<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (date of earliest event reported): November 12, 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: (972) 383-7900
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Supplemental Consolidated Financial Statements
The supplemental consolidated financial statements and supplemental
condensed consolidated financial statements of USA Waste Services, Inc. and
subsidiaries (the "Company") listed below have been prepared to give
retroactive effect to the merger with Sanifill, 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 interim condensed consolidated balance
sheets are as of June 30, 1996 and December 31, 1995, the related
supplemental interim condensed consolidated statements of operations are
for the six months ended June 30, 1996 and 1995, the related supplemental
interim condensed consolidated statement of stockholders' equity is for the
six months ended June 30, 1996, and the related supplemental interim
condensed consolidated statements of cash flows are for the six months
ended June 30, 1996 and 1995. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for
by the pooling of interests method in historical financial statements that
do not include the date of consummation. These supplemental consolidated
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.
(b) Exhibits
23.1 Consent of Independent Accountants
23.2 Consent of Independent Public Accountants
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 Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . 5
Supplemental Consolidated Balance Sheets as of
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Supplemental Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . 7
Supplemental Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . 8
Supplemental Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . 10
Notes to Supplemental Consolidated Financial Statements . . . . . . . . . . . . . . . 12
(2) Supplemental Interim Condensed Consolidated Financial Statements:
Supplemental Interim Condensed Consolidated Balance Sheets (unaudited)
as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 34
Supplemental Interim Condensed Consolidated Statements of Operations
(unaudited) for the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . 35
Supplemental Interim Condensed Consolidated Statement of Stockholders' Equity
(unaudited) for the Six Months Ended June 30, 1996 . . . . . . . . . . . . . . . . 36
Supplemental Interim Condensed Consolidated Statements of Cash Flows
(unaudited) for the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . 37
Notes to Supplemental Interim Condensed Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</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 Sanifill, Inc., a wholly-owned subsidiary, which statements
reflect 40 percent and 32 percent of supplemental consolidated total assets as
of December 31, 1995 and 1994, respectively, and 26 percent, 21 percent, and 18
percent in 1995, 1994, and 1993, respectively, of supplemental consolidated
total revenues. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Sanifill, Inc., is based solely on the report 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 report 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. with Sanifill, Inc. on August 30, 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
supplemental consolidated 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 report 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 its
operations and its 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
November 8, 1996
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Sanifill, Inc.:
We have audited the consolidated balance sheets of Sanifill, Inc. and
subsidiaries ("Sanifill") as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' investment, and cash flows
for each of the three years in the period ended December 31, 1995 prior to the
restatement (and therefore not presented separately herein) for the acquisition
of Sanifill accounted for under the pooling-of-interests method of accounting
as described in Note 2 to the supplemental consolidated financial statements of
USA Waste Services, Inc. These financial statements are the responsibility of
Sanifill'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 financial statements referred to above present fairly, in
all material respects, the financial position of Sanifill as of December 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 23, 1996 (except with respect to the matters
discussed in paragraphs one and two of Note 16, as to which
the dates are March 4, 1996 and March 18, 1996 as indicated)
5
<PAGE> 6
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 $ 21,058 $ 39,967
Accounts receivable, net of allowance for doubtful
accounts of $7,730 and $6,380, respectively 136,247 111,025
Notes and other receivables 15,704 19,516
Deferred income taxes 20,101 4,101
Prepaid expenses and other 33,026 35,886
------------ ----------
Total current assets 226,136 210,495
Notes and other receivables 19,907 10,582
Property and equipment, net 1,319,199 1,056,469
Excess of cost over net assets of acquired businesses, net 206,638 139,430
Other intangible assets, net 55,567 45,636
Other assets 87,087 80,425
Deferred income taxes 19,023 45,959
------------ ----------
Total assets $ 1,933,557 $1,588,996
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,437 $ 51,007
Accrued liabilities 67,198 75,223
Accrued shareholder litigation settlement -- 10,000
Deferred revenues 10,876 8,259
Current maturities of long-term debt 53,516 56,035
------------ ----------
Total current liabilities 196,027 200,524
Long-term debt, less current maturities 678,225 632,638
Accrued shareholder litigation settlement -- 75,300
Closure, post-closure, and other liabilities 151,683 119,918
------------ ----------
Total liabilities 1,025,935 1,028,380
------------ ----------
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;
124,019,297 and 102,687,173 shares issued, respectively 1,240 1,027
Additional paid-in capital 1,041,573 729,842
Accumulated deficit (118,595) (160,938)
Foreign currency translation adjustment (14,777) (7,354)
Less treasury stock at cost, 138,810 and 149,285 shares, respectively (1,819) (1,961)
------------ ----------
Total stockholders' equity 907,622 560,616
------------ ----------
Total liabilities and stockholders' equity $ 1,933,557 $1,588,996
============ ==========
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
6
<PAGE> 7
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 $987,705 $897,644 $778,966
-------- -------- --------
Costs and expenses:
Operating 551,305 520,255 455,282
General and administrative 140,051 138,819 126,347
Depreciation and amortization 119,570 112,860 96,861
Merger costs 25,639 3,782 --
Unusual items 4,733 8,863 2,672
-------- -------- --------
841,298 784,579 681,162
-------- -------- --------
Income from operations 146,407 113,065 97,804
-------- -------- --------
Other income (expense):
Shareholder litigation settlement
and other litigation related costs -- (79,400) (5,500)
Interest expense:
Nonrecurring interest (10,994) (1,254) --
Other (48,558) (47,678) (46,032)
Interest income 5,482 4,670 4,835
Other income, net 5,143 2,570 1,161
-------- -------- --------
(48,927) (121,092) (45,536)
-------- -------- --------
Income (loss) before income taxes 97,480 (8,027) 52,268
Provision for income taxes 44,992 1,015 24,249
-------- -------- --------
Net income (loss) 52,488 (9,042) 28,019
Preferred dividends -- 565 582
-------- -------- --------
Income (loss) available to common shareholders $ 52,488 $ (9,607) $ 27,437
======== ======== ========
Earnings (loss) per common share $ 0.46 $ (0.09) $ 0.29
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 113,279 103,422 95,858
======== ======== ========
</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 STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Common Paid-in Accumulated Translation Treasury
Stock Stock Capital Deficit Adjustment Stock
--------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 9 $912 $638,399 $(174,828) $ -- $(1,526)
Common stock options exercised -- 4 4,246 -- -- --
Common stock issued to qualified defined
contribution plan -- 3 1,557 -- -- --
Common stock issued in acquisitions -- 20 11,303 -- -- --
Common stock purchased for treasury -- -- -- -- -- (1,332)
Preferred stock subscriptions collected -- -- 50 -- -- --
Common stock issued in private placement -- 6 4,742 -- -- --
Common stock issued in public offerings -- 21 20,677 -- -- --
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) -- -- --
Adjustment for contingent consideration
under guaranteed value commitments -- -- 3,788 -- -- --
Effect of elimination of purchase
of collection company -- -- (722) (7,000) -- --
Other -- -- (307) -- -- --
Net income -- -- -- 28,019 -- --
----- ---- -------- --------- -------- -------
Balance, December 31, 1993 14 965 688,199 (151,331) -- (2,858)
Common stock options exercised -- 3 3,486 -- -- --
Common stock warrants exercised -- 3 148 -- -- --
Common stock issued to qualified defined
contribution plan -- 8 5,277 -- -- --
Common stock issued in acquisitions -- 26 27,799 -- -- --
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 -- -- --
Adjustment for contingent consideration
under guaranteed value commitments -- -- 3,703 -- -- --
Foreign currency translation adjustment -- -- -- -- (7,354) --
Other -- 2 359 -- -- --
Net loss -- -- -- (9,042) -- --
----- ---- -------- --------- -------- -------
</TABLE>
Continued
8
<PAGE> 9
USA WASTE SERVICES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued
(In Thousands)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Common Paid-in Accumulated Translation Treasury
Stock Stock Capital Deficit Adjustment Stock
--------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ -- $1,027 $ 729,842 $(160,938) $(7,354) $(1,961)
Common stock options exercised -- 3 2,822 -- -- --
Common stock warrants exercised -- 9 3,692 -- -- --
Common stock issued to qualified defined
contribution plan -- 4 3,529 -- -- --
Common stock issued in acquisitions
