans.
The following table summarizes share activity under all of the above stock
option plans (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Outstanding, beginning of year 6,671 6,062 4,744
Granted 3,054 1,409 1,993
Exercised (324) (573) (561)
Canceled (96) (227) (114)
----- ----- -----
Outstanding, end of year 9,305 6,671 6,062
===== ===== =====
</TABLE>
The option prices of shares exercised during 1995, 1994, and 1993 were from
$5.00 to $18.00 in 1995, from $2.50 to $14.67 in 1994, and $6.00 to $10.09 in
1993. As of December 31, 1995, options for the purchase of 4,856,000 shares
of the Company's common stock were exercisable at prices ranging from $2.25 to
$59.11 per share. The Company holds 138,810 shares of its common stock in
treasury as of December 31, 1995 for future distribution upon exercise of
options under the plans.
The Company has issued warrants expiring through 2002 for the purchase of
shares of its common stock in connection with private placements of debt and
equity securities, acquisitions of businesses, bank borrowings,
reorganizations, and certain employment agreements. Transactions involving
common stock warrants are summarized as follows:
<TABLE>
<CAPTION>
Warrants Exercise Price
-------- --------------
<S> <C> <C>
Outstanding at January 1, 1993 1,822,232 $ 0.55 -- $17.50
Issued 406,632 $ 1.25 -- $10.00
---------
Outstanding at December 31, 1993 2,228,864 $ 0.55 -- $17.50
Issued 910,000 $10.00 -- $12.88
Exercised (443,399) $ 0.55 -- $ 8.80
---------
Outstanding at December 31, 1994 2,695,465 $ 1.25 -- $17.50
Issued 230,000 $10.50 -- $15.00
Exercised (958,048) $ 1.25 -- $15.00
---------
Outstanding at December 31, 1995 1,967,417 $ 5.00 -- $17.50
=========
</TABLE>
In 1993, Envirofil granted certain options and warrants with exercise prices
that were less than the fair market value of Envirofil's common stock at the
date of the grant or renegotiated the exercise price of warrants previously
granted. Stock compensation expense has been recorded to the extent that the
exercise prices of the vested options or warrants were less than the fair
market value of Envirofil's common stock at the date of the granting of the
options or warrants, or on the date the exercise price was reduced. As a
result, stock compensation expense of $923,000 was recognized in the
supplemental consolidated statement of operations included in unusual items for
the year ended December 31, 1993, with a corresponding increase in additional
paid-in capital.
22
<PAGE> 23
8. EMPLOYEE SAVINGS PLAN
Effective July 1, 1995, the Company established the USA Waste Services, Inc.
Employee Savings Plan ("the Savings Plan"), a qualified defined contribution
retirement plan covering employees (except those working subject to a
collective bargaining agreement) 21 years of age or older who have completed
one year of service, or were actively employed on the Savings Plan's
commencement date. The Savings Plan allows eligible employees to defer receipt
of up to 15% of their compensation and contribute such amounts to various
investment funds. The Company matches 50% of the first 6% an employee
contributes in the same manner as the participant's contribution. Both
employee and Company contributions vest immediately. In 1995, the Company
contributed approximately $218,000 and incurred approximately $25,000 in
administrative fees.
Western has a qualified defined contribution plan which generally covers all
full time salaried and clerical employees not represented by a bargaining
agreement. Eligible employees are allowed to contribute up to 20% of their
compensation and contribute such amounts to various investment funds. At its
discretion, Western can match up to 50% of the amount contributed by employees.
Western's contributions for 1995, 1994, and 1993, represented by issuance of
Western common stock, were $698,000, $661,000, and $566,000, respectively.
9. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Current $ 17,300 $15,643 $14,785
Deferred (credit) (15,556) 1,967 1,327
-------- ------- -------
$ 1,744 $17,610 $16,112
======== ======= =======
</TABLE>
The difference between federal income taxes at the statutory rate and the
provision for income taxes for the years presented above is as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income taxes (benefit) at federal statutory rate $ 17,160 $(14,553) $ 10,300
Loss providing no current benefit -- 28,520 --
Tax benefit of operating loss carryforwards -- -- (1,895)
Prior year tax adjustment -- (4,300) --
Nondeductible expenses 6,069 5,845 983
State and local income taxes, net of federal
income tax benefit 1,524 2,426 3,264
Net change in valuation allowance (24,704) -- --
Other 1,695 (328) 3,460
-------- -------- --------
Provision for income taxes $ 1,744 $ 17,610 $ 16,112
======== ======== ========
</TABLE>
Chambers' corporate tax returns for 1988 through 1992 are currently under
examination by the Internal Revenue Service ("IRS"). The Company has reached
tentative agreement with the IRS regarding the tax treatment of certain costs
and expenses deducted for financial statement purposes in these open tax years.
That agreement is subject to the approval of the Joint Committee on Taxation.
Western's corporate tax returns for fiscal years 1991 through 1993 are
currently under examination by the IRS. The IRS has proposed adjustments for
these years, which the Company is vigorously protesting, which neither alone
nor together would have a material effect on the Company's financial position
or results of operations, when resolved. No USA Waste corporate tax returns
are currently under examination by the IRS.
At December 31, 1995, the Company had approximately $234,000,000 of net
operating loss ("NOL") carryforwards. Most of the NOL carryforwards will begin
to expire in 2007. The use of the NOL carryforwards is subject to annual
limitations of approximately $39,000,000 due to an ownership change subsequent
to the Chambers' Merger within the meaning of Section 382 of the Internal
Revenue Code. The prorated annual limitation for 1995 was approximately
$9,200,000.
23
<PAGE> 24
The components of the net deferred tax assets and liabilities are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $97,160 $101,155 $81,603
Litigation settlements 27,897 28,475 1,013
Closure, post-closure, and other liabilities 21,562 19,678 15,235
Self insurance 5,243 5,043 4,572
Other (principally asset impairments and losses from
planned asset divestures) 23,635 23,972 15,753
Valuation allowance (93,624) (127,414) (77,089)
-------- --------- --------
Deferred tax assets 81,873 50,909 41,087
Deferred tax liabilities:
Property, equipment, intangible assets, and other 64,490 50,504 38,715
-------- --------- --------
Net deferred tax assets $ 17,383 $ 405 $ 2,372
======== ========= ========
</TABLE>
The valuation allowance for deferred tax assets decreased by $33,790,000 in
1995 due to changes in the Company's gross deferred tax assets and liabilities,
including $9,086,000 of adjustments relating to an IRS examination, and the
realization of a portion of the Company's net deferred tax asset. If the
Company's current trend of profitability continues, additional net deferred tax
assets of up to approximately $93,600,000 could be recognized in future
periods. In 1994, the valuation allowance increased by $50,325,000 due to
changes in the Company's gross deferred tax assets and liabilities.
A significant portion of the increase in the valuation allowance in 1994
relates to the accrual for the shareholder litigation settlement. The Claims
Administrator of the Settlement Fund Escrow Account is expected to distribute
the shareholder litigation settlement to the claimants in the third quarter of
1996. Such distribution would result in a portion of the charge in 1994 of
$75,300,000 becoming deductible for tax purposes upon payment. However, the
final determination of what portion of the settlement will qualify as
deductible for tax purposes and what portion will be nondeductible has not been
completed.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, restricted funds held by trustees, trade accounts
receivable, trade accounts payable, and financial instruments included in notes
and other receivables and other assets approximate their fair values
principally because of the short-term maturities of these instruments.
