SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) SEPTEMBER 17, 1996
ALLIED WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-19285 88-0228636
(Commission File Number) (IRS Employer Identification No.)
7201 EAST CAMELBACK ROAD, SUITE 375
SCOTTSDALE, ARIZONA 85251
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (602) 423-2946
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On December 7, 1996, Allied Waste Industries, Inc. (the "Company")
filed revised pro forma financial statements related to the pending
acquisition of the solid waste operations of Laidlaw, Inc. The
financial statements filed herein reflect an amendment to the
financial statements prior to the closing of the acquisition.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Laidlaw Solid Waste Management Group
(i) Report of Independent Public Accountants
(ii) Balance Sheets - August 31, 1995 and 1996
(iii) Statements of Operations for the Three Years Ended August 31, 1996
(iv) Statements of Cash Flows for the Three Years Ended August 31,1996
(v) Notes to Financial Statements
(b) Pro Forma Combined Financial Statements of Allied Waste Industries,
Inc.
(i) Introduction
(ii) Pro Forma Combined Balance Sheet - September 30, 1996 (unaudited)
(iii) Pro Forma Combined Statement of Operations for the Nine Months
Ended September 30, 1996 (unaudited)
(iv) Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1995 (unaudited)
(v) Notes to Pro Forma Combined Financial Statements (unaudited)
(c) Exhibits
23 Consent of Coopers & Lybrand
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the balance sheets of the Laidlaw Solid Waste Management Group
(as defined in Note 1) as at August 31, 1995 and 1996 and the statements of
operations and cash flows for the years ended August 31, 1994, 1995 and 1996.
These financial statements are the responsibility of the management of Laidlaw
Inc. 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 an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Laidlaw Solid Waste Management Group
as at August 31, 1995 and 1996 and the results of its operations and cash
flows for the years ended August 31, 1994, 1995 and 1996 in accordance with
United States generally accepted accounting principles.
COOPERS & LYBRAND
Chartered Accountants
Hamilton, Canada
September 30, 1996
<PAGE>
<TABLE>
LAIDLAW SOLID WASTE MANAGEMENT GROUP
Balance Sheets as at August 31, 1995 and 1996
(U.S. $000's)
<CAPTION>
1995 1996
<S> <C> <C>
ASSETS
Current Assets
Trade and other accounts receivable (net of
allowance for doubtful accounts of $1,182;
August 31, 1996 -- $1,224) $ 95,124 $ 102,966
Inventories 7,592 8,008
Income taxes recoverable 52,386 71,866
Other current assets 14,382 13,026
169,484 195,866
Fixed Assets
Land, landfill sites and improvements 438,740 454,940
Buildings 64,903 73,740
Vehicles and other 588,320 623,175
1,091,963 1,151,855
Less: Accumulated depreciation and amortization 521,193 584,225
570,770 567,630
Other Assets
Goodwill (net of accumulated amortization of $37,635;
August 31, 1996 -- $42,334) 175,463 204,125
Deferred income taxes 80,476 76,822
Deferred charges 3,180 15,407
Other 5,582 7,483
264,701 303,837
$ 1,004,955 $ 1,067,333
LIABILITIES
Current Liabilities
Account Payable 78,212 66,407
Accrued Liabilities 67,479 61,865
Current portion of long-term debt (Note 3) 2,256 2,675
147,947 130,947
Environmental and Other Long-Term Liabilities
(Note 4) 86,371 81,784
Long-Term Debt (Note 3) 2,821 1,895
237,139 214,626
Commitment and Contingencies (Note 5) 767,816 852,707
Net Investment by Laidlaw Inc. $ 1,004,955 $ 1,067,333
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
LAIDLAW SOLID WASTE MANAGEMENT GROUP
Statements of Operations
For the Years Ended August 31, 1994, 1995 and 1996
(U.S. $000's)
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Revenue $ 750,191 $ 795,058 $ 763,534
Operating expenses (Note 6) 500,866 525,757 526,872
Selling, general and administrative expenses (Note 6) 58,375 60,348 50,184
Depreciation and amortization 106,727 102,997 95,938
Income from operations 84,223 105,956 90,540
Allocated interest expense (Note 1) (26,122) (28,850) (30,081)
Interest portion of closure and post-closure costs (3,002) (4,783) (5,455)
Other interest expense (876) (367) (464)
Interest, dividend and other income 91 264 298
Income before income taxes 54,314 72,220 54,838
Income taxes (Note 1) 12,300 14,300 10,200
Net income $ 42,014 $ 57,920 $ 44,638
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
LAIDLAW SOLID WASTE MANAGEMENT GROUP
Statements of Cash Flows
For the Years Ended August 31, 1994, 1995 and 1996
(U.S. $000's)
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net Cash Provided By (Used In):
Operating activities $ 180,045 $ 187,953 $ 94,444
Investing activities (76,443) (119,900) (131,272)
Financing activities (145,827) (59,812) 121,719
(42,225) 8,241 84,891
Net investment by Laidlaw Inc. - beginning of year 801,800 759,575 767,816
Net investment by Laidlaw Inc. - end of year $ 759,575 $ 767,816 $ 852,707
Operating Activities
Net income $ 42,014 $ 57,920 $ 44,638
Items not affecting cash:
Depreciation and amortization 106,727 102,997 95,938
Deferred income taxes 4,100 7,800 3,100
Other 9,182 8,036 (5,431)
162,023 176,753 138,245
Cash provided by (used in) financing working capital:
Trade and other accounts receivable (6,147) 7,823 (7,842)
Inventories (279) (500) (416)
Income taxes recoverable 15,590 (4,615) (19,480)
Other current assets 4,157 (3,734) 1,356
Accounts payable and accrued liabilities 4,701 12,226 (17,419)
Net cash provided by operating activities $ 180,045 $ 187,953 $ 94,444
Investing Activities
Purchase of fixed assets $ (81,167) $ (105,357) $ (79,072)
Proceeds from sale of fixed and other assets 6,779 5,187 3,393
Purchase of other assets (187) (700) (6,392)
Expended on acquisitions (Note 7) (2,213) (14,255) (49,226)
Net (increase) decrease in long-term investments 345 (4,775) 25
Net cash used in investing activities $ (76,443) $ (119,900) $ (131,272)
Financing Activities
Repayment of long-term debt (4,347) $ (4,516) $ (507)
Net advances from (repayment to) Laidlaw, Inc. (141,480) (55,296) 122,226
Net cash provided by (used in) financing activities $ (145,827) $ (59,812) $ 121,719
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LAIDLAW SOLID WASTE MANAGEMENT GROUP
NOTES TO FINANCIAL STATEMENTS
For the Years Ended August 31, 1994, 1995 and 1996
(U.S. $000's)
1. Basis of Presentation of Financial Statements
These special purpose financial statements have been prepared to reflect the
combined financial position and results of operations of SMAR Smaltimento
Rifiuti S.p.A.; Laidlaw Medical Services Ltd., Laidlaw Waste Systems (Canada)
Ltd. (excluding Laidlaw Environmental Services Limited and its subsidiaries)
and Laidlaw Waste Systems, Inc. (excluding Laidlaw Environmental Services Inc.