and development projects -- 71 80,001 -- -- --
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 offerings -- 99 180,513 -- -- --
Common stock issued to directors as
compensation -- -- 25 -- -- --
Elimination of investment in Western
common stock -- (10) (11,358) -- -- --
Change in Western fiscal year -- -- -- (8,865) -- --
Adjustment for contingent consideration
under guaranteed value commitments -- -- 5,340 -- -- --
Foreign currency translation adjustment -- -- -- -- (7,423) --
Transactions of pooled companies -- -- -- (1,280) -- --
Other -- -- 552 -- -- --
Net income -- -- -- 52,488 -- --
----- ------ ---------- --------- ------- -------
Balance, December 31, 1995 $ -- $1,240 $1,041,573 $(118,595) $(14,777) $(1,819)
===== ====== ========== ========= ======== =======
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
9
<PAGE> 10
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) $52,488 $(9,042) $28,019
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 119,570 112,860 96,861
Deferred income taxes 12,358 (26,039) 1,535
Net gain (loss) on disposal of property and equipment (1,259) (1,172) 211
Interest earned on escrowed funds -- (415) (878)
Loss on municipal contract (950) (950) --
Provision for environmental reserves 1,543 2,132 2,185
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:
Accounts receivable and other receivables (11,833) (19,575) (16,994)
Prepaid expenses and other (2,199) (1,090) 1,184
Other assets (3,532) (5,989) 2,131
Refundable taxes -- (659) 16,049
Accounts payable and accrued liabilities (10,761) 8,600 (11,797)
Accrued shareholder litigation settlement (85,300) 85,300 --
Deferred revenues and other liabilities 3,000 5,075 (2,002)
Other (156) 2,001 (908)
-------- -------- --------
Net cash provided by continuing operations 73,302 151,037 114,666
Net cash used in operating activities of discontinued operations -- -- (2,148)
-------- -------- --------
Net cash provided by operating activities 73,302 151,037 112,518
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (229,497) (186,979) (156,403)
Acquisitions of businesses, net of cash acquired (89,968) (40,480) (75,489)
Proceeds from sale of property and equipment 9,701 19,860 39,444
Loans and advances to others (19,660) (7,504) (4,932)
Collection of loans and advances to others 4,880 1,785 1,607
Change in restricted funds 7,388 11,354 (6,402)
Proceeds from sale of investments 1,200 1,200 --
Other (612) (590) (2,862)
Net investing activities of discontinued operations -- -- 4,500
-------- -------- --------
Net cash used in investing activities (316,568) (201,354) (200,537)
-------- -------- --------
</TABLE>
Continued
10
<PAGE> 11
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 $503,123 $149,644 $186,524
Principal payments on long-term debt (454,893) (131,567) (158,604)
Net proceeds from issuance of preferred stock -- -- 9,537
Net proceeds from issuance of common stock 185,927 7,241 38,092
Proceeds from exercise of common stock options 1,964 492 30
Proceeds from exercise of common stock warrants 3,701 151 --
Purchases of treasury stock -- -- (1,332)
Funds provided by replacement letters of credit -- -- 10,243
Elimination of investment in Western (12,569) -- --
Other (1,718) (1,481) (1,612)
-------- -------- --------
Net cash provided by financing activities 225,535 24,480 82,878
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (178) (84) --
-------- -------- --------
Decrease in cash and cash equivalents (18,909) (25,921) (5,141)
Cash and cash equivalents at beginning of year 39,967 65,888 71,029
-------- -------- --------
Cash and cash equivalents at end of year $ 21,058 $ 39,967 $ 65,888
======== ======== ========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 59,206 $ 48,030 $ 45,756
Income taxes 41,210 26,294 20,464
Supplemental disclosure of non-cash investing
and financing activities:
Acquisitions of property and equipment through capital leases $ 7,600 $ 6,808 $ 7,662
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 and development projects:
Liabilities incurred or assumed 25,332 11,028 21,833
Common stock issued 71,243 27,825 11,324
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
11
<PAGE> 12
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 throughout the United States, primarily, and
in Puerto Rico and Mexico.
Basis of presentation -- The supplemental consolidated financial statements of
the Company have been prepared to give retroactive effect to the merger with
Sanifill, Inc. ("Sanifill") on August 30, 1996. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in historical financial
statements that do not include the date of consummation. These supplemental
consolidated 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
$31,716,000 and $45,609,000 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
12
<PAGE> 13
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 results of operations. Depreciation is provided over the
estimated useful lives of the related assets using the straight-line method.
The estimated useful lives are five to thirty-five 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
$72,011,000, $58,760,000, and $54,340,000, respectively, of which $12,459,000,
$9,828,000, and $8,308,000 were capitalized, respectively, with respect to
landfills and facilities under construction.
Depreciation and amortization of property and equipment was $101,826,000,
$93,678,000, and $80,348,000 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 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 $0.01 in 1995. Effective January 1, 1996, Sanifill 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. The pro forma impact of this
change in accounting estimate, had the change occurred on January 1, 1995,
would have been a reduction of amortization expense and an increase in net
income of approximately $800,000 and an increase in earnings per share of $0.01
in 1995. Accumulated amortization was $19,619,000 and $14,171,000 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 business combinations -- 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 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, licenses, permits, and start-up
costs. Other intangible assets are recorded at cost and amortized on a
straight-line basis over three to forty years. Accumulated amortization was
$55,762,000 and $47,509,000 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
13
<PAGE> 14
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 $191,182,000. As of December 31, 1995 and 1994,
the Company has accrued $99,724,000 and $79,957,000, respectively, for final
closure and post-closure costs of disposal facilities. The difference between
the final 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 discontinues accepting waste and is closed. The
Company also expects to incur an estimated $385,385,000 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
discontinues 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 final
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 final 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.
Foreign currency translation -- The functional currency of the Company's
international operations is the local currency. Adjustments resulting from the
translation of financial information are reflected as a separate component of
stockholders' equity.
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 common share -- Earnings per common 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 cash equivalents 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).
14
<PAGE> 15
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 excess of cost over net assets of acquired
businesses 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 depreciation
and amortization in the 1995 supplemental consolidated statement of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, 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 the recognition provisions of 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 August 30, 1996, the Company consummated a merger agreement with Sanifill
(the "Sanifill Merger") accounted for as a pooling of interests and,
accordingly, the accompanying supplemental financial information has been
restated to include the accounts and operations of Sanifill for all periods
presented. Under the terms of the Sanifill Merger, the Company issued 1.70
shares of its common stock for each share of Sanifill outstanding common stock.
The Sanifill Merger increased the Company's outstanding shares of common stock
by approximately 43,414,000 shares and the Company assumed Sanifill's options
and warrants equivalent to approximately 4,361,000 underlying shares of Company
common stock. In the third quarter of 1996, the Company expects to accrue
approximately $80,000,000 in merger related costs associated with the Sanifill
Merger.
The supplemental consolidated balance sheets at December 31, 1995 and 1994
reflect the combining of the Company prior to consummation of the merger ("USA
Waste") and Sanifill as of those dates. Combined and separate results of
operations of USA Waste and Sanifill for the restated periods are as follows
(in thousands):
<TABLE>
<CAPTION>
USA Waste Sanifill Adjustments Combined
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Six months ended June 30, 1996
(unaudited):
Operating revenues $428,861 $181,406 $ -- $610,267
Income before income taxes 26,827 31,606 997 (a) 59,430
Net income 36,633 18,964 (30,013)(a) 25,584
Year ended December 31, 1995:
Operating revenues $731,000 $256,705 $ -- $987,705
Income before income taxes 49,087 46,444 1,949 (a) 97,480
Net income 47,343 27,913 (22,768)(a) 52,488
Year ended December 31, 1994
Operating revenues $705,165 $192,479 $ -- $897,644
Income (loss) before income taxes (41,485) 31,855 1,603 (a) (8,027)
Net income (loss) (59,095) 19,233 30,820 (a) (9,042)
Year ended December 31, 1993
Operating revenues $639,239 $139,727 $ -- $778,966
Income before income taxes 29,673 21,018 1,577 (a) 52,268
Net income 13,561 12,970 1,488 (a) 28,019
</TABLE>
(a) Deferred income taxes have been restated as though USA Waste and
Sanifill had been combined from their inception.