The fair values of the Company's debt maturing within one year, the revolving
credit facility, and the term loan approximate the carrying values due to the
nature of the instruments involved.
The fair value of the $125,000,000 interest rate swap approximates the carrying
value due to the interest rate swap's relatively short maturity of three years
and the differential between its fixed rate of 7.4% at December 31, 1995
compared to the related credit facility's variable rate of 7.31% at December
31, 1995.
The fair values of the industrial revenue bonds approximate the carrying values
as the interest rates on the bonds are reset weekly based on the credit quality
of the letters of credit which collateralize the bonds. The fair value of the
related $24,000,000 interest rate swap approximates the carrying value due to
the interest rate swap's relatively short remaining maturity of approximately
four years and the differential between its fixed rate of 6.29% compared to the
average interest rate of the related industrial revenue bonds of 4.40%.
In the normal course of business, the Company has letters of credit,
performance bonds, and other guarantees that are not reflected in the
accompanying supplemental consolidated balance sheets. In the past, no
significant claims have been made against these financial instruments.
Management believes that the likelihood of performance under these financial
instruments is minimal and expects no material losses to occur in connection
with these financial instruments.
24
<PAGE> 25
11. UNUSUAL ITEMS
A summary of unusual items is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
--------- ------- --------
<S> <C> <C> <C>
Net gains on asset divestitures $ -- $ -- $ (7,101)
Provision for loss on asset divestitures and contractual
commitments 1,313 3,366 8,687
Reversal of prior provisions for loss and costs on asset
divestitures and contractual commitments -- (3,565) (6,636)
Asset impairments and abandoned projects -- 8,237 4,929
Stock compensation expense -- -- 923
Financing and professional fees 610 -- --
Directors and officers insurance -- -- 1,555
Corporate and regional restructurings 2,810 825 315
--------- ------- --------
Total unusual items $ 4,733 $ 8,863 $ 2,672
========= ======= ========
</TABLE>
In 1992, Chambers became a defendant in shareholder litigation arising out of
financial statement revisions (see Note 12) and, as a result of noncompliance
with certain covenants of its various long-term borrowing agreements, commenced
restructuring of its principal credit facilities and surety arrangements.
Chambers also initiated a major restructuring of its operations which included
a program to divest certain businesses that no longer met strategic and
performance objectives, the abandonment of various development activities, and
the reorganization of its corporate and regional operations. In 1995, 1994, and
1993, Chambers incurred substantial expenses related to these matters as
discussed below.
In 1995, Chambers recorded charges of $2,810,000 of severance and other
termination benefits paid to former Chambers employees in connection with its
pre-merger reorganization, $1,313,000 of estimated future losses associated
with the renegotiated Bergen County, New Jersey, municipal solid waste
contract, and $610,000 of shareholder litigation settlement costs.
In 1994, Chambers recorded charges of $3,366,000 for losses on asset
divestitures, including $1,114,000 to adjust a prior year estimate of the loss
on divestiture of a hauling, recycling, and transfer station operation, and
$2,252,000 related to the estimated future loss on a municipal contract.
During that year, Chambers also reversed prior year provisions for losses on
divestitures and contractual commitments of $3,565,000, including $2,000,000
previously recorded for losses expected to be incurred on a municipal contract
with respect to which Chambers was able to negotiate an early termination and
$1,053,000 of excess reserve related to the sale in 1994 of a recycling
operation and certain real estate.
Chambers also recorded net charges of $8,237,000 for asset impairments and
abandoned projects in 1994. That amount includes a charge of $6,978,000 made in
the fourth quarter of 1994 to reduce the carrying value of Chambers' medical,
special, and municipal waste incinerator facility to its estimated net
realizable value. The amount of the charge was measured as the difference
between the carrying value of long-term assets, principally property and
equipment and intangible assets, and the estimated fair value of the assets
based on the present value of future cash flows discounted at 12%. The
adjustment was based on a review conducted in the fourth quarter of 1994 which
determined there had been a permanent decline in the value of the facility
based on the conclusion that Chambers could not recover its investment through
future operations, given current and forecasted pricing, waste mix, and
capacity trends as well as then recently proposed regulations with respect to
medical waste incinerator facilities and general declines in the value of waste
incinerator businesses. During 1994, Chambers also reached a favorable
settlement of previously reported litigation related to certain contracts
entered into with respect to its purchase of a landfill and its prior purchase
of a waste collection and hauling company. The settlement amount is included as
a credit to unusual items and includes receipt by Chambers of $1,200,000 in
cash and the forgiveness of all remaining non-compete payments totaling
$525,000 that were to have been paid by Chambers to various individuals in
1994, 1995, and 1996. The remaining charge of $2,984,000 results from changes
in prior year estimates for certain asset impairments and abandoned projects.
In addition, Chambers recorded a charge of $825,000 primarily relating to
severance benefits paid to employees terminated as part of Chambers' continued
reorganization. With the exception of the $1,200,000 litigation settlement
received by Chambers and the $825,000 payment of severance benefits, there was
no cash flow effect related to these unusual charges.
During 1993, Chambers sold certain businesses as part of its divestiture
program, which resulted in a net gain of
25
<PAGE> 26
$7,101,000. Chambers also recorded charges of $8,687,000 for losses on asset
divestitures and contractual commitments including (i) $3,172,000 related to
the municipal contract discussed above, (ii) $3,194,000 related to the
recycling operation and real estate sold in 1994, and (iii) $2,140,000 related
to a hauling, recycling, and transfer station held for sale. In addition,
Chambers reversed prior year provisions of $6,636,000 for losses on
divestitures for businesses that were subsequently retained.
In 1993, Chambers also recorded charges of $4,929,000, consisting of $2,028,000
for impaired assets and $2,901,000 for abandoned projects. Additionally, there
were charges in 1993 of $1,555,000 for special directors and officers insurance
premiums and $315,000 for severance benefits paid to employees terminated in
connection with the corporate and regional restructuring.
12. SETTLEMENT OF SHAREHOLDER LITIGATION
In connection with the settlement of certain Chambers' shareholder litigation,
Chambers accrued $85,300,000 for the cost of the settlements and $4,100,000 for
other litigation related costs in 1994. Of that total, $79,400,000 was recorded
as an expense and $10,000,000 to be paid from the proceeds of Chambers'
directors and officers liability insurance policy was recorded as a current
asset and is included in notes and other receivables at December 31, 1994. At
December 31, 1994, $75,300,000 of the amount accrued for settlement payments
was classified as a noncurrent liability based on the expectation that such
amount would be funded by long-term financing in connection with the Chambers
merger (see Note 2). The $10,000,000 of settlement payments funded by the
proceeds of Chambers' directors and officers liability insurance policy and the
$4,100,000 of other litigation related costs are included in current
liabilities at December 31, 1994. The $5,500,000 charge in 1993 relates to
legal and other costs associated with the shareholder litigation. All amounts
were paid by December 31, 1995.