and its subsidiaries) which comprise the solid waste operations of Laidlaw
Inc. ("Laidlaw Solid Waste Management Group" or the "Group").
Income taxes and interest expense associated with intercompany financing with
the Group's parent, Laidlaw Inc. ("Laidlaw"), have been allocated to the Group
based on it shares of the parent's net assets.
The surplus funds of the Group are regularly transferred to Laidlaw, and any
financing requirements are provided by Laidlaw Inc. Accordingly, no cash or
bank indebtedness balances are reported in these financial statements.
A statement of stockholders' equity has not been provided as it would be
inconsistent with the basis of presentation described above.
Except for the exclusions described in the preceding paragraphs, these
financial statements have been prepared in accordance with United States
generally accepted accounting principles.
As these financial statements have not been prepared for general purposes,
users may require additional information.
2. Summary of Significant Accounting Policies
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets, liabilities, income and expenses, and
disclosure of contingencies. Future events could alter such estimates in the
near term.
A summary of significant accounting policies followed in the preparation of
these financial statements is as follows:
(a) Inventories
Inventories are valued at the lower of cost, determined on a first-in, first-
out basis, and replacement cost.
<PAGE>
(b) Fixed assets
Landfill sites, preparation costs, and improvements are recorded at cost and
amortized on the basis of landfill capacity utilized during the year.
Depreciation and amortization of other property and equipment is provided
substantially on a straight-line basis over their estimated useful lives which
are as follows:
Buildings 20 to 40 years
Vehicles and other 5 to 15 years
Management periodically reviews the carrying values of its fixed assets to
determine whether such values are recoverable. Any resulting write downs are
charged against income.
The test for recoverability includes the future cash flows for closure and
post-closure costs associated with the Group's landfills which have not been
recognized as a liability for accounting purposes, as the Group intends to
close the landfills at the end of their useful lives. The future cash flows
for closure and post-closure costs which have been recognized as a liability
in the Group's financial statements have been excluded from the
recoverability test.
(c) Other assets
Goodwill is amortized on a straight-line basis over forty years. The Group
reviews the value assigned to goodwill to determine if its recoverability has
been impaired by conditions affecting the Group. The amount of any impairment
is charged against income.
Deferred charges are amortized on a straight-line basis over a two to nine
year period depending on the nature of the deferred costs.
(d) Environmental liabilities
Environmental liabilities include accruals for costs associated with closure
and post-closure monitoring and maintenance of the Group's landfills,
remediation at certain of the Group's facilities and corrective actions at
Superfund sites. The Group accrues for closure and post-closure costs over the
life of the landfill site as airspace is consumed.
(e) Foreign currency translation
The Group's Canadian operations are all of a self-sustaining nature. The
accounts are translated to U.S. dollars on the following basis:
Assets and liabilities at the exchange rate in effect at the balance sheet
date and revenue and expenses at weighted monthly average exchange rates for
the year.
<PAGE>
(f) Financial instruments
The Group's accounts receivable, accounts payable and long-term debt
constitute financial instruments. Based on available market information, the
carrying value of these instruments approximates their fair value as at August
31, 1995 and 1996. Concentrations of credit risk in accounts receivable are
limited, due to the large number of customers comprising the Group's customer
base throughout North America. The Group performs ongoing credit evaluations
of its customers, but does not require collateral to support customer accounts
receivable. Management establishes an allowance for doubtful accounts based on
the credit risk applicable to particular customers, historical trends and
other relevant information.
(g) Revenue
Amounts billed to customers prior to providing the related services are
deferred and later reported as revenues in the period in which the services
are rendered.