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
15
<PAGE> 16
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. Related to this merger, the Company accrued $2,700,000 of merger
costs in the second quarter of 1996.
On May 7, 1996, the Company consummated a merger agreement with Western Waste
Industries ("Western") accounted for as a pooling of interests (the "Western
Merger") and, accordingly, the accompanying supplemental financial information
has been restated to include the accounts and operations of Western for all
periods presented. Under the terms of the Western Merger, 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 22,028,000 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 the
second quarter of 1996, the Company incurred approximately $35,000,000 in
merger related costs associated with the Western Merger and approximately
$4,800,000 in benefits related to Western's pre-merger retirement program.
In connection with the Western Merger, 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 8,865
</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. The results of operations
for Western prior to consummation of the merger for the restated periods are as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Years Ended December 31,
March 31, 1995 --------------------------------
------------------ 1995 1994 1993
(unaudited) -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues $68,441 $273,901 $270,941 $257,005
Net income 4,703 17,021 17,089 12,527
</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 mergers 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 June 30, 1995, the Company consummated a merger agreement with Chambers
Development Company, Inc. ("Chambers") 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. 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. Related
to this merger, the Company accrued $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 Years Ended December 31,
March 31, 1995 ------------------------------
------------------ 1994 1993
(unaudited) -------- --------
<S> <C> <C> <C>
Operating revenues $54,734 $257,989 $288,481
Net income (loss) (5,269) (90,244) 8,303
</TABLE>
16
<PAGE> 17
On May 31, 1995, the Company consummated a merger agreement with Metropolitan
Disposal and Recycling Corporation, Energy Reclamation, Inc., and EE Equipment,
Inc. (collectively "MDC") accounted for as a pooling of interests and,
accordingly, the accompanying supplemental consolidated financial statements
include the accounts and operations of MDC for all periods presented. Under
the terms of the merger agreement, approximately 1,900,000 shares of the
Company's common stock were issued in exchange for all outstanding shares of
MDC common stock. Related to this merger, the Company incurred $566,000 in
merger costs in the second quarter of 1996.
The results of operations for MDC prior to consummation of the merger for the
restated periods are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Years Ended December 31,
March 31, 1995 ------------------------------
------------------ 1994 1993
(unaudited) ------- -------
<S> <C> <C> <C>
Operating revenues $5,256 $19,654 $18,394
Net income 458 401 527
</TABLE>
On May 27, 1994, the Company consummated a merger agreement with Envirofil,
Inc. ("Envirofil") 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. Under the
terms of the merger agreement, approximately 9,700,000 shares of the Company's
common stock were issued in exchange for all outstanding shares of Envirofil
common Related to this acquisition, the Company incurred $3,782,000 in merger
costs in the second quarter of 1994.
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 $167,095,000 and $79,428,000 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 $70,751,000 and
$41,874,000, respectively.
In addition, the Company has agreed in connection with certain transactions, to
pay additional amounts to the sellers upon the achievement by the acquired
businesses of certain negotiated goals, such as targeted revenue levels,
targeted disposal volumes, or the issuance of permits for expanded landfill
airspace. Although the amount and timing of any payments of additional
contingent consideration necessarily depend on whether and when these goals are
met, the maximum aggregate amount of contingent consideration potentially
payable if all payment goals are met is $70,500,000, of which $12,900,000 was
paid in March 1996 and $6,100,000 was paid September 30, 1996. Of the
remaining contingent consideration of $51,500,000, $43,500,000 relates to
revenue and volume targets. The remainder relates to permit expansions. Of
the $51,500,000, $24,500,000 relates to a performance goal, which has been
achieved, and is payable in equal annual installments over five years. The
contingent consideration is payable in cash or, in some instances, in cash or
stock, at the Company's option. In addition, the Company has agreed in
connection with certain acquisitions to provide royalties based on revenues
generated at the applicable disposal site to sellers of waste disposal
businesses. The foregoing quantification of contingent consideration does not
include such royalty payments.
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 $1,061,833 $1,031,327
Net income 52,572 (4,712)
Earnings per common share 0.45 (0.04)
</TABLE>
17
<PAGE> 18
The above pro forma financial information is based on certain assumptions and
preliminary estimates which are subject to change. The above pro forma
financial information reflects the consideration paid at closing for all
acquisitions. It does not reflect the payments of any contingent
consideration. As discussed above, certain of the purchase transactions
involve contingent consideration. If all contingent consideration agreed upon
in the purchase transactions were required to be paid in full, it would
materially affect the results reflected in the above pro forma financial
information. The above pro forma financial information also does not reflect
anticipated volume or price increases, synergies, or other operational
improvements. The pro forma financial information does not purport to be
indicative of the results which would actually have been obtained had the
purchase transactions been completed on January 1, 1994 or which may be
obtained in the future.
3. DIVESTITURES
In 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 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. 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>
In 1992, Chambers recorded a reserve 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).
18
<PAGE> 19
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 $70,954 and $93,881, respectively $1,020,388 $ 811,470
Vehicles 220,754 162,903
Machinery and equipment 153,703 136,809
Containers 133,994 110,782
Buildings and improvements 108,081 85,144
Furniture and fixtures 29,261 24,818
Land 93,866 87,580
---------- ----------
1,760,047 1,419,506
Less accumulated depreciation and amortization 440,848 363,037
---------- ----------
$1,319,199 $1,056,469
========== ==========
</TABLE>
The Company actively pursues permitting of additional airspace at new and
existing facilities. There is no assurance of the outcome of any permitting
efforts. The permitting and development process is subject to regulatory
approval, time delays, availability of land, local citizen opposition, and
potentially more restrictive governmental regulation. Substantial losses could
be incurred in the near term in the event a permit is not granted, if facility
construction programs are delayed or changed, or if projects are otherwise
abandoned. The Company reviews the status of all permitting and development
projects on a periodic basis to assess realizability of the recorded asset
values. In the opinion of the Company's management, its permitting projects
are fairly valued as of December 31, 1995.
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 --
Sanifill credit facility 58,000 80,500
Western credit facility 41,000 44,000
Senior notes, maturing in varying annual installments
through June 2005, interest ranging from 7.29% to 8.44% 109,416 29,545
Senior notes, interest at 11.45% -- 133,501
Senior notes, interest at 11.95% -- 17,929
Convertible subordinated debentures, interest at 8 1/2% -- 49,000
Convertible subordinated debentures, interest at 7 1/2% 58,213 58,041
Notes payable, maturing in varying amounts through October 2010,
interest ranging from 4% to 12% 15,008 8,439
Subordinated debt, maturing in varying monthly installments
through January 2008, interest ranging from 7.25% to 10% 7,493 8,070
Industrial revenue bonds, principal payable in annual installments,
maturing in 1996-2009, variable interest rates (3.65% to 9%
at December 31, 1995), enhanced by letters of credit 130,374 122,403
Other 44,789 39,245
-------- --------
731,741 688,673
Less current maturities 53,516 56,035
-------- --------
$678,225 $632,638
======== ========
</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 -- $53,516,000; 1997
- --$99,765,000; 1998 -- $80,426,000; 1999 -- $94,004,000; and 2000 --
$155,408,000.
19
<PAGE> 20
On May 7, 1996, in connection with the Western Merger, the Company replaced its
existing credit facility with a $750,000,000 senior revolving 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, to
fund additional acquisitions, and for working capital. The credit facility was
available for standby letters of credit of up to $300,000,000. Loans under the
credit facility bore 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 required 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).
On August 30, 1996, in connection with the Sanifill Merger, the Company
replaced the $750,000,000 senior revolving credit facility with a
$1,200,000,000 senior revolving credit facility ("Credit Facility") and retired
amounts under Sanifill'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 $400,000,000. 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 0.35% 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 0.20% per
annum). The Credit Facility contains financial covenants with respect to
interest coverage and debt capitalization ratios. The Credit Facility also
contains limitations on dividends, additional indebtedness, liens, and asset
sales. Principal reductions are not required during the five-year term of the
Credit Facility.