13. RELATED PARTY TRANSACTIONS
In 1994, the Company invested $400,000 in EDM Corporation ("EDM") in return for
a 15% equity interest and agreed to provide a line of credit of up to
$5,600,000 to EDM at an interest rate equal to the greater of 8 1/2% or the
prime rate plus 2%. In connection with this investment, the Company had a right
of first refusal to acquire any landfills, collection, or other operations that
EDM wished to sell. On September 30, 1995, the Company acquired the balance of
the equity interests in EDM in an acquisition accounted for as a purchase (see
Note 2). Under the terms of the acquisition agreement, the Company acquired
the remaining equity interests in EDM in exchange for 108,375 shares of the
Company's common stock and forgiveness of a $1,750,000 loan due from EDM. At
the time of closing, EDM was renamed Modern Sanitation, Inc.
In connection with the acquisition of Envirofil in May 1994, Sanders Morris
Mundy Inc. ("SMMI"), in its capacity as financial advisor to Envirofil,
received a fee of $850,000. Prior to joining the Company, John E. Drury, Chief
Executive Officer of the Company, was a Managing Director and shareholder of
SMMI and remains a director. George L. Ball, a director of the Company, is
Chairman of the Board and a director of SMMI. In 1992, the Company sold
$49,000,000 of its 8 1/2% debentures due 2002 in a public offering underwritten
by Dillon Read & Co., Inc. and SMMI. In connection with such offering, the
Company paid the underwriters commissions aggregating $1,995,000. In 1995, the
Company called the debentures and in connection with such call, entered into a
Standby Agreement with SMMI pursuant to which SMMI received a fee of $200,000
and was reimbursed for the fees and disbursements of its counsel.
At December 31, 1994, Chambers' headquarters facility was leased from the
principal stockholders of Chambers under a lease dated December 29, 1986 with
an initial term expiring in October 2006 and a ten-year renewal option. The
agreement provided for monthly lease payments (aggregating $531,000 during
1995) prior to the Company being released from the lease by assuming the
related mortgage of $1,945,000 from the principal stockholders of Chambers in
July 1995.
In August 1995 and pursuant to the terms of the Chambers merger, the Company
exercised an option to purchase real estate from John G. Rangos, Sr., a
principal stockholder of Chambers and a director of the Company, and Michael J.
Peretto, a former director of Chambers, and certain members of his family. The
real estate is adjacent to the Company's Monroeville landfill. The option to
purchase the real estate was granted pursuant to agreements among the parties
dated July 8, 1993. The total consideration paid by the Company for the real
estate was $2,986,000, of which $2,103,000 was paid to John G. Rangos, Sr. and
$883,000 was paid to Mr. Peretto and members of his family.
26
<PAGE> 27
Pursuant to the terms of the Western Merger, the Company and the Shirvanian
Family Investment Partnership (the "Partnership"), of which Kosti Shirvanian, a
director of the Company, is a general partner, have agreed to the transfer to
the Company the Partnership's interests in the land and improvements
constituting a portion of a transfer station in Carson, California, in exchange
for the issuance by the Company of up to 337,500 shares of Company common
stock, which are currently held in an escrow account. The transfer is subject
to the pending receipt of an independent appraisal of the land and improvements
supporting such consideration.
14. COMMITMENTS AND CONTINGENCIES
Operating leases -- The Company has entered into certain noncancelable
operating leases for vehicles, equipment, offices, and other facilities which
expire through 2003. Lease expense aggregated $10,319,000, $15,064,000, and
$21,320,000 during 1995, 1994, and 1993, respectively. Future minimum lease
payments under operating leases in effect at December 31, 1995 are 1996 --
$5,136,000; 1997 -- $2,597,000; 1998 -- $1,429,000; 1999 -- $832,000; 2000 --
$655,000; and thereafter $2,175,000.
Environmental matters -- The Company is subject to extensive and evolving
federal, state, and local environmental laws and regulations that have been
enacted in response to technological advances and the public's increased
concern over environmental issues. As a result of changing governmental
attitudes in this area, management anticipates that the Company will
continually modify or replace facilities and alter methods of operation. The
majority of the expenditures necessary to comply with the environmental laws
and regulations are made in the normal course of business. Although the
Company, to the best of its knowledge, is in compliance in all material
respects with the laws and regulations affecting its operations, there is no
assurance that the Company will not have to expend substantial amounts for
compliance in the future.
Litigation and investigation -- On or about March 8, 1993, an action was filed
in the United States District Court for the Western District of Pennsylvania,
captioned Option Resource Group, et al. v. Chambers Development Company, Inc.,
et al., Civil Action No. 93-354. This action was brought by a market maker in
options in Chambers stock and two of its general partners and asserts federal
securities law and common law claims alleging that Chambers, in publicly
disseminated materials, intentionally or negligently misstated its earnings and
that Chambers' officers and directors committed mismanagement and breach of
fiduciary duties. These plaintiffs allege that, as a result of large amounts
of put options traded on the Chicago Board of Options Exchange between March 13
and March 18, 1992, they engaged in offsetting transactions resulting in
approximately $2,100,000 in losses. The plaintiffs in Option Resource Group
had successfully requested exclusion from a now settled class action of
consolidated suits instituted on similar claims ("Class Action") and Option
Resource Group is continuing as a separate lawsuit. Discovery has been
completed and a trial date of January 2, 1997 has been set. Plaintiffs filed a
motion for summary judgment which is untimely under the court's case management
procedures. The court has stayed responses to the motion for summary judgment.
In response to discovery on damages, the plaintiffs reduced their damages claim
to $433,000 in alleged losses, plus interest and attorneys' fees, for a total
damage claim of $658,000, as of August 21, 1995. The Company intends to
continue to vigorously defend against this action. Management of the Company
believes the ultimate resolution of such complaint will not have a material
adverse effect on the Company's financial position or results of operations.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers Development Company, Inc., certain former
officers and directors of Chambers, and Grant Thronton, LLP, in the United
States District Court for the Southern District of New York under the caption
Moran, et al. v. Chambers, et al., Civil Action No. 95-6034. Plaintiffs, who
claim to represent approximately 484,000 shares of Chambers stock, requested
exclusion from the settlement agreements which resulted in the resolution of
the Class Action and assert that they have incurred losses attributable to
shares purchased during the class period and certain additional losses by
reason of alleged management misstatements during and after the class period.
The claimed losses include damages to Mr. Moran's business and reputation. The
Judicial Panel on Multidistrict Litigation has transferred this case to the
United States District Court for the Western District of Pennsylvania. The
Company has filed its answer to the complaint and intends to vigorously defend
against these claims. The case is currently in discovery. Management of the
Company believes the ultimate resolution of such complaint will not have a
material adverse effect on the Company's financial position or results of
operations.
On or about February 1, 1996, an action was filed in the Circuit Court of Cook
County, Illinois, captioned Allabastro v. USA Waste Services, Inc., Action No.
96L01165. The case was subsequently removed to the United States District
27
<PAGE> 28
Court for the Northern District of Illinois, Action No. 96-CV-1336. The
plaintiff alleges to have entered into an oral agreement with the Company for
brokerage services and is demanding a fee of $950,000 based on the alleged
contract and on common law for acting as a broker/advisor to the Company in its
1993 purchase of an Indiana landfill and hauling operation from Chambers.