(h) Accounting Pronouncements Not Yet Required to be Adopted
Management does not expect the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121 to have a material effect on the Company's
financial position or results of operations. In 1997 the Group will be
required to adopt SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", issued by the Financial
Accounting Standards Board. SFAS No. 121 requires that long-lived assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest charges) from an
asset to be held and used in operations is less than the carrying value of the
asset, an impairment loss must be recognized in the amount of the difference
between the carrying value and the fair value. Should events and circumstances
indicate that any of the Group's landfills be reviewed for possible
impairment, such review for recoverability will be made in accordance with
Emerging Issues Task Force Discussion Issue ("EITF") 95-23. The EITF outlines
how cash flows for environmental exit costs should be determined and measured.
3. Long-Term Debt
1995 1996
Notes due at various dates from 1997 to 2002
with interest rates from 5% to 10% $ 4,961 $ 4,531
Capital leases payable, due in 1997 with
interest rates of 10% 116 39
5,077 4,570
Less: Current portion 2,256 2,675
$ 2,821 $ 1,895
<PAGE>
The aggregate amount of minimum payments required on long-term debt in each of
the years indicated is as follows:
Year ending August 31,
1997 $ 2,675
1998 846
1999 293
2000 111
2001 569
Thereafter 76
$ 4,570
4. Environmental Liabilities
The Group has recorded liabilities for closure and post-closure monitoring and
environmental remediation costs as follows:
1995 1996
Current portion of environmental liabilities,
included in accrued liabilities $ 23,530 $ 22,461
Non-current portion of environmental liabilities 79,888 76,240
$ 103,418 $ 98,701
The Group, in the normal course of its business, expends funds for
environmental protection and remediation, but does not expect these
expenditures to have a materially adverse effect on its financial condition or
results of operations, since its business is based upon compliance with
environmental laws and regulations and its services are priced accordingly.
Closure and post-closure monitoring and maintenance costs for U.S. landfills
are estimated based on the technical requirements of the Subtitle D
Regulations of the U.S. Environmental Protection Agency or the applicable
state requirements, whichever are stricter, and the air emissions standards
under the Clean Air Act, and include such items as final capping of the site,
methane gas and leachate management, groundwater monitoring, and operation and
maintenance costs to be incurred during the period after the facility closes
and ceases to accept waste. Closure and post-closure costs for the Group's
landfills in Canada are based upon the local landfill regulations governing
the facility.
The Group has also established procedures to routinely evaluate potential
remedial liabilities at sites which it owns or operated, or to which it
transported waste, including 14 sites listed on the Superfund National
Priority List (NPL). In the majority of situations, the Group's connection
with NPL sites relates to allegations that its companies (or their
predecessors) transported waste to the facilities in question, often prior to
the acquisition of such companies by the Group. The Group routinely reviews
and evaluates sites requiring remediation, including NPL sites, giving
consideration to the nature (i.e. owner, operator, transporter or generator),
and the extent (i.e. amount and nature of waste hauled to the location, number
of years of site operation by the Group, or other relevant factors) of the
Group's alleged connection with the site, the accuracy and strength of
evidence connecting the Group to the location, the number, connection and
<PAGE>
financial ability of other named and unnamed potentially responsible parties
and the nature and estimated cost of the likely remedy. Where the Group
concludes that it is probable that a liability has been incurred, provision is
made in the financial statements, based upon management's judgement and prior
experience, for the Group's best estimate of the liability. Such estimates are
subsequently revised as deemed necessary as additional information becomes
available.
Estimates of the extent of the Group's degree of responsibility for
remediation of a particular site and the method and ultimate cost of
remediation require a number of assumptions and are inherently difficult. The
ultimate outcome of these items may differ from current estimates. Management
believes that its extensive experience in the environmental services business
provides a reasonable basis for making its estimates. However, these estimates
may include a range of possible outcomes. In such cases, management provides
for the amount within the range that constitutes its best estimate. It is less
than likely but more than remotely possible that the Group's potential
liability could be at the high end of such ranges, which would be
approximately $15 million in the aggregate higher than the estimates that have
been recorded in these financial statements. While the Group does not
currently anticipate that any adjustment to its estimates would be material to
its financial statements, it is reasonably possible that technological,
regulatory or enforcement developments, the results of environmental studies
or other factors could necessitate the recording of additional liabilities
that could be material. The impact of such future events cannot be estimated
at the current time.
Where the Group believes that both the amount of a particular environmental
liability and the timing of the payments are reliably determinable, the cost
in current dollars is discounted to a present value assuming inflation of 3%
and a risk free discount rate of 8%. Discontinued amounts previously recorded
are accreted to reflect the effects of the passage of time. The Group's
closure and post-closure expense for the years ended August 31, 1994, 1995 and
1996 was $24.0 million, $18.6 million and $11.2 million, respectively, which
included accretion of interest of $3.0 million, $4.8 million and $5.5 million
on the closure and post-closure accruals for the years ended August 31, 1994,
1995 and 1996, respectively.
The majority of the Group's active landfill sites have estimated remaining
lives ranging from 2 to approximately 88 years based upon current site plans
and anticipated annual volumes of waste. As at August 31, 1996, the Group
estimates that during this remaining site life, it will provide for an
additional $254 million (1995 -- $247 million) of closure and post-closure
costs, including accretion for the discount recognized to date. The change in
the expected aggregate undiscounted amount from 1995 to 1996 results primarily
from changes in available airspace.
Anticipated payments of environmental liabilities for each of the next five
years and thereafter are as follows:
Year ending August 31,
1997 $ 22,461
1998 11,396
1999 14,320
2000 12,049
2001 12,276
Thereafter 280,286
$ 352,788
<PAGE>
5. Commitments and Contingencies
(a) Lease commitments
Rental expense incurred under operating leases amounted to $10,524, $8,334 and
$9,693 in the years ended August 31, 1994, 1995, and 1996 respectively.