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 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 number of common and common equivalent shares outstanding would have
been 121,275,000.
In May 1991, Sanifill issued $60,000,000 of 7 1/2% convertible subordinated
debentures due on June 1, 2006. Interest was payable semiannually in June and
December. The debentures were convertible into shares of the Company's common
stock at a conversion price of $16.95 per share. The debentures were
subordinated in right of payment to all existing and future senior
indebtedness, as defined. The debentures were redeemable after June 1, 1994 at
the option of the Company at 105.25% of the principal amount, declining
annually to par on June 1, 2001, plus accrued interest. Deferred offering
costs of approximately $2,600,000 were incurred and were being amortized
ratably over the life of the debentures. On March 18, 1996, the Company called
for the redemption of these debentures. See Note 16 for further discussion.
The credit facility existing at December 31, 1995, which was entered into on
June 30, 1995, in connection with the acquisition of Chambers, consisted of a
$550,000,000 financing agreement, including a $300,000,000 five-year revolving
credit and letter of credit facility and a $250,000,000 term loan facility. On
June 30, 1995, 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
20
<PAGE> 21
and intercompany receivables of the Company. 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 (1.5% 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 (7.4% at
December 31, 1995).
In April 1995, Sanifill amended its unsecured revolving credit facility to
increase its size from $160,000,000 to $225,000,000 and to increase its bank
group from seven to nine banks. The revolving credit facility provided for a
revolving credit period expiring on November 30, 1997, at which time it was to
convert to a term facility with a final maturity date of November 30, 2001.
Availability under this credit facility was tied to the Company's cash flow and
liquidity. Advances bore interest, at Sanifill's option, at the prime rate or
London Interbank Offered Rate ("LIBOR"), in each case, plus a margin which was
calculated quarterly based upon Sanifill's ratio of indebtedness to cash flow,
or, in an amount not to exceed $100,000,000, at a rate negotiated between
Sanifill and certain banks party to the revolving credit facility (6.84% at
December 31, 1995). As of December 31, 1995, Sanifill had $127,200,000
available under its credit facility and had utilized $39,800,000 of its credit
facility for letters of credit relating to landfill closure and post-closure
obligations and securing industrial revenue bonds and insurance contracts.
Sanifill's credit facility was paid off on August 30, 1996. Under the terms of
the credit facility, Sanifill was required to maintain certain financial
covenants regarding net worth, coverage ratios, and additional indebtedness.
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 LIBOR plus
0.75% to 2% 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 senior notes outstanding at December 31, 1995 are unsecured and require the
Company to maintain certain financial covenants regarding net worth, coverage
ratios, and additional indebtedness. The first principal payment was made July
30, 1996. Deferred offering costs of approximately $700,000 were incurred and
are being amortized ratably over the life of the senior notes.
The notes payable are collateralized by property and equipment with a net book
value of $43,000,000 and $37,900,000 as of December 31, 1995 and 1994,
respectively.
The Company, Sanifill, and Western have completed several tax exempt industrial
revenue bond issues totaling $130,374,000 with maturities ranging up to fifteen
years. The bonds are subject to annual sinking fund redemptions and proceeds
of the issues are restricted to fund certain assets of the projects. The bonds
are supported by irrevocable letters of credit and bear interest at floating
rates (3.65% to 9% 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 $24,000,000
of these bonds.
Chambers incurred 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 incurred
upon consummation of its merger with the Company.
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 $196,422,000.
21
<PAGE> 22
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, 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 facilities, and the term loan approximate the carrying values due to the
nature of the instruments involved. The senior notes, notes payable, and
subordinated debt do not have readily available market values; however, the
carrying values are considered to approximate their respective fair values.
The 7 1/2% convertible subordinated debentures had a quoted securities exchange
market value of 118% of the $60,000,000 face value of such securities as of
December 31, 1995.
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 4.4%.
In the normal course of business, the Company has letters of credit,
performance bonds, insurance policies, 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.
7. 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.
8. 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 both the
1990 Plan and the 1993 Plan 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 accordance with the Envirofil Employees' 1993 Stock Option Plan (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. As a result of the merger, all unexpired and unexercised options
under the 1993 Envirofil 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 1993 Envirofil Plan. 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
22
<PAGE> 23
"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
expiration dates 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.
Western maintained three stock option plans ("Western Plans"), the 1992 Stock
Option Plan ("1992 Western Plan"), the Incentive Stock Option Plan, and the
Non-Qualified Stock Option Plan, which allowed key employees and directors of
Western the right to purchase shares of its common stock. Of these plans, only
the 1992 Western Plan had options available for future grants at December 31,
1995. Options granted under the 1992 Western Plan were designated as
incentive or non-qualified in nature, at the discretion of the Compensation
Committee of Western's Board of Directors, though only employees were eligible
to receive incentive stock options. Western had reserved 2,000,000 shares of
its common stock under each of the Western Plans. Options were granted under
the Western Plans at an exercise price which equaled or exceeded the fair
market value on the date of grant. 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.
Sanifill maintained an incentive compensation plan (the "Incentive Plan") which
allowed for the ability to grant non- qualified options, restricted stock,
deferred stock, incentive stock options, stock appreciation rights, and other
long- term incentive awards. Under the Incentive Plan, stock options were
typically granted at fair market value on the date of grant. The number of
shares available for issuance under the Incentive Plan was limited to 14% of
the number of outstanding shares of Sanifill's common stock at that time less
shares outstanding under the Incentive Plan and the Company's previously
utilized stock option plan (the "Stock Option Plan"). Accordingly,
approximately 2,000,000 shares were available for issuance under both plans at
December 31, 1995. The Incentive Plan did not provide for the granting of
options to non-employee directors. The Stock Option Plan provided for options
of up to 382,500 of the authorized shares to be granted to non-employee
directors. In March 1994, Sanifill granted 205,505 shares of restricted stock
under the Incentive Plan to certain key executives. The shares were to vest at
the end of eight years or upon the achievement of certain financial objectives,
if sooner. None of the shares of restricted stock had vested at December 31,
1995. As a result of the Sanifill Merger, all unexpired and unexercised
options under the 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 such plans. No additional options may be issued under such
plans.
The following table summarizes transactions 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 9,274 8,700 7,328
Granted 4,005 1,931 2,250
Exercised (696) (1,083) (731)
Canceled (118) (274) (147)
------ ------ -----
Outstanding, end of year 12,465 9,274 8,700
====== ====== =====
</TABLE>
23
<PAGE> 24
The option prices of options exercised during 1995, 1994, and 1993 were from
$3.53 to $18.00 in 1995, from $2.50 to $14.67 in 1994, and $0.98 to $10.09 in
1993. As of December 31, 1995, options for the purchase of approximately
6,556,000 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 1,992,232 $ 0.55 -- $17.50
Issued 457,632 $ 1.25 -- $10.00
---------
Outstanding at December 31, 1993 2,449,864 $ 0.55 -- $17.50
Issued 910,000 $10.00 -- $12.88
Exercised (472,299) $ 0.55 -- $ 8.80
---------
Outstanding at December 31, 1994 2,887,565 $ 1.25 -- $17.50
Issued 230,000 $10.50 -- $15.00
Exercised (968,248) $ 1.25 -- $15.00
---------
Outstanding at December 31, 1995 2,149,317 $ 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 unusual items
for the year ended December 31, 1993, with a corresponding increase in
additional paid-in capital.
9. EMPLOYEE BENEFIT PLANS
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 contribute up
to the lesser of 15% of their annual compensation or the maximum permitted
under IRS regulations to various investment funds. The Company matches 50% of
the first 6% an employee contributes. 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 the lesser of
20% of their annual compensation or the maximum permitted under IRS regulations
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.
Sanifill has a defined contribution plan for employees meeting certain
employment requirements. Eligible employees are allowed to contribute up to
the lesser of 15% of their annual compensation or the maximum permitted under
IRS regulations to various investment funds. Sanifill matches all employee
contributions up to 3%. Sanifill matching contributions were approximately
$700,000, $500,000, and $400,000 for the years ended December 31, 1995, 1994,
and 1993, respectively.