Based on the same facts, the plaintiff is also demanding an additional
$36,250,000 fee in connection with the June 1995 merger of Chambers with the
Company. The plaintiff is also seeking unspecified damages for acting as a
management advisor to the Company in its procurement of a landfill
renovation/operation contract in Charleston, West Virginia. Interest and other
costs are also demanded. The case is in the early stages of discovery. The
Company has filed its answer and intends to vigorously defend against this
action, and management believes the ultimate resolution of this suit will not
have a material adverse effect on the Company's financial position or results
of operations.
Western was served on August 9, 1994, with a complaint filed by certain refuse
haulers of San Bernardino County alleging that Western violated certain
California Business and Professions Code Sections and also intentionally
interfered with existing and prospective economic relations. The complaint
alleges that Western does not hold a validly issued permit to operate within a
certain geographic area in the County of San Bernardino and that Western has
engaged in a course of conduct of predatory pricing. The complaint also
alleges that Western has violated a San Bernardino County ordinance by engaging
in discriminatory and non-uniform pricing of its refuse hauling services. In
addition to the injunction, the complaint prays for three times the actual
damages incurred by plaintiffs, punitive and exemplary damages in the amount to
be proven at the time of trial, reasonable attorneys' fees, and costs of suit.
The Company believes it has valid defenses to the allegations and intends to
vigorously defend the suit. The Company has filed a cross-complaint against
the plaintiffs for engaging in improper pricing activities.
In or about August 1994, a case was filed against Western in the United States
District Court for the Western District of Arkansas. This is an action
originally filed by seven landowners who live near a landfill operated by
Western in Miller County, Arkansas. The landowners allege that Western
unlawfully received hazardous waste and that the pollutants from the waste
received by Western had contaminated their property or threatened to
contaminate their property in the future. The landowners seek an unspecified
amount of damages based on the contamination or threat of contamination. In
addition, the landowners seek to recover damages based on the devaluation of
their property due to the stigma of being located near a disposal site for
hazardous waste and based upon their fear of developing adverse health effects.
In July 1995, 135 additional plaintiffs intervened and asserted claims similar
to those raised by the original plaintiffs. Western and the other defendants
have denied that any unlawful disposal of waste took place at the landfill. In
or about June 1995, a case of was filed by eight land owners who own property
along a creek downstream from Western's Miller County landfill. Plaintiffs
allege that their property has been contaminated by releases of hazardous
substances from the landfill and other hazardous substance disposal sites
operated by the other defendants. The Company believes it has valid defenses
to the allegations and is vigorously defending the action.
In late December 1994, a lawsuit was filed in Los Angeles County Superior Court
by 24 plaintiffs. Western is among 19 named defendants. The complaint asserts
causes of action for nuisance and trespass seeking damages for personal
injuries and property damage. The complaint alleges that Western owns a parcel
of property, acquired from Cadillac Fairview/California located in Torrance,
California. The complaint alleges that Montrose Chemical Corporation and
others manufactured DDT on property at or adjacent to the property owned by
Western. The plaintiffs further allege that contaminants from this property
escaped to plaintiff's property, injured plaintiff, and damaged the value of
plaintiff's property. On June 29, 1995, this case was removed to the United
States District Court. Western has filed an answer denying any liability. The
Company believes it has valid defenses to the allegations and intends to
vigorously contest the case and is contemplating filing a cross-complaint once
its investigation of the facts is completed.
On or about February 2, 1995, a complaint was filed in a taxpayer lawsuit.
The complaint does not name Western as a defendant. The plaintiffs allege that
Riverside County and the other defendants, in connection with a contract with
Western regarding the operation and management of the El Sobrante Landfill (the
"Landfill") located within Riverside County (the "Agreement"), engaged in
various improper actions, including the unlawful sale of public property,
wasting public funds, and making an unconstitutional gift of public property
and funds. The complaint seeks an order voiding the Agreement and an
injunction ordering the defendants to pay to the County allegedly unlawful
revenues earned from the Landfill, to cease further dumping at the Landfill of
out-of-county waste, return of alleged windfall profits, and limiting dumping
fees charged to incounty residents. The complaint also seeks general damages
of $10,000,000, special and punitive damages, attorneys' fees, and costs. The
Company believes the taxpayer suit is based upon erroneous assumptions and that
there are valid defenses available to the County to each of the claims asserted
in the complaint. The
28
<PAGE> 29
Company has now filed a motion to intervene in the litigation and will
thereafter become a party to the lawsuit.
The Company has reason to believe that Western, either alone or with others
engaged in the solid waste industry, may be a subject of an investigation by
the United States government relating to political corruption. The Company
has not, however, been charged with any wrongdoing and does not know whether
such an investigation is, in fact, ongoing. The Company has not been advised
by the government that it is a target of any such investigation. Upon written
inquiry under the Freedom of Information Act, Western was advised that there
were no records of any such investigations.
The Company is a party to other litigation matters arising in the ordinary
course of business. Management believes that the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position and results of operations. In the normal course of its business and as
a result of the extensive government regulation of the solid waste industry,
the Company periodically may become subject to various judicial and
administrative proceedings involving federal, state, or local agencies. To
date, the Company has not been required to pay any material fine or had a
judgment entered against it for violation of any environmental law. From time
to time the Company also may be subjected to actions brought by citizen's
groups in connection with the permitting of landfills or transfer stations, or
alleging violations of the permits pursuant to which the Company operates. From
time to time, the Company is also subject to claims for personal injury or
property damage arising out of accidents involving its vehicles.
Insurance -- The Company carries a broad range of insurance coverages, which
management considers prudent for the protection of the Company's assets and
operations. Some of these coverages are subject to varying retentions of risk
by the Company. The casualty coverages currently include $2,000,000 primary
commercial general liability and $1,000,000 primary automobile liability
supported by $100,000,000 in umbrella insurance protection. The property
policy provides insurance coverage for all of the Company's real and personal
property.
The Company maintains workers' compensation insurance in accordance with laws
of the various states in which it has employees. The Company also currently
has an environmental impairment liability ("EIL") insurance policy for certain
of its landfills and transfer stations that provides coverage for property
damages and/or bodily injuries to third parties caused by off-site pollution
emanating from such landfills or transfer stations. This policy provides
$5,000,000 of coverage per incident with a $10,000,000 aggregate limit. To
date, the Company has not had any difficulty in obtaining insurance. However,
if the Company in the future is unable to obtain adequate insurance, or decides
to operate without insurance, a partially or completely uninsured claim against
the Company, if successful and of sufficient magnitude, could have a material
adverse effect upon the Company's business or its financial condition.
Additionally, continued availability of casualty and EIL insurance with
sufficient limits at acceptable terms is an important aspect of obtaining
revenue-producing waste service contracts.
Employment agreements -- The Company has entered into employment agreements
with certain of its officers. These employment agreements include provisions
governing compensation and benefits to be paid upon termination of employment
with the Company or certain changes in control of the Company. Under certain
conditions, the agreements can be terminated by the Company or the officer.