Rentals payable under operating leases for premises and equipment are as
follows:
Year ending August 31,
1997 $ 8,365
1998 4,896
1999 4,524
2000 4,009
2001 3,329
Thereafter 20,063
$ 45,186
(b) Legal proceedings
The Group is subject to extensive and evolving laws and regulations and has
implemented its own environmental safeguards to respond to regulatory
requirements. In the normal course of business, the Group provides for closure
and post-closure accruals to comply with all governmental regulations.
In the normal course of conducting its operations, the Group may become
involved in certain legal and administrative proceedings. Some of these
actions may result in fines, penalties or judgments against the Group which
may have an impact on the financial results for a particular period.
Management expects that such matters in process at August 31, 1996 will not
have a materially adverse effect on this Group's financial position or its
results from operations.
The consolidated federal income tax returns of the Laidlaw Transportation,
Inc. U.S. Consolidated Tax Group (the United States subsidiaries of the
Laidlaw Solid Waste Management Group are members of this taxpayer group) for
the fiscal years ended August 31, 1986, 1987 and 1988 have been under audit by
the Internal Revenue Service. In March 1994, the Laidlaw Transportation, Inc.
U.S. Consolidated Tax Group received a Statutory Notice of Deficiency
proposing that the Laidlaw Transportation, Inc. U.S. Consolidated Tax Group
pay additional taxes relating to disallowed deductions in those income tax
returns. The principal issue involved relates to the timing and the
deductibility for tax purposes of interest attributable to loans owing to
related foreign persons. The Laidlaw Transportation, Inc. U.S. Consolidated
Tax Group has petitioned the United States Tax Court (captioned as Laidlaw
Transportation, Inc. & Subsidiaries et al v. Commissioner of Internal Revenue,
Docket Nos. 9361-94 and 9362-94) for a redetermination of claimed deficiencies
of approximately $50.3 million (plus interest of approximately $67.6 million
as of August 31, 1996). In August 1996, the Laidlaw Transportation, Inc. U.S.
Consolidated Tax Group received Revenue Agent's reports proposing that the
Laidlaw Transportation, Inc. U.S. Consolidated Tax Group pay additional taxes
of approximately $161.3 million (plus interest of approximately $105.7 million
as of May 31, 1996) relating to disallowed deductions in federal income tax
returns for the fiscal years ended August 31, 1989,
<PAGE>
1990 and 1991 based on the same issues. The Laidlaw Transportation,
Inc. U.S. Consolidated Tax Group intends to vigorously contest
these claimed deficiencies. Although the final outcome cannot be
predicted with certainty, Laidlaw, based upon a thorough review
of the facts and the advice of counsel, believes that the ultimate
disposition of these issues will not have a materially adverse effect upon
Laidlaw's consolidated financial position or results of operations. In
accordance with the basis of presentation described in Note 1, no provision
for these matters has been recorded in the financial statements of the Group.
Under the Agreement, Laidlaw is responsible for, and has agreed to indemnify,
Allied and the Laidlaw Solid Waste Management Group against all United States
and Canadian federal, state, provincial, territorial, local and foreign income
tax liabilities of the Laidlaw Transportation, Inc. U.S. Consolidated Tax
Group.
(c) Letters of credit and guarantees
At August 31, 1996, the Group had $24,341 (1995 -- $41,101) in outstanding
letters of credit, of which the most significant are in support of the Group's
undertakings in respect of landfill closure and post-closure activities
required in obtaining regulatory operating permits. In addition, Laidlaw and
its affiliates have provided financial assurances, guarantees and additional
letters of credit in the aggregate amount of approximately $180 million for
closure and post-closure activities and bid bonds.
6. Related Party Transactions
Included in operating expenses and selling, general and administrative
expenses are management fees, insurance premiums and rental charges paid to
affiliated companies as follows:
1994 1995 1996
Management fees $ 6,862 $ 4,957 $ 4,297
Insurance premiums $ 19,127 $ 17,098 $ 18,335
Rental charges $ 746 $ 725 $ 725
Management fees have been allocated to the Group based upon the Group's share
of Laidlaw's consolidated revenue. Management fees are charged by Laidlaw to
each of its operating groups in order to recover its general and
administrative costs.
Insurance premiums represent charges to the Group by Laidlaw to recover self-
insurance costs relating to the Group's anticipated insurance losses,
primarily for automobile, worker's compensation and general liability
coverage. In addition, the Group is charged for the fixed program costs
relating to the self-insurance program based upon the Group's share of
Lailaw's consolidated revenue.
Rental charges represent rent charged by Laidlaw for use of properties owned
by Laidlaw but used by the Group.
The Group directly incurs all other costs of doing business.