Sanifill has an Employee Stock Purchase Plan ("ESPP") for all active employees
who have completed one year of continuous service. Employees may contribute
from 1% to 5% of their compensation. In addition, during any purchase
24
<PAGE> 25
period, as defined, a single additional contribution of $25, or any multiple
thereof not exceeding $2,000, may be made by a participant to their account.
At the end of each purchase period, each participant's account balance is
applied to acquire common stock of Sanifill at 85% of the market value, as
defined, on the first day or last day of the purchase period, whichever price
is lower. The maximum amount per employee that may be contributed during any
plan year, as defined, shall not exceed $25,000. The number of shares reserved
for purchase under the ESPP is 508,541 and may be from either authorized and
unissued shares or treasury shares.
10. 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:
Domestic $32,227 $26,988 $22,692
Foreign 407 66 22
------- ------- -------
32,634 27,054 22,714
------- ------- -------
Deferred:
Domestic 12,871 (26,272) 1,535
Foreign (513) 233 --
------- ------- -------
12,358 (26,039) 1,535
------- ------- -------
Provision for income taxes $44,992 $ 1,015 $24,249
======= ======= =======
</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 $34,118 $ (2,809) $18,294
Prior year tax adjustment -- (4,300) --
Nondeductible expenses 7,018 6,385 1,214
State and local income taxes, net of federal
income tax benefit 2,414 3,323 3,773
Other 1,442 (1,584) 968
------- -------- -------
Provision for income taxes $44,992 $ 1,015 $24,249
======= ======== =======
</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 in aggregate would have a material effect on the Company's financial
position or results of operations, when resolved. The Company has been
notified that USA Waste's 1994 corporate tax return will be examined by the
IRS. No Sanifill corporate tax returns are currently under examination by the
IRS.
At December 31, 1995, the Company had approximately $236,000,000 of net
operating loss ("NOL") carryforwards, primarily as a result of losses incurred
by Chambers prior to the Company's merger with Chambers. 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.
25
<PAGE> 26
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 $98,655 $81,603
Litigation settlements 27,897 28,475 1,013
Closure, post-closure, and other liabilities 28,794 25,339 21,815
Self insurance 5,243 4,043 4,572
Other (principally asset impairments and losses from
planned asset divestures) 24,704 21,561 15,944
Valuation allowance (24,000) (24,000) (24,000)
------- ------- -------
Deferred tax assets 159,798 154,073 100,947
Deferred tax liabilities:
Property, equipment, intangible assets, and other 120,674 104,013 76,926
------- ------- -------
Net deferred tax assets $39,124 $50,060 $24,021
======= ======= =======
</TABLE>
A significant portion of the increase in deferred tax assets in 1994 relates to
the accrual for the shareholder litigation settlement (see Note 12). The
Claims Administrator of the Settlement Fund Escrow Account is expected to
distribute the shareholder litigation settlement to the claimants in the fourth
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 portion of the settlement that will qualify as deductible for tax
purposes and the portion that will be nondeductible has not been determined.
26
<PAGE> 27
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 1993 estimate of the loss on
divestiture of a collection, recycling, and transfer station operation and
$2,252,000 related to the estimated future loss on a municipal contract.
During 1994, Chambers also reversed 1993 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 of a recycling operation and
certain real estate.
In 1994, Chambers also recorded net charges of $8,237,000 for asset impairments
and abandoned projects, including $6,978,000 to reduce the carrying value of
Chambers' medical, special, and municipal waste incinerator facility to its
estimated net realizable value, determined as the present value of future cash
flows discounted at 12%. A permanent decline in the value of the incinerator
became evident as Chambers management determined its investment could not be
recovered 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 collection 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 1993 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.
In 1993, Chambers sold certain businesses as part of its divestiture program,
which resulted in a net gain of $7,101,000. Chambers recorded charges in 1993
of $8,687,000 for losses and estimated future losses on asset divestitures and
contractual commitments, including $3,172,000 related to the municipal
contract discussed above, $3,194,000 related to the sale of the recycling
operation and real estate discussed above, and $2,140,000 related to the
collection, recycling,
27
<PAGE> 28
and transfer station operation discussed above. In addition, Chambers reversed
prior year provisions of $6,636,000 for losses on divestitures for businesses
that were subsequently retained. Chambers also recorded charges of $4,929,000,
consisting of $2,028,000 for impaired assets, $2,901,000 for abandoned
projects, $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 1994, 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, of which $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. In 1993, Chambers accrued $5,500,000 related
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 merger with 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 former 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.
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
28
<PAGE> 29
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 $15,519,000, $20,064,000, and
$25,820,000 during 1995, 1994, and 1993, respectively. Future minimum lease
payments under operating leases in effect at December 31, 1995 are 1996 --
$7,887,000; 1997 -- $5,140,000; 1998 -- $3,742,000; 1999 -- $2,903,000; 2000 --
$1,838,000; and thereafter $11,216,000.
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, 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 collection 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
29
<PAGE> 30
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.
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 occurred at the landfill. In
or about June 1995, a case 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, 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.
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 and is seeking damages for personal
injuries and property damage. The complaint alleges that Montrose Chemical
Corporation and others manufactured DDT on property at or adjacent to the
property owned by Western in Torrance, California. 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, 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.
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 to void the Agreement and an
injunction ordering the defendants to pay Riverside County allegedly unlawful
revenues earned from the Landfill, to cease further dumping at the Landfill of
out-of-county waste, to return of alleged windfall profits, and to limit
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 Riverside 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.
Recent newspaper articles have indicated 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.
On or about August 20, 1996, an action was filed in Ontario Court (General
Division), Canada, captioned Laidlaw Waste Systems (Canada) Ltd. ("Laidlaw")
vs. Philip Environmental, Inc. and USA Waste Services, Inc., et. at., No.
96-CO- 109675. Laidlaw filed this suit related to certain rights of first
refusal that Laidlaw had on Quebec assets acquired by the Company from Philip
Environmental, Inc. in August 1996. Laidlaw is seeking to have the court
either set aside the acquisition or alternatively to award monetary damages
(Laidlaw is praying for general damages of $100,000,000 and punitive damages of
$25,000,000). The Company believes this suit is without merit and is
vigorously defending against it. In addition, Philip Environmental, Inc. has
agreed to indemnify the Company for all costs, fees, and damages incurred
30
<PAGE> 31
by the Company with respect to this suit.
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, including California earthquake perils.
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 financial condition or
results of operations. 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 $4,550,000. 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 $11,201,000.
The Company has not recorded any accruals in the financial statements related
to these employment agreements.
31
<PAGE> 32
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 $222,944 $240,770 $262,434 $261,557
======== ======== ======== ========
1994 $205,201 $228,439 $235,555 $228,449
======== ======== ======== ========
Income from operations
1995 $ 32,626 $ 9,310 $ 51,994 $ 52,477
======== ======== ======== ========
1994 $ 26,511 $ 29,030 $ 36,873 $ 20,651
======== ======== ======== ========
Income (loss) before income taxes
1995 $ 19,398 $ (8,029) $ 41,224 $ 44,887
======== ======== ======== ========
1994 $ 16,207 $ 18,017 $(47,550) $ 5,299
======== ======== ======== ========
Net income (loss)
1995 $ 11,639 $(10,817) $ 24,734 $ 26,932
======== ======== ======== ========
1994 $ 9,724 $ 9,290 $(31,235) $ 3,179
======== ======== ======== ========
Income (loss) available to common shareholders
1995 $ 11,639 $(10,817) $ 24,734 $ 26,932
======== ======== ======== ========
1994 $ 9,344 $ 9,105 $(31,235) $ 3,179
======== ======== ======== ========
Earnings (loss) per common share
1995 $ 0.11 $ (0.10) $ 0.22 $ 0.21
======== ======== ======== ========
1994 $ 0.09 $ 0.09 $ (0.30) $ (0.03)
======== ======== ======== ========
</TABLE>
Earnings (loss) per common share for each of the quarters presented is based on
the weighted average number of shares of common stock 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 Sanifill, 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 $37,160,000 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. 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 be no assurance that
this trend will continue.
16. SUBSEQUENT EVENTS
On March 4, 1996, Sanifill issued $115,000,000 of 5% convertible
subordinated debentures, due on March 1, 2006. Interest is payable
semi-annually in March and September. The debentures are convertible into
shares of the Company's common stock at a conversion price of $28.31 per share.