Upon termination of an agreement, the officer's compensation would continue at
approximately 75% of his prior compensation for periods ranging from three to
five years. During the three to five year period, the officer would be
available to the Company on a part-time basis for consulting and also would not
be permitted to engage in any activities in direct competition with the
Company. If these officers were to be terminated without cause during 1996 or
if certain officers elected to terminate their agreements, the aggregate annual
compensation on a part-time basis would be approximately $2,032,000. If a
change in control were to occur in 1996 and the officers were to elect to take
the change in control payments, they would receive approximately $8,223,000.
The Company has not recorded any accruals in the financial statements related
to these employment agreements.
29
<PAGE> 30
15. SELECTED QUARTERLY FINANCIAL DATA, UNAUDITED
The following table summarizes the unaudited consolidated quarterly results of
operations for 1995 and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- ------- --------- -------
<S> <C> <C> <C> <C>
Operating revenues
1995 $168,880 $179,714 $189,715 $192,691
======== ======== ======== ========
1994 $165,118 $181,185 $181,908 $176,954
======== ======== ======== ========
Income (loss) from operations
1995 $ 21,231 $ (4,121) $ 34,846 $ 36,120
======== ======== ======== ========
1994 $ 18,416 $ 19,169 $ 24,695 $ 9,610
======== ======== ======== ========
Net income (loss)
1995 $ 4,538 $(23,299) $ 23,342 $ 42,762
======== ======== ======== ========
1994 $ 5,224 $ 5,967 $(63,827) $ (6,459)
======== ======== ======== ========
Income (loss) available to
common shareholders
1995 $ 4,538 $(23,299) $ 23,342 $ 42,762
======== ======== ======== ========
1994 $ 4,844 $ 5,782 $(63,827) $ (6,459)
======== ======== ======== ========
Earnings (loss) per
common share
1995 $ .06 $ (.31) $ .30 $ .48
======== ======== ======== ========
1994 $ .07 $ .08 $ (.87) $ (.09)
======== ======== ======== ========
</TABLE>
Earnings (loss) per common share calculations for each of the quarters is based
on the weighted average number of shares outstanding for each period and the
sum of the quarters may not necessarily be equal to the full year earnings
(loss) per common share amount.
Amounts presented for 1995 and 1994 are restated for the pooling of interests
transactions discussed in Note 2, and are different from amounts originally
reported due to the business combinations with Western and Chambers.
The results of operations for 1995 and 1994 include certain nonrecurring
charges for merger costs, unusual items, and nonrecurring interest, as
disclosed elsewhere herein. In 1995, the nonrecurring charges amounted to
$4,206,000 and $36,594,000 in the first and second quarters, respectively. In
1994, the nonrecurring charges amounted $3,782,000, $74,100,000, and
$15,417,000 in the second, third, and fourth quarters, respectively. In
addition, the fourth quarter of 1995 includes a $15,600,000 deferred tax
benefit from a reduction of the valuation allowance. Although the Company's
net income in the third and fourth quarter of 1995 showed marked improvements
over the first and second quarter, there can ben no assurance that this trend
will continue.
16. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company acquired 21 collection businesses,
one landfill, one transfer station, and two recycling businesses for
approximately $46,000,000 in cash and 113,224 shares of the Company's common
stock under the purchase method of accounting. The pro forma effect of the
acquisitions is not material to the Company's financial condition or result of
operations.
On May 31, 1996, the Company consummated a merger accounted for as a pooling of
interests, pursuant to which the Company issued 900,001 shares of its common
stock in exchange for all outstanding shares of the acquired company. Periods
presented herein were not restated to include the accounts and operations of
the acquired company as combined results are not materially different from the
results as presented.
30
<PAGE> 31
In May 1996, the Company adopted the 1996 Stock Option Plan for Non-Employee
Directors ("1996 Directors Plan") to offer its directors who are not officers,
full-time employees, or consultants of the Company an annual grant of 10,000
options on each January 1. In accordance with the 1996 Directors Plan, options
to purchase up to 400,000 shares of the Company's common stock may be granted,
with five year vesting periods, and expiration dates ten years from the date of
grant. Options may be granted at an exercise price which equals fair market
value of the common stock on the date of grant.
On June 22, 1996, the Company entered into an Agreement and Plan of Merger to
acquire Sanifill, Inc. ("Sanifill") through a merger transaction. The
completion of the merger is subject to, among other conditions, approval of
both companies' shareholders. It is anticipated that the merger will be
completed in the Fall of 1996 and will be accounted for as a pooling of
interests. The merger agreement provides that on the effective date of the
merger, the Company will issue 1.70 shares of its common stock for each share
of Sanifill's outstanding common stock. The merger is expected to increase the
Company's outstanding shares of common stock by approximately 44,000,000 shares
and the Company will assume Sanifill's options and warrants equivalent to
4,300,000 underlying shares of Company common stock.
31
<PAGE> 32
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,919 $ 18,223
Accounts receivable, net 92,142 90,427
Notes and other receivables 13,133 13,802
Deferred income taxes 20,101 20,101
Prepaid expenses and other 34,626 26,110
---------- ----------
Total current assets 189,921 168,663
Notes and other receivables 17,208 11,704
Property and equipment, net 830,115 799,512
Excess of cost over net assets of acquired
businesses, net 112,908 108,664
Other intangible assets, net 34,295 34,127
Other assets 78,543 67,694
---------- ----------
Total assets $1,262,990 $1,190,364
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,136 $ 40,333
Accrued liabilities 40,258 48,618
Deferred revenues 6,508 6,030
Current maturities of long-term debt 46,269 40,157
---------- ----------
Total current liabilities 135,171 135,138
Long-term debt, less current maturities 441,544 410,683
Closure, post-closure, and other liabilities 88,483 87,156
---------- ----------
Total liabilities 665,198 632,977
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value;
150,000,000 shares authorized; 89,596,873 and
87,030,697 shares issued, respectively 896 870
Additional paid-in capital 807,049 796,236
Accumulated deficit (207,999) (237,900)
Less treasury stock at cost, 144,975 shares and
138,810 shares, respectively (2,154) (1,819)
---------- ----------
Total stockholders' equity 597,792 557,387
---------- ----------
Total liabilities and stockholders' equity $1,262,990 $1,190,364
========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental condensed
consolidated financial statements.
32
<PAGE> 33
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating revenues $201,525 $168,880
-------- --------
Costs and expenses:
Operating 118 ,101 101,450
General and administrative 24,743 26,163
Depreciation and amortization 21,874 19,343
Unusual items -- 693
-------- --------
164,718 147,649
-------- --------
Income from operations 36,807 21,231
-------- --------
Other income (expense):
Interest expense:
Nonrecurring interest -- (3,512)
Other (6,765) (9,687)
Interest and other income, net 2,288 2,322
-------- --------
(4,477) (10,877)
-------- --------
Income before provision for income taxes 32,330 10,354
Provision for income taxes 5,558 5,816
-------- --------
Net income $ 26,772 $ 4,538
======== ========
Earnings per common share $ 0.29 $ 0.06
======== ========
Weighted average number of common and
common equivalent shares outstanding 93,281 74,305
======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental condensed
consolidated financial statements.