<PAGE>
7. Acquisitions
A summary of the Group's acquisitions of solid waste management companies in
the periods indicated is as follows:
1994 1995 1996
Assets acquired -- at fair value
Fixed assets $ 715 $ 8,271 $ 11,906
Goodwill 1,553 6,960 37,056
Long-term investments and other assets -- -- 6,606
2,268 15,231 55,568
Long-term liabilities assumed 55 794 8,155
Working capital -- (182) 1,813
Expended on acquisitions $ 2,213 $ 14,255 $ 49,226
Number of businesses acquired 7 11 9
Annualized revenue acquired $ 4,000 $ 15,000 $ 41,000
Pro forma data (unaudited)
Condensed pro forma statements of operations data, as if acquisitions each
year had occurred at the beginning of the previous year, are as follows:
1994 1995 1996
Statements of Operations Data:
Revenue $ 731,357 $ 805,202 $ 776,658
Income from operations $ 74,794 $ 97,833 $ 87,019
8. Segmented Geographic Information
1994 1995 1996
United States:
Revenue $ 488,070 $ 526,484 $ 493,681
Income from operations $ 46,578 $ 64,934 $ 65,362
Total identifiable assets $ 560,780 $ 646,432 $ 649,362
Canada:
Revenue $ 262,121 $ 268,574 $ 269,853
Income from operations $ 37,645 $ 41,022 $ 25,071
Total identifiable assets $ 346,000 $ 358,523 $ 417,971
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
Prior to the closing of the acquisition of the Laidlaw Solid Waste Management
Group ("LSW Subsidiaries") and the related financing (collectively, the
"Transactions"), substantially all of the operating assets and liabilities of
Allied will be contributed (the "Contribution") from Allied to Allied Waste
North America, Inc. ("Allied U.S.").
The unaudited pro forma combined balance sheet reflects Allied U.S. after the
Contribution and gives effect to the Transactions as if each had occurred on
September 30, 1996. The unaudited pro forma combined statements of operations
for the nine months ended September 30, 1996 and the year ended December 31,
1995 give effect to (i) the acquisition of companies accounted for using the
purchase method for business combinations completed in 1995 and 1996, which
are considered to be significant; (ii) the completion of the Contribution and
the Transactions contemplated herein for approximately $1.5 billion; (iii) the
issuances of 11.7 million shares of Common Stock in a private placement and
the application of the net proceeds therefrom; (iv) the conversion and
exercise of certain convertible securities and warrants into an aggregate of
approximately 9.8 million shares of Common Stock; and (v) completion of a
public offering of 7.6 million shares of Common Stock, and the application of
the net proceeds therefrom, as if each had occurred on January 1, 1995.
The pro forma adjustments related to the purchase allocation of the
Transactions are preliminary and does not give effect to an appraisal of the
assets of the LSW Subsidiaries which Allied intends to obtain at or near the
closing of the acquisition of the LSW Subsidiaries. The unaudited pro forma
combined financial statements do not reflect adjustments for certain financial
benefits, operational efficiencies and non-recurring items. These statements
do not purport to be indicative of the combined financial position or
combined results of operations of Allied and the LSW Subsidiaries that might
have occurred, nor are they indicative of future financial position or results
of operations.
The unaudited pro forma combined financial statements should be read in
conjunction with the Notes to Pro Forma Combined Financial Statements, the
historical consolidated financial statements of Allied and the notes thereto
and the historical financial statements of the LSW Subsidiaries and the notes
thereto.
<PAGE>
<TABLE>
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
September 30, 1996
(Unaudited)
(amounts in thousands)
<CAPTION>
Pro Forma
Adjustments
LSW Related
Historical Subsidiaries to Acquisitions
(Note 1) (Note 2) (Note 3) Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 7,620 $ -- $ 1,500,000 (a) $ 56,620
(1,265,000)(b)
(186,000)(c)
Other current assets 62,526 195,866 (71,866)(l) 186,526
Total current assets 70,146 195,866 (22,866) 243,146
Property and equipment, net 340,729 567,630 100,000 (d) 1,007,289
(1,070)(l)
Goodwill, net 89,504 204,125 965,635 (e) 1,055,139
(204,125)(f)
Other assets 36,263 99,712 33,500 (g) 93,405
(76,070)(l)
Total assets $ 536,642 $ 1,067,333 $ 795,004 $ 2,398,979
LIABILITIES AND STOCKHOLDERS'S EQUITY
Current portion of long-term debt $ 15,259 $ 2,675 $ -- $ 17,934
Other current liabilities 44,876 128,272 (5,086)(l) 168,062
Total current liabilities 60,135 130,947 (5,086) 185,996
Long-term debt, net of current portion 233,132 1,895 1,500,000 (a) 1,659,774
110,747 (h)
(186,000)(c)
Other long-term liabilities 48,642 81,784 40,000 (i) 178,426
8,000 (m)
Stockholders' equity 194,733 852,707 (852,707)(k) 374,783
323,970 (j)
(143,920)(l)
Total liabilities and equity $ 536,642 $ 1,067,333 $ 795,004 $ 2,398,979
</TABLE>
The accompanying notes are an integral part of this pro forma combined balance
sheet.
<PAGE>
<TABLE>
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1996
(Unaudited)
(in thousands except for per share amounts and number of shares)
<CAPTION>
Pro Forma
Adjustments Pro Forma
Completed LSW Related to Pro Forma Financing
Historical Acquisitions Subsidiaries Acquisitions for the Transactions
(Note 1) (Note 2) (Note 2) (Note 3) Acquisitions (Note 4) Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $183,896 $165 $573,407 $ -- $757,468 $ -- $757,468
Cost of
operations 101,153 101 396,429 -- 497,683 -- 497,683
Selling, general
and
administrative
expenses 27,152 24 36,775 -- 63,951 -- 63,951
Depreciation and
amortization
expense 23,032 15 71,738 14,568 (b) 109,353 -- 109,353
Pooling costs 6,969 -- -- -- 6,969 -- 6,969
Operating
income 25,590 25 68,465 (14,568) 79,512 -- 79,512
Interest income (257) -- -- -- (257) -- (257)
Interest expense 6,623 -- -- 3,284 (d) 114,074 (409)(b) 113,665
(10,349)(e)
114,516 (f)
Income (loss)
before income
taxes 19,224 25 68,465 (122,019) (34,305) 409 (33,896)
Income tax
expense
(benefit) 9,428 10 -- (21,422) (11,984) 164 (11,820)
Net income (loss)
before extra-
ordinary loss 9,796 15 68,465 (100,597) (22,321) 245 (22,076)
Dividends (861) -- -- -- (861) -- (861)
Net income (loss)
to common share-
holders before
extraordinary
loss $ 8,935 $ 15 $ 68,465 $(100,597) $(23,182) $ 245 $(22,937)
Net income (loss)
per common
share before
extraordinary
loss $ 0.15 $ (0.32) $ (0.31)
Weighted average
common and
common
equivalent
shares 59,791,034 72,295,076 73,114,675
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial statement.