The debentures are subordinated in right of payment to all existing and future
senior indebtedness, as defined. The debentures are redeemable after March 15,
1999 at the option of the Company at 102.5% of the principal amount, declining
annually to par on March 1, 2002, plus accrued interest. Deferred offering
costs of approximately $2,900,000 were incurred and are being amortized ratably
over the life of the debentures. The proceeds were used to repay debt under
Sanifill's credit facility.
On March 18, 1996, Sanifill called for redemption all of its $60,000,000 of
7 1/2% convertible subordinated debentures due June 1, 2006 at redemption price
of 104.5% of their face amount plus accrued interest from December 1, 1995 to,
and including, the redemption date of April 17, 1996. Alternatively, holders
of these debentures were allowed
32
<PAGE> 33
to convert their debentures into common stock at any time prior to the close of
business on April 10, 1996, at a conversion price equal to $28.82 per share
(equivalent to $16.95 per share post Sanifill Merger). Holders electing to
convert received 34.7 shares of Sanifill's common stock for each $1,000
principal amount of debentures surrendered. The $60,000,000 of debentures were
ultimately converted to approximately 2,100,000 shares of Sanifill common stock
(equivalent to 3,570,000 shares of Company common stock). Deferred offering
costs of approximately $1,700,000 were recorded as a reduction to additional
paid-in-capital.
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 May 31, 1996, July 19, 1996, and August 30, 1996, the Company consummated
mergers accounted for as poolings of interests, pursuant to which the Company
issued 900,001, 475,330, and 648,318 shares of its common stock, respectively,
in exchange for all outstanding shares of the acquired companies. Periods
prior to consummation of the mergers 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.
Subsequent to December 31, 1995, the Company acquired 67 collection businesses,
eleven landfills, 17 transfer stations, and two recycling businesses for
approximately $232,193,000 in cash, $26,531,000 in liabilities incurred or debt
assumed, and 3,985,448 shares of the Company's common stock under the purchase
method of accounting. Included in these amounts is the acquisition of six
collection businesses, five landfills, and six transfer stations of Philip
Environmental, Inc., consummated on August 26, 1996, for approximately
$60,000,000 in cash and 1,950,764 shares of the Company's common stock.
The following summarized pro forma results of operations assumes 1996, 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 $1,292,192 $1,236,392
Net income (loss) 98,811 (14,722)
Earnings (loss) per common share 0.84 (0.14)
</TABLE>
The above pro forma financial information is based on certain assumptions and
preliminary estimates which are subject to change. The above pro forma
financial information reflects the consideration paid at closing for all
acquisitions. It does not reflect the payments of any contingent
consideration. As discussed above, certain of the purchase transactions
involve contingent consideration. If all contingent consideration agreed upon
in the purchase transactions were required to be paid in full, it would
materially affect the results reflected in the above pro forma financial
information. The above pro forma financial information also does not reflect
anticipated volume or price increases, synergies, or other operational
improvements. The pro forma financial information does not purport to be
indicative of the results which would actually have been obtained had the
purchase transactions been completed on January 1, 1994 or which may be
obtained in the future.
On August 12, 1996, the Company sold certain marine-related nonhazardous
oilfield waste collection operations for $70,500,000. This transaction will
not have a material impact on the Company's financial position or results of
operations.
Subsequent to December 31, 1995, the Company guaranteed specific obligations of
two unconsolidated affiliates totaling approximately $25,000,000. The Company is
of the opinion that these unconsolidated affiliates will be able to perform
under their respective obligations and that no payments will be required and,
due to the Company's ability to assume a senior debt position, no losses will be
incurred under such guarantees.
In the third quarter of 1996, in addition to approximately $80,000,000 of
merger costs recognized by the Company related to the Sanifill Merger (see
Note 2), the Company also recognized $50,800,000 of unusual items. The unusual
items include $28,900,000 of operating losses and estimated losses related to
the disposition of certain non-core business assets, $15,000,000 of operating
losses and project reserves related to certain Mexico operations, and
$6,900,000 of various other terminated projects.
33
<PAGE> 34
USA WASTE SERVICES, INC.
SUPPLEMENTAL INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Par Value Amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,626 $ 21,058
Accounts receivable, net 176,422 136,247
Notes and other receivables 15,126 15,704
Deferred income taxes 38,870 20,101
Prepaid expenses and other 38,550 33,026
---------- ----------
Total current assets 303,594 226,136
Notes and other receivables 31,977 19,907
Property and equipment, net 1,586,353 1,319,199
Excess of cost over net assets of acquired business, net 278,494 206,638
Other intangible assets, net 63,185 55,567
Other assets 114,292 87,087
Deferred income taxes -- 19,023
---------- ----------
Total assets $2,377,895 $1,933,557
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,154 $ 64,437
Accrued liabilities 93,170 67,198
Deferred revenues 15,853 10,876
Current maturities of long-term debt 24,766 53,516
---------- ----------
Total current liabilities 206,943 196,027
Long-term debt, less current maturities 928,147 678,225
Closure, post-closure, and other liabilities 167,812 151,683
Deferred income taxes 14,686 --
---------- ----------
Total liabilities 1,317,588 1,025,935
---------- ----------
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; 134,335,791 and
124,019,297 shares issued, respectively 1,343 1,240
Additional paid-in capital 1,167,105 1,041,573
Accumulated deficit (93,011) (118,595)
Foreign currency translation adjustment (14,646) (14,777)
Less treasury stock at cost, 23,485 shares and
138,810 shares, respectively (484) (1,819)
---------- ----------
Total stockholders' equity 1,060,307 907,622
---------- ----------
Total liabilities and stockholders' equity $2,377,895 $1,933,557
========== ==========
</TABLE>
The accompanying notes are an integral part of these supplemental interim
condensed consolidated financial statements.
34
<PAGE> 35
USA WASTE SERVICES, INC.
SUPPLEMENTAL INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Operating revenues $610,267 $ 463,714
-------- ---------
Costs and expenses:
Operating 336,211 262,385
General and administrative 76,853 70,418
Depreciation and amortization 69,804 58,603
Merger costs 38,100 25,639
Unusual items 12,952 4,733
-------- ---------
533,920 421,778
-------- ---------
Income from operations 76,347 41,936
-------- ---------
Other income (expense):
Interest expense:
Nonrecurring interest -- (10,994)
Other (22,457) (25,186)
Interest and other income, net 5,540 5,613
-------- ---------
(16,917) (30,567)
-------- ---------
Income before provision for income taxes 59,430 11,369
Provision for income taxes 33,846 10,547
-------- ---------
Net income $ 25,584 $ 822
======== =========
Earnings per common share $ 0.19 $ 0.01
======== =========
Weighted average number of common and
common equivalent shares outstanding 135,790 107,032
======== =========
</TABLE>
The accompanying notes are an integral part of these supplemental interim
condensed consolidated financial statements.
35
<PAGE> 36
USA WASTE SERVICES, INC.
SUPPLEMENTAL INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Common Paid-in Accumulated Translation Treasury
Stock Stock Capital Deficit Adjustment Stock
------- ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $1,240 $1,041,573 $(118,595) $(14,777) $(1,819)
Common stock options exercised -- 9 8,031 -- -- --
Common stock warrants exercised -- 2 3,780 -- -- --
Common stock issued to qualified defined
contribution plan -- 3 473 -- -- --
Common stock issued in purchase acquisitions
and development projects -- 19 42,207 -- -- --
Common stock issued for acquisitions accounted
for as poolings of interests -- 30 8,000 -- -- --
Common stock returned for acquisition
settlement -- -- -- -- -- (751)
Common stock issued for investment in company -- 4 1,588 -- -- --
Common stock issued from treasury upon
exercise of stock options -- -- (481) -- -- 1,698
Common stock issued from treasury upon
exercise of stock warrants -- -- (119) -- -- 388
Common stock issued for conversion of
subordinated debentures -- 36 59,573 -- -- --
Common stock issued for executive bonuses -- -- 225 -- -- --
Restricted stock expense and forfeitures -- -- 1,227 -- -- --
Common stock issued below market value -- -- 874 -- -- --
Foreign currency translation adjustment -- -- -- -- 131 --
Other -- -- 154 -- -- --
Net income -- -- -- 25,584 -- --
------- ------ ---------- -------- -------- -------
Balance, June 30, 1996 $ -- $1,343 $1,167,105 $(93,011) $(14,646) $ (484)
======= ====== ========== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these supplemental interim
condensed consolidated financial statements.