33
<PAGE> 34
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $ 870 $796,236 $(237,900) $(1,819)
Common stock options exercised -- -- 3,917 -- --
Common stock issued to qualified
defined contribution plan -- 3 268 -- --
Common stock issued in acquisitions -- 1 1,160 -- --
Common stock issued for Grand Central
acquisition, accounted for as a
pooling of interests -- 21 4,087 3,129 --
Common stock returned for
acquisition settlement -- -- -- -- (751)
Common stock issued for investment
in company -- 1 1,588 -- --
Common stock issued from treasury upon
exercise of stock options -- -- (82) -- 219
Common stock issued from treasury upon
exercise of stock warrants -- -- (125) -- 197
Net income -- -- -- 26,772 --
------- ----- -------- --------- -------
Balance, March 31, 1996 $ -- $ 896 $807,049 $(207,999) $(2,154)
======= ===== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these supplemental condensed
consolidated financial statements.
34
<PAGE> 35
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 27,451 $ 26,298
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (8,610) --
Capital expenditures (24,484) (26,955)
Loans and advances to others (8,177) (5,426)
Collection of loans to others 1 ,158 102
Proceeds from sale of assets 923 4,527
Increase in restricted assets (499) (9,430)
Other -- (384)
-------- --------
Net cash used in investing activities (39,689) (37,566)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 32,025 23,039
Principal payments on long-term debt (10,607) (19,284)
Proceeds from exercise of stock options 2,444 240
Proceeds from exercise of warrants 72 517
-------- --------
Net cash provided by financing activities 23,934 4,512
-------- --------
Increase (decrease) in cash and cash equivalents 11,696 (6,756)
Cash and cash equivalents at beginning of period 18,223 36,645
-------- --------
Cash and cash equivalents at end of period $ 29,919 $ 29,889
======== ========
</TABLE>
The accompanying notes are an integral part of these supplemental condensed
consolidated financial statements.
35
<PAGE> 36
The supplemental condensed consolidated balance sheets of USA Waste Services,
Inc. and subsidiaries (the "Company") as of March 31, 1996 and December 31,
1995, the related supplemental condensed consolidated statements of operations
for the three months ended March 31, 1996 and 1995, the supplemental condensed
consolidated statement of stockholders' equity for the three months ended March
31, 1996, and the supplemental condensed consolidated statements of cash flows
for the three months ended March 31, 1996 and 1995 are unaudited. In the
opinion of management, such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations, and cash flows for
the periods presented. The Company has restated the previously issued
financial statements for the three months ended March 31, 1996 to reflect the
acquisitions of Western Waste Industries ("Western") and Grand Central
consummated on May 7, 1996 and May 15, 1996, respectively, both accounted for
using the pooling of interests method of accounting. The Company has also
restated the previously issued financial statements for the three months ended
March 31, 1995 to reflect the acquisition of Western. Periods prior to 1996
were not restated to reflect the acquisition of Grand Central as combined
results are not materially different from results as presented.
1. BUSINESS COMBINATIONS
On May 7, 1996, the Company consummated an Agreement and Plan of Merger (the
"Merger Agreement") to acquire Western through a merger transaction ("Western
Merger") accounted for as a pooling of interests and, accordingly, the
accompanying financial information has been restated to include the accounts
and operations of Western for all periods presented. Under the terms of the
Merger Agreement, the Company issued 1.50 shares of its common stock for each
share of Western outstanding common stock. Prior to the Western Merger, the
Company owned approximately 4.1% of Western's outstanding shares (634,900
common shares), which were canceled on the Western Merger's effective date.
The Western Merger increased the Company's outstanding shares of common stock
by approximately 23,100,000 shares and the Company assumed options under
Western's stock option plans equivalent to approximately 5,200,000 underlying
Company shares of common stock.
On May 15, 1996, the Company consummated a merger agreement with Grand Central,
accounted for as a pooling of interests, pursuant to which the Company issued
2,067,605 shares of its common stock in exchange for all outstanding shares of
Grand Central.
Combined and separate results of operations of the Company prior to
consummation of the mergers ("USA Waste"), Western, and Grand Central for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
Grand
USA Waste Western Central Adjustments Combined
--------- ------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1996 (unaudited):
Operating revenues $124,629 $ 68,441 $8,455 $ -- $201,525
Net income 20,516 4,703 1,538 15(a) 26,772
Three months ended March 31, 1995 (unaudited):
Operating revenues $101,242 $67,638 -- $ -- $168,880
Net income 184 4,339 -- 15(a) 4,538
</TABLE>
(a) In February 1992, USA Waste acquired a 55% interest in a hauling
company from a third party in which Western owned the remaining 45%.
In March 1993, USA Waste acquired the remaining 45% interest in the
hauling company from Western. The combined financial information
reflects the combined company's 100% ownership of the acquired hauling
company as of February 1992. Western's earnings in minority interest
from February 1992 through March 1993 and the gain on sale to USA
Waste of $2,829,000 have been eliminated. The excess of cost over net
assets of acquired businesses, net of accumulated amortization,
recorded by USA Waste in February 1992, has also been eliminated.
During the three months ended March 31, 1996, the Company acquired 13
collection businesses for approximately $12,246,000 in cash and 64,624 shares
of the Company's common stock. These acquisitions were accounted for under the
purchase method of accounting and the pro forma effect of the acquisitions is
not material to the Company's financial position or results of operations.
36
<PAGE> 37
On June 22, 1996, the Company entered into an Agreement and Plan of Merger to
acquire Sanifill, Inc. ("Sanifill") through a merger transaction. The
completion of the merger is subject to, among other conditions, approval of
both companies' shareholders. It is anticipated that the merger will be
completed in the Fall of 1996 and will be accounted for as a pooling of
interests. The merger agreement provides that on the effective date of the
merger, the Company will issue 1.70 shares of its common stock for each share
of Sanifill's outstanding common stock. The merger is expected to increase the
Company's outstanding shares of common stock by approximately 44,000,000 shares
and the Company will assume Sanifill's options and warrants equivalent to
4,300,000 underlying shares of Company common stock.
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Credit facility:
Revolving credit facility $ 83,613 $ 51,613
Term loan facility 209,228 215,835
Western credit facility 41,000 41,000
Industrial revenue bonds 113,591 115,421
Other 40,381 26,971
-------- --------
487,813 450,840
Less current maturities 46,269 40,157
-------- --------
$441,544 $410,683
======== ========
</TABLE>
On May 7, 1996, in connection with the acquisition of Western, the Company
replaced its existing credit facility with a $750,000,000 senior revolving
credit facility ("Credit Facility") and retired amounts outstanding under
Western's credit facility. The Credit Facility was used to refinance existing
bank loans and letters of credit and will be used to fund additional
acquisitions and working capital. The Credit Facility is available for standby
letters of credit of up to $300,000,000. Loans under the Credit Facility bear
interest at a rate based on the Eurodollar rate plus a spread not to exceed
0.75% per annum (spread initially set at 0.405% per annum). The Credit
Facility requires a facility fee not to exceed 0.375% per annum on the entire
available credit facility (facility fee initially set at 0.22% per annum). The
Company's liquidity will be enhanced by the Credit Facility as the financial
covenants are less restrictive and principal reductions are not required for a
three-year period.