<PAGE>
<TABLE>
ALLIED WASTE INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Unaudited)
(in thousands except for per share amounts and number of shares)
<CAPTION>
Pro Forma
Adjustments Pro Forma
Completed LSW Related to Pro Forma Financing
Historical Acquisitions Subsidiaries Acquisitions for the Transactions
(Note 1) (Note 2) (Note 2) (Note 3) Acquisitions (Note 4) Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $217,544 $9,019 $778,029 $ (207)(a) $982,571 $ -- $982,571
(21,814)(g)
Cost of
operations 119,238 4,317 528,858 (207)(a) 640,592 -- 640,592
(11,614)(g)
Selling, general
and
administrative
expenses 36,708 1,918 57,840 (447)(g) 96,019 -- 96,019
Depreciation and
amortization
expense 27,279 1,116 96,214 19,626 (b) 140,243 -- 140,243
(3,992)(g)
Pooling costs 1,531 -- -- -- 1,531 -- 1,531
Operating income 32,788 1,668 95,117 (25,387) 104,186 -- 104,186
Interest income (716) -- -- -- (716) -- (716)
Interest expense 11,316 13 -- 393 (c) 156,891 (125)(a)151,841
4,378 (d) (4,925)(b)
(11,897)(e)
152,688 (f)
Conversion fee
on debt
securities
converted 56 -- -- -- 56 (56)(c) --
Income (loss)
before
income taxes 22,132 1,655 95,117 (170,949) (52,045) 5,106 (46,939)
Income tax expense
(benefit) 9,751 662 -- (30,333) (19,920) 2,042 (17,878)
Net income (loss)
before
extraordinary
loss 12,381 993 95,117 (140,616) (32,125) 3,064 (29,061)
Dividends (4,070) -- -- -- (4,070) 2,743 (1,327)
Conversion fee on
equity securities
converted (2,151) -- -- -- (2,151) 2,151 --
Net income (loss)
to common
shareholders
before
extraordinary
loss $ 6,160 $ 993 $ 95,117 $(140,616) $(38,346) $ 7,958 $(30,388)
Net income (loss)
per common
share before
extraordinary
loss $ 0.15 $ (0.72) $ (0.43)
Weighted average
common and
common
equivalent
shares 40,046,459 53,289,571 71,407,951
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial statement.
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Historical
The historical balances represent the financial position and results of
operations of Allied for each of the indicated dates and periods as reported
in the historical consolidated financial statements of Allied included
elsewhere in this Offering Circular. The historical consolidated financial
statements have been restated to reflect acquisitions accounted for as
poolings-of-interests.
2. Historical Amounts Related to Acquisitions
The amounts related to the LSW Subsidiaries in the September 30, 1996 pro
forma combined balance sheet represent the historical combined balance sheet
of the LSW Subsidiaries. The amounts in the pro forma combined statements of
operations represent the results of operations of the companies purchased in
1995 and 1996 ("Completed Acquisitions"), and the results of operations of the
LSW Subsidiaries contemplated in the Transactions, for the period prior to
acquisition date, for each period presented.
The following represents acquisitions included in these pro forma combined
financial statements (collectively referred to as "Acquisitions.").
January 1995 -- Allied acquired Pen-Rob, Inc. ("Pen-Rob") for total
consideration of approximately $1.5 million.
May 1995 -- Allied acquired L and M Disposal, Inc. for total consideration of
approximately $518,000.
June 1995 -- Allied acquired Illinois Development Corporation ("IDC") for
total consideration of approximately $4.2 million.
September 1995 -- Allied acquired Duckett Disposal, Inc. ("Duckett") and
Brickyard Disposal and Recycling, Inc. ("Brickyard") for total consideration
of approximately $14.4 million.
January 1996 -- Allied acquired Service Waste, Inc. for total consideration of
approximately $6.2 million, including approximately 778,000 shares of Common
Stock.
February 1996 -- Allied acquired Clayco Sanitation Company, Inc. ("Clayco")
for total consideration of approximately $2.9 million.
September 1996 -- Allied entered into a stock purchase agreement to purchase
the LSW Subsidiaries for total consideration of approximately $1.5 billion, as
follows (in thousands):
Cash $ 1,200,000
7% Debenture 77,567
Zero coupon debenture 33,180
Common Stock 101,288
Warrant 45,000
Total $ 1,457,035
<PAGE>
ALLIED WASTE INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The LSW Subsidiaries balance sheet data reflects balances at August 31, 1996.