36
<PAGE> 37
USA WASTE SERVICES, INC.
SUPPLEMENTAL INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 74,356 $ 35,212
--------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (139,795) (6,635)
Capital expenditures (151,585) (91,393)
Loans and advances to others (15,086) (6,322)
Collection of loans to others 1,472 2,304
Proceeds from sale of assets 3,347 6,244
Proceeds from sale of investments -- 1,200
Increase in restricted assets (16,077) (8,831)
Other -- (845)
--------- ---------
Net cash used in investing activities (317,724) (104,278)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 659,905 438,771
Principal payments on long-term debt (417,448) (364,170)
Proceeds from issuance of common stock, net 2,033 2,984
Proceeds from exercise of stock options 7,354 961
Proceeds from exercise of warrants 3,957 --
Other 1,134 953
--------- ---------
Net cash provided by financing activities 256,935 79,499
--------- ---------
Effect of exchange rate on cash and cash equivalents 1 (74)
--------- ---------
Increase in cash and cash equivalents 13,568 10,359
Cash and cash equivalents at beginning of period 21,058 39,967
--------- ---------
Cash and cash equivalents at end of period $ 34,626 $ 50,326
========= =========
</TABLE>
The accompanying notes are an integral part of these supplemental interim
condensed consolidated financial statements.
37
<PAGE> 38
USA WASTE SERVICES, INC.
NOTES TO SUPPLEMENTAL INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The supplemental interim condensed consolidated balance sheets of USA Waste
Services, Inc. and subsidiaries (the "Company") as of June 30, 1996 and
December 31, 1995, the related supplemental interim condensed consolidated
statements of operations for the six months ended June 30, 1996 and 1995, the
supplemental interim condensed consolidated statement of stockholders' equity
for the six months ended June 30, 1996, and the supplemental interim condensed
consolidated statements of cash flows for the six months ended June 30, 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 six months ended
June 30, 1996 and 1995 to reflect the merger with Sanifill, Inc. ("Sanifill")
consummated on August 30, 1996, accounted for using the pooling of interests
method of accounting.
1. BUSINESS COMBINATIONS
On August 30, 1996, the Company consummated a merger agreement with Sanifill
(the "Sanifill Merger") accounted for as a pooling of interests and,
accordingly, the accompanying financial information has been restated to
include the accounts and operations of Sanifill for all periods presented.
Under the terms of the Sanifill Merger, the Company issued 1.70 shares of its
common stock for each share of Sanifill outstanding common stock. The Sanifill
Merger increased the Company's outstanding shares of common stock by
approximately 43,414,000 shares and the Company assumed options under
Sanifill's stock option plans equivalent to approximately 4,361,000 underlying
shares of Company common stock. In the third quarter of 1996, the Company
expects to accrue approximately $80,000,000 in merger related costs associated
with the Sanifill Merger.
Combined and separate results of operations of the Company prior to
consummation of the merger ("USA Waste") and Sanifill for the restated periods
are as follows (in thousands):
<TABLE>
<CAPTION>
USA Waste Sanifill Adjustments Combined
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Six months ended June 30, 1996 (unaudited):
Operating revenues $428,861 $181,406 $ -- $610,267
Income before income taxes 26,827 31,606 997 (a) 59,430
Net income 36,633 18,964 (30,013)(a) 25,584
Six months ended June 30, 1995 (unaudited):
Operating revenues $348,594 $115,120 $ -- $463,714
Income (loss) before income taxes (8,489) 18,884 974 (a) 11,369
Net income (loss) (18,763) 11,406 8,179 (a) 822
</TABLE>
(a) Deferred income taxes have been restated as though USA Waste and
Sanifill had been combined from their inceptions.
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. Related to this merger, the Company accrued $2,700,000 of merger
costs in the second quarter of 1996.
On May 31, 1996, the Company consummated a merger with an Orlando, Florida,
collection business 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 prior to consummation of
the merger 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.
During the six months ended June 30, 1996, the Company acquired 48 collection
businesses, four landfills, seven transfer stations, and two recycling
businesses for approximately $136,098,000 in cash, $18,890,000 in liabilities
incurred or debt assumed, and 1,738,675 shares of the Company's common stock.
These acquisitions were accounted for under the purchase method of accounting.
38
<PAGE> 39
The following summarized pro forma results of operations assumes 1996 and 1995
acquisitions accounted for as purchases occurred at the beginning of 1995 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating revenues $640,174 $573,095
Net income 26,263 3,640
Earnings per common share 0.19 0.03
</TABLE>
The above pro forma financial information is based on certain assumptions and
preliminary estimates which are subject to change. The above pro forma
financial information reflects the consideration paid at closing for all
acquisitions. It does not reflect the payments of any contingent
consideration. If all contingent consideration agreed upon in the purchase
transactions were required to be paid in full, it would materially affect the
results reflected in the above pro forma financial information. The above pro
forma financial information also does not reflect anticipated volume or price
increases, synergies, or other operational improvements. The pro forma
financial information does not purport to be indicative of the results which
would actually have been obtained had the purchase transactions been completed
on January 1, 1995 or which may be obtained in the future.
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Credit facility:
Revolving credit facility $420,000 $ 51,613
Term loan facility -- 215,835
Sanifill credit facility 95,200 58,000
Western credit facility -- 41,000
Senior notes, maturing in varying annual installments
through June 2005, interest ranging from 7.29% to 8.44% 109,407 109,416
Convertible subordinated debentures, interest at 5% 112,035 --
Convertible subordinated debentures, interest at 7 1/2% -- 58,213
Notes payable, maturing in varying amounts through October
2010, interest ranging from 4% to 12% 26,111 15,008
Subordinated debt, maturing in varying monthly installments
through January 2008, interest ranging from 7.25% to 10% 7,407 7,493
Industrial revenue bonds, principal payable in annual installments,
maturing in 1996-2009, variable interest rates (3.3% to 9%
at June 30, 1996), enhanced by letters of credit 143,942 130,374
Other 38,811 44,789
-------- --------
952,913 731,741
Less current maturities 24,766 53,516
-------- --------
$928,147 $678,225
======== ========
</TABLE>
As of December 31, 1995, the Company had borrowed $267,448,000 under its
$550,000,000 financing agreement, which consisted of a $300,000,000 five-year
revolving credit and letter of credit facility and a $250,000,000 term loan
facility. Revolving credit loans under the credit facility were limited to
$180,000,000 at December 31, 1995, 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 (the applicable interest rate at December
31, 1995 was 7.31%). The credit facility was also used for letters of credit
purposes with variable fees from 0.5% to 1.75% per annum (1.5% at December 31,
1995) charged on amounts issued. A commitment fee of up to 0.5% was required
on the unused portion of the credit facility.
39
<PAGE> 40
On May 7, 1996, in connection with the merger with Western Waste Industries
("Western"), the Company replaced its existing credit facility with a
$750,000,000 senior revolving 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, to fund additional acquisitions, and
for working capital. The credit facility was available for standby letters of
credit of up to $300,000,000. Loans under the credit facility bore interest at
a rate based on the Eurodollar rate plus a spread not to exceed 0.75% per annum
(spread set at 0.405% per annum as of June 30, 1996). The credit facility
required a facility fee not to exceed 0.375% per annum on the entire available
credit facility (facility fee set at 0.22% per annum as of June 30, 1996). The
credit facility contained financial covenants with respect to interest coverage
and debt capitalization ratios. The credit facility also contained limitations
on dividends, additional indebtedness, liens, and asset sales.
On August 30, 1996, in connection with the Sanifill Merger, the Company
replaced the $750,000,000 senior revolving credit facility with a
$1,200,000,000 senior revolving credit facility ("Credit Facility") and retired
amounts under Sanifill'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 $400,000,000. 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 0.35% 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 0.20% per
annum). The Credit Facility contains financial covenants with respect to
interest rate coverage and debt capitalization ratios. The Credit Facility
also contains limitations on dividends, additional indebtedness, leins, and
asset sales. Principal reductions are not required over the five-year term of
the Credit Facility.