3. INCOME TAXES
The difference in federal income taxes at the statutory rate and the provision
for income taxes for the three months ended March 31, 1996, is primarily due to
the net change in the valuation allowance. The valuation allowance for
deferred tax assets had a net decrease of $5,814,000 in the first quarter of
1996 due to changes in the Company's gross deferred tax assets and liabilities
and the realization of a portion of the Company's net deferred tax asset for
which a reserve had been provided at December 31, 1995. Future taxable income
was projected utilizing annualized first quarter taxable income. If the
Company's current trend of profitability continues, additional net deferred tax
assets of up to approximately $87,800,000 could be recognized in future
periods.
4. COMMITMENTS AND CONTINGENCIES
Environmental matters -- The Company is subject to extensive and evolving
federal, state, and local environmental laws and regulations that have been
enacted in response to technological advances and the public's increased
concern over environmental issues. As a result of changing governmental
attitudes in this area, management anticipates that the Company will
continually modify or replace facilities and alter methods of operation. The
majority of the expenditures necessary to comply with the environmental laws
and regulations are made in the normal course of business. Although the
Company, to the best of its knowledge, is in compliance in all material
respects with the laws and regulations affecting its operations, there is no
assurance that the Company will not have to expend substantial amounts for
compliance in the future.
37
<PAGE> 38
Litigation and investigation -- On or about March 8, 1993, an action was filed
in the United States District Court for the Western District of Pennsylvania,
captioned Option Resource Group, et al. v. Chambers Development Company, Inc.,
et al., Civil Action No. 93-354. This action was brought by a market maker in
options in Chambers stock and two of its general partners and asserts federal
securities law and common law claims alleging that Chambers, in publicly
disseminated materials, intentionally or negligently misstated its earnings and
that Chambers' officers and directors committed mismanagement and breach of
fiduciary duties. These plaintiffs allege that, as a result of large amounts
of put options traded on the Chicago Board of Options Exchange between March 13
and March 18, 1992, they engaged in offsetting transactions resulting in
approximately $2,100,000 in losses. The plaintiffs in Option Resource Group
had successfully requested exclusion from a now settled class action of
consolidated suits instituted on similar claims ("Class Action") and Option
Resource Group is continuing as a separate lawsuit. Discovery has been
completed and a trial date of January 2, 1997 has been set. Plaintiffs filed a
motion for summary judgment which is untimely under the court's case management
procedures. The court has stayed responses to the motion for summary judgment.
In response to discovery on damages, the plaintiffs reduced their damages claim
to $433,000 in alleged losses, plus interest and attorneys' fees, for a total
damage claim of $658,000, as of August 21, 1995. The Company intends to
continue to vigorously defend against this action. Management of the Company
believes the ultimate resolution of such complaint will not have a material
adverse effect on the Company's financial position or results of operations.
On August 3, 1995, Frederick A. Moran and certain related persons and entities
filed a lawsuit against Chambers Development Company, Inc., certain former
officers and directors of Chambers, and Grant Thronton, LLP, in the United
States District Court for the Southern District of New York under the caption
Moran, et al. v. Chambers, et al., Civil Action No. 95-6034. Plaintiffs, who
claim to represent approximately 484,000 shares of Chambers stock, requested
exclusion from the settlement agreements which resulted in the resolution of
the Class Action and assert that they have incurred losses attributable to
shares purchased during the class period and certain additional losses by
reason of alleged management misstatements during and after the class period.
The claimed losses include damages to Mr. Moran's business and reputation. The
Judicial Panel on Multidistrict Litigation has transferred this case to the
United States District Court for the Western District of Pennsylvania. The
Company has filed its answer to the complaint and intends to vigorously defend
against these claims. The case is currently in discovery. Management of the
Company believes the ultimate resolution of such complaint will not have a
material adverse effect on the Company's financial position or results of
operations.
On or about February 1, 1996, an action was filed in the Circuit Court of Cook
County, Illinois, captioned Allabastro v. USA Waste Services, Inc., Action No.
96L01165. The case was subsequently removed to the United States District
Court for the Northern District of Illinois, Action No. 96-CV-1336. The
plaintiff alleges to have entered into an oral agreement with the Company for
brokerage services and is demanding a fee of $950,000 based on the alleged
contract and on common law for acting as a broker/advisor to the Company in its
1993 purchase of an Indiana landfill and hauling operation from Chambers.
Based on the same facts, the plaintiff is also demanding an additional
$36,250,000 fee in connection with the June 1995 merger of Chambers with the
Company. The plaintiff is also seeking unspecified damages for acting as a
management advisor to the Company in its procurement of a landfill
renovation/operation contract in Charleston, West Virginia. Interest and other
costs are also demanded. The case is in the early stages of discovery. The
Company has filed its answer and intends to vigorously defend against this
action, and management believes the ultimate resolution of this suit will not
have a material adverse effect on the Company's financial position or results
of operations.
Western was served on August 9, 1994, with a complaint filed by certain refuse
haulers of San Bernardino County alleging that Western violated certain
California Business and Professions Code Sections and also intentionally
interfered with existing and prospective economic relations. The complaint
alleges that Western does not hold a validly issued permit to operate within a
certain geographic area in the County of San Bernardino and that Western has
engaged in a course of conduct of predatory pricing. The complaint also
alleges that Western has violated a San Bernardino County ordinance by engaging
in discriminatory and non-uniform pricing of its refuse hauling services. In
addition to the injunction, the complaint prays for three times the actual
damages incurred by plaintiffs, punitive and exemplary damages in the amount to
be proven at the time of trial, reasonable attorneys' fees, and costs of suit.
The Company believes it has valid defenses to the allegations and intends to
vigorously defend the suit. The Company has filed a cross-complaint against
the plaintiffs for engaging in improper pricing activities.
In or about August 1994, a case was filed against Western in the United States
District Court for the Western District of Arkansas. This is an action
originally filed by seven landowners who live near a landfill operated by
Western in Miller County, Arkansas. The landowners allege that Western
unlawfully received hazardous waste and that the pollutants from the
38
<PAGE> 39
waste received by Western had contaminated their property or threatened to
contaminate their property in the future. The landowners seek an unspecified
amount of damages based on the contamination or threat of contamination. In
addition, the landowners seek to recover damages based on the devaluation of
their property due to the stigma of being located near a disposal site for
hazardous waste and based upon their fear of developing adverse health effects.
In July 1995, 135 additional plaintiffs intervened and asserted claims similar
to those raised by the original plaintiffs. Western and the other defendants
have denied that any unlawful disposal of waste took place at the landfill. In
or about June 1995, a case of was filed by eight land owners who own property
along a creek downstream from Western's Miller County landfill. Plaintiffs
allege that their property has been contaminated by releases of hazardous
substances from the landfill and other hazardous substance disposal sites
operated by the other defendants. The Company believes it has valid defenses
to the allegations and is vigorously defending the action.
In late December 1994, a lawsuit was filed in Los Angeles County Superior Court
by 24 plaintiffs. Western is among 19 named defendants. The complaint asserts
causes of action for nuisance and trespass seeking damages for personal
injuries and property damage. The complaint alleges that Western owns a parcel
of property, acquired from Cadillac Fairview/California located in Torrance,
California. The complaint alleges that Montrose Chemical Corporation and
others manufactured DDT on property at or adjacent to the property owned by
Western. The plaintiffs further allege that contaminants from this property
escaped to plaintiff's property, injured plaintiff, and damaged the value of
plaintiff's property. On June 29, 1995, this case was removed to the United
States District Court. Western has filed an answer denying any liability. The
Company believes it has valid defenses to the allegations and intends to
vigorously contest the case and is contemplating filing a cross-complaint once
its investigation of the facts is completed.