Amounts for the LSW Subsidiaries statement of operations for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 are for the
12 months ended February 29, 1996 and the nine months ended August 31, 1996,
respectively. Revenues and income before pro forma income taxes of $365.0
million and $43.0 million, respectively, for the six months ended February 28,
1995 have been excluded and replaced with revenues and income before pro forma
income taxes of $367.7 million and $36.1 million, respectively, for the six
months ended February 29, 1996 in the LSW Subsidiaries' pro forma statement of
operations for the year ended December 31, 1995. Revenues and income
before pro forma income taxes of $190.1 million and $21.0, respectively,
for the three months ended November 30, 1995 have been excluded in the
LSW Subsidiaries' pro forma statement of operations for the nine months
ended September 30, 1996. Revenues and income before pro forma income taxes of
$177.6 million and $15.1 million, respectively, for the three months ended
February 29, 1996 have been included in the LSW Subsidiaries statement of
operations for the 12 months ended February 29, 1996 and the nine months ended
August 31, 1996.
3. Pro Forma Adjustments
The pro forma adjustments reflected in the pro forma combined financial
statements give effect to the following:
Pro Forma Combined Balance Sheet
(a) To reflect the completion of a $525 million private placement of
senior subordinated notes (the "Notes") and the funding of $975 million
of a senior credit facility (the "Senior Credit Facility"). Allied has
commitments from prospective buyers to purchase in excess of $525
million of the Notes. Closing on the sale of the Notes is expected in
December 1996. The interest rate on the Notes as of September 30, 1996
would have been 10.25%.
(b) To reflect cash paid in connection with the acquisition of the LSW
Subsidiaries.
(c) To reflect repayment of debt in connection with the refinancings
contemplated in the Transactions.
(d) To reflect the estimated fair value of land held for permitting as
landfills but currently not in use.
(e) To reflect goodwill recorded in connection with the
acquisition of the LSW Subsidiaries.
(f) To remove goodwill recorded on the books of the LSW Subsidiaries.
(g) To reflect commitment fees paid in connection with the Notes and the
Senior Credit Facility contemplated in the acquisition of the LSW
Subsidiaries.
(h) To reflect the issuances of the $150 million face value ($78 million
discounted value) of Allied Waste Holdings (Canada) Ltd. 7% debentures
and $168 million face value ($33 million and discounted value) of the
zero coupon debenture (collectively, the "Allied Canada Debentures")
which were recorded at a discount using a 14% implicit interest rate, in
connection with the acquisition of the LSW Subsidiaries.
<PAGE>
(i) To reflect the deferred tax liability related to temporary differences
between book and tax basis of Allied Canada Debentures and certain fixed
assets in connection with the acquisition of the LSW Subsidiaries.
(j) To reflect the issuances of 14.6 million shares of Common Stock at
$9.25 per share; and the Warrant, valued at $45 million, in connection
with the acquisition of the LSW Subsidiaries. The Warrant was valued
using a binomial pricing model adjusted for the size of the block of
warrants and the restrictions on the block of warrants.
(k) To reflect the elimination of investment in subsidiary in connection
with the acquisition of the LSW Subsidiaries.
(l) To eliminate income tax assets and liabilities arising prior to the
date of sale of the LSW Subsidiaries and any intercompany investments,
advances and loans not included in the sale.
(m) To accrue $8 million for the estimated costs of severance and
transition benefits that are expected to be paid to approximately 200
employees, primarily management, sales and administrative, of the LSW
Subsidiaries as a result of the acquisition.
Allied has engaged Emcon Environmental Services, Inc. to perform an
environmental assessment of certain properties to be acquired by Allied in the
Transactions. Although the Emcon work is not compete and due diligence
continues, Emcon has identified certain third-party contaminated waste sites
and landfills of the LSW Subsidiaries. Since the Emcon Environmental Report
is not yet complete, currently no amount or range of amounts can be determined
which would be required to be recorded or disclosed in accordance with SFAS
No. 5. Once the Emcon Environmental Report is completed, remediation plans
and related cost estimates must be determined. Cost, if any, in excess of
amounts accrued by the Laidlaw Sellers will be accounted for in accordance
with GAAP when all facts and circumstances are know.
Pro Forma Combined Statements of Operations
(a) To eliminate rent expense and rental revenue between Allied and IDC.
<PAGE>
(b) To reflect the amortization of goodwill recorded in connection with
the Acquisitions, calculated based on a 40 year life of goodwill, as
follows (in thousands):
Nine Months
Year Ended Ended
Total December 31, September 30,
Goodwill 1995 1996
L and M Disposal, Inc. for the
4 months ended April 30, 1995 $ 601 $ 6 $ --
IDC, for the 5 months
ended May 31, 1995 1,046 11 --
Duckett Disposal, Inc. for the
8 months ended August 31, 1995 3,510 59 --
Service Waste, Inc. for the year
ended December 31, 1995 2,649 66 --
Clayco for the year ended December 31,
1995 and the month ended
January 31, 1996 2,703 68 6
LSW Subsidiaries for the year ended
December 31, 1995 and the 9 months
ended September 30, 1996 974,625 19,641 14,731
Total pro forma goodwill and
amortization $ 985,134 $ 19,851 $ 14,737
(c) To reflect interest expense on debt issued or assumed in connection
with the Completed Acquisitions, calculated as follows (in thousands):
Year Ended
December 31, 1995
Duckett seller notes, interest at 7% for 8 months $ 163
Brickyard seller notes, interest at 7% for 8 months 148
Clayco seller notes, interest at 9% for 12 months 82
$ 393
(d) To reflect amortization of commitment fees related to the Notes and
the Senior Credit Facility contemplated in connection with the
acquisition of the LSW Subsidiaries, as follows (in thousands):
Commitment Fee Amortization Period
Senior Subordinated Notes $ 9,500 10 years
Senior Financing $ 24,000 7 years
<PAGE>
(e) To reflect the reduction of interest expense resulting from the
repayment of certain indebtedness with the proceeds from the Senior
Credit Facility contemplated in connection with the acquisition of the
LSW Subsidiaries, calculated as follows (in thousands):
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
1994 $100 million senior subordinated notes,
interest at 10.75% for one month during 1995 $ (897) $ --
1994 $100 million senior subordinated notes,
interest at 12% for 11 months during 1995
and 7 months during 1996 (11,000) (7,000)
Credit Agreement, interest at 9.25% for
7 months during 1996 -- (1,179)
Credit Facility interest at 7% for
2 months during 1996 -- (2,170)
Total pro forma interest savings $ (11,897) $ (10,349)
(f) To reflect interest expense related to the Senior Credit
Facility, the Notes, and the Allied Canada Debentures calculated as
follows (in thousands):
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
Senior Credit Facility, interest at 8.5% $ 82,875 $ 62,156
Notes, interest at 10.25% 53,813 40,360
7% Debenture, implicit interest at 14% 11,200 8,400
Zero Coupon Debenture, implicit interest at 14% 4,800 3,600
Total pro forma interest expense $ 152,688 $ 114,516
An increase in the interest rate of one-eighth of a percent on the Senior
Credit Facility would increase interest expense $1.2 million and $0.9 million
and decrease net income $0.7 million and $0.5 million for the year ended
December 31, 1995 and the nine months ended September 30, 1996, respectively.