On March 4, 1996, Sanifill issued $115,000,000 of 5% convertible
subordinated debentures, due on March 1, 2006. Interest is payable
semi-annually in March and September. The debentures are convertible into
shares of the Company's common stock at a conversion price of $28.31 per share.
The debentures are subordinated in right of payment to all existing and future
senior indebtedness, as defined. The debentures are redeemable after March 15,
1999 at the option of the Company at 102.5% of the principal amount, declining
annually to par on March 1, 2002, plus accrued interest. Deferred offering
costs of approximately $2,900,000 were incurred and are being amortized ratably
over the life of the debentures. The proceeds were used to repay debt under
Sanifill's credit facility.
On March 18, 1996, Sanifill called for redemption all of its $60,000,000 of
7 1/2% convertible subordinated debentures due June 1, 2006 at redemption price
of 104.5% of their face amount plus accrued interest from December 1, 1995 to,
and including, the redemption date of April 17, 1996. Alternatively, holders
of these debentures were allowed to convert their debentures into common stock
at any time prior to the close of business on April 10, 1996, at a conversion
price equal to $28.82 per share (equivalent to $16.95 per share post Sanifill
Merger). Holders electing to convert received 34.7 shares of Sanifill's common
stock for each $1,000 principal amount of debentures surrendered. The
$60,000,000 of debentures were ultimately converted to approximately 2,100,000
shares of Sanifill common stock (equivalent to 3,570,000 shares of Company
common stock). Deferred offering costs of approximately $1,700,000 were
recorded as a reduction to additional paid-in capital.
3. INCOME TAXES
The difference in federal income taxes at the statutory rate and the provision
for income taxes for the six months ended June 30, 1996 is primarily due to
non-deductible merger costs.
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.
40
<PAGE> 41
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, 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 collection 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.
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 occurred at the landfill. In
or about June 1995, a case 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
41
<PAGE> 42
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, 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.
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 and is seeking damages for personal
injuries and property damage. The complaint alleges that Montrose Chemical
Corporation and others manufactured DDT on property at or adjacent to the
property owned by Western in Torrance, California. 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, 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.
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 to void the Agreement and an
injunction ordering the defendants to pay Riverside County allegedly unlawful
revenues earned from the Landfill, to cease further dumping at the Landfill of
out-of-county waste, to return of alleged windfall profits, and to limit
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 Riverside 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.
Recent newspaper articles have indicated 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.
On or about August 20, 1996, an action was filed in Ontario Court (General
Division), Canada, captioned Laidlaw Waste Systems (Canada) Ltd. ("Laidlaw")
vs. Philip Environmental, Inc. and USA Waste Services, Inc., et. at., No.
96-CO- 109675. Laidlaw filed this suit related to certain rights of first
refusal that Laidlaw had on Quebec assets acquired by the Company from Philip
Environmental, Inc. in August 1996. Laidlaw is seeking to have the court
either set aside the acquisition or alternatively to award monetary damages
(Laidlaw is seeking general damages of $100,000,000 and punitive damages of
$25,000,000). The Company believes this suit is without merit and is
vigorously defending against it. In addition, Philip Environmental, Inc. has
agreed to indemnify the Company for all costs, fees, and damages incurred by
the Company with respect to this suit.
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.
42
<PAGE> 43
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 $4,550,000. 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 $11,201,000.
As of June 30, 1996, the Company has not recorded any accruals in the financial
statements related to these employment agreements.
5. SUBSEQUENT EVENTS
On July 19, 1996 and August 30, 1996, the Company consummated mergers accounted
for as poolings of interests, pursuant to which the Company issued 475,330 and
648,318 shares of its common stock, respectively, in exchange for all
outstanding shares of the acquired companies. Periods prior to consummation of
the 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.
Subsequent to June 30, 1996, the Company acquired 19 collection businesses,
seven landfills, and ten transfer stations for approximately $96,094,000 in
cash, $7,641,000 in liabilities incurred or debt assumed, and 2,246,773 shares
of the Company's common stock under the purchase method of accounting.
Included in these amounts is the acquisition of six collection businesses, five
landfills, and six transfer stations of Philip Environmental, Inc., consummated
on August 26, 1996, for approximately $60,000,000 in cash and 1,950,764 shares
of the Company's common stock.
43
<PAGE> 44
The following summarized pro forma results of operations assumes 1996 and 1995
acquisitions accounted for as purchases occurred at the beginning of 1995 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating revenues $678,647 $642,824
Net income 34,657 14,665
Earnings per common share 0.24 0.12
</TABLE>
The above pro forma financial information is based on certain assumptions and
preliminary estimates which are subject to change. The above pro forma
financial information reflects the consideration paid at closing for all
acquisitions. It does not reflect the payments of any contingent
consideration. If all contingent consideration agreed upon in the purchase
transactions were required to be paid in full, it would materially affect the
results reflected in the above pro forma financial information. The above pro
forma financial information also does not reflect anticipated volume or price
increases, synergies, or other operational improvements. The pro forma
financial information does not purport to be indicative of the results which
would actually have been obtained had the purchase transactions been completed
on January 1, 1995 or which may be obtained in the future.
On August 12, 1996, the Company sold certain marine-related nonhazardous
oilfield waste collection operations for $70,500,000. This transaction will
not have a material impact on the Company's financial position or results of
operations.
Subsequent to June 30, 1996, the Company guaranteed specific obligations of two
unconsolidated affiliates totaling approximately $25,000,000. The Company is of
the opinion that these unconsolidated affiliates will be able to perform under
their respective obligations and that no payments will be required and, due to
the Company's ability to assume a senior debt position, no losses will be
incurred under such guarantees.
In the third quarter of 1996, in addition to approximately $80,000,000 of merger
costs recognized by the Company related to the Sanifill Merger (see Note 2), the
Company also recognized $50,800,000 of unusual items. The unusual items include
$28,900,000 of operating losses and estimated losses related to the disposition
of certain non-core business assets, $15,000,000 of operating losses and project
reserves related to certain Mexico operations, and $6,900,000 of various other
terminated projects.
44
<PAGE> 45
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.
November 12, 1996 By: /s/ BRUCE E. SNYDER
- --------------------- ------------------------------------
Date BRUCE E. SNYDER
Vice President - Controller,
Chief Accounting Officer
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Independent Accountants
23.2 Consent of Independent Public Accountants
</TABLE>
<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. 33-77110, 33-59259, 33-60103,
33-63981, 333-02181, and 333-08161), Registration Statements on Form S-3 (File
Nos. 33-42988, 33-43809, 33-76226, 33-85018, 333-00097, and 333-08573), and
Registration Statements on Form S-8 (File Nos. 33-43619, 33-72436, 33-84988,
33-84990, 33-59807, 33-61621, 33-61625, 33-61627, 333-14115, and 333-14613), of
our report dated November 8, 1996, on our audits of the supplemental
consolidated balance sheets of USA Waste Services, Inc. and subsidiaries 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, which report is
included in this Current Report on Form 8-K.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
November 12, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the USA Waste Services, Inc.
Registration Statements on Form S-4 (File Nos. 33-77110, 33-59259, 33-60103,
33-63981, 333-02181, and 333-08161), Registration Statements on Form S-3 (File
Nos. 33-42988, 33-43809, 33-76226, 33-85018, 333-00097, and 333-08573), and
Registration Statements on Form S-8 (File Nos. 33-43619, 33-59807, 33-61621,
33-61625, 33-61627, 33-72436, 33-84988, 33-84990, 333-14115, and 333-14613),
of our report dated February 23, 1996 (except with respect to the matters
discussed in paragraphs one and two of Note 16, as to which the dates are March
4, 1996 and March 18, 1996 as indicated), with respect to the consolidated
financial statements of Sanifill, Inc. as of December 31, 1995 and 1994 and for
the three years in the period ended December 31, 1995, included in this Current
Report on Form 8-K.
ARTHUR ANDERSEN LLP
Houston, Texas
November 12, 1996