On or about February 2, 1995, a complaint was filed in a taxpayer lawsuit.
The complaint does not name Western as a defendant. The plaintiffs allege that
the Riverside County and the other defendants, in connection with a contract
with Western regarding the operation and management of the El Sobrante Landfill
(the "Landfill") located within the Riverside County (the "Agreement"), engaged
in various improper actions, including the unlawful sale of public property,
wasting public funds, and making an unconstitutional gift of public property
and funds. The complaint seeks an order voiding the Agreement and an
injunction ordering the defendants to pay to the County allegedly unlawful
revenues earned from the Landfill, to cease further dumping at the Landfill of
out-of-county waste, return of alleged windfall profits, and limiting dumping
fees charged to incounty residents. The complaint also seeks general damages
of $10,000,000, special and punitive damages, attorneys' fees, and costs. The
Company believes the taxpayer suit is based upon erroneous assumptions and
that there are valid defenses available to the County to each of the claims
asserted in the complaint. The Company has now filed a motion to intervene in
the litigation and will thereafter become a party to the lawsuit.
The Company has reason to believe that Western, either alone or with others
engaged in the solid waste industry, may be a subject of an investigation by
the United States government relating to political corruption. The Company
has not, however, been charged with any wrongdoing and does not know whether
such an investigation is, in fact, ongoing. Western has not been advised by
the government that it is a target of any such investigation. Upon written
inquiry under the Freedom of Information Act, Western was advised that there
were no records of any such investigations.
The Company is a party to various other litigation matters arising in the
ordinary course of business. Management believes that the ultimate resolution
of these matters will not have a material adverse impact on the Company's
financial position and results of operations. In the normal course of its
business and as a result of the extensive government regulation of the solid
waste industry, the Company periodically may become subject to various judicial
and administrative proceedings involving federal, state, or local agencies. To
date, the Company has not been required to pay any material fine or had a
judgment entered against it for violation of any environmental law. From time
to time the Company also may be subjected to actions brought by citizen's
groups in connection with the permitting of landfills or transfer stations, or
alleging violations of the permits pursuant to which the Company operates. From
time to time, the Company is also subject to claims for personal injury or
property damage arising out of accidents involving its vehicles.
Insurance -- The Company carries a broad range of insurance coverages, which
management considers prudent for the protection of the Company's assets and
operations. Some of these coverages are subject to varying retentions of risk
by the Company. The casualty coverages currently include $2,000,000 primary
commercial general liability and $1,000,000 primary automobile liability
supported by $100,000,000 in umbrella insurance protection. The property
policy provides insurance coverage for all of the Company's real and personal
property.
39
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The Company maintains workers' compensation insurance in accordance with laws
of the various states in which it has employees. The Company also currently
has an environmental impairment liability ("EIL") insurance policy for certain
of its landfills and transfer stations that provides coverage for property
damages and/or bodily injuries to third parties caused by off-site pollution
emanating from such landfills or transfer stations. This policy provides
$5,000,000 of coverage per incident with a $10,000,000 aggregate limit. To
date, the Company has not had any difficulty in obtaining insurance. However,
if the Company in the future is unable to obtain adequate insurance, or decides
to operate without insurance, a partially or completely uninsured claim against
the Company, if successful and of sufficient magnitude, could have a material
adverse effect upon the Company's business or its financial condition.
Additionally, continued availability of casualty and EIL insurance with
sufficient limits at acceptable terms is an important aspect of obtaining
revenue-producing waste service contracts.
Employment agreements -- The Company has entered into employment agreements
with certain of its officers. These employment agreements include provisions
governing compensation and benefits to be paid upon termination of employment
with the Company or certain changes in control of the Company. Under certain
conditions, the agreements can be terminated by the Company or the officer.
Upon termination of an agreement, the officer's compensation would continue at
approximately 75% of his prior compensation for periods ranging from three to
five years. During the three to five year period, the officer would be
available to the Company on a part-time basis for consulting and also would not
be permitted to engage in any activities in direct competition with the
Company. If these officers were to be terminated without cause during 1996 or
if certain officers elected to terminate their agreements, the aggregate annual
compensation on a part-time basis would be approximately $2,032,000. If a
change in control were to occur in 1996 and the officers were to elect to take
the change in control payments, they would receive approximately $8,223,000.
As of March 31, 1996, the Company has not recorded any accruals in the
financial statements related to these employment agreements.
40
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereto duly authorized.
USA WASTE SERVICES, INC.
By: /s/ BRUCE E. SNYDER
----------------------
BRUCE E. SNYDER
Vice President - Controller
Chief Accounting Officer
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the USA Waste Services, Inc.
Registration Statements on Form S-4 (File Nos. 33-60103, 33-63981, and
333-02181), Registration Statements on Form S-3 (File Nos. 33-42988, 33-43809,
33-76226, 33-85018, and 333-00097), and Registration Statements on Form S-8
(File Nos. 33-43619, 33-72436, 33-84900, 33-84988, 33- 59807, 33-61621,
33-61625, and 33-61627), of our report dated May 23, 1996, on our audits of the
supplemental consolidated financial statements of USA Waste Services, Inc. as
of December 31, 1995 and 1994, and for the three years in the period ended
December 31, 1995, which our report is included in this Current Report on Form
8-K/A, Amendment No. 2.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
June 28, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in USA Waste Services, Inc.'s
Registration Statement Nos. 33-42988, 33- 43809, 33-76226, 33-85018, and
333-00097 on Form S-3, Registration Statement Nos. 33-60103, 33-63981, and
333-02181 on Form S-4, and Registration Statement Nos. 33-43619, 33-59807,
33-61621, 33-61625, 33-61627, 33-72436, 33-84988, and 33- 84990 on Form S-8 of
our report dated March 30, 1995 (relating to the consolidated financial
statements of Chambers Development Company, Inc. and subsidiaries not presented
separately herein) appearing in this Current Report on Form 8- K/A, Amendment
No. 2, of USA Waste Services, Inc.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 28, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3, No. 33-42988, No. 33-43809, No. 33-76226, No. 33-85018, and No.
333-00097) of USA Waste Services, Inc. and the related Prospectuses, and in the
Registration Statements (Form S-4, No. 33-60103, No. 33-63981, and No.
333-02181) of USA Waste Services, Inc. and in the related Prospectuses, and in
the Registration Statements (Form S-8, No. 33-43619, No. 33-59807, No.
33-61621, No. 33- 61625, No. 33-61627, No. 33-72436, No. 33-84988, and No.
33-84990) of USA Waste Services, Inc. and the related Prospectuses of our
report, dated August 25, 1995 (except Note 8, as to which the date is September
12, 1995), with respect to the consolidated financial statements of Western
Waste Industries for the year ended June 30, 1995, included in this Current
Report on Form 8-K/A, Amendment No. 2, dated June 28, 1996
ERNST & YOUNG LLP
Long Beach, California
June 28, 1996