4. Financing Transactions
The pro forma combined financial statements assume that (i) Allied issued 11.7
million shares of Common Stock on January 1, 1995 in connection with a private
placement of equity which closed on January 31, 1995, (ii) certain holders of
preferred stock, convertible debt and warrants converted their preferred stock
or convertible debt into or exercised their warrants for, an aggregate of
approximately 9.8 million shares of Common Stock and, (iii) Allied completed a
public offering of 6.5 million shares of Common Stock in January 1996.
<PAGE>
The pro forma combined financial statements do no include the extraordinary
charge of $18 million ($11 million net of income tax benefit) related to the
early extinguishment of debt.
The adjustments related to the financing transactions reflected in the pro
forma combined financial statements give effect to the following:
(a) To reflect reduction of interest expense resulting from the repayment
of certain indebtedness of Allied from the proceeds of the private
placement of equity completed in 1996.
(b) To reflect reduction of interest expense resulting from the conversion
of certain convertible subordinated debt into common stock and the
repayment of certain indebtedness from the proceeds of the sale of 7.6
million shares of Common Stock in a public offering completed in 1996.
(c) To reflect the elimination of one-time costs related to the conversion
of debt securities converted in 1995.
<PAGE>
5. Net Income (Loss) Per Common Share
Pro forma net income (loss) per common share is calculated by dividing pro
forma net income to common shareholders less requirements on Series D
preferred stock, 7% preferred stock, and 9% preferred stock by the pro forma
weighted average common and common equivalent shares outstanding during the
periods. Pro forma weighted average common and common equivalent shares have
been computed as follows:
<TABLE>
Nine Months Ended
Year Ended December 31, 1995 September 30, 1996
<CAPTION>
Pro Forma Pro Forma
for Acquisitions Pro Forma for Acquisitions Pro Forma
<S> <C> <C> <C> <C>
Historical weighted average
common shares 37,823,370 37,823,370 57,594,445 57,594,445
Pro forma effect of issuing
common shares for --
Service Waste acquired and
accounted for as a purchase 889,445 889,445 100,631 100,631
The LSW Subsidiaries contem-
plated to be acquired and
accounted for as a purchase 14,600,000 14,600,000 14,600,000 14,600,000
Common shares issued pursuant
to a private placement -- 962,433 -- --
Common shares issued in
connection with the
public offering -- 7,606,282 -- 638,484
Conversion of convertible
subordinated debt
into common shares -- 1,827,639 -- 172,883
Conversion of Series C Preferred
into common shares -- 233,533 -- --
Conversion of Series D Preferred
into common shares -- 731,255 -- --
Conversion of 9% Preferred into
common shares and issuances
of inducement conversion shares -- 4,859,991 -- --
Conversion of $90 Preferred into
common shares and issuances
of inducement conversion shares -- 1,343,374 -- --
To remove the impact of contingently
issuable shares (23,244) (23,244) -- --
Exercise of warrants -- 553,873 -- 8,232
53,289,571 71,407,951 72,295,076 73,114,675
</TABLE>
<PAGE>
6. Pro Forma Maturities of Long-Term Debt
Aggregate future maturities of pro forma long-term debt outstanding at
September 30, 1996 (in thousands):
Maturity
3 months 1996 $ 4,046
1997 53,067
1998 74,343
1999 92,256
2000 101,604
2001 236,021
Thereafter 1,323,624
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Allied Waste Industries, Inc., has caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ALLIED WASTE INDUSTRIES, INC.
By: /s/PETER S. HATHAWAY
Peter S. Hathaway
Vice President, Treasurer
and Chief Accounting Officer
Date: December 20, 1996
<PAGE>
December 20, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Allied Waste Industries, Inc. on Form S-4 Registration #333-3585 of our report
dated September 30, 1996, to the Directors of Laidlaw Inc. on the balance
sheets of the Laidlaw Solid Waste Management Group as at August 31, 1995 and
1996 and the statements of operations and cash flows for years ended August
31, 1994, 1995 and 1996, which report is incorporated in the Form 8K/A-2.
This letter is provided to securities regulatory authorities pursuant to the
requirements of their securities legislation and is not for any other purpose.
/S/ COOPERS & LYBRAND
Chartered Accountants
Hamilton, Canada
